Realising
commercial
opportunities
Annual Report and Accounts 2017
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mercia
technologies
Introduction & highlights
Mercia Technologies is
focused on the creation/
identification, funding
and scaling of innovative
technology businesses
with high growth potential
from the UK regions.
Independent auditor’s report
Financial statements
64
65 Consolidated statement of
comprehensive income
66 Consolidated balance sheet
67 Consolidated cash flow statement
68 Consolidated statement of
changes in equity
69 Notes to the consolidated financial
statements
86 Company balance sheet
87 Company statement of changes in
equity
88 Notes to the company financial
statements
Other information
93 Directors, secretary and advisers
94 Notice of Annual General Meeting
Introduction & highlights
Strategic report
1
4 At a glance
6 Non-executive Chair’s statement
8 Market overview
12 Business model
14 Strategic priorities
15 Strategy in action
19 Key performance indicators
22 Chief Executive Officer’s review
24 Chief Investment Officer’s review
28 Portfolio update
42 Chief Financial Officer’s review
47 Risk management
51 Corporate and social responsibility
Governance
52 Board of Directors
54 Senior management team
56 Directors’ report
57 Statement of Directors’
responsibilities
58 Corporate governance report
60 Remuneration report
Visit us online
For up-to-date information on
our investments please visit:
www.merciatech.co.uk
Strategic report
Governance
Financial statements
Other information
ÚThe Fibonacci sequence
The Fibonacci is nature’s numbering
system. Nature has taken millions of
years to evolve in an efficient manner
and the end result is often explained by
the Fibonacci sequence. The sequence
is a perfect way of illustrating patience
in technology investing and is the
essence of Mercia’s Model.
Portfolio highlights
• £11.7million net invested in 15 portfolio
companies during the year, including
four new Emerging Stars
• Concepta was admitted to AIM in
July 2016. Its board has recently been
strengthened by the appointment
of Philips UK CEO, Neil Mesher, as a
non-executive director
• The fair value of nDreams has increased
significantly following a successful
syndicated investment round in
November 2016
• Allinea Software was sold to ARM
in December 2016 providing an
88.4% uplift on the Group’s direct
investment cost
• Fair value and realised gains totalling
£5.1million indicate that the Mercia
Model is working
Operational highlights
• The integration of Enterprise Ventures
Group Ltd (‘Enterprise Ventures’) was
successfully completed, creating a
critical mass of more than 65
investment professionals and support
staff across six locations within the
UK regions
• A sustainable funnel of new investment
opportunities is now built following
significant new fund mandate wins
which scale the Group’s fund
management business from circa
£220.0million to circa £336.5million of
funds under management
• The successful Placing which raised
£40.0million in February 2017 has
provided additional balance sheet
capital which is predominantly to be
used to scale the Group’s direct
investment portfolio as it continues
to develop
Commercialising
tomorrow’s
technologies
24
direct investments referred to as
Mercia’s ‘Emerging Stars’
£11.7million
invested in 2016/17
£52.0million
value of Emerging Stars
portfolio
36.5%
growth in portfolio value
2
cash exits in the year
1
IPO in the year
£1.0million
profit
£121.4million
net asset value (“NAV”)
40.4 pence
NAV per share
Mercia Technologies PLC
Annual Report and Accounts 2017
1
2
Mercia Technologies PLC
Annual Report and Accounts 2017
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Governance
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Other information
Commercialising
tomorrow’s
technologies
2016/17 saw Mercia successfully exit Allinea Software which
it had scaled from an innovative idea into a global business,
now part of ARM.
Mercia Technologies PLC
Annual Report and Accounts 2017
3
At a glance
Scaling innovative
technology businesses
Mercia is a national investment group focused on the creation/
identification, funding and scaling of innovative technology
businesses with high growth potential from the UK regions.
The Group brings together Investment Teams of
industry specialists with venture capital expertise
who work extensively with portfolio companies
to scale each business with the aim of ultimately
delivering shareholder returns over time through
cash exits and IPOs.
Through Mercia’s wholly owned fund
management businesses, the Group is able to
provide the ‘Complete Capital Solution’ ranging
from seed rounds of £100,000 to funding rounds
of £10.0million using its own balance sheet
resources to scale the direct investment portfolio,
which is referred to as Mercia’s Emerging Stars.
In the last year the Group’s regional footprint
has continued to grow with two new offices (in
Sheffield and Leeds) and more than 65 investment
professionals and support staff at year end. This
extended network will bring the Investment Teams
even closer to investment opportunities on the
ground; these are opportunities which others
may find challenging to source without the local
intelligence to which Mercia has access through its
strong regional presence.
Driving quality deal flow
The blend of university partnerships and the
Investment Team’s extensive personal networks
play an important role in helping to drive relevant
deal flow to ultimately deliver shareholder value.
Forging strategic partnerships with universities
and expanding personal networks across Mercia’s
chosen sectors has been an essential early
strategy to ensure that the Investment Teams
have access to innovation.
Looking specifically at Mercia’s university
partnerships, each one has been carefully
selected to dovetail with Mercia’s own strategic
goals, both geographically and by sector focus.
Having successfully scaled the network from nine
partners at IPO in December 2014 to 18 today,
the last 12 months have seen the University Team
develop its relationships with those partners,
which has generated 11 deals during the year for
Mercia’s managed funds and one for the direct
portfolio, Medherant.
Digital & Digital
Entertainment
Software & the
Internet
Electronics,
Materials &
Manufacturing/
Engineering
Life Sciences &
Biosciences
4
Mercia Technologies PLC
Annual Report and Accounts 2017
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Other information
Direct investments No.
Direct investments No.
Direct investment overview
The Group maintains a disciplined balance of sector and stage of development for businesses within
the Emerging Stars portfolio.
By portfolio number
Balanced portfolio
Direct investments No.
Direct investments No.
Direct investments £’million
Direct investments No.
Direct investment No.
By portfolio number
Direct investments No.
Direct investments £m
Direct investments £m
Direct investments £m
Direct investments No.
Direct investments No.
7
5
7
5
7
10.0
5
10.0
14.2
10.0
14.2
4
4
11.4
4
11.4
11.4
10
8
8
8
16.4
16.4
16.4
2
14.2
2
2
7
10
7
10
7
5
5
5
Software and the Internet
Digital & Digital Entertainment
Electronics, Materials & Manufacturing/Engineering
Life Sciences & Biosciences
Software and the Internet
Software and the Internet
Software & the Internet
Digital & Digital Entertainment
Digital & Digital Entertainment
Digital & Digital Entertainment
Electronics, Materials & Manufacturing/Engineering
Electronics, Materials & Manufacturing/Engineering
Life Sciences & Biosciences
Life Sciences & Biosciences
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software and the Internet
Software & the Internet
Digital & Digital Entertainment
Digital & Digital Entertainment
Electronics, Materials & Manufacturing/Engineering
Life Sciences & Biosciences
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software and the Internet
Digital & Digital Entertainment
Electronics, Materials & Manufacturing/Engineering
Life Sciences & Biosciences
Early stage
Early stage
Early revenues
Early revenues
Revenue growth
Profitable
Revenue growth
Profitable/within
12 months of profitability
Top 18 Emerging Stars
Mercia direct investments by number
Mercia direct investments by number
(March 2015)
Mercia direct investments by value
(March 2015)
Net
investment
Net cash
value
invested
Mercia direct investments by value
As at
Year to
(March 2015)
1 April
31 March
2016
2017
£’000
£’000
Mercia direct investments by value
(March 2015)
Investment
realisations
Year to
31 March
2017
£’000
Fair value
movement
Year to
Board of Directors
31 March
2017
£’000
Net
investment
value
As at
31 March
2017
£’000
4,721
1,500
12,650
-
1,348
1,000
1,137
-
1,400
1,351
1,500
-
-
-
-
-
-
-
4,758
10,979
(2,737)
9,913
2,000
92
-
Male
Female
1,240
3,400
2,791
2,500
2,377
nDreams Ltd
Science Warehouse Ltd
Concepta PLC
Warwick Audio Technologies Ltd
Ton UK Ltd t/a Intelligent Positioning
PsiOxus Therapeutics Ltd
Edge Case Games Ltd
Early stage
Early revenues
Revenue growth
Profitable
Early stage
Early revenues
Revenue growth
Profitable
Percentage
held
As at
Employees
Board of Directors
31 March
2017
%
47.0
62.6
18.2
63.6
26.7
Male
Female
1.5
Employees
Board of Directors
Employees
Male
Female
Electronics, Materials & Manufacturing/Engineering
Software and the Internet
Digital & Digital Entertainment
Life Sciences & Biosciences
Mercia direct investments by number
(March 2015)
(March 2015)
Software & the internet
Digital & Digital Entertainment
Life Sciences & Biosciences
Software & the internet
Digital & Digital Entertainment
Advanced Materials, Engineering and Specialised Manufacturing
Advanced Materials, Engineering and Specialised Manufacturing
Life Sciences & Biosciences
Smart Antenna Technologies Ltd
Software & the internet
Digital & Digital Entertainment
Advanced Materials, Engineering and Specialised Manufacturing
Life Sciences & Biosciences
Software, Electronics and Hardware
Digital Entertainment
Advanced Materials, Engineering and Specialised Manufacturing
Life Sciences
LM Technologies Ltd
Oxford Genetics Ltd
1,150
1,392
500
1,810
Software, Electronics and Hardware
1,827
Digital Entertainment
Advanced Materials, Engineering and Specialised Manufacturing
Life Sciences
-
Software, Electronics and Hardware
-
Digital Entertainment
Advanced Materials, Engineering and Specialised Manufacturing
Life Sciences
1,046
2,259
2,196
2,310
250
182
-
-
-
Soccer Manager Ltd
VirtTrade Ltd
1,599
2,575
378
-
250
-
-
-
-
-
(1,287)
1,770
1,599
1,538
21.2
28.2
47.9
41.5
29.9
28.4
By portfolio number
By portfolio number
Impression Technologies Ltd
By portfolio number
By portfolio value
Crowd Reactive Ltd
sureCore Ltd
Faradion Ltd
The Native Antigen Company Ltd
Medherant Ltd
Allinea Software Ltd
Other direct investments
Totals
By portfolio value
1,500
1,500
-
-
By portfolio value
-
-
-
1,500
Direct investment No.
1,500
-
-
-
1,500
1,299
646
-
1,916
1,372
-
650
-
64
-
-
-
-
(1,916)
-
-
495
-
-
1,500
1,299
1,141
650
-
(155)
(475)
806
38,143
11,688
(2,071)
4,268
52,028
18.2
Direct investment No.
Direct investment No.
28.3
23.0
13.6
35.6
11.3
-
n/a
n/a
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Software & the Internet
Digital & Digital Entertainment
Electronics, Materials &
Manufacturing/Engineering
Life Sciences & Biosciences
Early stage
Early revenues
Revenue growth
Profitable/within
12 months of profitability
Early stage
Early revenues
Revenue growth
Profitable/within
12 months of profitability
Early stage
Early revenues
Revenue growth
Profitable/within
12 months of profitability
Mercia Technologies PLC
Annual Report and Accounts 2017
5
Non-executive Chair’s statement
A year of
positive progress
Susan Searle
Non-executive Chair
We look forward to
updating shareholders
on further positive net
asset value progress
throughout the year
ahead”
The year ended 31 March 2017 was one of
positive progress for Mercia Technologies
PLC, having built the Group’s investment
model and regional infrastructure.
It included the first full year of ownership of
Enterprise Ventures, the business having been
acquired on 9 March 2016, enabling us to
proactively build into the regions of the
Midlands, the North of England and Scotland.
Acquiring Enterprise Ventures has put us in a
strong position to win further early-stage third
party fund mandates to create a sustainable
engine for growth and has completed the
establishment of our Complete Capital
investment model. The integration of
Enterprise Ventures has been successful and
the benefits of the acquisition are already
demonstrable.
Progress against plan
Managing a substantial level of third party
funds to support early-stage investments
ensures that we have the ability to be highly
selective when scaling businesses using the
Group’s balance sheet capital. As the direct
investment portfolio continues to develop we
expect to make announcements of syndicated
investment rounds, following on from that of
nDreams in November 2016 and more recently
Impression Technologies. Oxford Genetics is
another investment which is making good
progress towards a syndicated investment
round in the current year.
Mercia’s direct investment portfolio has grown
from 22 to 24 companies (net of two cash
realisations) with a fair value of £52.0million as
at 31 March 2017 (2016: £38.1million). During
the year the Group invested £11.7million net
(2016: £12.6million) into 15 of its direct
investments (2016: 16), of which four are new
Emerging Stars (three of which are derived
from Enterprise Ventures’ managed funds).
From an income statement perspective, Group
revenues increased to £6.7million (2016:
£1.8million). Excluding fair value movements,
share-based payment and amortisation
non-cash charges, the Group’s loss reduced to
£1.6million (2016: £2.3million). This is important
progress as it demonstrates that the Group can
undertake all of its investment activities, but
with a relatively low cash burn rate. Including
these non-cash items, Mercia finished the year
with a pre-exceptional operating profit of
£1.9million (2016: £1.7million loss). Given the
substantial new fund mandate wins by
Enterprise Ventures during the year, the Group
has provided for 50% of the expected deferred
consideration in this year’s results, as it will now
be payable in a further year’s time. Overall,
Mercia reported a profit for the financial year
of £1.0million (2016: £1.7million loss).
Mercia’s hybrid investment model minimises
the extent of income statement derived net
asset erosion, whilst maximising the amount of
balance sheet capital available for direct
investment. We believe that we have now
established an optimised model for providing a
Complete Capital Solution to technology
companies. Within our managed funds, there
Portfolio value
£52.0million
2016: £38.1million
Profit for the year
£1.0million
2016: £1.7million loss
6
Mercia Technologies PLC
Annual Report and Accounts 2017
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businesses and Mercia’s portfolio
companies are no exception. However,
whilst this risk will be closely monitored
and mitigating actions taken where
appropriate, the Group does not currently
see the forthcoming Brexit negotiations
as a potential barrier to shareholder
value creation.
A number of our comparators in the
intellectual property commercialisation
sector have suffered setbacks in recent
months which has for the time being
dampened investor appetite by some
market participants in our sector. As these
results clearly demonstrate however,
Mercia Technologies is making solid
progress on all fronts and whilst all
investing activity in early-stage
technology companies carries a degree of
risk, the Group’s hybrid investment model
goes some distance towards mitigating
the risk of significant net asset value
reduction events through investment
failures. In short, we have built a robust
platform and we believe that we have the
optimal investment model in the sector.
Mercia Technologies’ investment
momentum has accelerated at the start
of the new financial year, including
completing its first investment into a new
Emerging Star, Intechnica, as well as
completing new funding rounds into
Impression Technologies, Edge Case
Games, Warwick Audio Technologies and
Oxford Genetics amongst others.
Mercia has been a listed company for just
over two and a half years and its growing
portfolio of direct investments are still,
in almost all cases, relatively young
companies in their own right. Despite this
we can already see several material value
inflexion points arising in the coming
year and we look forward to updating
shareholders on further positive net asset
value progress throughout the year ahead.
Finally, I would like to thank shareholders
for their support of the recent £40.0million
Placing and look forward to turning this
additional capital into increasing
shareholder value through growth in the
value of and exit from each of the Group’s
direct investments, over time.
Susan Searle
Non-executive Chair
30 June 2017
are circa 150 technology businesses, a
significant number of which over time
could qualify as balance sheet investments.
Historically, we have seen approximately
40-50% of these fail whilst still in the funds
(as is typical with early-stage venture
investing) and only some 5% come across
as direct investments. We would expect
that proportion to continue as we seek to
select the very best businesses to scale
which will enable us to achieve over time
our preferred direct portfolio size of 35 to
45 direct investments.
Key events
There were many key events during the
financial year which demonstrate the
tangible progress that Mercia is making.
Five examples are listed below:
• nDreams became our leading asset
by value as it made good progress
with partnerships and development
of its virtual reality (“VR”) games
portfolio and VR hardware platforms
begin to gain real traction. It has an
excellent management team in place
and is becoming a significant player in
the sector;
• Concepta listed on AIM via a reversal
into a cash shell;
• Allinea Software was sold to ARM
for a total gross cash consideration
of £18.1million, of which Mercia
Technologies’ entitlement to date has
been £2.7million;
• Mercia Technologies raised a further
£40.0million gross from both new and
existing shareholders, predominantly
to continue to invest in current and
future Emerging Stars. This welcome
and greatly appreciated support
will enable the Group to expand its
existing portfolio of 24 direct
investments by both value and
number whilst building towards a
self-sustaining investment model;
• The Group announced that the
Northern Powerhouse Investment
Fund (“NPIF”) had awarded
£108.5million of new regionally focused
fund management contracts to
Enterprise Ventures. This is a significant
vote of confidence in the Group’s
business model and the Investment
Teams’ track record. We are awaiting
announcements on other fund bids,
but those announced to date
provide Mercia with approximately
£150.0million in available capital to
support its investment activity, taking
third party funds under management
to circa £336.5million. This substantial
pool of investment capital preserves
the Group’s balance sheet cash for
scaling up its Emerging Stars.
The Group’s value crystallisation strategy
will be principally realised through the
trade sale of its direct investments. It is
however worth noting that the combined
stock market value of those companies in
which the Group’s funds under
management have invested and helped
shape prior to their listing is currently
approximately £1.0billion. Whilst
companies such as Blue Prism listed prior
to Mercia’s acquisition of Enterprise
Ventures, this does point to the significant
body of investment talent working within
Mercia and our ability to identify and
shape early-stage opportunities into
valuable businesses. Such companies are
to be found not just in London and the
South East, but also within the Midlands,
the North of England and Scotland.
Group Board and staff
Having succeeded Ray Chamberlain as
Non-executive Chair in May 2016 my
focus has been to ensure that the
strategy agreed by the Board is being
executed by the Executive Directors, that
the Group’s business model is delivering
and in particular, that there remains a
focus on the Group’s top balance sheet
investments in terms of development,
scaling, the quality of management
teams and their boards.
The continuing evolution of good
corporate governance is also important
as is Board composition and diversity. All
Non-executive Directors now sit on the
three Board committees to ensure
continuity of purpose and as outlined
more fully in the Remuneration Report,
Executive remuneration is progressively
being linked to strategy execution and
resultant financial performance, the
leading driver of which is growth in the
value of the direct investment portfolio.
Bringing two businesses together is
never straightforward, particularly when
the staff numbers of both businesses
are similar, but on behalf of our Board
I should like to thank all colleagues
throughout the enlarged Group for
the positive spirit and professionalism
in which they have come together to
create ‘One Mercia’, a market leading,
technology focused investment group.
Outlook
We look forward to the current year with
a capable and experienced team, an
aligned investor base, in excess of five
years of managed fund capital to support
our growing number of early-stage
businesses and the necessary balance
sheet capital to build out our developing
portfolio of direct investments.
Whilst the ramifications for the UK
economy arising from the current
political uncertainty and Brexit
negotiations will take time to become
clear, technology is a sector that works
without national barriers and will only
increase in importance. All of the Group’s
direct investments have global target
customer bases that are not restricted to
mainland Europe; our digital businesses
for example often have a strong focus on
Asian markets. Mercia has assessed the
possible impact of a negative outcome
from the UK/EU negotiations for each of
its direct investments and for the Group
itself. Access to suitably skilled labour is
an important growth driver for all young
Mercia Technologies PLC
Annual Report and Accounts 2017
7
Market overview
Market overview
Strong regional
presence across the UK
Published statistics continue to show that there is a marked undersupply of
capital in the UK regions and Mercia is addressing this opportunity by building its
footprint in the Midlands, the North of England and Scotland which provide an
opportunity to source and scale promising businesses with reduced investment
competition, and therefore more attractive pricing.
Mercia’s Investment Teams are located in offices across the regions where capital is less prevalent and where the Teams’
networks are complemented by carefully built university partnerships. The table below illustrates the significant differences in
capital based on regional geographies.
Where we focus
• Offices located in UK key innovation hubs in the Midlands, the North of England and Scotland
• Office network complements university partnership locations
Region
London
2014
2015
2016
£1.9bn
£2.4bn
£2.3bn
South East
£440.6m £988.0m £637.8m
West Midlands
£87.0m £357.5m £88.6m
Scotland
£190.5m £238.0m £263.3m
East of England
£377.4m £203.2m £462.6m
South West
£174.5m £204.0m £127.5m
North West
£303.0m £357.9m £391.8m
Yorkshire &
Humberside
£151.3m £338.0m £134.0m
North East
£57.0m
£166.9m £85.5m
East Midlands
£104.0m £111.0m £153.0m
Wales
£64.0m £146.5m £71.9m
Northern Ireland
£32.0m £15.0m
£26.8m
Beauhurst - The Deal Date 2014/15/16
Mercia offices
University partners
8
Mercia Technologies PLC
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Our sectors
The Investment Teams are well networked within their respective sectors and it is through their personal
contacts that they are able to accelerate commercial opportunities on behalf of the portfolio companies
to which they would not otherwise have access. Each of the sectors which Mercia targets are within
high growth markets where the teams have significant insight and contacts. The table below shows the
carefully targeted subsectors where the Investment Teams are unearthing some excellent opportunities.
5.5million
SMEs
1,145
enquiries
54
managed fund deals
4.7%
converted into new
fund investments
4
Emerging Stars
0.4%
converted into new
Emerging Stars
Software & the Internet:
• Cyber security
• Software as a service
analytical tools
• Adtech
• Artificial intelligence
Digital & Digital Entertainment:
• Virtual reality
• Augmented reality
• Mixed reality
• Serious games
Electronics, Materials
& Manufacturing/Engineering:
• Energy and
communications
• Value electronics
• Manufacturing applications
Life Sciences & Biosciences:
• Diagnostics
• Digital health
• Medical devices
Top 18 companies
Investee companies
Mercia Technologies PLC
Annual Report and Accounts 2017
9
Building a
sustainable
platform
2016/17 saw Mercia grow its funds under management
from circa £220.0million to circa £336.5million to build a
sustainable funnel of proprietary deal flow.
10
Mercia Technologies PLC
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Mercia Technologies PLC
Annual Report and Accounts 2017
11
Business model
The Mercia
Model
The Mercia Model is the Group’s way of summarising its investment strategy. In simplistic
terms it is the Investment Teams working closely with their networks to unearth potentially
valuable investment opportunities, being those with relatively modest capital requirements
in high growth sectors, which will enable Mercia to commercialise the technologies of
tomorrow and build shareholder value.
Deal flow sources
Mercia’s third party funds
under management
Selected seed funding
Direct enquiries
NHS Feeder Fund
18 university partners
Networks
Investment Directors’ personal
networks
Regional incubators’ programmes
Regional advisers
Over 1,000 approaches
for investment
150 investments spread across the
UK regions with 40-60 new
investments per year
Several rounds of
seed/early-stage investment
12 Mercia Technologies PLC
Annual Report and Accounts 2017
The Mercia
Model
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Selected seed funding
Filter for Emerging Stars
Mercia direct investment
Cash exits and IPOs
Oxford
Genetics
sureCore
Abzena
Warwick
Audio Tech
nDreams
VirtTrade
Medherant
Faradion
EdgeCase
Allinea
Software
Concepta
Several rounds of
seed/early-stage investment
Direct investments
approved by Board
4-6 new Emerging Stars
per year
Strong focus on
cash exits
Mercia Technologies PLC
Annual Report and Accounts 2017
13
Strategic priorities
Delivering
significant value
Strategic priorities
Progress in 2016/17
Plans for 2017/18
Build
A pipeline of future direct
investment opportunities within
the managed funds
A strong regional presence in the
Midlands, the North of England
and Scotland
New funds under management
to support early-stage
investment activity
Expand
During the year almost £20.0million was
invested from managed funds into 54
companies which further builds the pipeline
for Mercia’s direct investment portfolio.
In addition, funds under management
were grown from circa £220.0million to
circa £336.5million with available capital to
invest growing from circa £35.0million to
over £150.0million.
We anticipate that levels of investment
by the wholly owned fund management
subsidiaries will increase significantly as
a result of the new mandates secured.
These companies form an important part
of Mercia’s funnel for new deal flow and
the Investment Teams will be working
closely with them to identify the right
opportunities for follow-on investment
from Mercia’s balance sheet.
Leverage relationships with the
managed funds’ portfolio, university
partners, companies and deal
flow networks
Four new direct portfolio investments
were made during the year. All of these
were sourced from our managed funds’
portfolio including one company which was
originally from our university networks.
Grow
Develop the direct investment
portfolio by both number and value
The direct investment portfolio has grown
in value from £38.1million in 2016 to
£52.0million in 2017 with 98.5% of value
held within the top 18 assets.
University partners are an important
element of Mercia’s model with
approximately 30% of investments
sourced from these academic institutions.
In 2017/18 we anticipate that this
percentage will, reduce as the managed
funds’ portfolio provides a larger volume
of deal flow.
The direct investment portfolio will
continue to grow under the careful
guidance of Mercia’s operational
specialists. Our aim remains to build a
portfolio of 35-45 direct investments at
any one time. We will add to the portfolio
over time on a selective basis, but our
main focus is to develop and grow the
value of these assets and with it net asset
value per share.
Deliver
Continue to demonstrate value
creation through trade sales and
IPOs, leading to shareholder returns
and the recycling of capital
During the year Mercia completed two
profitable cash exits from the Emerging
Stars portfolio; the sale of Allinea Software
and the unwinding of its holding in Abzena.
One further portfolio company, Concepta,
was admitted to trading on AIM during the
year via the reverse takeover of a cash
shell.
Our Investment Teams will continue to
seek exit opportunities for the portfolio
which will deliver strong returns for our
shareholders. These require diligence
and patience and whilst understandably
the Board will not forecast specific exit
timetables for each investment it remains
confident that profitable exits will continue
in the years ahead.
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Strategy in action
The Complete
Capital Solution
Mercia’s Complete Capital Solution describes a combination
of investing managed funds into early-stage businesses,
followed by balance sheet capital into those companies
which are ready to scale.
Jonathan Diggines
Executive Director, Funds
Mercia’s approach of
combining managed
funds with its own
balance sheet capital
provides a reduced risk
and differentiated
model”
As these early-stage businesses develop
and both technical and commercial
milestones are achieved, Mercia is able
to selectively deploy capital from its own
balance sheet to further develop the
Emerging Stars residing in key growth
sectors where the Investment Teams
have significant insight and contacts.
The overall journey takes time; anything
from six months to seven years in the
managed funds, after which it is
expected that they will require further
capital and support spanning anything
from three to seven years.
Mercia’s fund management subsidiaries play a
hugely significant role in building a sustainable
platform from which the Group can build
shareholder value. 2016/17 saw major growth
within the fund management business as it
was successful in its bids to manage two new
fund mandates bringing £108.5million of new
investment capital through a partnership with
the British Business Bank. This was the largest
award made following a full and competitive
procurement process. The new mandates bring
a significant amount of new capital to invest
over the next five years which will ensure that
the pipeline of potential new investments
continues to develop.
The sheer volume of opportunities which the
Investment Teams look at brings tremendous
insight into Mercia’s investment decisions as
the Teams sit at the leading edge of
developments within their chosen sectors.
Given the risks associated with early-stage
technology investment, the Teams are highly
selective about the opportunities which they
pursue, both through the managed funds and
beyond to the Emerging Stars portfolio.
At a time when appetite to invest in early-
stage technology businesses appears out of
vogue, Mercia’s approach of combining
managed funds with its own balance sheet
capital provides a reduced risk and
differentiated model which is already showing
signs of delivering significant future value to
shareholders and fund investors alike.
Client Fund
New Funds Secured
Type
Geography
British Business Bank
£57.5million
Venture Capital
Yorkshire, the Humber and
Tees Valley
British Business Bank
£51.0million
Debt
Yorkshire and the Humber
Mercia Growth Funds
£8.6million
Venture Capital
Nationwide but with a focus on
the Midlands, North of England
and Scotland
Funds under management
circa
£336.5million
2016: circa £220.0million
Funds capital to invest
£150.0million
2016: £35.0million
Mercia Technologies PLC
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Strategy in action continued
Investing for
the long term
Fundamental to the
continued success of
Mercia is the role that its
managed funds play in
generating an attractive
pipeline of opportunities.
The Investment Teams dealing with the
managed funds portfolio work very
closely with management teams,
setting commercial and technical
milestones and helping them prove
their technology, develop their position
in their chosen markets, and put in
place the necessary disciplined
corporate processes in order to be able
to grow.
There are many noteworthy examples
of businesses within Mercia’s managed
funds that, with the backing of Mercia’s
Investment Teams, have achieved great
progress, on both a national and
global scale.
The investment examples in the case
studies set out opposite were created
by Enterprise Ventures before Mercia’s
acquisition. They do however illustrate
the excellent track record of the
Investment Teams, demonstrating
what may emerge from Mercia’s
enlarged and growing portfolio over
the near to medium term to become
Emerging Star direct investments.
Case study
RisingStars Growth Funds and Blue Prism
The £19.0million RisingStars Growth Fund was raised by Enterprise
Ventures in 2003 to invest in start-up and early-stage businesses with
unique technologies and exceptional commercial prospects in the
North West of England. This was followed in 2006 with a second fund,
the £14.0million RisingStars Growth Fund II. The Funds invested in more
than 50 different businesses.
To date, the most successful investment within the RisingStars Funds is Blue
Prism, an investment overseen by Julian Viggars, now Mercia’s Head of
Technology Investments. Blue Prism, based in Newton-le-Willows in Merseyside,
is a market leader in the development and supply of virtual workforces powered
by software robots, referred to as Robotic Process Automation (“RPA”). The
company has attracted a blue chip international customer base including IBM,
Procter & Gamble, Siemens and Zurich, having listed on AIM in March 2016, raising
£21.1million gross proceeds at 78.0 pence per share, at a market capitalisation of
£49.0million. As at 31 March 2017 the company had a share price of 494.0 pence
and was valued at £308.3million (and at 30 June 2017 the share price had
increased to 769.0 pence). Blue Prism’s market capitalisation has risen by circa
10x since listing and it is this rapid growth which led to it being awarded the top
performing stock on AIM in 2016.
Enterprise Ventures’ investment in Blue Prism at its inception in 2004 illustrates
the potential of long-term technology investment. The company was supported
for more than a decade as it assembled its team, developed its technology, its
markets and customer base.
Aggregate value
multiple on
investment
circa 72x
Return
The combined cash returns for
the third party clients, including
proceeds realised at the IPO
and subsequently, now total
£14.5million, a 16x return based on
the original £900,000 invested
from the RisingStars Growth Fund.
As at 31 March 2017 RisingStars
Growth Fund still held circa 10%
of Blue Prism, valued £50.4million
and as at 30 June 2017, an
aggregate value multiple on
investment of circa 72x.
16 Mercia Technologies PLC
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Case study
Finance Yorkshire Seedcorn Fund and OptiBiotix Health
Finance Yorkshire Seedcorn Fund, also managed by Enterprise Ventures,
is a publicly supported gap fund which was launched in 2010 to invest in
innovative early-stage or technology-based ventures which have the
potential to become ‘beacon companies’ for the Yorkshire and Humber
region. The Fund, which was part of the successful 2007-2013 ERDF
programme, was funded by the European Investment Bank and
European Regional Development Fund and made a total of 106
investments into 34 different businesses. As at 31 March 2017 the Fund
was valued at £29.3million providing a 1.48x return to investors.
Within the Finance Yorkshire Seedcorn Fund portfolio there are several listed
businesses including Xeros and Concepta, which subsequently became a direct
investment when it joined the Emerging Stars portfolio in May 2016.
In addition, OptiBiotix Health, also part of the same portfolio, is a life sciences
company formed in 2012 in York, operating in the progressive area of
biotechnological research, developing compounds which modify the human
microbiome to prevent and manage disease. The initial investment from managed
funds in 2012 is overseen by Dr Mark Wyatt, now an Investment Director at Mercia
specialising in Life Sciences and Biosciences and who held a non-executive director
role at OptiBiotix Health from 2013, before being appointed to the board at the PLC
when it listed on AIM in 2014 by way of a reverse takeover.
The Finance Yorkshire
Seedcorn Fund growth
since admission to AIM
800%
Return
From an original investment of
£520,000 proceeds of more than
£2.3million have been received.
The Finance Yorkshire Seedcorn
Fund retains a stake worth
approximately £7.0million with the
company’s market capitalisation
sitting at £53.4million at 30 June
2017, which is growth of more than
800% since admission to AIM.
Mercia Technologies PLC
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17
Strategy in action continued
Investing for
the long term continued
mercia
fund management
Case study
Finding hidden value from the UK regions
Allinea Software Limited (‘Allinea’) is a noteworthy example of Mercia’s investment
strategy in action. Allinea, based in the Midlands, is a leading provider of software
tools for high performance computing applications. In 2009 Mercia led the funding
of a management buyout from another University of Warwick spinout using Mercia’s
Growth Funds. Allinea went on to become one of the Group's original direct
investments at Mercia's own IPO with the holding growing from 6.9% to 16.6% as at
30 September 2016.
With continued backing from Mercia, and under the watchful eye of Sector Head Rob
Johnson, Allinea was scaled into a profitable, cash generative and dividend paying
business over a period of seven years. Allinea's platform is now able to address high
performance computing software development, debugging and performance
optimisation through the use of its core products and its software is used in circa 70%
of the world's largest supercomputers. It has built relationships with many notable,
blue chip customers and partners and has offices in the US, Europe and Japan.
Exit
Allinea was sold to ARM Limited (‘ARM') in December 2016. It was Mercia’s first
Emerging Star divestment and a perfect endorsement of the Complete Capital
Solution showing how Mercia’s Investment Team sources and invests in attractive
investment opportunities at an early-stage. The sale of Allinea to ARM is also
testament to the underlying value held within Mercia’s direct investment portfolio and
will enable Allinea to accelerate its development and reach within the growing high
performance computing markets, as well as achieving greater exposure in adjacent
segments such as machine learning. As a Midlands-based business, the Allinea exit is
further evidence of the hidden value that Mercia is able to unearth from the UK
regions and through its university partnerships.
Total cash consideration
£18.1million
Return
The sale of Allinea to ARM, the
world's leading semiconductor IP
company, was for a total cash
consideration of up to £18.1million
and Mercia’s share of these
proceeds to date represents a
return of circa 21x on the original
managed fund investment cost.
The cash realised to date
represents an 88.4% uplift over
Mercia Technologies’ direct
investment cost.
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Key performance indicators
The key performance indicators (“KPIs”) that have been monitored
during the year ended 31 March 2017 are set out below.
Growth in value of the
Group’s portfolio through
investment activity
(before cash realisations)
Growth in value of the
Group’s portfolio through
fair value movements
Number of companies
invested in during the year
£11.7million
£4.3million
2017
2016
£11.7m
2017
£4.3m
£12.6m
2016
£0.9m
15
2017
2016
15
16
How it was measured
Measured in terms of the net cash invested
into direct investments
Progress
The Group has demonstrated growth
in the value of its portfolio through
investment activity
How it was measured
Measured in terms of the net gain arising in
the value of the portfolio using established
valuation methodologies based on the
International Private Equity and Venture
Capital Valuation Guidelines (“IPEVCVG”)
Progress
Reflects a year of positive momentum in
what is still a relatively young portfolio
How it was measured
Measured in terms of all companies
invested in (both existing and new Emerging
Stars) during the year
Progress
The Group has demonstrated growth
in its direct investment activities through
the number of companies in which
it has invested
Cash balances and short-term
liquidity investments held by
the Group at the year end
Third party funds
under management
Investment realisation
proceeds received
£63.8million
circa £336.5million
£2.9million
2017
£63.8m
2016
£30.9m
2017
2016
circa £336.5m
2017
£2.9m
circa £220.0m
2016 £nil
How it was measured
Measured in terms of cash, cash
equivalents and short-term liquidity
investments held by the Group
How it was measured
Measured in terms of fund management
contracts secured and under active
management
Progress
The Group raised £40.0million gross
through a Placing, whilst continuing
its policy of ensuring the optimum
preservation of shareholders’ capital for
future direct investment purposes
Progress
Includes substantial newly secured fund
management contracts (equity and debt
finance) for the Northern Powerhouse
Investment Fund
How it was measured
Measured in terms of the cash proceeds
received on realised investments
Progress
Although the Group’s direct investment
portfolio is still at a relatively early-stage,
two successful cash realisations were
completed during the year
Mercia Technologies PLC
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20
Mercia Technologies PLC
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Creating
shareholder value
2016/17 saw Mercia make considerable progress in growing
the value of its direct investments from £38.1million to
£52.0million.
Mercia Technologies PLC
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Chief Executive Officer’s review
Focused on delivering
growth in net asset value
Mercia’s goal is to provide strong returns to shareholders by
being the dominant provider of early-stage and scale-up
capital to technology businesses in the UK regions.
This has been a positive
year for Mercia, having
built a compelling and
sustainable model”
Dr Mark Payton
Chief Executive Officer
The last 12 months have seen
momentous changes in the political
landscape, moving away from
globalisation towards a more local
agenda. An example of this domestically
is the focus by the UK Government on
boosting growth within the UK regions,
with initiatives such as those driven by
the British Business Bank using regional
and national venture funds.
This recent period of change plays well to
Mercia’s own regional focus and as a result it
has been a productive year. In a relatively short
time frame we have built a sustainable and
scalable hybrid investment model, focused on
accessing and supporting young businesses
via managed funds and then selectively scaling
a number of these businesses, which operate
with a global outlook, using Mercia’s own
balance sheet capital.
Mercia also has a greatly strengthened balance
sheet following the recent successful
£40.0million Placing. Its direct investments are
already showing early signs of promise as
demonstrated by the IPO of Concepta, the
trade sale of Allinea Software and the
unwinding of our holding in Abzena. The overall
value of the portfolio rose 36.5% to
£52.0million from £38.1million (net of
£2.1million of investment realisations), with
cash invested during the year contributing
£11.7million of the growth and fair value gains
contributing a further £4.3million, as the model
starts to deliver.
We remain focused on what we believe to be
our two key strategic objectives; (i) to
accelerate the growth in value of our direct
investment holdings whilst managing down
side risk and turning these investments into
cash, and (ii) to minimise net asset value (“NAV”)
erosion by offsetting operating costs with fee
income and realised gains. These results
demonstrate that Mercia is starting to deliver
on both of these important facets of our
investment model.
Built to deliver
At the time of the Group’s listing on AIM in
December 2014 when it raised £70.0million,
Mercia had 11 direct investments (and a 20%
stake in The Mercia Fund 2 Limited Partnership)
valued in total at £9.0million, nine university
partnerships, one office in the Midlands and
approximately £20.0million in managed funds.
In March 2016, Mercia acquired Enterprise
Ventures in a transaction driven by a desire to
access Enterprise Ventures’ managed funds’
portfolio, the expertise and track record of the
team and to build a strong presence in the
North of England which would further scale
Mercia.
Today Mercia benefits from:
• 24 direct investments valued at £52.0million
• A strong balance sheet comprising
£63.8million of cash with the vast majority
available for direct investment
• A material regional footprint in the Midlands,
the North of England, together with a
growing presence in Scotland
New capital secured
£157.1million
2016: £5.9million
Cash inflow from
realisations
£2.9million
2016: £nil
22 Mercia Technologies PLC
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• Approximately £336.5million of funds
under management including circa
£150.0million of capital available to
invest in early-stage businesses
• 18 university partnerships
I am pleased to report that following the
successful integration of Enterprise
Ventures, the Investment Team has
completed three direct investments so
far from its managed funds’ portfolio
namely Concepta, Faradion and sureCore
and post year end, a fourth direct
investment into Intechnica.
Mercia has also been able to leverage the
Investment Team’s excellent track record
to help secure new fund mandates
totalling £108.5million, from the Northern
Powerhouse Investment Fund. This
provides significant levels of new capital
to invest over the next five years which,
when combined with the £8.6million in
Enterprise Investment Scheme (“EIS”) and
Seed EIS (“SEIS”) funds raised in the last 12
months, will enable the Group to build a
sustainable funnel of potential future
direct investments.
The benefits of managed fund capital are
fourfold:
• Underpins a significant investment
footprint across the UK regions
• Early access to compelling prospects
in key technology sectors which are
then shaped within our managed
funds ahead of the selective allocation
of scale-up capital from Mercia’s
balance sheet
• Using the managed fund capital for
the high risk early investment phase
eliminates a potential drain on Mercia’s
balance sheet, thus retaining direct
investment capital predominantly for
the most promising scale-up
opportunities
• Fee generation from the managed
funds materially contributes to
offsetting the Group’s operating costs
thereby helping to minimise NAV
erosion
Looking specifically at Mercia’s university
partnerships, each one has been carefully
selected to dovetail with Mercia’s own
strategic goals, both geographically and
by sector focus. Having successfully
scaled the network from nine partners at
IPO in December 2014 to 18 today, the
last 12 months have seen the University
Team develop its relationships with the
those partners, which has generated 11
deals during the year for Mercia’s
managed funds and one for the direct
investment portfolio, Medherant.
Strengthened asset base
The year to 31 March 2017 has started to
see early signs of shareholder value
creation with the IPO of Concepta in July
2016 (derived from Enterprise Ventures’
managed funds), the material uplift of
nDreams’ fair value in November 2016,
following a successful syndicated
investment round, the cash sale of Allinea
Software (a University of Warwick
spinout) to ARM in December 2016, and
the profitable unwinding of the Group’s
holding in Abzena (a joint University of
Warwick and Imperial College spinout) in
February 2017. All of these investments
have been shaped over time in the
Group’s managed funds, from sectors in
which we have deep knowledge and
experience, before bringing them across
as direct investments.
The strength of the Group’s investment
model is defined by the quality and value
creation potential of Mercia’s direct
investments. As well as the fair value
gains and realisations already referred to,
there are notable developments within
the portfolio in each of our four
technology sectors. As an example, the
Life Sciences team, headed by Peter
Dines, has created a well balanced
portfolio of seven investments thus far,
all of which have come through our
managed funds where Mercia was the
early investor. Highlights include the
move into profitability for the specialised
in vitro diagnostic component kit provider
The Native Antigen Company, the
material $50.0million upfront deal
secured by PsiOxus Therapeutics with
Bristol-Myers Squibb, the strong revenue
growth at Oxford Genetics, the disruptive
technology developer Medherant utilising
novel patch delivery technologies ready
to move into clinical trials, and the fertility
testing kit developer Concepta which
listed on AIM in July 2016.
In Mercia’s Digital & Digital Entertainment
sector, headed by Mike Hayes, notable
developments include the revenue
growth and additional new game roll outs
by Edge Case Games and Soccer
Manager, and the continuing
development of nDreams as one of the
key names globally in virtual reality (“VR”)
software development for experiences
and games. During the last year nDreams
has expanded its relationships with
Google, Facebook and other leading VR
headset vendors and strengthened its
management team with the addition of
Tom Gillo (ex-game director at Sony
Entertainment), David Corless (ex-head of
marketing at SEGA), Paul Fitzsimons
(non-executive chair, previously at Apax
Partners) and Rob Precious (non-
executive director, previously at
Geomerics/ARM). Strong teams go
hand-in-hand with successful businesses
and at Mercia this continues to be a key
lever for driving accelerated value
creation.
Good progress is also being made by the
portfolio companies in Mercia’s other two
investment sectors, Software & the
Internet and Electronics, Materials &
Manufacturing/Engineering, the latter
being documented in the recent sector
update.
Mercia’s managed funds historically have
experienced a 40-50% failure rate as is
typical with early-stage investments,
ensuring that risk is more measured
within the direct investment portfolio.
However, and in keeping with Mercia’s
valuation policy, during the year we made
a 25% provision against our equity
holding in Science Warehouse, in
recognition of a decline in peer group
valuation multiples.
In addition, a 50% provision has been
applied to VirtTrade’s equity valuation in
recognition of slower market progress
than anticipated.
Financial progress
Although Mercia Technologies itself is
less than three years old, during the last
year the Group generated £2.9million
(2016: £nil) of cash inflow from direct
investment realisations and net fair value
gains of £4.3million (2016: £0.9million).
The Group also saw revenue (which in
Mercia’s case excludes fair value
movements) increase to £6.7million (2016:
£1.8million) and operating profit before
exceptional items improve to £1.9million
(2016: £1.7million loss). These positive
metrics demonstrate the tangible
progress which Mercia is making.
We face the years ahead with a well-
funded balance sheet and a materially
increased level of third party managed
funds. The Investment Teams will
continue to be highly selective both in
terms of new fund investments and in
respect of what is scaled using balance
sheet capital. We will also continue to
proactively seek timely exit opportunities
from the direct investments, as the
portfolio continues to develop.
Future developments and outlook
It is important that we continue to
operate a clear and consistent approach
by investing in sectors in which we have
significant expertise. The complexity,
scale and geography of Mercia’s hybrid
model is now of a size that makes it
difficult for others to replicate, but we are
not complacent.
As a listed business, Mercia faces a
continual increase in financial and
governance regulation, but we have an
experienced team in place to manage this
environment. Mercia’s focus on
minimising NAV erosion by increasing
revenue generation combined with tight
cost control and cash management will
also continue.
With a strong regional presence, excellent
Investment Teams and established deal
flow networks, I remain confident that
Mercia will achieve its goal to deliver
incremental shareholder value by
becoming the dominant provider of
capital to innovative companies
throughout the UK regions.
In summary, this has been a positive year
for Mercia, having built a compelling and
sustainable model. I would like to thank
all of the Mercia team for their hard work,
ambition and rigour.
Dr Mark Payton
Chief Executive Officer
30 June 2017
Mercia Technologies PLC
Annual Report and Accounts 2017
23
Chief Investment Officer’s review
A balanced and
growing portfolio
Significant commercial progress has been made across the Emerging Stars
portfolio resulting in net fair value moments of £4.3million and investment
realisations of £2.1million.
The pipeline for
further new direct
investment continues
to develop well”
Matthew Mead
Chief Investment Officer
Portfolio overview
In the second full year since Mercia’s
listing on AIM the Investment Teams
have continued to focus on the direct
investment portfolio by building out the
management and boards of these key
companies, combined with deploying
further capital into existing assets that
are making good commercial progress.
£11.7million has been invested over the
past year with four new Emerging Star
investments totalling £4.9million, whilst
£6.8million has been invested
into 11 existing direct investments.
As at 31 March 2017 the value of the
Group’s portfolio has increased to
£52.0million from £38.1million reflecting
the new investments of £11.7million,
investment realisations of £2.1million
and net fair value gains of £4.3million.
The portfolio consists of holdings in 24
companies of which the top 18 account
for 98.5% of the total portfolio value.
I remain pleased with the continued
commercial development of the
portfolio and expect this to continue
during the next 12 months.
Investment activity
Of the four new Emerging Stars, the first three
came from the funds managed by Enterprise
Ventures with the fourth investment,
Medherant, being sourced from Mercia’s
EIS/SEIS Growth Funds portfolio:
• Concepta – a digital fertility/pregnancy
testing business which is now AIM listed
• sureCore – a low cost, low power embedded
memory technology company which is
silicon-proven
• Faradion – a novel battery materials
business which focuses on producing
sodium-ion batteries with potential
applications in home storage and
transport markets
• Medherant – a University of Warwick spinout
with a novel medical patch technology
Post year end, one further company has been
added to the portfolio as a result of a small
initial investment in Intechnica, in anticipation
of a larger round later in 2017. Sourced from
Enterprise Ventures’ managed funds’ portfolio,
Intechnica is a services and software product
business focused on critical business
operations including ecommerce websites,
high volume ordering systems, online ticketing
and mobile CRM applications.
24 Mercia Technologies PLC
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Portfolio composition
The year ended with a portfolio of 24
companies valued at £52.0million. The Board’s
aim remains to build a balanced portfolio
across the four technology sectors that we
focus on.
Further details on each of our four key sectors
and a number of our leading investee
companies are provided below.
Net cash invested
£11.7million
2016: £12.6million
Net fair value gains
£4.3million
2016: £0.9million
Matthew Mead
Chief Investment Officer
30 June 2017
The pipeline for further new direct investments
continues to develop well across each of our
sectors. As already referred to, the managed
funds business has grown significantly in the
year as a result of new mandate wins. This
increased level of activity will enable us to
grow the investment run rate over the next
three to five years by investing in new and
existing managed funds’ portfolio businesses
with strong growth prospects sourced across
the UK regions. This will in turn provide a
proprietary flow of future Emerging Stars
for our balance sheet of companies where
we already have a board seat and know the
asset well.
Fair value movements
The total net fair value gain in the year
amounted to £4.3million compared to
£0.9million in the prior year. We have
recognised notable fair value uplifts at
nDreams (£4.8million) based on the price of
third party investment into the business,
Concepta (£2.0million) as a result of successful
share price progression since reversing the
business into an AIM cash shell, and PsiOxus
Therapeutics (£1.2million) which saw an
increase in the value of the business following
a major commercial deal with Bristol-Myers
Squibb.
In our half year results to 30 September 2016
we recognised a provision of £2.7million
against the equity holding in Science
Warehouse, reflecting downward movement in
peer group valuations. In the second half of the
year we have also made a £1.3million provision
against our equity holding in VirtTrade, to
reflect slower than anticipated market
progress by the business.
In December 2016, we were delighted to
complete the sale of Allinea Software to ARM.
This successful transaction has yielded cash
proceeds of £2.7million to date and a realised
gain on investment of £825,000. The disposal
of Allinea Software is early validation of our
investment model which is based on driving
cash realisations from our assets through
trade exits or IPOs. In February 2017 a second
divestment was completed as we exited our
minor residual direct holding in Abzena,
generating net cash proceeds of £168,000
and a small realised gain of £14,000.
Mercia Technologies PLC
Annual Report and Accounts 2017
25
Focusing on
high growth
technology
sectors
2016/17 saw Mercia remain focused on sectors in which the
Investment Teams have significant commercial insight and
extensive personal networks.
26
Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
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Other information
Mercia Technologies PLC
Annual Report and Accounts 2017
27
Portfolio update
Software & the Internet
Headed by Investment Director Rob Johnson, this sector has continued to
thrive with the highlight of the financial year being Mercia’s exit of its
holding in Allinea Software. More details of this successful cash exit are set
out on page 18.
Rob Johnson
Investment Director, Software & the Internet
IT spending to reach
$3.5trillion
Predicted by Gartner
As an early indicator of what is to come
to the balance sheet over the near to
medium-term, during the year Mercia
has made new investments through its
managed funds into its key areas of
focus including artificial intelligence (“AI”),
cybersecurity, software as a service
(“SaaS”), analytical tools and adtech.
The UK is also firmly cementing its place in
AI technologies, a market which Accenture
estimates could add around £654.0billion to
the UK economy by 20352. Mercia is engaging
with a number of companies which are
developing these innovative technologies and
which are in the process of establishing
themselves as influential leaders in their
chosen field.
For the year to 31 March 2017, Mercia made
direct investments of £1.5million in this sector
and at the year end had £14.2million of asset
value representing 27.3% of the total portfolio
value. Post year end, Mercia also invested in
one new Emerging Star from its managed
funds, Intechnica.
Each of these subsectors were identified
by the sector team as attractive areas to
build and source businesses and represent
significant market opportunities as Gartner
predicts that globally IT spending will reach
$3.5trillion in 2017 and that software spending
will grow by 7.2% to total $357.0billion1 . SaaS
and cloud adoption in particular have become
the most significant disruptors to this rapidly
growing sector. These developments have
had a positive impact on the UK economy
and more businesses than ever are exploring
opportunities in digital transformation services
and connected technologies.
1. http://www.gartner.com/
newsroom/id/3482917
2. https://www.accenture.com/
gb-en/insight-artificial-
intelligence-future-growth
28 Mercia Technologies PLC
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Other information
www.sciencewarehouse.com
Location
Leeds
Science Warehouse
As at 31 March 2017, the Group held a 62.6%
interest in Science Warehouse at a fair value of
£9.9million. At Mercia’s 30 September 2016 half
year, the Group revalued its holding in Science
Warehouse to £9.9million (2016: £12.7million) as
a result of a review of peer group comparable
company valuation multiples and an increasingly
competitive marketplace. This fair value
reduction represented a 25% provision against
Mercia’s equity value. No new investment was
made during the year and the valuation as at
31 March 2017 remains unchanged.
Established in 2000 as a spinout from the University of
Leeds, Science Warehouse provides a SaaS cloud-based
procurement platform to what it refers to as ‘buyers’ who
include higher education (“HE”) (such as the universities of
Manchester, Leeds, Bristol and Cambridge), public sector
research (“PSR”) (such as the Francis Crick Institute), NHS
(trusts such as Wirral, Humber and Worcestershire) and a
continued push into Housing, Construction and Government
markets. Since the last reporting date, Science Warehouse
has added new customers to its platform and continues to
expand the number of product offerings from its suppliers.
This innovative platform offers a smooth and efficient
cloud-based source to settlement solution to the benefit
of both buyers and suppliers, with full control of the
purchasing cycle enabling cost savings and drives spend
management behaviour. Science Warehouse equips the
buyer to obtain the best price from the range of suppliers
on its platform and helps to reduce the number of
employees required in the procurement process.
It offers a significant network of suppliers and an online
catalogue of over 17.0million products and services
optimised for e-procurement, ranging from office and
scientific supplies to catering and office equipment.
Recent developments include a successful platform
migration to increase scalability and availability for all
customers and providing a dedicated hosting environment
in Australia. Significant progress has been made in building
new applications and delivering new iterations of existing
applications to meet customer demands. One of the key
new applications to be brought to market in mid-2017 is
Supplier Information Management (“SIM”). SIM will provide a
tool to buying organisations that will enable them to invite
suppliers into the community and to transact business
without charge, thus accelerating the supplier on-boarding
process and building the supplier community.
During the year Gordon Matthew joined as chair to
support the development of the company’s strategic
plan and offer key industry insight to help drive the
business forward. He has extensive experience in
software and telecommunications and has worked with a
number of technology businesses supporting successful
transformation projects. The business has continued to
build out a broader product offering to provide
customers with increased functionality across the whole
procurement cycle.
Notwithstanding the fair value downward movement
during the year referred to above, the company has
continued to increase revenues by 9% in 2016/17, securing
new contract wins in the key sectors of HE, PSR and the
NHS, which has improved its overall financial performance.
The company has two offices: Leeds with 55 employees
and Melbourne, Australia with four employees.
Mercia Technologies PLC
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29
Portfolio update continued
www.intelligentpositioning.com
Location
Brighton
© pi-datametrics.com
All four co-founders (chairman, CEO, CMO and
CTO) have decades of international blue chip brand
marketing and advertising experience, with CEO
Daniel Titterton leading on business strategy and
product development.
In early 2017, the company was selected as one of
50 European ICT businesses to take part in an EU
Gateway Trade Mission to Singapore and Thailand.
Since then it has set up a partnership agreement
with a digital reseller in Thailand and it has also
secured and created a pipeline of multiple new
business opportunities in Asia.
During 2016/17 the company also launched two
new platforms; the Vault, marketed at agencies,
and Pi Market Intelligence, which offers global
Share of Voice and customer trend analysis. Both
new platforms have already secured new business.
Mercia first invested from its balance sheet in the
business in December 2015 when it moved from
an investment held via its managed funds and
since then the company has continued to grow
on a global scale. As well as opening offices in
Brighton, London, Hyderabad and New York, the
company will also open a new office in Singapore
this year.
Intelligent Positioning
As at 31 March 2017, the Group held a 26.7%
interest in Intelligent Positioning at a fair value of
£2.5million, the investment being held at cost. The
Group invested £1.5million during the year to help
fund the company’s growth.
Since the company’s formation as a Search Engine
Optimisation (“SEO”) consultancy in 2004, it has
pivoted, initially within Mercia’s managed funds,
into a business where the principal activity is
the provision of an innovative, real-time search
intelligence and organic analytics platform. It also
provides technical support, customer education
and set up services.
Intelligent Positioning collects, stores and
distributes trillions of lines of search data
globally and presents its own proprietary
software platform, Pi Platform. Through this
platform, customers can analyse their
performance within global search engines such
as Google or marketplaces such as Amazon,
as well as gain intelligence to make data-driven
decisions about their website and digital
asset content.
The platform outstrips many competitors due
to the large amount of data it provides (both
real-time and historic) without the need to
pre-select domains. The business has many high
profile, blue chip customers including Harrods,
Clarks, Tesco, L’Oreal, Zoopla, Superdry, Invesco,
Ricoh, The Financial Times, Easyjet Holidays
and SkyScanner.
30 Mercia Technologies PLC
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Digital &
Digital Entertainment
Headed by Investment Director Mike Hayes, who was previously the CEO of SEGA
Games for Europe and America, Mercia has identified a number of strong investment
opportunities within this sector, initially through its managed funds, which have now
evolved into direct balance sheet investments.
Mike Hayes
Investment Director, Digital & Digital Entertainment
The global games market is expected to
grow to an estimated $128.5billion by
2020, with the UK being a key driver of
this growth1.
VR is steadily growing as more consumers are
familiarising themselves with headset devices and
becoming increasingly aware of the platform’s
potential for compelling content and experiences.
Global games market
$128.5billion
estimated by Newzoo
UK consumers spent a record £4.3billion on games
in 2016 and the UK was the sixth largest video
games market in terms of consumer revenues
after China, USA, Japan, South Korea and
Germany. Overall, approximately 31.6million
people in the UK play games2 and we are likely to
see this number continue to grow.
The UK remains a leading global developer of
games content with some of the best talent and
studios in the world. There have been some
significant developments in this market over the
past year, particularly within the areas of virtual
reality (“VR”), augmented reality (“AR”) and mixed
reality (“MR”) as well as in the serious games
subsector, all of which are key focus areas
for Mercia.
As an example of continuing games market
growth, Cisco anticipates that VR headsets
will grow from an installed base of 18.0million
in 2016 to nearly 100.0million by 2021,
a compound annual growth rate of 40%3. VR and
AR market developments are expected to follow a
similar trend.
For the year to 31 March 2017, Mercia made direct
investments totalling £2.3million into this sector
taking the total investment holding value at the
year end to £16.4million, which represents 31.6% of
the total portfolio value.
1. https://newzoo.com/insights/
articles/the-global-games-
market-will-reach-108-9-
billion-in-2017-with-mobile-
taking-42
2. https://ukie.org.uk/research
3. http://www.cisco.com/c/en/
us/solutions/collateral/
service-provider/visual-
networking-index-vni/
mobile-white-
paper-c11-520862.html
Mercia Technologies PLC
Annual Report and Accounts 2017
31
Portfolio update continued
www.ndreams.com
Location
Farnborough
nDreams
As at 31 March 2017, the Group held a 47.0%
interest in nDreams at a fair value of £11.0million.
The company received £2.8million of investment
during the year of which Mercia contributed
£1.5million. The investment is held at the price of
the last syndicated investment round.
nDreams is a developer and specialist publisher of content
for VR platforms. It creates its own games and experiences,
develops for strategic third parties and acts as a VR
publisher for independent studios.
Mercia first invested in nDreams in March 2014 through its
managed funds. The company is now known as one of the
UK’s leading developers and publishers of VR content and
was one of the first to enter the VR games market.
Content development has been good during 2016/17. The
business launched its award-winning game, The
Assembly, on Sony’s PlayStation VR in October 2016,
following its debut on the Oculus Rift and HTC Vive
earlier in the year. nDreams also published Danger Goat,
its first title for Google on Daydream, Google’s new
high-quality mobile VR platform, and released Perfect on
both mobile and console VR.
Google is one of a number of partnerships that nDreams
has secured with leading VR headset manufacturers and
content providers and it also has strong relationships with
Sony (PlayStation VR), Oculus/Facebook (Rift), HTC (Vive)
and Samsung (Gear VR). These high profile partnerships
demonstrate the industry’s confidence in the design and
production quality of nDreams’ experiences and games.
There are an increasing number of potential partner
discussions occurring which reflects the increasing interest
in VR.
nDreams is recognised by many as one of the market
leaders as a result of its strong management team. Vice
president of development Tom Gillo has over 20 years’
development experience in the industry and was formerly
game director at Sony Entertainment Europe. David
Corless, the vice president of publishing, previously held
roles as global brand director for Sonic the Hedgehog and
was head of marketing at SEGA. Paul Fitzsimons has also
joined nDreams as non-executive chair and has
considerable business building and fundraising experience
from his career with Apax Partners. Rob Precious, the
former director of business development at Geomerics/
ARM, has joined the board as a non-executive director.
The company has sold over 200,000 units of VR games
during the last 12 months and will be releasing several new
games and experience titles by the end of 2017. It is also
currently developing prototypes for AR and MR devices.
nDreams is operating within one of the most exciting and
hotly anticipated sectors. Having established close
relationships with some of the biggest names in the
digital world, nDreams is at the forefront of the
expanding VR market and has the potential to be a highly
valuable business.
32 Mercia Technologies PLC
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www.edgecasegames.net
Location
Guildford
Edge Case Games
As at 31 March 2017, the Group held a
21.2% interest in Edge Case Games at a
fair value of £2.3million. Mercia invested a
further £0.5million during the year and
the investment is valued at the price of
the last syndicated investment round.
Edge Case Games is a developer and publisher
of PC based games focused on the free-to-
play, science fiction genre. PC gaming continues
to be a huge market with 1.2 billion1 players
globally and estimated revenues of
$29.4billion2. Edge Case Games’ first offering is
called Fractured Space, which launched via
Steam Early Access in November 2014 and was
fully launched on Steam’s PC delivery platform
in September 2016. It has so far generated over
$2.0million of revenue since the beta launch
and its key metrics measured during the full
launch weekend matched those of global
market leaders in the free-to-play PC games
market. The game is attracting third party
publishing interest.
Formed in 2014 by industry veterans James
Brooksby and Chris Mehers through an
investment from Mercia’s managed funds, the
pair’s previous title, the action space game
Strike Suit Zero, launched in January 2013 and
attracted an audience of over 1.4million players
on PC and console. CEO James has almost 20
years of industry experience and has had
significant involvement in running and guiding
games development studios, while Chris brings
a solid background of senior commercial
management to the company as COO.
The company is supported by a strong board of
directors, chaired by serial entrepreneur
Grahame Sewell. The board also includes
founding shareholder Cedric Littardi, industry
free-to-play veteran Thomas Bidaux, Mike
Hayes from Mercia and a representative from
Chinese investor Seasun Games Corporation.
Fractured Space has the potential to become a
significant franchise in the free-to-play market
with the right publishing and marketing
support. The company is close to realising this
opportunity and has also started developing a
second title. Edge Case Games is a great
example of the value in investing in smart,
original creative content within the free-to-play
PC games market.
1. https://mygaming.co.za/news/features/89913-there-
are-1-8-billion-gamers-in-the-world-and-pc-
gaming-dominates-the-market.html
2. https://newzoo.com/insights/articles/the-global-
games-market-will-reach-108-9-billion-in-2017-
with-mobile-taking-42/
Mercia Technologies PLC
Annual Report and Accounts 2017
33
Portfolio update continued
Electronics, Materials &
Manufacturing/Engineering
This sector is led by Investment Director Mark Volanthen, and is focused
on identifying and supporting the next generation of disruptive
proprietary technologies in energy and communications together with
high value electronics and manufacturing applications.
Dr Mark Volanthen
Investment Director, Electronics,
Materials & Manufacturing/Engineering
Consumer electronics
€9.8billion
according to Statista
The portfolio has continued to progress
product development and commercial
engagement, including in some cases
with global brands.
In many instances Mercia’s target sectors are
undergoing rapid change in response to
fundamental technological and economic drivers,
which provide an ideal backdrop for differentiated,
innovative solutions to build value.
There have been a number of industry-leading
product developments across this portfolio in the
past year, including sureCore’s ultra-low power
six-transistor static memory cell (“SRAM”),
Warwick Audio Technologies’ portable
electrostatic wired headphone system and LM
Technologies’ launch of the world’s first dual
mode Bluetooth 4.1 serial adapter.
Manufacturing contributes £6.7trillion to the
global economy and the UK is currently the
world’s ninth largest industrial nation1.
In 2016, the market value for consumer electronics
in the UK reached around €9.8billion. This shows
that the electronics market has been growing over
the past four years, with an increase of over
€1.5billion2.
For the year to 31 March 2017, Mercia invested
£4.8million in this sector with new Emerging Stars,
sureCore and Faradion, both outlined below,
receiving direct investment. As at 31 March 2017
the Group had a total of £11.4million of asset value
in this sector representing 21.9% of the total
portfolio value.
1. http://www.themanufacturer.
com/uk-manufacturing-
statistics/
2. https://www.statista.com/
statistics/491307/consumer-
electronics-united-kingdom-
uk-market-value/
34 Mercia Technologies PLC
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www.sure-core.com
Location
Sheffield
sureCore
As at 31 March 2017, the Group held a 23.0%
interest in sureCore at a fair value of £1.5million.
Mercia invested £1.5million during the year and
the investment is held at cost.
CEO and co-founder of sureCore Paul Wells has worked in
the semiconductor industry for over 30 years including as
director of engineering for Pace Networks where he led a
multidisciplinary, 70-strong, product development team.
Chairman Guillaume d’Eyssautier also has a career spanning
over 30 years in the semiconductor industry including
management positions in Europe and USA.
sureCore, a provider of low power memory solutions for
semiconductor applications, is based in Sheffield. It has
developed a low power memory portfolio with world
beating low voltage operation and is successfully
exploiting growing market demand for more on-chip
memory and lower power consumption in leading edge
devices, such as those serving the Internet of Things (“IoT”),
wearables and networking spaces.
Founded in 2011 and led by a team of industry experts
each with over 30 years of experience, sureCore joined the
direct investment portfolio in June 2016 having been
sourced from the Group’s managed funds portfolio and
having received £2.5million of third party funding prior to
Mercia Technologies’ first direct investment.
Memory designs developed by sureCore have shown in
excess of 50% saving in dynamic power consumption and
up to 20% reduction in static power, compared to industry
standard solutions. Its ultra-low voltage memory is a world
first, demonstrating operation at unprecedented low levels.
This technology is applicable to wide ranging high worth
application markets such as consumer electronics. The
product is silicon-proven in leading edge manufacturing
technologies and is being evaluated by a number of
potential commercial partners.
Mercia Technologies PLC
Annual Report and Accounts 2017
35
Portfolio update continued
www.faradion.co.uk
Location
Sheffield
Faradion
As at 31 March 2017, the Group held a 13.6%
interest in Faradion at a fair value of £1.3million.
The investment is held at cost. The company
received £3.0million of investment during the
year in a syndicated round.
Faradion, also based in Sheffield, is a leading developer of
low cost sodium-ion battery technology and joined the
direct investment portfolio in January 2017 from the
Group’s managed funds. The business had previously raised
circa £3.8million from a number of investors including trade
investor Haldor Topsoe.
This new technology is underpinned by 18 patent families
and promises performance comparable to lithium-ion
batteries but at least 30% cheaper for the cost of
materials, offers a higher level of safety and is less
susceptible to rare metal price movements. The sodium
salts used to prepare these battery materials are highly
abundant, coming from more sustainable sources than
those of equivalent lithium salts, making them both
cheaper and more easily obtainable.
The technology is suitable for a wide range of applications
such as industrial and residential storage, providing power
for telecoms base stations and in-bus transportation.
Faradion was co-founded in 2010 by CTO Dr Jerry Barker, a
world renowned battery scientist who has previously set up
and managed battery research facilities in both USA and
the UK. Co-founder Dr Chris Wright is chair and a highly
experienced entrepreneur who was formerly group
operations director of AEA Technology PLC. CEO Francis
Massin has over 20 years’ experience in scientific, industrial
and business development at Dow Corning in Europe, USA
and Asia.
The company is now working with potential customers and
partners in Europe and China to demonstrate the scalability
of the technology, gain early commercial traction and
validate its supply chain.
36 Mercia Technologies PLC
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www.impression-technologies.com
Location
Coventry
Impression Technologies
As at 31 March 2017, the Group held an 18.2%
interest in Impression Technologies at a fair
value of £1.5million and the investment is held at
cost. Post year end the Group has invested a
further £1.5million as part of a £3.0milllion
syndicated investment round to fund the
company’s exciting growth prospects.
Located in Coventry and based on intellectual property
developed at the University of Birmingham and Imperial
College London, Impression Technologies has a proprietary
Hot Form Quench (“HFQ®”) technology for developing
complex, high strength, lightweight components for the
transportation industry.
The HFQ® technology is a new and disruptive hot forming
process, in which complex aluminium parts are pressed and
quenched within a matched die tool. HFQ® technology
enables the replacement of steel with aluminium in critical
applications, including those where complex geometries
would not otherwise be formable in high strength
aluminium grades. Parts produced using HFQ® are already
receiving industry recognition, with Aston Martin using
HFQ® parts for its DB11 model.
The business is making positive progress in bringing its
technology to market following the opening of the world’s
first HFQ® facility in October 2016, which is located on the
former site of the Jaguar factory in Lyons Park, Coventry.
Mercia made its first investment in Impression
Technologies in July 2015, following initial funding from
Mercia’s managed funds.
The business is led by CEO Jonathan Watkins who has over
25 years of experience in commercialising technology in the
international automotive, industrial and clean technology
sectors, having held senior commercial and operational
leadership positions in Federal-Mogul, Textron, and most
recently, Ceres Power. Jonathan is supported by a strong
board, chaired by Ian Jenks and including Professor Jianguo
Lin of Imperial College.
The company is already supplying global brands including
Aston Martin and Lotus Cars and is now in discussions with
a number of other leading automotive brands, tier one
suppliers, press manufacturers and aluminium suppliers to
further scale the business.
Mercia Technologies PLC
Annual Report and Accounts 2017
37
Portfolio update continued
Life Sciences &
Biosciences
This sector is headed by Investment Director Peter Dines and its key
areas of focus are diagnostics, digital health and medical devices.
Peter Dines
Investment Director,
Life Sciences & Biosciences
Medtech sales in 2020
$513.5billion
predicted by Deloitte
Life Sciences & Biosciences continue to
be an attractive area in which to invest
with two new direct investments during
the year; Concepta, a women’s health
diagnostics company with an initial focus
on unexplained infertility, and Medherant,
an IP-rich University of Warwick spinout
developing novel transdermal drug
delivery patches. There have also been a
number of new life sciences investments
made through Mercia’s third party
managed funds.
The cost of global health care is predicted to reach
$8.7trillion by 2020 from $7.0trillion in 2015, driven
by improving treatments in therapeutic areas
coupled with rising labour costs and increased
life expectancy1.
The UK continues to be an active life science
hub with a high level of new innovations. The life
sciences industry employs almost 235,000
people across the UK and generates a combined
estimated turnover of £64.0billion. Since 2011
the UK has secured over £7.5billion of inward
investment in the sector2.
Deloitte expects medical technology industry
sales to increase from $363.8billion in 2013 to
$513.5billion in 2020 and predicts that in vitro
diagnostics will be the leading segment3.
For the year to 31 March 2017, Mercia invested
£3.1million in this sector with new Emerging Stars,
Concepta and Medherant, receiving direct
investment. As at 31 March 2017 the Group had a
total of £10.0million of asset value in this sector
representing 19.2% of the total portfolio value.
1. https://www2.deloitte.com/
global/en/pages/life-sciences-
and-healthcare/articles/
global-life-sciences-sector-
outlook.html
2. https://www.gov.uk/
government/publications/
bioscience-and-health-
technology-database-annual-
report-2016
3. https://www2.deloitte.com/uk/
en/pages/life-sciences-and-
healthcare/articles/
healthcare-and-life-sciences-
predictions-2020.html
38 Mercia Technologies PLC
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Other information
www.conceptaplc.com
Location
Doncaster
Concepta
As at 31 March 2017, the Group held an 18.2%
interest in Concepta at a fair value of £3.4million.
£1.4million was invested in the business during
the year and the investment is held at its closing
bid price.
Concepta is a women’s health diagnostics company with an
initial focus on developing a product to help women with
unexplained infertility to conceive. The company has
designed and developed a proprietary platform, myLotus,
for at-home and point-of-care testing.
The myLotus product allows both quantitative and
qualitative measurement of a woman’s hormone levels to
help increase conception probability. The ability to see
quantitative as well as qualitative results, and the link with a
mobile app, make it unique within the rapidly growing
mobile health market.
CEO Erik Henau has over 35 years’ experience in life
sciences and consumer diagnostics companies, and has
previously managed international distribution networks in a
variety of healthcare fields. Adam Reynolds joined as chair
in February 2016 and is a former stockbroker with over 35
years’ experience within the UK financial services sector.
Neil Mesher was appointed non-executive director
in March 2017 and has more than 25 years of global
experience within the healthcare and consumer
electronics industries. He is currently CEO of Philips for the
UK and Ireland and is also a member of the government’s
Life Sciences Industrial Strategy Board, representing the
interests of the medical technology sector with other senior
leaders from across healthcare.
Concepta has doubled the size of its laboratory’s
operations to increase research and development capacity.
It has also signed a 10 year lease for a new manufacturing
facility in Doncaster, Yorkshire.
In July 2016, Concepta was admitted to AIM via a reverse
takeover of Frontier Resources International. Since
admission Concepta’s market capitalisation has risen and
the company has continued to progress commercial
partnerships. In September 2016 Concepta signed a
manufacturing agreement with leading Chinese
manufacturer Shijiazhuang Huanzhong Biotech Limited
(“HZ Biotech”) and is also making significant progress in
preparing the myLotus fertility product for commercial
launch in China and Europe.
Post year end, Concepta has signed its first distributor
agreement with Beijing ThinkBrio Medical Technology
Consulting Co. Limited. The agreement covers an initial
three year period and relates exclusively to the distribution
of the myLotus range of products within LiaoNing province
in China. If successful, Concepta intends to cover further
Chinese territories.
The company also announced that it received its first sales
order for RMB 1.95million (£225,000 at 14 June exchange
rate of RMB 8.33: £1) for its myLotus fertility products
from its partner in China, HZ Biotech.
Mercia Technologies PLC
Annual Report and Accounts 2017
39
Portfolio update continued
www.oxfordgenetics.com
Location
Oxford
Oxford Genetics
As at 31 March 2017, the Group held a 47.9%
interest in Oxford Genetics at a fair value of
£2.2million. The company received £1.0million of
investment during the year and the investment is
held at cost.
Oncology, University of Oxford (and previously was at the
University of Birmingham) and has 25 years’ experience in
genetic engineering. Leonard is also the co-founder of
PsiOxus Therapeutics and The Native Antigen Company, in
which Mercia also invested from both its managed funds
and balance sheet (and is a shareholder alongside the
University of Birmingham).
Oxford Genetics is a specialist designer and developer of
biological molecules such as proteins, viruses and cells. It
provides design, development and production services for
biological therapeutics based on these types of molecules.
The company has four main technology areas focusing on
improving the discovery, design, development and
deployment of biological molecules. These technology
areas are supported by the company’s patent-protected
SnapFast DNA engineering technology, which makes
genetic engineering more efficient.
Mercia first invested in Oxford Genetics through its
managed funds. In 2015 Mercia Technologies invested
£150,000 plus a further £2.0million in 2016 to build Mercia’s
direct equity position and help further scale the business.
CEO and co-founder Dr Ryan Cawood is an experienced
genetic engineer with extensive knowledge and practical
insight working with mammalian virus and cellular
recombinant expression systems. His co-founder professor
Leonard Seymour is a professor at the Department of
The team has been building a best-in-class synthetic-
biology based tool set, supplemented by online sales of its
DNA designs and plasmid development services, towards a
model of technology licensing and high value-add service
provision. Oxford Genetics has significantly grown its IP
portfolio estate and now has six patent families. The
company has also secured £1.9million of grant funding to
accelerate growth in the bioproduction and complex
antibody discovery system product lines.
Oxford Genetics benefits from exceptional talent at all
levels in the organisation and with continuing growth has
recently expanded into new premises. The company
intends to grow its research and development team further
to meet market demand, escalate its end-to-end system by
capturing greater value downstream and establish an
office in USA to increase its market reach. Revenues have
grown by 100% year on year for the last three years as the
business continues to accelerate its commercial progress, in
what is a very attractive sector.
40 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
www.medherant.co.uk
Location
Coventry
Medherant
As at 31 March 2017, the Group held an 11.3%
interest in Medherant at a fair value of
£0.7million and the investment is held at cost.
The company raised £1.5million during the year
in a syndicated investment round.
Medherant is a University of Warwick spinout developing
an innovative patch technology for the delivery of a
variety of drugs. Medherant’s patch, known as the
TEPI-patch, is a thin, strong, easy to apply and easy to
remove patch capable of delivering higher doses of drugs
directly to the areas where they are needed. The therapy
is delivered by the patch over a period of 24 hours or more,
depending on the patient’s requirements and the drug
being administered.
The technology, which is initially being developed for
Ibuprofen and Lidocaine (used in topical pain relief), is
capable of working with a wide range of products, including
drugs that have failed clinical trials because of their
unsuitability for oral consumption. The patches are easy to
manufacture because, unlike other patch technologies, this
does not involve the use of solvents. They can also use less
material, so this technology also has the potential to relieve
huge cost burdens from healthcare systems.
Since Mercia’s first investment through its managed funds,
the company has secured an exclusive deal with Bostik SA,
a leading adhesive specialist, to use a novel pressure
sensitive adhesive material in the development of the patch.
Following this significant commercial development, Mercia
made a direct investment from its balance sheet. As a
reflection of Medherant’s continued growth, it has moved
to new laboratories and has validated that its technology
works successfully on drugs that were previously unsuitable
for transdermal delivery.
In keeping with Mercia’s desire to build leading teams in
its portfolio of companies, Medherant has made some
significant appointments over the last year, including
Ken Cunningham as non-executive chair (medically
qualified, ex-CEO of Skypharma plc, and sits on the boards
of Abzena plc and Verona plc) and Sally Waterman as COO
(extensive experience gained from Abzena plc,
Protherics plc and Xenova plc).
The company has identified the final formulation of its
Ibuprofen patch and the product has entered pre-clinical
development. Using known chemical entities such as
Ibuprofen, the company expects relative rapid progress
through clinical trials and into market with this very versatile
technology and innovative product strategy.
Mercia Technologies PLC
Annual Report and Accounts 2017
41
Chief Financial Officer’s review
Increasing net assets
In the year to 31 March 2017 Mercia Technologies PLC has
made further positive progress in executing against each
of its shareholder value creation objectives, including its first
cash realisations.
Mercia has a strong
financial platform from
which to drive growth in
net asset value”
Martin Glanfield
Chief Financial Officer
Net assets
£121.4million
2016: £80.0million
Cash
£63.8million
2016: £30.9million
Having successfully built the Mercia
Model during its first two years on AIM,
the Group’s key objective now is to
focus on investing its substantial balance
sheet capital into new and existing,
predominantly regionally sourced,
direct investments via its significantly
expanded deal-flow pipeline of
managed funds’ investments.
Mercia’s results for the year to 31 March 2017
reflect good progress in all of its key
business objectives.
During the year the Group invested £11.7million
(2016: £12.6million) into 11 existing (2016: 10)
and four new (2016: six) direct investments.
Cash proceeds from the Group’s first
investment realisations totalled £2.9million
(2016: £nil). As at 31 March 2017 the fair value
of the Group’s direct investment portfolio was
£52.0million (2016: £38.1million). Net fair value
gains during the year totalled £4.3million
(2016: £0.9million). Total net assets at the year
end were £121.4million (2016: £80.0million),
including cash and short-term liquidity
investments totalling £63.8million (2016:
£30.9million). Net assets per share increased
7.7% to 40.4 pence (2016: 37.5 pence). The net
fair value gains referred to above contributed
positively to a consolidated profit and total
comprehensive income for the year of
£1.0million (2016: £1.7million loss). Given the
early-stage nature of the majority of the
Group’s direct investment portfolio and the
relatively short length of time in which the
Group’s cash has been invested, these results
are very encouraging.
Placing of 86,956,521 shares raising
£40.0million gross proceeds (‘Placing’)
On 31 January 2017 Mercia announced a
conditional placing of, in aggregate, 86,956,521
Placing shares at 46.0 pence per Placing share.
The Placing price represented a discount of
approximately 8.9% to the closing mid-market
price of 50.5 pence per Ordinary Share on
30 January 2017 (being the last practical date
prior to the announcement of the Placing).
The primary purpose of the Placing was to
accelerate the development of the Group’s
existing portfolio companies and to capture the
opportunity to invest in new direct investment
opportunities across its target sectors
nationally and specifically within the UK regions.
The number of investment opportunities has
been significantly enhanced through the
acquisition of Enterprise Ventures in March 2016
and the Group’s newly replenished investment
capital will be almost entirely deployed into the
growing direct investment portfolio.
42 Mercia Technologies PLC
Annual Report and Accounts 2017
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Governance
Financial statements
Other information
Acquisition of Enterprise Ventures
On 9 March 2016 Mercia Technologies acquired
Enterprise Ventures’ entire issued share capital
for up to £11.0million and an amount equal
to Enterprise Ventures’ net cash position at
completion which was £2.0million. The initial
consideration was £9.0million, comprising
£8.3million satisfied in cash on completion
(which was funded from the Group’s existing
cash resources) and £0.7million satisfied by the
issue of 1,645,711 initial consideration shares at
a price of 42.0 pence (being the average of the
daily closing mid-market price for an Ordinary
share of Mercia for the five trading days
immediately preceding completion).
Deferred consideration of up to £2.0million will
also be payable, contingent upon Enterprise
Ventures securing at least £80.0million of net
new third party fund mandates during the two
year period post completion. Payment of the
deferred consideration is also conditional upon
each of the vendors of Enterprises Ventures still
being employed by the company on the second
anniversary of completion. To the extent
payable, the deferred consideration will be
satisfied by the issue of additional Mercia
Ordinary shares, at a price which will be
determined by the average of the daily closing
mid-market price for an Ordinary share for the
five trading days immediately following the end
of the two year deferred consideration period.
As at 31 March 2017 over £80.0million
of net new fund mandates have been secured
and all bar one of the vendors have remained
within the enlarged Group. As the deferred
consideration period is approximately 50%
complete, half of the anticipated deferred
consideration payable, being £1.1million
(including potential employer’s National
Insurance), has been accounted for in these
consolidated financial statements.
Goodwill and acquired intangible assets
The year end consolidated balance sheet
includes goodwill of £10.3million (2016:
£10.3million) and acquired intangible assets
of £1.2million (2016: £1.5million). £7.9million
(2016: £7.9million) of the goodwill and all of the
intangible assets’ value arose as a result of
the Group’s acquisition of Enterprise Ventures.
The intangible assets are separately identifiable
assets arising from Enterprise Ventures’ fund
management contracts with third party limited
partners and other similar investors. The fair
value of the intangible assets is being amortised
on a straight-line basis over the average
duration of the remaining fund management
contracts. The amortisation charge of
£301,000 (2016: £17,000) in the consolidated
statement of comprehensive income represents
the amortisation of the intangible assets for
the year to 31 March 2017.
Summarised consolidated statement of comprehensive income
Year ended
31 March
2017
£'000
Year ended
31 March
2016
£'000
Revenue
Cost of sales
Fair value movements in investments
Realised gains on disposal of investments
Share-based payments charge
Amortisation of intangible assets
Administrative expenses
Exceptional items
Finance income
Taxation
6,660
(92)
4,268
839
(395)
(301)
(9,051)
(1,125)
186
54
Profit/(loss) and total comprehensive income/(loss) for the financial year
1,043
Basic and diluted earnings/(loss) per Ordinary share (pence)
0.47
1,755
(79)
896
–
(230)
(17)
(4,011)
(372)
361
–
(1,697)
(0.80)
Mercia Technologies PLC
Annual Report and Accounts 2017
43
Chief Financial Officer’s review continued
Revenue and cost of sales
Total revenues of £6,660,000 (2016: £1,755,000) comprise fund management fees, initial management fees from
new investments, investment director monitoring fees and sundry business services income. The substantial
increase in revenue has largely arisen as a result of the full year effect of the acquisition of Enterprise Ventures.
Cost of sales represents third party fees incurred for administering the funds under management by Mercia Fund
Management (“MFM”).
Fair value movements in investments
Investment movements excluding cash invested:
Unrealised gains on the revaluation of investments
Unrealised losses on the revaluation of investments
Net fair value gain
For the year as a whole, unrealised fair value gains
arose in seven (2016: five) of the Group’s 24 (2016: 22)
direct investments. The largest fair value gain was
nDreams which accounted for £4,758,000 of the total.
There were six (2016: four) fair value impairments, the
largest being £2,737,000 for Science Warehouse.
Gains on disposal of investments
During the year, realised gains of £839,000 (2016: £nil)
arose on the disposal of two (2016: nil) of the Group’s
direct investments, being Allinea Software and Abzena.
Share-based payments charge
The £395,000 (2016: £230,000) non-cash charge arises
from the issue of share options to Executive Directors
and other employees of the Group ranging from the
date of the IPO to 31 March 2017.
Amortisation of intangible assets
The amortisation charge of £301,000 (2016: £17,000)
represents the amortisation of the acquired intangible
assets of Enterprise Ventures for the year ended 31
March 2017.
Administrative expenses
Total administrative expenses of £9,051,000 (2016:
£4,011,000) consisted predominantly of staff related
costs. Administrative expenses as a whole have grown
largely as a result of the full year effect of the
acquisition of Enterprise Ventures.
Year ended
31 March
2017
£'000
Year ended
31 March
2016
£'000
8,800
(4,532)
4,268
1,582
(686)
896
Exceptional items
As referred to in the note on page 43 and note 8
of the consolidated financial statements, deferred
consideration of £1,125,000 in respect of the acquisition
of Enterprise Ventures has been accounted for in the
consolidated statement of comprehensive income as an
exceptional item. The prior year exceptional charge of
£372,000 represents costs incurred in relation to the
acquisition of Enterprise Ventures.
Finance income
Finance income of £186,000 (2016: £361,000) was
predominantly interest receivable earned on the
Group’s cash and short-term liquidity investments.
Taxation
The tax credit of £54,000 (2016: £nil) represents the
unwinding of the deferred tax liability recognised in
respect of the intangible asset arising on the acquisition
of Enterprise Ventures.
Balance sheet and cash flows
Net assets at the year end of £121,354,000 (2016:
£80,041,000) were predominantly made up of the
Group’s direct investment portfolio, together with
cash and short-term liquidity investments. The Group
has limited working capital needs due to the nature
of its business.
Direct investment portfolio
During the year Mercia’s direct investment portfolio
grew to £52,028,000 (2016: £38,143,000). The table
below lists the Group’s investments by value as at 31
March 2017, including a breakdown of the net cash
invested during the year, investment realisations, fair
value movements at the year end and the equity
percentage of each company owned.
44 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Net
investment
value
As at
1 April
2016
£’000
Net cash
invested
Year to
31 March
2017
£’000
Investment
realisations
Year to
31 March
2017
£’000
Fair value
movements
Year to
31 March
2017
£’000
Net
investment
value
As at
31 March
2017
£’000
Percentage
held
As at
31 March
2017
%
Investment
nDreams Ltd
Science Warehouse Ltd
Concepta PLC
Warwick Audio Technologies Ltd
Ton UK Ltd t/a Intelligent Positioning
PsiOxus Therapeutics Ltd
Edge Case Games Ltd
Smart Antenna Technologies Ltd
Oxford Genetics Ltd
LM Technologies Ltd
Soccer Manager Ltd
VirtTrade Ltd
Impression Technologies Ltd
Crowd Reactive Ltd
sureCore Ltd
Faradion Ltd
The Native Antigen Company Ltd
Medherant Ltd
Allinea Software Ltd
Other direct investments
4,721
12,650
–
1,348
1,000
1,137
1,810
1,827
1,150
1,392
1,599
2,575
1,500
1,500
–
–
646
–
1,916
1,372
1,500
–
1,400
1,351
1,500
–
500
250
1,046
378
–
250
–
–
1,500
1,299
–
650
–
64
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,916)
(155)
4,758
(2,737)
2,000
92
–
1,240
–
182
–
–
–
(1,287)
–
–
–
–
495
–
–
(475)
10,979
9,913
3,400
2,791
2,500
2,377
2,310
2,259
2,196
1,770
1,599
1,538
1,500
1,500
1,500
1,299
1,141
650
–
806
47.0
62.6
18.2
63.6
26.7
1.5
21.2
28.2
47.9
41.5
29.9
28.4
18.2
28.3
23.0
13.6
35.6
11.3
–
n/a
n/a
Totals
38,143
11,688
(2,071)
4,268
52,028
Direct investment realisations
Mercia is focused on creating shareholder value through
the investment in, development of and at the
appropriate time, exit from (predominantly through
trade sales) its direct investments. Although the Group’s
direct investment portfolio is still at a relatively early-
stage, two successful cash realisations were completed
during the year under review. In December 2016 Mercia
Technologies sold its 16.6% stake in Allinea Software
Limited (‘Allinea’) for an initial cash consideration of
£2,570,000 (net of transaction costs). Following
agreement of Allinea’s closing working capital position,
additional cash consideration of £171,000 was received
in March 2017. Further cash consideration of £300,000
is expected to be received once a customary 18 month
warranty lock-in period has expired. The total cash
consideration received to date of £2,741,000 represents
a 43.1% uplift against the £1,916,000 holding value of
Mercia’s direct investment in Allinea at the date of
disposal and an 88.4% uplift compared with Mercia
Technologies’ total investment cost.
In February 2017 Mercia Technologies also disposed of
its small remaining direct investment in AIM listed
Abzena plc (‘Abzena’). The total cash consideration
received was £168,000 (net of transaction costs) and
represented a 9.1% uplift against the £154,000 holding
value of Mercia’s direct investment in Abzena at the
date of disposal.
Although neither of these cash realisations are for
substantial amounts compared with the total value of
the direct investment portfolio, they do nevertheless
demonstrate the commercial attractiveness and
realisable potential of the portfolio despite its early-
stage nature, as well as the Group’s determination to
not just create incremental shareholder value, but also
to realise it in cash.
Cash and short-term liquidity investments
At the year end, Mercia had total cash and short-term
liquidity investments of £63,829,000 (2016:
£30,932,000) comprising cash of £28,829,000 (2016:
£20,932,000) and short-term liquidity investments of
£35,000,000 (2016: £10,000,000). The overriding
emphasis of the Group’s treasury policy remains the
preservation of its shareholders’ cash for investment
and working capital purposes, not yield. At the year end
the Group’s cash and short-term liquidity investments
(which is cash on deposit with maturities between three
and six months) were spread across five leading United
Kingdom banks.
Mercia Technologies PLC
Annual Report and Accounts 2017
45
Chief Financial Officer’s review continued
The summarised movement in the Group’s cash position during the year is shown below.
Opening cash and short-term liquidity investments
Net cash generated from/(used in) operating activities
Net cash used in investing activities (including capital expenditure and interest received)
Purchase of subsidiary undertaking net of cash acquired
Issued share capital
Share issue costs charged to share premium account
Cash and short-term liquidity investments at the year end
Year ended
31 March
2017
£'000
Year ended
31 March
2016
£'000
30,932
3,681
(9,534)
–
40,000
(1,250)
53,633
(2,024)
(12,346)
(8,309)
–
(22)
63,829
30,932
The encouraging progress of the existing direct investment portfolio coupled with the Group’s recent, significantly
enhanced available cash resources, provide Mercia Technologies with a strong financial platform from which to
drive growth in net asset value in the years ahead, free from any near-term fundraising distractions.
Martin Glanfield
Chief Financial Officer
30 June 2017
46 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Risk management
Principal risks
and uncertainties
The Board considers that the risks detailed below represent the key potential
obstacles to achieving the Group’s strategic objectives. The key controls over
the Group’s principal risks are documented in Mercia’s risk register which
includes an assessment of the risk impact, likelihood of occurrence, the
severity of impact and mitigation actions.
Identify
Evaluate
Mitigate
The Board reviews, evaluates and prioritises
risks to ensure that appropriate measures are
in place to effectively manage and mitigate
those identified.
There could be additional risks and
uncertainties which are not known to the Board
and there are risks and uncertainties which are
currently deemed to be less material, which
may also adversely impact performance. The
Group’s risk management framework can only
provide reasonable, not absolute, assurance
that principal risks are managed to an
acceptable level, whilst also acknowledging the
fact that the venture capital sector in which
Mercia operates has investment risk inherent
within it. Mercia’s risk framework is therefore
constructed so as to identify and navigate the
inherent downside risks, whilst seeking to
exploit upside risk.
During the year Mercia has continued to build
on its risk management framework with a
particular focus on cybersecurity and to this
end, has recently engaged external
cybersecurity consultants to carry out a full
review of the Group’s systems, controls
and processes.
Mercia Technologies PLC
Annual Report and Accounts 2017
47
Risk management continued
Risk
Possible consequences
Mitigation
The majority of the
direct investment
portfolio are businesses
at a relatively early-
stage in their
development and as a
result carry inherent
risks. The technology
sector in which these
companies operate has
technical and
commercial risks
inherent in it. Typically
such companies are
developing new or
disrupting existing
technologies and
breaking new ground
commercially.
Early-stage technology companies may not be
able to attract and retain appropriately skilled and
experienced staff; they may not be able to attract
sufficient funding to achieve their commercial
objectives; their technology niche may be
overtaken by competing technologies or may not
achieve commercial traction, however attractive
the opportunity might appear; take up of their
product or service offering in their chosen markets
may not occur at levels sufficient to generate
positive cash flow and create shareholder value.
The length of time taken for these companies to
arrive at success or failure may be protracted,
placing them under severe pressure to maintain the
financial support required over a sustained period
of time.
The value of the Group’s
direct investment
portfolio may be
dominated by a single or
limited number of
companies.
A large proportion of the overall value of the direct
investment portfolio may at any time be accounted
for by one or very few companies. There is a risk
that one or more of the portfolio businesses will
experience financial difficulties, become insolvent
or suffer from poor market conditions and if, as a
result, their value were to be adversely affected,
this would have a material detrimental effect on the
overall value of the Group’s investment portfolio.
Such large possible cash flow variations could have
a materially adverse effect on the financial
condition and prospects of the Group.
Almost all of the Group’s direct investments thus
far are companies which have emerged from the
funds under management by the Group’s wholly
owned subsidiaries, Mercia Fund Management
Limited (“MFM”) and Enterprise Ventures Group
Limited. Both have a fail fast policy, which means
that early-stage businesses which do not achieve
commercial traction within a reasonable time frame
are closed down. Portfolio businesses which do
achieve commercial milestones and meet the
Group’s other investment criteria receive direct
investment. This process has two mitigating
advantages. Firstly, companies which do not
achieve commercial traction, or do not have a
sufficiently experienced and capable management
team, do not receive direct Group investment.
Secondly, the ‘real-time’ due diligence being
undertaken by the Group’s Investment Teams
during the investee company’s early-stage of
development means that Mercia is already familiar
with the business, its commercial prospects and its
management team before it is presented to the
Group’s Board (which acts as Mercia’s investment
committee) with a recommendation for
direct investment.
The Group currently directly invests across four
sectors and over time will seek to balance the total
portfolio by quantum and value by sector, as the
total number of direct investments and their values
grow. Good progress in balancing the portfolio has
been made during the year. However, it is the
Group’s expectation that from time to time,
depending on the speed of development of
portfolio companies and the attractiveness of
certain technology sectors, there may be
investments that dominate the total portfolio
by value.
The Group maintains sufficient cash resources to
manage its day-to-day and investing activities,
irrespective of fluctuations in the timing of
investment realisations.
A proportion of the direct investment portfolio
companies’ intellectual property rights relate to
technology which was originated in the course of
research conducted in, and initially funded by, UK
universities. Although the Group maintains
collaborative relationships with all of its university
partners, it cannot be certain that all such portfolio
companies will be able to make use of the
intellectual property indefinitely.
Approximately 62% of the direct investment
portfolio comprises companies which are not
university spinouts. Where appropriate, the Group’s
portfolio companies engage intellectual property
protection specialists. Intellectual property due
diligence is one of the reviews which the Group
undertakes as part of its pre-investment appraisal
process and the Group works collaboratively with
its university partners to maximise the commercial
potential of university derived intellectual property.
Proceeds from the trade
sale or IPO of direct
investments may vary
substantially from year
to year.
The Group’s direct
investments may not
have exclusive rights on
all matters in relation to
the intellectual property
being exploited by the
business and could
ultimately lose their
usage rights under
certain circumstances.
48 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Governance
Financial statements
Financial statements
Other information
Other information
Risk
Possible consequences
Mitigation
The Group and its
portfolio companies are
subject to competition
risk.
The Group may not be
able to continue to retain
or attract experienced,
skilled and successful
Board Directors,
Investment Directors
and support staff.
The Group operates a direct investment model
which is similar in some respects to other investing
groups and, as a result, may find itself in
competition when new investment opportunities
arise. In addition, the direct investment portfolio
businesses are predominantly focused on the
technology sector. The technology sector is
intensely competitive on a global scale. Many of the
portfolio businesses’ competitors have greater
financial, technical and other resources.
Competition in the technology sector could
materially adversely affect the prospects, financial
condition and results of operations of direct
investment portfolio companies.
The Group depends on the experience, skill and
judgement of key staff in, amongst other things,
selecting possible future successful businesses in
which to invest. The Group also depends on its
network of deal flow introducers to the MFM,
Enterprise Ventures (“EV”) and Enterprise Ventures
Business Loans (“EVBL”) funds. The Group’s future
success depends in part on the continued service
of these individuals as well as the Group’s ability to
recruit, retain and motivate additional talented
personnel.
MFM, EV or EVBL may
cease to be authorised
by the Financial Conduct
Authority (“FCA”).
MFM, EV and EVBL are each authorised and
regulated by the FCA as small authorised UK
Alternative Investment Fund Managers (“AIFM”)
(Sub-threshold).
Should any of MFM, EV or EVBL cease to be
authorised and regulated by the FCA as a small
authorised UK AIFM (Sub-threshold), it would no
longer be authorised to act as the investment
manager of the respective MFM, EV or EVBL funds
or, in the case of MFM, as the UK AIFM to Mercia
Technologies. If that was to occur, Mercia would: (i)
lose one or more of its revenue streams; (ii) be
required to appoint a replacement UK AIFM; and (iii)
in the case of MFM and EV, lose one or more of the
principal sources of potential direct investments for
the Group.
The Group focuses its investing activities
predominantly on the historically underserved
regions of the United Kingdom, where competition
for investing in new technology companies is less
fierce. Companies in which the Group invests are
chosen because they are in large growth markets,
have developed disruptive technologies and have
already achieved commercial traction.
The Group seeks to reduce this risk by maintaining
an entrepreneurial working environment and by
offering balanced and competitive remuneration
packages to all its staff. The Remuneration
Committee monitors the remuneration and incentive
structures of all senior staff across the Group, in
conjunction with seeking advice, when appropriate,
from specialist remuneration consultants.
The Group mitigates this risk by ensuring that MFM,
EV and EVBL act at all times with integrity, honesty,
skill, diligence and fairly in conducting their
investing business activities. The Group regularly
reviews the financial positions of MFM, EV and
EVBL to ensure that adequate financial resources
are maintained in accordance with FCA rules. The
Group also ensures that each of MFM, EV and EVBL
employs the resources and procedures that are
necessary for the proper performance of their
business activities and comply with all regulatory
requirements applicable to the conduct of their
business, so as to promote the best interests of the
funds under management and fund investors. The
Group ensures that each of MFM, EV and EVBL
communicate information to fund investors in a
way which is fair, clear and not misleading. MFM, EV
and EVBL communicate with the FCA in an open
and co-operative way to provide regular reporting,
notifications and disclosures. The Group has
recently appointed a compliance director to further
strengthen Mercia’s expertise in this important area
of the Group’s operations.
The UK’s future exit from
the European Union may
impact upon both the
Group and its portfolio
companies.
Future European trade barriers or border controls
may impact portfolio company growth prospects.
Additional equity capital may be more difficult to
raise.
Technology is a sector that works without national
barriers and will only increase in importance. Many
of the Group’s direct investments have a global
target customer base.
The Group focuses on technology sectors which do
not have large capital needs. The Group therefore
has sufficient funds under management and
balance sheet cash to exercise investment and
operational flexibility.
Mercia Technologies PLC
Annual Report and Accounts 2017
49
Risk management continued
Risk
Possible consequences
Mitigation
Such security or infrastructure failures may result
in the loss of data, misuse of sensitive information,
reputational damage and legal or regulatory breaches.
Although the Directors do not believe that such
investors choose MFM solely for the tax relief
available, such reliefs are an element of their
decision making and if those reliefs were to be
withdrawn this could result in the size of the MFM
funds being reduced or make it difficult for Mercia
to successfully launch one or more similar funds.
Failure to interact with university technology
transfer offices may result in the termination of
Mercia’s non-exclusive partnership arrangements.
The Group reviews its infrastructure and
cybersecurity processes with its outsourced IT
provider on a regular basis and continues to invest
in resources to enhance its cyber defences and
improve network monitoring to mitigate the impact
of a security breach.
Critical business continuity plans and disaster
recovery contingencies are in place and have
been tested.
The Group has engaged external cybersecurity
consultants to undertake a detailed review of the
Group’s infrastructure and processes in June 2017.
Changes in tax legislation would affect the whole
industry, so Mercia would not be at a competitive
disadvantage. Investors would make their decisions
solely on companies’ track records, executive and
investment team members’ reputations and
performance.
In its relatively short time in the industry, Mercia has
established a strong reputation with a proven track
record of delivering value to fund investors and
would therefore be well placed to operate in this
environment.
Nicola Broughton (Investment Director, Technology
Transfer) and her team work closely with partner
institutions to ensure that each commercial
relationship is mutually beneficial and productive.
The Group will continue to consider and, where
appropriate, enter into new and innovative
partnerships and collaborations with research
intensive institutions through non-exclusive
arrangements.
Breaches of the Group’s
digital security, through
cyber attacks or a failure
of the Group’s digital
infrastructure, could
result in the loss of
commercially sensitive
data and/or create
substantial business
disruption.
A proportion of the
early-stage deal flow for
Mercia derives from, and
is financed via, the MFM
funds which include
capital raised from
sophisticated investors
seeking, inter alia, tax
relief. Any changes in
legislation around SEIS
and EIS relief could
impact on the ability of
Mercia to raise adequate
funds.
Mercia’s ability to
expand its business by
entering into additional
links and collaborative
arrangements with
universities and other
research institutions will
depend on the
willingness of
organisations of suitable
quality to enter into such
arrangements. Failure to
successfully initiate new
and additional
partnerships may limit
Mercia’s ability to
expand.
50 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Corporate and social responsibility
Mercia is committed to conducting all of its business in an honest, ethical and socially
responsible manner. The Group endeavours to provide a safe working environment for its
employees, as well as to minimise its impact on the environment, in all its activities. The
Group has appointed both health and safety and human resource managers to further its
aims of providing a safe and inclusive working environment.
Employee diversity
Employee diversity
Employee diversity
18
18
41
41
Male
Male
Female
Female
Health and safety
Staff and management at all levels are
responsible for the promotion of, and
adherence to, health and safety measures in
the workplace. The primary purpose of the
Group’s health and safety policy is to enable all
members of staff to go about their everyday
business at work, in the expectation that they
can do so safely without risk to their health.
Environmental policy
Given the overall size of the Group and its
office-based nature, Mercia considers the
direct environmental impact of its employees
to be relatively low. However, the Group is
committed to operating its business in an
environmentally responsible and sustainable
manner and encourages its employees to
reduce their impact on the environment in their
day-to-day business activities. During the year
Mercia established a cycle to work scheme in
which all employees are eligible to participate.
Events after the balance sheet date
Other than the continuing pipeline of approved
direct investments, new office openings and
staff recruitment in Leeds and Sheffield to
deploy the new Northern Powerhouse
Investment Fund mandate wins, there have
been no material events since the balance
sheet date.
Approval
The Strategic Report was approved by the
Board of Directors and signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
30 June 2017
Business ethics
In all its activities, the Group aims to be
commercial and fair, to maintain its integrity
and professionalism and to have due regard for
the interests of all of its investors, employees,
suppliers and the businesses in which the
Group invests.
Mercia seeks to operate as a socially
responsible employer and has adopted
standards and policies which promote
corporate values designed to help and guide
employees in their conduct and business
relationships. The Group seeks to comply with
all laws, regulations and rules applicable to its
business and to conduct that business in line
with applicable established best practice. The
Group takes a zero tolerance approach to
bribery and corruption and has enacted
procedures to prevent bribery. All employees
who are involved with the regulated business of
managing investment transactions receive
compliance and anti-money laundering training,
with periodic refresher courses. The Group
recognises that its employees are fundamental
to its success and is therefore committed to
encouraging the ongoing development of its
staff with the aim of maximising the Group’s
overall performance. Emphasis is placed on
staff development through work-based
learning, coaching and mentoring.
Employee diversity and
employment policies
The Group is an equal opportunities employer
and promotes diversity through the selection,
training, development and promotion of its
employees. Mercia does not differentiate on
grounds of gender, ethnicity, sexual orientation,
religion or physical ability. For the year ended
31 March 2017, the Group employed an average
of 59 (2016: 24) staff, including its Board of
eight (2016: seven) Directors. A breakdown of
staff by gender is shown in the graphic.
Given the nature of its business, the Group
believes that the principal human rights issues
affecting the business relate to non-
discrimination, gender equality and fair
employment practices.
Mercia Technologies PLC
Life Sciences & Biosciences
Annual Report and Accounts 2017
51
Life Sciences & Biosciences
Board of Directors
At the heart of all successful businesses are strong teams. Mercia Technologies PLC’s Board
includes Non-executive Directors with exceptional listed company and corporate growth
success, combining shareholder value creation with good corporate governance at their
core. Mercia’s four Executive Directors have a highly complementary skill set, which is
essential to realise the growth potential of the Mercia Model.
Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Matthew Mead
Chief Investment Officer
Jonathan Diggines
Executive Director, Funds
Mark is the co-founder of Mercia
Fund Management Limited
(“MFM”). He has extensive venture
investment experience and led
the sale of Hybrid Systems (to
Myotec) to create PsiOxus,
Warwick Effect Polymers (to
Polytherics) to create Abzena plc
and led the founding investment
in Allinea Software Limited. Prior
to MFM, Mark was at the
Department of Pharmacology,
University of Oxford, and played
leading roles within Oxford
University Innovation (the
technology transfer operation of
the University of Oxford),
spinning out BioAnalab, Oxford
Immunotec, Oxitec and Natural
Motion – three of which were
latterly sold and one listed
successfully on NASDAQ. Mark
was vice president corporate
development at Oxxon
Therapeutics Inc, prior to its sale
to Oxford BioMedica plc. He
gained his PhD jointly between
the University of Oxford
(Worcester College) and the
University of London (King’s
College). Mark also has an MBA
from the University of Warwick,
has IMC parts I and II, is FCA
accredited, is a Sainsbury’s
Management Fellow for Life
Sciences and was awarded the
2015 EY Entrepreneur of the year
(regional and national).
Martin is a KPMG qualified
chartered accountant with more
than 20 years’ experience as
chief financial officer of listed,
private equity backed and
privately owned technology-led
businesses. Martin joined
Forward Group PLC in 1993 and
was group financial director from
1995 until its sale for
£129.0million in 1997. In 1999, as
deputy chief executive of
Symonds plc, Martin led the
public to private of this listed
technology group, backed by
NatWest Equity Partners. The
group was successfully
restructured and sold within 12
months to a NASDAQ listed US
electronics group, whereupon he
became a vice president, working
frequently in Silicon Valley. He
was chief executive of Forward
Group plc from 2003 to 2005 and
since then has been group
finance and IT director of the
large international food
processing group Boparan
Holdings Ltd and a private equity
backed building services
business. Martin holds an honours
degree in business from Aston
University.
Matthew has over 20 years’
experience in the investment
industry and is a seasoned board
executive, having been a
non-executive director and
non-executive chairman of over
15 early-stage and growth
businesses. He worked at 3i from
1995 to 2009 where he managed
the disposal of 3i’s venture
portfolio, realising £200.0million
of proceeds through sales, and its
pan-European venture portfolio,
returning over £180.0million of
cash in two years. He
subsequently joined NESTA as
managing director investments
to run its £30.0million venture
capital fund and in 2010 was
appointed CIO, managing all
investment activity, including its
£350.0million trust assets and its
venture portfolio. Matthew
qualified as a chartered
accountant with Ernst & Young
and holds a degree in economics
and geography from Reading
University.
Before joining the Board,
Jonathan had been chief
executive of Enterprise Ventures
from 2005 to 2016, where he
increased funds under
management from circa
£10.0million to more than
£200.0million. Previously
Jonathan spent 12 years in
practice as a solicitor, then 11
years as a fund manager with
Murray Johnstone, followed by
four years with Aberdeen Asset
Management. He has been
responsible for raising and
investing more than
£800.0million of private equity
and venture capital funds in the
UK mid-market and has led and
managed a substantial portfolio
of successful private equity and
venture capital investments. He
has been a member of the
Council of the British Venture
Capital Association (“BVCA”),
where he chaired the BVCA Legal
& Technical Committee. He was
chair of the Community
Development Finance
Association from 2011 to 2015
and is a now a member of the
North West Regional Council for
the Confederation of British
Industry (“CBI”). Jonathan has an
MA in jurisprudence from Oxford
University.
52 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Susan Searle
Non-executive Chair
Ian Metcalfe
Senior Independent Director
Ray Chamberlain
Non-executive Director
Martin Lamb
Non-executive Director
Having been Non-executive
Deputy Chair of Mercia
Technologies at the time of its
IPO in December 2014, Susan was
elected Non-executive Chair in
May 2016. Previously, Susan
served as the chief executive
officer of Imperial Innovations
Group plc (now Touchstone
Innovations plc) from January
2002 to July 2013. At Imperial
Innovations, Susan led funding
rounds totalling circa
£250.0million and during her
tenure, Imperial Innovations
invested £121.0million in a
portfolio of healthcare,
engineering and software
businesses. Prior to that, Susan
worked at Montech in Australia
(science commercialisation),
Signet Group PLC, Bank of Nova
Scotia and Shell Chemicals, in a
variety of business development
and commercial roles. She
currently serves as a non-
executive director of Benchmark
Holdings plc, Horizon Discovery
plc and QinetiQ Group plc and is
chair of Woodford Patient Capital
Trust plc. Susan has an MA in
chemistry from Oxford
University.
Ian is a qualified solicitor who
retired as managing partner of
international law firm Wragge &
Co in 2014 after eight years in
post. Prior to managing the
business, Ian was a corporate
partner at the firm for 14 years,
acting for a number of substantial
public and private companies and
private equity houses on a wide
range of transactions. In addition,
Ian is a director and chair of
Commonwealth Games England.
He is also a non-executive
director of the global waste
management group TRRG
Holdings Ltd, a merger of Dutch
based Terberg Environmental
and Spanish based Ros Roca
Environment. A double rugby
blue, Ian represents Cambridge
University on the RFU Council. He
is a governor of the Foundation
of King Edward VI Schools in
Birmingham, as well as a
governor of King Edward VI
School for Boys and King Edward
VI High School for Girls. Ian has an
MA in law from Cambridge
University and his appointment
as Mercia’s Senior Independent
Director in January 2017,
recognises the continuing
development and scale of the
Group during the past 12 months.
Ray is an entrepreneur with an
established track record of
shareholder value creation. Until
1997, Ray was executive chairman
and the principal shareholder in
Forward Group PLC, which he
grew from a start-up company in
1978 to become one of Europe’s
leading high technology printed
circuit board manufacturers,
listed on the Main Market of the
London Stock Exchange. In 1997
Forward Group accepted a
£129.0million offer from PCB
Investments plc, a company
established by Hicks, Muse, Tate
& Furst. Subsequently, Ray
diversified his interests in a
number of areas, which included
setting up the Forward
Innovation Fund, a trust focused
on investing in university spinouts
and other technology-led
start-ups. Ray was appointed
Non-executive Chair at the time
of the Group’s IPO and having
steered Mercia Technologies
through its first 18 months as a
listed company, moved to a
non-executive position in May
2016.
Martin retired from IMI plc (“IMI”)
at the end of 2013 after 33 years
with the company, the last 13 as
chief executive. He oversaw a
fundamental reshaping of IMI,
moving it from a largely
European-based conglomerate
with a heavy building materials
content, to a highly differentiated
and global engineering group,
focused on the precise control of
fluids and gases in critical
applications. As a result, IMI sold
and acquired over 30 companies
and more than doubled its
operating margins under his
leadership. Martin is currently
chairman of Rotork plc and until
July 2016 was the senior
independent director of Severn
Trent plc. In addition, Martin is
chairman of privately owned
Evoqua Water Technologies LLC
and a member of the European
Advisory Board of AEA Investors
(UK) Limited. Martin holds a
degree in mechanical engineering
from Imperial College London
and an MBA from Cranfield
Business School.
Mercia Technologies PLC
Annual Report and Accounts 2017
53
Senior management team
Operating across the Group, the senior management team benefits from
decades of business building and operational excellence, from fundraising
and management through to running multi-million dollar organisations.
Julian Viggars
Head of Technology
Investments, Third Party Funds
Mike Hayes
Investment Director, Digital &
Digital Entertainment
Rob Johnson
Investment Director, Software &
the Internet
Peter Dines
Investment Director, Life
Sciences & Biosciences
Julian was head of technology
investments at Enterprise
Ventures prior to its acquisition
by Mercia. He now works closely
with Mercia’s CIO to support the
Group’s Investment Team and
looks after 10 of the Group’s AIM
listed investments including a
non-executive director role at
fund investment Xeros
Technologies PLC. Julian played a
leading role in securing the
Northern Powerhouse
Investment Fund equity mandate.
Previously, Julian was an
investment director and COO of
BioProjects International PLC, an
AIM-listed early-stage
technology fund which he
co-founded with private investor
Jim Slater, and was an associate
partner with accountants Smith &
Williamson in London, where,
during his 10 years, he spent 18
months on secondment to
Barclays Ventures working on PE
buyout transactions.
Mike brings over 23 years’
experience in interactive
businesses. At multinational
games company SEGA, he was
CEO for Europe and America
presiding over a turnover in
excess of £400.0million. He was
responsible for the re-birth of
SEGA as a multi-platform
software company and managed
the acquisition of several
development studios including
Sports Interactive (maker of the
Football Manager series) and
Creative Assembly (maker of the
Total War series). Mike led the
team that transferred Sonic
successfully onto digital
platforms and launched one of
the first ever games for the
iPhone – Super Monkey Ball. Mike
has also held senior roles at
Nintendo and UK games
company Codemasters.
Rob has had an extensive career
in the digital and e-commerce
sector, holding numerous high
profile positions in leading
organisations, most recently as
joint managing director at
Buyagift PLC which he helped
grow from £3.0million turnover
to over £20.0million prior to the
sale of the company to
Smart&Co. Previously, Rob was
managing director and a main
board member at Ilion plc and
was responsible for the
turnaround of the fortunes of the
UK organisation. When Rob
joined the company the share
price was 52.0p and the entire
share capital was later bought by
Landis at 160.0p per share. Rob
played an instrumental role in the
successful realisation of Mercia’s
exit from Allinea Software in
December 2016.
As a highly successful
entrepreneur and investor, Peter
brings 20 years’ experience in the
healthcare sector, holding
numerous directorships across a
wide range of life sciences
businesses. Over this period,
Peter has been involved with a
number of high profile
investments and exits within the
sector, including the acquisition
of Surgicraft’s loss-making
business where, as managing
director, sales quadrupled within
three years and the business was
subsequently sold to ISIS Equity
Partners. Other key healthcare
positions held, both previously
and currently, include Bridges
Ventures, Cisiv, Diagnostic World
and Newtech Ortho.
54 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Dr Mark Volanthen
Investment Director,
Electronics, Materials &
Manufacturing/Engineering
Mark has extensive hands-on
experience in growing
technology businesses and has
achieved a number of successful
exits. He has commercial
experience across a wide range
of sectors, including energy,
defence, instrumentation and
communications and is named
inventor on over 65 patents.
Mark’s career started as a
founding employee at Kymata,
which was acquired by Alcatel for
$118.0million. He then held roles
including managing director of oil
& gas at Guralp Systems and chief
executive officer at WFS
Technologies and Insensys
Aerospace & Defence. He sold
Insensys in two transactions to
Schlumberger and Moog. Mark
also holds various non-executive
director, chairman and advisory
positions on the boards of high
growth technology businesses.
Dr Nicola Broughton
Investment Director, University
Technology Transfer
Nicola specialises in identifying
university spinout opportunities
at Mercia, her background being
in IP commercialisation,
university spinouts and
licensing, primarily within the
university and small and
medium sized enterprise (“SME”)
sectors. Since starting to work in
technology transfer in 2000,
Nicola has fulfilled a number of
commercial roles. Her
experience includes sourcing
and identifying commercial
opportunities, IP protection,
strategy and management
(managing a patent portfolio to
global protection), ‘freedom to
operate’, licensing, cross
licensing, due diligence and
raising finance in both the public
and private sectors.
John Simpson
Finance Director
John was the finance director
of Enterprise Ventures prior to
its acquisition by Mercia and
he played a key role in winning
the Northern Powerhouse
Investment Fund equity mandate
alongside Julian Viggars. He is a
chartered accountant and spent
11 years with Murray Johnstone
Private Equity, followed by four
years with Aberdeen Murray
Johnson Private Equity as
portfolio director and a member
of the executive management
team. He has 30 years’
experience in managing all
aspects of private equity as an
investor and portfolio director
and in fundraising. John has held
a number of non-executive
director appointments on behalf
of institutional investors and
client funds and has advised
private equity investors and fund
investors on due diligence and
investment management, in the
private and public sectors both in
the UK and overseas. He is a
former member of the British
Venture Capital Association
Hi-tech Committee and the VCT
Fund Managers’ Forum.
Mercia Technologies PLC
Annual Report and Accounts 2017
55
Directors’ report
The Directors present their Annual Report and the audited
financial statements of Mercia Technologies PLC for the year
ended 31 March 2017.
Results and dividends
The profit for the year was £1,043,000 (2016: £1,697,000 loss).
The Directors do not recommend the payment of a dividend
(2016: £nil).
Future developments and events after the balance
sheet date
Details of future developments and events that have
occurred after the balance sheet date can be found in the
Strategic Report on page 51 which forms part of this report by
cross-reference.
Substantial shareholdings
As at 31 March 2017, the Group had been notified, in accordance
with Chapter 5 of the Disclosure and Transparency Rules, of the
following voting rights of shareholders of the Group:
Number of
Ordinary
shares
Percentage
%
Invesco Perpetual
Woodford Investment Management
Forward Innovation Fund1
Baillie Gifford & Co
Forward Nominees Limited1
NFU Mutual Insurance Society
88,670,000
74,980,042
34,072,336
22,645,090
16,481,456
13,860,000
29.5
24.9
11.3
7.5
5.5
4.6
1 Shareholdings connected to Ray Chamberlain
Directors
The Directors who were in office during the year and up to the
date of signing the financial statements were:
Political donations
During the year ended 31 March 2017 the Group made no
political donations (2016: £nil).
Susan Jane Searle
Dr Mark Andrew Payton
Martin James Glanfield
Matthew Sidney Mead
Jonathan Brett Diggines
Ian Roland Metcalfe
Raymond Kenneth Chamberlain
Martin James Lamb
Directors’ shareholdings and other interests
A table showing the interests of Directors in the share capital of
Mercia Technologies PLC is shown in the Remuneration Report
on page 63.
Directors’ indemnities
Mercia Technologies PLC has made qualifying third party
indemnity provisions for the benefit of all Directors. These were
in force during the financial year and remained in force at the
date of approval of the financial statements.
Financial instruments
The Group’s financial instruments comprise cash and other
items, such as trade debtors and trade creditors, which arise
directly from its operations. The main purpose of these
financial instruments is to fund the Group’s operations as well
as to efficiently manage working capital and liquidity.
Employees
The Group employed an average of 59 (2016: 24) staff
throughout the year and is therefore of a size where it is not
necessary to have introduced a formal employee consultation
process. However, employees are encouraged to be involved in
decision-making processes and are provided with information
on the financial and economic factors affecting the Group’s
performance, through regular team meetings, updates from
the Chief Executive Officer and via an open and inclusive
culture. Given the Group’s continuing expansion during the past
year, human resource management encompassing recruitment,
retention, communication, training and performance
management continues to be an important area of focus.
The Group operates a discretionary annual bonus scheme for
all of its employees with bonuses being awarded based on their
and the Group’s overall performance.
Applications for employment by disabled persons are always
fully considered, bearing in mind the aptitudes of the applicant
concerned. In the event of a member of staff becoming
disabled, every effort is made to ensure that their employment
within the Group continues and that workspace and other
modifications are made as appropriate. It is the policy of the
Group that the training, career development and promotion of
a disabled person should, as far as possible, be identical to that
of a person who does not suffer from a disability.
It is the Group’s policy not to enter into derivative transactions
and no trading in financial instruments has been undertaken
during the year under review. The Group therefore faces few
risks associated with financial instruments.
The Group’s use of financial instruments is discussed further in
note 27 to the consolidated financial statements.
Auditor
The auditor, Deloitte LLP, has indicated their willingness to
continue in office and a resolution concerning their
reappointment will be proposed at the forthcoming Annual
General Meeting.
Approved by the Board and signed on its behalf by:
Martin Glanfield
Company Secretary
30 June 2017
Forward House, 17 High Street, Henley-in-Arden
Warwickshire B95 5AA
56 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the audited financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial period. Under that law the
Directors are required to prepare the Group financial
statements in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European
Union and have also chosen to prepare the Parent Company
financial statements in accordance with Financial Reporting
Standard 101 ‘Reduced Disclosure Framework’. Under company
law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and the Company and of the
profit or loss of the Group for that period.
In preparing the Group financial statements, International
Accounting Standard 1 requires that the Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users
to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and
financial performance; and
• make an assessment of the Group’s ability to continue as a
going concern.
In preparing the Company financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether Financial Reporting Standard 101 ‘Reduced
Disclosure Framework’ has been followed, subject to any
material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
the Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and the
Company, enabling them to ensure that the financial
statements comply with the Companies Act 2006. They are
also responsible for safeguarding the assets of the Group and
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Group’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group and the undertakings included in the
consolidation taken as a whole;
the Strategic Report includes a fair review of the
development and performance of the business and the
position of the Group and the undertakings included in the
consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
the Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
Group’s performance, business model and strategy.
This responsibility statement was approved by the Board on
30 June 2017 and signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Mercia Technologies PLC
Annual Report and Accounts 2017
57
Corporate governance report
Introduction
The Directors recognise the importance of sound corporate
governance and intend to observe and adhere to, so far as
practicable, the recommendations set out in the corporate
governance code for small and mid-size quoted companies,
published by the Quoted Companies Alliance. For Mercia
Technologies, good corporate governance is about ensuring
that the Group is aligned with its shareholders’ objectives and
that the execution of the strategy adopted will create long-
term incremental shareholder value. The business backgrounds
of the Non-executive Directors in particular reflect the
importance with which the Group regards corporate
governance. In addition, the Group is a member of the Quoted
Companies Alliance to further its understanding of, and
adherence to, current good corporate governance practice.
The Board
The Board comprises eight Directors, of which four are
Executives and four are Non-executives. Collectively they
reflect a balance of different skills, experiences and
backgrounds. The Chief Financial Officer is also the
Company Secretary.
The Board has a schedule of matters reserved for its approval
including, inter alia, setting the Group’s strategic direction,
approving annual budgets, monitoring performance against
plan and authorising all material direct investment decisions
and all corporate transactions.
The Board will meet formally for a minimum of eight times each
year. During the year to 31 March 2017 the Board met 11 times.
Details of attendance at those Board meetings is as follows:
Director
Susan Searle
Dr Mark Payton
Martin Glanfield
Matthew Mead
Jonathan Diggines
Ian Metcalfe
Ray Chamberlain1
Martin Lamb
Number of
Board
meetings
attended
11
11
11
11
11
11
11
10
1 Ray Chamberlain is entitled to appoint an alternate Director in his absence.
The Board delegates specific duties and responsibilities to
certain committees and has established an Audit Committee,
a Remuneration Committee and a Nominations Committee,
as described more fully below except in respect of the
Remuneration Committee, whose report is set out on
pages 60 to 63 of this Annual Report. In May 2016, following
recommendation of her appointment by the Nominations
Committee, Susan Searle, who had previously been
Non-executive Deputy Chair of the Group, was appointed as
the new Non-executive Chair, in succession to Ray
Chamberlain, who remains on the Board as a Non-executive
Director. In January 2017 Ian Metcalfe was appointed as the
Board’s Senior Independent Director, in recognition of the
increasing development and scale of the Group.
As a consequence of Susan’s appointment, a number of
changes to the composition of the Audit, Nominations and
Remuneration Committees took place during the year. Martin
Lamb became Chair of the Audit Committee and Susan Searle
became Chair of the Nominations Committee, whilst Ian
Metcalfe remained Chair of the Remuneration Committee. All
four Non-executive Directors now sit on all three committees.
Audit Committee
The Audit Committee is responsible for monitoring the
integrity of the Group’s financial statements, reviewing
significant financial reporting issues, reviewing the
effectiveness of the Group’s internal control and risk
management systems and overseeing the relationship with the
external statutory and CASS auditors (including advising on
their appointment, agreeing the scope of the audits and
reviewing the audit findings).
The Audit Committee will monitor the need for an internal audit
function. During the year the Committee comprised Martin
Lamb as Chair, Susan Searle, Ian Metcalfe and Ray Chamberlain.
Executive Directors attend by invitation. The Audit Committee
met four times during the year under review at appropriate
times in the reporting and audit cycle. It may also meet at
other times if so required. It has unrestricted access to the
Group’s external auditor. Three of the four meetings were
fully attended.
Nominations Committee
The Nominations Committee is responsible for identifying and
nominating members of the Board and recommending
Directors to be appointed to each committee of the Board,
including the Chair of each committee. The Committee also
considers succession planning for both Executive and
Non-executive Directors. During the year the Committee
comprised Susan Searle as Chair, Ian Metcalfe, Ray Chamberlain
and Martin Lamb. The Nominations Committee met twice
during the year and may also meet at other times if so required.
Both meetings were fully attended.
58 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Internal controls
The Board acknowledges its overall responsibility for the
Group’s system of internal controls and the ongoing review of
their effectiveness. These controls are designed to safeguard
the Group’s assets and are considered appropriate for an AIM
listed group of the size and complexity of Mercia Technologies.
However, systems of internal control can only identify and
manage risks, not eliminate them. Consequently, such controls
do not provide an absolute assurance against misstatement or
loss. The main features of the Group’s internal control system
are as follows:
Investor relations
The Group is committed to developing and maintaining open
channels of communication with its shareholders and the
www.merciatech.co.uk website provides up-to-date
information on the Group. The Executive Directors are available
to meet with shareholders and sector analysts at regular
intervals throughout the year and the Non-executive Directors
are also available for informal discussions if required.
Shareholders will have an opportunity to raise questions with
the Board at the Group’s Annual General Meeting, which this
year will be held on 18 September 2017.
Going concern
Based on the overall strength of the Group’s balance sheet,
including its significant liquidity position at the year end,
together with its forecast future operating and investment
activities, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the Directors
have adopted the going concern basis in preparing the Annual
Report and financial statements.
Martin Glanfield
Company Secretary
30 June 2017
• A control environment exists through the close daily
management of the business by the Executive Directors.
The Group has a defined organisation structure with
delineated investment approval limits. Controls are
implemented and monitored by senior staff with the
necessary qualifications and experience.
• A list of matters specifically reserved for Board approval.
• Regular detailed management reporting with comparisons
and explanations of any material variances against budget
or forecasts.
• Financial and custody of asset controls operate to ensure
that the assets of the Group are safeguarded and that
appropriate accounting records are maintained.
Share dealing, anti-bribery and whistleblowing
The Group has adopted a share dealing code in conformity with
the requirements of Rule 21 of the AIM Rules. All employees,
including new joiners, are required to agree to comply with the
code. The Group has also adopted anti-bribery and
whistleblowing policies, which are included in every employee’s
staff handbook. The Group operates an open and inclusive
culture and employees are encouraged to speak up if they have
any concerns. The aim of such policies is to ensure that no
blurred lines exist and to encourage all employees, regardless
of seniority, to bring matters which cause them concern to the
attention of either the Executive or Non-executive Directors.
The Group has adopted the requirements of the Market Abuse
Regulations, to the extent required by AIM listed companies.
Mercia Technologies PLC
Annual Report and Accounts 2017
59
Remuneration report
Remuneration Committee
The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the remuneration of
the Chair, the Executive Directors and other designated senior executives and, within the terms of the agreed framework,
determining the total individual remuneration packages of such persons including where appropriate salaries, bonuses, share
options and other long-term incentives. The remuneration of Non-executive Directors is a matter for the Chair and the Executive
Directors. No Director is involved in any decision as to his or her own remuneration.
For the year to 31 March 2017 the Remuneration Committee comprised Ian Metcalfe as Chair, Susan Searle, Ray Chamberlain and
Martin Lamb. The Remuneration Committee will meet at least twice a year and otherwise as required. During the past year the
Committee met twice formally, with both meetings being fully attended, and on other occasions on an ‘as required’ basis.
Remuneration policy
The Remuneration Committee believes that the success of the Group depends, in part, on the performance of the management
team and in being able to attract, retain and motivate people of high calibre and experience. The Committee also recognises the
importance of ensuring that employees are incentivised and identify closely with the achievement of the Group’s strategic
objectives, the leading one of which is to achieve incremental shareholder value over the medium term through successful
investment in, and subsequent exit from, technology based companies.
Accordingly, the Committee seeks to provide a fair, balanced, competitive and affordable remuneration package for its
Executive Directors and staff, while ensuring that a significant proportion of the total remuneration of each Executive Director is
linked to performance.
The main elements of the remuneration package for Executive Directors are base salary, an annual performance related bonus
scheme and participation in the Group’s long-term share option scheme and carried interest plan. Other benefits include
contributions to a defined contribution personal pension scheme, life assurance, private health insurance and permanent health
insurance. Only base salaries are pensionable. In 2016 the Committee engaged external remuneration consultants to review
executive remuneration throughout the enlarged Group, following the acquisition of Enterprise Ventures.
2016 Remuneration policy review
The purpose of the Group’s remuneration policy is to balance three key objectives, namely: to attract and retain talent, to focus
behaviours and to be affordable. Within this context, the Committee’s external adviser, MM&K, was asked to review whether the
total remuneration packages of the Executive Directors and Investment Directors should be amended, being mindful of all
stakeholder interests.
Given the Group’s early position in its growth cycle, there is natural tension between ‘affordability’ and the need to ‘attract and
retain talent’ in what has become recognised as an attractive and competitive sector. The 2016 review therefore focused on four
elements of remuneration – base salary, annual bonuses, long-term incentives and benefit packages – in the context of current
remuneration practices, the Group’s own objective of sustained long-term capital growth and benchmarking the existing
remuneration packages against a defined comparator group.
The review outputs, which have been endorsed by the Committee, included a recommendation that the Group adopts a policy of
active remuneration review which is event rather than time driven, ie growing Net Asset Value (“NAV”) above an agreed target.
More specific agreed recommendations in respect of the Executive Directors are summarised below:
Base salaries – these should move gradually towards lower quartile market levels of the comparator group, reflecting the lower
market capitalisation of the Group in this early-stage of its development.
Annual bonuses – the benchmarking review showed that the original maximum annual bonus potential of 25% of base salary was
significantly ‘off market’. The review recommended that maximum bonuses of up to 100% of base salary should be capable of
being earned for exceptional performance. The review also suggested that the Committee should consider deferring an element
of future bonus awards into Mercia shares, to be retained for three years.
Long-term incentives – comparator investment groups (be they listed or un-listed) typically implement carried interest plans
which allocate 20% carried interest to the senior executive and investment team. Mercia’s plan provides for 10% carried interest to
be allocated because the Group also has a share option scheme, although the current operation of the two schemes still does not
bring the senior team fully in line with ‘market’. The review therefore recommended that for at least the three years to 31 March
2019 annual share option awards be made to Executive Directors at the level of 1 x base salary.
60 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Having carefully considered these and other recommendations, the Committee adopted them as the Group’s performance
focused remuneration policy. Recognising the importance of affordability however, the Committee and the Executive Directors
together agreed that 50% of base salary should be the maximum bonus for exceptional performance in 2016/17, while the Group
continues to establish its investment track record, operating model and NAV growth trajectory. The criteria for determining the
2016/17 bonus award was therefore as follows:
1. Material portfolio fair value growth/realised gains – 35% weighting
2. Progress by five leading investments in terms of management and board strength, revenue targets met, commercial progress,
operating within budget – 35% weighting
3. At least £65.0million of new fund mandates secured – 30% weighting.
Having considered the performance of the Group and the Executive Directors against each of these criteria, the Committee
awarded bonuses to each Executive Director at a level of 35% of their base salary for 2016/17.
The Committee has also agreed to a maximum bonus of 100% of base salary for exceptional performance for 2017/18, with the
bonus award payable in cash up to 50% of base salary and the remainder in deferred shares. The agreed criteria for determining
the ultimate 2017/18 award is:
1. Material portfolio fair value growth/realised gains – 30% weighting
2. Progress by six leading direct investments in terms of management and board strength, revenue targets met, commercial
progress, operating within budget – 30% weighting
3. Building a sustainable funnel of future Emerging Stars and meeting fund mandate investment targets – 20% weighting
4. Subjective measure of performance by each Executive Director reflecting their specific areas of responsibility and influence –
20% weighting.
The Committee will continue to monitor the affordability and suitability of the Group’s remuneration policy and performance criteria.
Directors’ service contracts
The table below summarises the service contract and letter of appointment details for each Executive and Non-executive
Director as at the date of this report:
Dr Mark Payton
Martin Glanfield
Matthew Mead
Jonathan Diggines
Susan Searle
Ian Metcalfe
Ray Chamberlain
Martin Lamb
Effective date
of appointment
Annual
salary
£’000
Notice
period
15 December 2014
1 October 2014
26 May 2015
9 March 2016
15 December 2014
15 December 2014
15 December 2014
13 January 2015
212 6 months
189 6 months
219 6 months
191 6 months
65 3 months
46 3 months
40 3 months
40 3 months
Equity-based incentive schemes
The Committee believes that equity-based incentive schemes increase the focus of employees on achieving the Group’s
medium-term strategic objectives, while at the same time providing a strong incentive for retaining and attracting individuals of
high calibre. The Committee has implemented two long-term incentive schemes.
The Mercia Company Share Option Plan (“CSOP”)
The Remuneration Committee is responsible for issuing awards of options to purchase Ordinary shares under the Group’s share
incentive plan, known as the Mercia CSOP, which was adopted by Mercia Technologies on 8 December 2014. All Executive
Directors and employees are eligible to participate. The Committee intends that appropriate awards be made over time, not
exceeding the limits contained in the CSOP.
The Mercia CSOP comprises two parts. The first part satisfies the requirements of Schedule 4 to the Income Tax (Earnings and
Pensions) Act 2003 (so that options granted under it are subject to capital gains tax treatment). The second part will be used to
grant options which cannot be granted within the limit prescribed by the applicable tax legislation and which will not therefore
benefit from favourable tax treatment. No options will be granted under the Mercia CSOP more than 10 years after its adoption.
The number of Ordinary shares over which options may be granted on any date is limited so that the total number of Ordinary
shares issued and issuable in respect of options granted in any 10 year period under the Mercia CSOP and any other employee
share scheme is restricted to 10% of the issued Ordinary shares from time to time.
Mercia Technologies PLC
Annual Report and Accounts 2017
61
Remuneration report continued
The first options granted under the Mercia CSOP (‘Initial Options’) have an exercise price equal to the IPO Placing price, being
50.0 pence, which was agreed with HMRC as not less than the market value of an Ordinary share for the purpose of making
the first grants. Awards are subject to a performance condition. The condition shall be satisfied if the total shareholder return
(being the increase in the price of an Ordinary share from a 50.0 pence base value plus any dividend yield), from Admission to the
third anniversary of Admission, is not less than 6% (compound) per annum. Initial Options were conditionally granted on 8
December 2014 and became unconditional on Admission. Further options have been issued in subsequent years to new joiners
and in the year to 31 March 2017 additional options were granted to Dr Mark Payton, Martin Glanfield, Matthew Mead and
Jonathan Diggines. The total number of options in issue at the year end was 8,715,000 (2016: 4,420,000).
The Initial Options will be exercisable as to one-third on or after the third anniversary of Admission, one-third on or after the
fourth anniversary, with the remaining one-third on or after the fifth anniversary, provided that on the vesting date the
performance condition has been satisfied. The options subsequently granted to new staff, Dr Mark Payton, Martin Glanfield,
Matthew Mead and Jonathan Diggines have the same performance and exercise criteria, save that for options granted from July
2016 onwards, the performance condition has been amended to a requirement that the total shareholder return from the date of
grant to the third anniversary is not less than 6% (compound) per annum, using a volume-weighted average share price for the 90
days prior to the third anniversary of the date of grant.
The methodology for determining the market value of an Ordinary share for all future grants of options under the Mercia CSOP
has also been agreed with HMRC, such that the Group will use the closing mid-market price quoted by the London Stock Exchange
on the trading day immediately preceding the date of grant.
The Mercia Carried Interest Plan (“CIP”)
Mercia operates a carried interest plan for the Executive Directors and certain other investment executives (‘Plan Participants’).
Each CIP will operate in respect of direct investments made by Mercia Technologies during a 24 month period, save that the first
CIP was for the period from the plan’s adoption on 1 August 2015 to 31 March 2017.
Once Mercia Technologies has received an aggregate annualised 6% realised return during the relevant investment period, Plan
Participants will receive, in aggregate, 10% of the net realised cash profits from the direct investments made over the relevant
period. Plan Participants’ carried interest is subject to good and bad leaver provisions.
In addition, Mercia Technologies has implemented a Phantom Carried Interest Plan (“PCIP”), based on the above criteria, in respect
of the direct investments which the Group acquired shortly before Admission and those new direct investments made in the post
IPO period leading up to the implementation of the CIP on 1 August 2015.
Audited information
The following section contains the disclosures required by the AIM Rules and by UK company law.
Directors’ remuneration
The aggregate remuneration received by the Directors who served during the year is set out below:
Executive Directors
Dr Mark Payton
Martin Glanfield
Matthew Mead
Jonathan Diggines
Non-executive Directors
Susan Searle
Ian Metcalfe
Ray Chamberlain
Martin Lamb
Salaries payable
Pension contributions
Taxable benefits
Performance
related bonus
Total
2017
£’000
2016
£’000
2017
£’000
2016
£’000
2017
£’000
2016
£’000
2017
£’000
2016
£’000
2017
£’000
2016
£’000
204
185
214
187
65
40
40
40
185
175
144
179
45
40
65
40
22
20
–
–
–
–
–
–
20
19
16
7
–
–
–
–
975
873
42
62
2
2
2
1
–
–
–
–
7
9
9
8
1
–
–
–
–
71
65
67
66
–
–
–
–
46
44
43
–
–
–
–
–
299
272
283
254
65
40
40
40
260
247
211
187
45
40
65
40
27
269
133
1,293
1,095
Mercia pays reasonable expenses incurred by its Non-executive Directors and may settle any tax and National Insurance due on
such payments where relevant.
62 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Share options
The number of options over Mercia Technologies’ Ordinary shares held by Directors as at 31 March 2017 is set out below:
Executive Directors
Dr Mark Payton
Martin Glanfield
Matthew Mead
Jonathan Diggines
Number of options
As at
31 March
2017
As at
31 March
2016
Date of
grant
Exercise price
Period of exercise
1,000,000
400,000
1,000,000
400,000
42,857
957,143
400,000
400,000
1,000,000
–
8 Dec 2014
27 Jul 2016
1,000,000
–
8 Dec 2014
27 Jul 2016
42,857
957,143
–
31 Jul 2015
31 Jul 2015
27 Jul 2016
–
27 Jul 2016
50.00p
51.25p
50.00p
51.25p
70.00p
57.50p
51.25p
51.25p
18 Dec 2017 to 7 Dec 20241
27 Jul 2019 to 26 Jul 20263
18 Dec 2017 to 7 Dec 20241
27 Jul 2019 to 26 Jul 20263
31 Jul 2018 to 30 Jul 20252
31 Jul 2018 to 30 Jul 20252
27 Jul 2019 to 26 Jul 20263
27 Jul 2019 to 26 Jul 20263
1 The options will be exercisable as to one-third from 18 December 2017, one-third from 18 December 2018 and the remaining one-third from 18 December 2019.
2 The options will be exercisable as to one-third from 31 July 2018, one-third from 31 July 2019 and the remaining one-third from 31 July 2020.
3 The options will be exercisable as to one-third from 27 July 2019, one-third from 27 July 2020 and the remaining one-third from 27 July 2021.
Directors’ share interests
The interests of the Directors and their connected persons in the Ordinary shares of Mercia Technologies are set out below:
Susan Searle
Dr Mark Payton
Martin Glanfield
Matthew Mead
Jonathan Diggines
Ian Metcalfe
Ray Chamberlain1
Martin Lamb
Number of
Ordinary shares
as at 31 March
2017
Number of
Ordinary shares
as at 30 June
2017
1,097,388
6,655,472
293,369
75,730
857,919
132,609
60,824,766
132,609
1,097,388
6,655,472
293,369
75,730
857,919
132,609
60,824,766
132,609
1 Ray Chamberlain is personally interested in 6,149,752 Ordinary shares. The remaining 54,675,014 Ordinary shares are held by the Forward Innovation
Fund (34,072,336 Ordinary shares), Croftdawn Limited (3,994,786 Ordinary shares), Mercia Growth Nominees Limited (126,436 Ordinary shares) and
Forward Nominees Limited (16,481,456 Ordinary shares as nominee for certain members of the Chamberlain family and close associates, including
Ray Chamberlain).
Ian Metcalfe
Chair of the Remuneration Committee
30 June 2017
Mercia Technologies PLC
Annual Report and Accounts 2017
63
Independent auditor’s report to the
members of Mercia Technologies PLC
We have audited the financial statements of Mercia
Technologies PLC for the year ended 31 March 2017 which
comprise the consolidated statement of comprehensive
income, the consolidated and Company balance sheets, the
consolidated and Company statements of changes in equity,
the consolidated cash flow statement and the related notes 1
to 42. The financial reporting framework that has been applied
in the preparation of the Group financial statements is
applicable law and International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union. The financial
reporting framework that has been applied in the preparation
of the Company financial statements is applicable law and
United Kingdom Accounting Standards (Generally Accepted
Accounting Practice) including Financial Reporting Standard
101 ‘Reduced Disclosure Framework’.
This report is made solely to the Group’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might
state to the Group’s members those matters we are required to
state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Group and the
Group’s members as a body, for our audit work, for this report,
or for the opinions we have formed.
Respective responsibilities of Directors and auditor
As explained more fully in the Statement of Directors’
Responsibilities, the Directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in
accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards
for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the Group’s and the Company’s
circumstances and have been consistently applied and
adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements. In addition, we read all
the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as at
31 March 2017 and of the Group’s profit for the year
then ended;
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion, based on the work undertaken in the course of
the audit:
•
•
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements; and
the Strategic Report and the Directors’ Report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group
and its environment obtained in the course of the audit, we
have not identified any material misstatements in the Strategic
Report and the Directors’ Report.
Other matters
In our opinion:
•
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
provisions of the Companies Act 2006 that would have
applied were the Company a quoted company.
Matters on which we are required to report
by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
Group or the Company, or returns adequate for our audit
have not been received from branches not visited by us; or
the Group or Company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
•
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Andrew Halls FCA (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
30 June 2017
64 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Consolidated statement of comprehensive income
For the year ended 31 March 2017
Revenue
Cost of sales
Gross profit
Fair value movements in investments
Realised gains on disposal of investments
Administrative expenses:
Share-based payments charge
Amortisation of intangible assets
Other administrative expenses
Operating profit/(loss) before exceptional items
Exceptional items
Operating profit/(loss)
Finance income
Profit/(loss) before taxation
Taxation
Profit/(loss) and total comprehensive income/(loss) for the financial year
Basic and diluted earnings/(loss) per Ordinary share (pence)
All results derive from continuing operations.
The notes on pages 69 to 85 are an integral part of these financial statements.
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
Note
3
4
6
7
7
8
9
10
11
6,660
(92)
6,568
4,268
839
(395)
(301)
(9,051)
1,928
(1,125)
803
186
989
54
1,043
0.47
1,755
(79)
1,676
896
–
(230)
(17)
(4,011)
(1,686)
(372)
(2,058)
361
(1,697)
–
(1,697)
(0.80)
Mercia Technologies PLC
Annual Report and Accounts 2017
65
Consolidated balance sheet
As at 31 March 2017
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Investments
Total non-current assets
Current assets
Trade and other receivables
Short-term liquidity investments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Deferred taxation
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Other distributable reserve
Retained earnings
Share-based payments reserve
Other reserve
Total equity
Note
12
14
15
16
17
18
18
As at
31 March
2017
£’000
As at
31 March
2016
£’000
10,328
1,186
151
52,028
10,328
1,487
145
38,143
63,693
50,103
747
35,000
28,829
798
10,000
20,932
64,576
31,730
128,269
81,833
19
(6,698)
(1,521)
20
(217)
(271)
(6,915)
(1,792)
121,354
80,041
21
22
23
24
3
48,243
70,000
1,314
669
1,125
2
9,494
70,000
271
274
–
121,354
80,041
The notes on pages 69 to 85 are an integral part of these financial statements.
The consolidated financial statements of Mercia Technologies PLC, registered number 09223445, on pages 65 to 85 were
approved by the Board of Directors and authorised for issue on 30 June 2017. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
66 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Consolidated cash flow statement
For the year ended 31 March 2017
Cash flows from operating activities:
Operating profit/(loss)
Adjustments to reconcile operating profit/(loss) to net cash flows used in
operating activities:
Depreciation of property, plant and equipment
Fair value movements in investments
Realised gains in disposal of investments
Share-based payments charge
Amortisation of intangible assets
Exceptional items – deferred consideration payable
Working capital adjustments:
Decrease in trade and other receivables
Increase in trade and other payables
Net cash generated from/(used in) operating activities
Cash flows from investing activities:
Purchase of direct investments
Proceeds from the sale of direct investments
Investee company loan repayments
Cash received on the dissolution of Mercia Fund 2
Purchase of subsidiary undertaking
Cash acquired on purchase of subsidiary undertaking
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
Note
803
(2,058)
76
(4,268)
(839)
395
301
1,125
73
5,177
2,843
33
(896)
–
230
17
–
522
128
(2,024)
(11,828)
2,909
140
–
–
–
(13,108)
–
94
384
(10,262)
1,953
15
4
6
14
8
17
19
16
16
13
Net cash flows from direct investment activities and the purchase of subsidiary undertakings
(8,779)
(20,939)
Cash flows from other investing activities:
Purchase of property, plant and equipment
Interest received
(Increase)/decrease in short-term liquidity investments
Net cash (used in)/generated from other investing activities
Net cash used in total investing activities
Cash flows from financing activities:
Proceeds from the issue of Ordinary shares
Transaction costs relating to the issue of Ordinary shares
Net cash generated from/(used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
15
18
(82)
165
(25,000)
(113)
397
20,000
(24,917)
20,284
(33,696)
(655)
21
22
40,000
(1,250)
38,750
7,897
20,932
–
(22)
(22)
(2,701)
23,633
18
28,829
20,932
Transaction costs relating to the issue of Ordinary shares have been deducted from share premium.
Mercia Technologies PLC
Annual Report and Accounts 2017
67
Consolidated statement of changes in equity
For the year ended 31 March 2017
As at 1 April 2015
Loss and total comprehensive loss for the year
Issue of share capital
Costs of share capital issued
Share-based payments charge
Deferred consideration payable
As at 31 March 2016
Profit and total comprehensive income for the year
Issue of share capital
Costs of share capital issued
Share-based payments charge
Deferred consideration payable
As at 31 March 2017
Issued
share
capital
£'000
(note 21)
Share
premium
£'000
(note 22)
Other
distributable
reserve
£'000
(note 23)
Retained
earnings
£'000
Share-based
payments
reserve
£'000
2
–
–
–
–
–
2
–
1
–
–
–
3
8,825
–
691
(22)
–
–
9,494
–
39,999
(1,250)
–
–
70,000
–
–
–
–
–
70,000
–
–
–
–
1,968
(1,697)
–
–
–
–
271
1,043
–
–
–
–
48,243
70,000
1,314
44
–
–
–
230
–
274
–
–
–
395
–
669
Other
reserve
£’000
(note 24)
–
–
–
–
–
–
–
–
–
–
–
1,125
Total
£'000
80,839
(1,697)
691
(22)
230
–
80,041
1,043
40,000
(1,250)
395
1,125
1,125 121,354
68 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Notes to the consolidated financial statements
For the year ended 31 March 2017
1. Accounting policies
The principal accounting policies applied in the presentation of these financial statements are set out below. These policies have
been consistently applied throughout the year unless otherwise stated.
General information
Mercia Technologies PLC (‘the Group’, ‘Mercia’) is a public limited company incorporated and domiciled in the United Kingdom, with
registered number 09223445. Its Ordinary shares are listed on the Alternative Investment Market (“AIM”) of the London Stock
Exchange. The registered office address is Mercia Technologies PLC, Forward House, 17 High Street, Henley-in-Arden, B95 5AA.
Mercia Technologies PLC’s Ordinary shares were admitted to trading on AIM on 18 December 2014.
Details of the Group’s activities and strategy are given in the Strategic Report which begins on page 4.
Basis of preparation
The consolidated financial statements of Mercia Technologies PLC have been prepared in accordance with European Union (“EU”)
endorsed International Financial Reporting Standards (“IFRSs”), the IFRS Interpretations Committee (formerly the International
Financial Reporting Interpretations Committee (“IFRIC”)) interpretations, and the Companies Act 2006 applicable to companies
reporting under IFRS.
The preparation of financial statements in conformity with IFRSs as endorsed by the EU requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements, are disclosed in note 2.
The financial statements have been prepared on the going concern basis, as explained in the Corporate Governance Report on
page 58, and under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities
at fair value through profit or loss, as required by International Accounting Standard (“IAS”) 39 ‘Financial Instruments: Recognition
and Measurement’, and explained further in the accounting policies below.
In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to
which the inputs to the fair value measurements are observable. These are described more fully below:
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the
measurement date;
• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either
directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or liability.
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of Mercia Technologies PLC and entities controlled by
it (its subsidiaries). Other than Mercia Fund 1 General Partner Limited (which is 98% owned), and Mercia Investment Plan LP (which
is 90% owned), all subsidiaries are 100% equity owned and have been included in the consolidated financial statements. Control is
achieved when the Group:
• has power over the investee;
•
• has the ability to use its power to affect its returns.
is exposed, or has rights, to a variable return from its involvement with the investee; and
The Group reassesses whether or not it controls an investee company if facts and circumstances indicate that there are changes
to one or more of the three elements of control listed above.
When the Group has less than a majority of the voting rights of an investee company, it considers that it has power over the
investee company when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the
investee company unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Group’s
voting rights in an investee company are sufficient to give it power, including:
the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
•
• potential voting rights held by the Group, other vote holders or other parties;
•
• any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the
rights arising from other contractual arrangements; and
relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
Mercia Technologies PLC
Annual Report and Accounts 2017
69
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
1. Accounting policies continued
Basis of consolidation continued
Subsidiaries 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.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
Business combinations
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.
Investments in associates
Investments that are held as part of the Group’s investment portfolio are carried in the balance sheet at fair value even though the
Group may have significant influence over those companies. This treatment is permitted by IAS 28 ‘Investments in Associates’,
which requires such investments to be excluded from its scope where those investments are designated upon initial recognition,
as at fair value through profit or loss and accounted for in accordance with IAS 39 ‘Financial Instruments: Recognition and
Measurement’, with changes in fair value recognised in the relevant period.
New standards, interpretations and amendments not yet effective
At the date of approving these financial statements, the following standards and interpretations, which have not been applied in
these financial statements, were in issue but not yet effective:
IFRS 9, ‘Financial Instruments’ – effective for annual periods beginning on or after 1 January 2018
IFRS 15, ‘Revenue from Contracts with Customers’ – effective for annual periods beginning on or after 1 January 2018
IFRS 16, ‘Leases’ – effective for annual periods beginning on or after 1 January 2019 with earlier application permitted if IFRS15
‘Revenue from Contracts with Customers’, is also applied
IAS 7 (amendments), ‘Statement of Cash Flows’ – effective for annual periods beginning on or after 1 January 2017
IAS 12 (amendments), ‘Recognition of Deferred Tax Assets for Unrealised Losses’ – effective for annual periods beginning on or
after 1 January 2017
The Directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the
financial statements of the Group in future years.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on
the Group.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services
provided in the normal course of business, net of VAT. All revenue from services is generated within the United Kingdom. Revenue
from services comprises:
Fund management fees
Fund management fees are generally earned as a fixed percentage of funds under management and are recognised as the
related services are provided.
Initial management fees
Initial management fees are generally earned as a fixed percentage of the amounts invested by the Group, are one-off payments
made by the investee company and are recognised upon completion of the investment.
Portfolio directors’ fees
Portfolio directors’ fees are earned either as a percentage of the amounts invested by the Group, or as a fixed amount. These are
annual fees, typically charged quarterly in advance to the investee company. Amounts are initially recorded as deferred income,
included under current liabilities and amortised in the consolidated statement of comprehensive income over the period to which
the services relate.
70 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
1. Accounting policies continued
Interest income
Interest income earned on cash deposits and short-term liquidity investments is recognised when it is probable that the economic
benefits will flow to the Group and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest rate applicable.
Exceptional items
The Group classifies items of income and expenditure as exceptional when, in the opinion of the Directors, the nature of the item
or its size is likely to be material, so as to assist the reader of the financial statements to better understand the results of the
operations of the Group. Such items are by their nature not expected to recur as part of the normal operation of the business and
are shown separately on the face of the consolidated statement of comprehensive income.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease,
except where another more systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed.
Retirement benefit costs
Payments to defined contribution personal pension plans are recognised as an expense when employees have rendered a service
entitling them to the contributions. Differences between contributions payable in the period and contributions actually paid are
shown as either accruals or prepayments in the consolidated balance sheet.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognised in
profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which
case the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where
current or deferred tax arises from the initial accounting of a business combination, the tax effect is included in the accounting for
the business combination.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the
consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible
in other periods and it further excludes items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, using the balance
sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary timing differences and deferred
tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the
initial recognition (other than in a business combination) of other assets and liabilities, in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries except where the
Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse
in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments are only recognised to the
extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary
differences and they are expected to reverse in the foreseeable future.
Mercia Technologies PLC
Annual Report and Accounts 2017
71
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
1. Accounting policies continued
Taxation continued
The Group primarily seeks to generate capital gains from its holdings in direct investments over the longer term but has, since IPO
in December 2014, made annual net operating losses (excluding fair value movements) from its operations from a UK tax
perspective. Capital gains arising from the disposal of direct investments would ordinarily be taxed upon realisation of such
investments. However, since the Group’s activities are substantially trading in nature, the Directors believe that it qualifies for the
Substantial Shareholdings Exemption (“SSE”). This exemption provides that gains arising on the disposal of qualifying investments
are not chargeable to UK corporation tax and, as such, the Group has continued not to recognise a provision for deferred taxation
in respect of fair value gains in those investments that meet the qualifying criteria. Gains arising on the disposal of non-qualifying
investments would ordinarily give rise to taxable profits for the Group, to the extent that these exceed the Group’s operating
losses from time to time.
Intangible assets
Identifiable intangible assets are recognised when the Group controls the assets, it is probable that future economic benefits
attributable to the assets will flow to the Group and the fair value of the assets can be measured reliably.
Intangible assets represent contractual arrangements in respect of third party limited partners’ and other similar investors’ funds
under management acquired through the acquisition of Enterprise Ventures Group Limited (“Enterprise Ventures”). At the date of
acquisition the fair value of these contracts was calculated and subsequently the assets are held at amortised cost. The fair value
of the intangible assets is being amortised on a straight-line basis over the expected average duration of the remaining fund
management contracts of five years, so as to write off the fair value of the contracts less their estimated residual values.
Goodwill
Goodwill arising on the acquisition of a subsidiary represents the excess of the fair value of the consideration given over the fair
value of the identifiable net assets acquired. Goodwill is not amortised but is reviewed annually for impairment in accordance with
IAS 36, ‘Impairment of Assets’.
Property, plant and equipment
Tangible assets are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised
so as to write off the cost or valuation of assets less their residual values over their expected useful lives, using the straight-line
method, on the following basis:
Fixtures, fittings and office equipment
Leasehold improvements
33%
over the remaining life of the lease
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective basis.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or
financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial
assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or
loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets at fair value through profit or loss (“FVTPL”),
loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time
of initial recognition.
Financial assets at fair value through profit or loss
Financial assets at FVTPL are either financial assets held for trading or financial assets that are designated at FVTPL. The Group
has investments in unlisted shares that are not traded in an active market but are classified as financial assets at FVTPL and
stated at fair value, because the Directors consider that fair value can be reliably measured. Fair value is determined in the
manner described in note 2 of these financial statements. Gains and losses arising from changes in fair value are recognised in
profit or loss.
72 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
1. Accounting policies continued
Financial instruments continued
A financial asset is classified as held for trading if:
it has been acquired principally for the purpose of selling in the near term; or
•
• on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a
recent actual pattern of short-term profit-taking.
A financial asset other than a financial asset held for trading may be designated at FVTPL upon initial recognition if:
• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance
•
is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and
information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and IAS 39 ‘Financial Instruments: Recognition and
Measurement’ permits the entire combined contract (asset or liability) to be designated at FVTPL.
•
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss.
The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included
in the ‘fair value movements in investments’ line in the consolidated statement of comprehensive income.
Valuation of financial assets held at fair value
The fair values of quoted investments are based on bid-prices at the balance sheet date.
The judgement required to determine the appropriate valuation methodology of unquoted equity investments means there is a
risk of material adjustment to the carrying amounts of assets and liabilities. This is a critical accounting judgement and as a result,
is set out in more detail in note 2 of these financial statements.
Derecognition of financial assets
The Group derecognises a financial asset when the contractual rights to receive the cash flows from the asset expire or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. On derecognition
of a financial asset in its entirety, the difference between the asset’s fair value and the sum of the consideration received is
recognised as a realised gain or loss or disposal of investment in profit or loss.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market
are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest
method, less any impairment.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognised as the proceeds received, net of direct issue costs.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding the obligation.
Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present
value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable
can be measured reliably.
Cash, cash equivalents and short-term liquidity investments
Cash and cash equivalents include cash in hand, deposits held with banks and other short-term highly liquid investments with
original maturities of less than three months. Short-term liquid investments with a maturity of over three months and less than
12 months are included in a separate category, ‘short-term liquidity investments’.
Mercia Technologies PLC
Annual Report and Accounts 2017
73
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
1. Accounting policies continued
Share-based payments
Equity-settled share-based payments to Executive Directors and certain employees of the Group, whereby recipients render
services in exchange for shares or rights over shares, are measured at the fair value of the equity instruments at the grant date.
Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 6.
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of the equity instruments that will eventually vest. At each balance sheet date, the Group reviews its estimate.
The impact of any revision to the previous estimate is recognised in profit or loss, such that the cumulative expense reflects
the revised estimate, with a corresponding adjustment to equity.
Segmental reporting
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating
results are regularly reviewed by the entity’s Chief Operating Decision Maker to make decisions about resources to be allocated to
the segment and assess its performance, and for which discrete financial information is available. Operating segments are
aggregated into reporting segments where they share similar economic characteristics. Note 3 to these financial statements
gives further details on the Group’s segmental reporting.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies described in note 1 above, 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 these financial statements.
Fair value measurements and valuation processes
The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is
risk of a material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision 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”). The valuation methodology most commonly used by the Group is ‘price of recent investment’, which can be either the
‘price of recent funding round’ or ‘cost’ in the case of a new direct investment.
Given the nature of the Group’s investments in early-stage companies, where there are often no current and no short-term future
earnings or positive cash flows, it can be difficult to gauge the probability and financial impact of the success or failure of
commercial development or research activities and to make reliable cash flow forecasts. Consequently, the most appropriate
approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment.
The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than
those based on assumptions and accordingly, where there has been any recent investment by third parties, the price of that
investment will generally provide a basis for the valuation. Where the investment being valued was itself made recently, its cost
will generally provide a good indication of fair value unless there is objective evidence that the investment has since been
impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the
underlying business.
If there is no readily ascertainable value from following the ‘price of recent investment’ methodology, the Group considers
alternative methodologies, which are referred to in the IPEVCV guidelines, being principally financial measures (‘enterprise
values’), such as trading and profitability expectations, requiring the Directors to make assumptions over the timing and nature
of future revenues when calculating fair value. Where a fair value cannot be estimated reliably, the investment is reported at the
carrying value at the previous reporting date unless there is evidence that the investment has since become impaired.
All recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly. The length
of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the
investment and the stability of the external environment. At each reporting date the Group considers whether any changes or
events subsequent to the period end would imply that a change in the fair value of the investment may be required. Where the
Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any
adjustment from the last price of recent investment. Wherever possible, this adjustment is based on objective data from the
investee company and the experience and judgement of the Group. However any adjustment is, by its very nature, subjective.
74 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
2. Critical accounting judgements and key sources of estimation uncertainty continued
Fair value measurements and valuation processes continued
Where deterioration in value has occurred, the Group reduces the carrying value of the investment to reflect the estimated
decrease. If there is evidence of value creation, the Group may consider increasing the carrying value of the investment.
However, in the absence of additional financing rounds or profit generation, it can be difficult to determine the value that a
purchaser may place on positive developments, given the potential outcome and the costs and risks to achieving that outcome.
3. Segmental reporting
For the year ended 31 March 2017, the Group’s revenue and profit were 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 the Group has only one operating segment, being Technology Transfer and Investment, because the
results of the Group are monitored on a Group-wide basis. The Board of Directors assesses the performance of the operating
segment using financial information which is measured and presented in a consistent manner.
An analysis of the Group’s revenue is as follows:
Fund management fees
Initial management fees
Portfolio Directors’ fees
Other revenue
4. Fair value movements in investments
Net fair value movements in investments held (note 16)
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
4,068
748
1,747
97
6,660
473
642
536
104
1,755
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
4,268
896
No other gains or losses have been recognised in respect of loans and receivables. No gains or losses have been recognised on
financial liabilities measured at amortised cost.
5. Employees and Directors
The average number of persons (including Executive and Non-executive Directors) employed by the Group during the year was:
Technology Transfer and Investment
Central functions
Year ended
31 March
2017
Number
Year ended
31 March
2016
Number
40
19
59
10
14
24
Central functions comprise senior management (including Executive and Non-executive Directors), finance, health and safety,
human resources, compliance administration and marketing.
Mercia Technologies PLC
Annual Report and Accounts 2017
75
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
5. Employees and Directors continued
The aggregate employee benefit expense (including Executive and Non-executive Directors) was:
Wages and salaries
Social security costs
Other pension costs (note 25)
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
5,253
610
285
6,148
2,075
267
161
2,503
The Directors represent the key management personnel. Detailed disclosures in respect of Directors’ remuneration are included in
the audited section of the Remuneration Report on page 62, which forms part of these financial statements.
The exceptional item disclosed in note 8 to these consolidated financial statements will only be payable to the extent that each of
the venders are still employees of Enterprise Ventures at the end of the deferred consideration period, being 9 March 2018.
Therefore accounting standards require that this is included as an expense in the consolidated statement of comprehensive income.
6. Share-based payments
The Group operates share option schemes for Executive Directors and all employees of the Group. Further details are set out on
pages 61 to 62 of the Remuneration Report.
Total options existing over Ordinary shares as at 31 March 2017 are summarised below:
Scheme
Approved share option scheme
Unapproved share option scheme
Date of grant
Date of expiry
18 December 2014
31 July 2015
11 August 2015
27 July 2016
18 December 2014
31 July 2015
11 August 2015
27 July 2016
7 December 2024
30 July 2025
10 August 2025
26 July 2026
7 December 2024
30 July 2025
10 August 2025
26 July 2026
Number of
share options
380,000
42,857
173,912
1,464,277
2,340,000
957,143
336,088
3,020,723
8,715,000
Exercise price
50.00p
70.00p
69.00p
51.25p
50.00p
57.50p
57.50p
51.25p
Details of the share options outstanding as at 31 March 2017 are as follows.
Year ended 31 March 2017
Year ended 31 March 2016
Share options outstanding as at 1 April
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Number of
share
options
4,420,000
4,505,000
(210,000)
–
–
Weighted
average
exercise
price
53.14p
51.02p
50.12p
–
–
Number of
share
options
3,060,000
1,510,000
(150,000)
–
–
Share options outstanding at 31 March
8,715,000
50.16p
4,420,000
Weighted
average
exercise
price
50.00p
59.18p
50.00p
–
–
53.14p
Fair value charge
The fair value charge for the share options in issue has been based on the Black-Scholes model with the following key
assumptions:
Date of grant
18 December 2014
31 July 2015
31 July 2015
11 August 2015
11 August 2015
27 July 2016
Exercise
price
50.00p
70.00p
57.50p
69.00p
57.50p
51.25p
Share price
at date of
grant
Risk free
rate
Assumed
time to
exercise
50.00p
70.00p
70.00p
69.00p
69.00p
51.25p
1.0% 10 years
1.0% 10 years
1.0% 10 years
1.0% 10 years
1.0% 10 years
1.0% 10 years
Assumed
volatility
Fair value
per option
30%
30%
30%
30%
30%
30%
19.84p
27.78p
32.24p
27.38p
31.45p
20.35p
No dividends are assumed. The risk free rate is taken from the yield on zero coupon United Kingdom government bonds on a term
consistent with the expected life. Assumed volatility is based on a review of comparators and analysis of movements in the
Group’s share price since listing.
76 Mercia Technologies PLC
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Financial statements
Other information
6. Share-based payments continued
Fair value charge continued
The Group did not enter into any share-based payment transactions with parties other than Executive Directors and employees
during the year.
The total charge for the year recognised in the consolidated statement of comprehensive income for share options granted to
Executive Directors and employees was £395,000 (2016: £230,000).
7. Operating profit/(loss) before exceptional items
Operating profit/(loss) before exceptional items is stated after charging:
Staff costs (note 5)
Share-based payments charge (note 6)
Depreciation of property, plant and equipment (note 15)
Amortisation of intangible assets (note 14)
Operating lease costs
Auditor’s remuneration:
– Fees payable to the Company’s auditor for the audit of the Company and consolidated accounts
Fees payable to the Company’s auditor for other services:
– The auditing of accounts of subsidiaries of the Company
– CASS related assurance services
– Taxation compliance services
– Corporate finance services
– All other non-audit services
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
6,148
395
76
301
329
2,503
230
33
17
205
34
54
25
–
–
–
30
21
15
12
87
4
8. Exceptional items
The exceptional item for the year ended 31 March 2017 represents 50% of the total anticipated deferred consideration payable in
respect of the acquisition of Enterprise Ventures, which is contingent upon it raising at least £80,000,000 of net new third party
funds during the two year period following its acquisition and each of the vendors still being employed by the Group on the
second anniversary of completion, being 9 March 2018. The prior year exceptional item represents costs incurred in the
acquisition of Enterprise Ventures.
9. Finance income
Interest income arising from:
Cash and cash equivalents
Short-term liquidity investments
Investee company loans
Other interest receipts
Total interest receivable
10. Taxation
Corporation tax:
Current year
Deferred tax
Total
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
102
30
32
22
186
134
207
20
–
361
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
–
54
54
–
–
–
The UK standard rate of corporation tax is 20% (2016: 20%). There is no current tax charge in the year (2016: £nil). The deferred tax
credit of £54,000 (2016: £nil) represents the unwinding of the deferred tax liability recognised in respect of the intangible asset
arising on the acquisition of Enterprise Ventures.
Mercia Technologies PLC
Annual Report and Accounts 2017
77
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
10. Taxation continued
A reconciliation from the reported profit/(loss) to the total tax credit is shown below.
Profit/(loss) before taxation
Tax at the standard rate of corporation tax in the UK of 20%
Effects of:
Income not subject to tax
Expenses not deductible for tax purposes
Accelerated capital allowances not recognised
Other timing differences not recognised
Current year losses not recognised
Unwinding of deferred tax liability
Total tax credit
Year ended
31 March
2017
£’000
Year ended
31 March
2016
£’000
989
198
(1,697)
(339)
(1,026)
(457)
–
1,285
–
54
54
(64)
165
10
103
125
–
–
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance
Bill 2016 (on 7 September 2016). These include reductions to the main rate of corporation tax to 19% from 1 April 2017 and to 17%
from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted rates and reflected in these
consolidated financial statements.
As at 31 March 2017, a deferred tax liability of £217,000 (2016: £271,000) has been recognised in respect of the intangible asset
arising on the acquisition of Enterprise Ventures. A deferred tax asset of £3,741,000 (2016: £2,756,000) has not been recognised
due to uncertainty regarding its future recoverability.
11. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the financial year by the weighted average number of
Ordinary shares in issue during the year. Diluted earnings/(loss) per share is computed by dividing the profit/(loss) 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/
(loss) per share computations on a weighted average basis for the year. The profit/(loss) and weighted average number of shares
used in the calculations are set out below.
Earnings/(loss) per Ordinary share
Profit/(loss) for the financial year (£’000)
Weighted average number of Ordinary shares (basic and diluted) (‘000)
Earnings/(loss) per Ordinary share basic and diluted (pence)
12. Goodwill
Cost
As at 1 April 2015
Additions
As at 31 March 2016
Additions
As at 31 March 2017
Year ended
31 March
2017
Year ended
31 March
2016
1,043
(1,697)
223,890 212,099
0.47
(0.80)
£’000
2,455
7,873
10,328
–
10,328
Included in goodwill is £7,873,000 which arose on the acquisition of the entire issued share capital of Enterprise Ventures Group
Limited on 9 March 2016. This represents the difference between the fair value of consideration transferred and the fair value of
assets acquired and liabilities assumed.
The goodwill is impairment tested annually on the basis of a fair value less costs to sell methodology in determining the
recoverable amount of the cash generating unit (“CGU”) to which it is associated, being the only CGU. The fair value of the goodwill
was established in recent market transactions at the point that it was created and management have assessed the relative
performance of the CGU compared to the assumptions at that time to determine its current fair value. Given the actual and
forecasted increase in expectations for the results of the CGU since acquisition, the Directors have determined that the relevant
fair value has increased and therefore there is no impairment. The key assumptions in this forecasted increase in results are the
increase in fund management revenue and consequential increase in cash inflows.
78 Mercia Technologies PLC
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Other information
12. Goodwill continued
Given the basis of the fair value techniques described above, this fair value would fall into a Level 3 hierarchy if it were recognised
as a financial instrument under IFRS 13.
13. Subsidiaries
The Group consists of Mercia Technologies PLC and its subsidiary undertakings. Note 33 to the Company’s financial statements
lists details of the Company’s subsidiary undertakings.
14. Intangible assets
Intangible assets represent contractual arrangements in respect of funds under management acquired through the acquisition of
Enterprise Ventures, where it is probable that the future economic benefits that are attributable to the assets will flow to the
Group and the fair value of the assets can be measured reliably.
Cost
As at 1 April 2015
Additions
As at 31 March 2016
Additions
As at 31 March 2017
Accumulated amortisation
As at 1 April 2015
Charge for the year
As at 31 March 2016
Charge for the year
As at 31 March 2017
Net book value
As at 31 March 2016
As at 31 March 2017
15. Property, plant and equipment
Cost
As at 1 April 2015
Additions
On acquisition
As at 31 March 2016
Additions
As at 31 March 2017
Accumulated depreciation
As at 1 April 2015
Charge for the year
On acquisition
As at 31 March 2016
Charge for the year
As at 31 March 2017
Net book value
As at 31 March 2016
As at 31 March 2017
Total
£’000
–
1,504
1,504
–
1,504
–
17
17
301
318
1,487
1,186
Total
£’000
68
113
133
314
82
396
19
33
117
169
76
245
145
151
Leasehold
improvements
£’000
Furniture
and fixtures
£’000
Office
equipment
£’000
–
36
–
36
4
40
–
1
–
1
4
5
35
35
–
32
27
59
3
62
–
3
21
24
11
35
35
27
68
45
106
219
75
294
19
29
96
144
61
205
75
89
Mercia Technologies PLC
Annual Report and Accounts 2017
79
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
16. Investments
The net change in the value of investments for the year is £13,885,000 (2016: £13,526,000).
The table below sets out the movement in the balance sheet value of investments from the start to the end of the year, showing
investments made, cash receipts and the direct investment fair value movements.
As at 1 April 2016
Investments made during the year
Disposals made during the year
Investee company loan repayments
Unrealised gains on the revaluation of investments
Unrealised losses on the revaluation of investments
As at 31 March 2017
£’000
38,143
11,828
(2,071)
(140)
8,800
(4,532)
52,028
In accordance with the Group’s accounting policy, investments that are held as part of the Group’s direct investment portfolio
are carried in the balance sheet at fair value even though the Group may have significant influence over those companies.
This treatment is permitted by IAS 28, ‘Investments in Associates’. As at 31 March 2017 the Group had investments where it
holds an economic interest of 20% or more as follows:
% of
interest
held
%
Net
assets/
(liabilities)
£'000
63.6
62.6
47.9
47.0
41.5
35.6
29.9
28.4
28.3
28.2
26.7
25.3
23.0
21.2
992
2,179
1,114
675
941
693
380
257
669
531
537
1,083
1,008
2,808
Profit/
(loss)
£'000
(679)
(479)
(369)
(1,987)
(322)
186
(140)
(708)
(452)
(1,079)
(1,014)
(242)
(1,079)
(202)
Date of financial statements
30 September 2016
31 March 2016
30 April 2016
31 March 2016
31 December 2015
30 September 2016
31 October 2016
31 August 2016
31 December 2015
30 April 2016
31 August 2016
31 July 2016
30 June 2016
30 September 2016
As at
31 March
2017
£’000
As at
31 March
2016
£’000
381
(174)
207
4
536
747
380
(107)
273
52
473
798
Warwick Audio Technologies Limited
Science Warehouse Limited
Oxford Genetics Limited
nDreams Limited
LM Technologies Limited
The Native Antigen Company Limited
Soccer Manager Limited
VirtTrade Limited
Crowd Reactive Limited
Smart Antenna Technologies Limited
Ton UK Limited t/a Intelligent Positioning
Nightingale-EOS Limited
sureCore Limited
Edge Case Games Limited
17. Trade and other receivables
Current:
Trade and other receivables
Less: provision for impairment of trade receivables
Net trade receivables
Other receivables
Prepayments and accrued income
80 Mercia Technologies PLC
Annual Report and Accounts 2017
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Other information
17. Trade and other receivables continued
The ageing of trade receivables at the year end was as follows:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
Past due more than 91 days
Movements in the provision for impairment of trade receivables is as follows:
As at 1 April 2016
Provisions made
As at 31 March 2017
Gross
£’000
Impairment
£’000
100
23
96
1
161
381
–
(1)
(43)
–
(130)
(174)
£’000
107
67
174
The impairment provision at 31 March 2017 relates to trade receivables primarily from portfolio companies in the managed funds.
The Directors believe that the credit quality of trade receivables which are within the Group’s typical payment terms is good.
The increase in the provision of £67,000 (2016: £103,000) has been recorded against revenue in the consolidated statement of
comprehensive income. The maximum exposure to credit risk of the receivables at the balance sheet date is the fair value of each
class of receivable shown above.
18. Cash, cash equivalents and short-term liquidity investments
Cash at bank and in hand
Total cash and cash equivalents
Total short-term liquidity investments
19. Trade and other payables
Trade payables
Tax and social security
Other payables
Accruals and deferred income
As at
31 March
2017
£’000
As at
31 March
2016
£’000
28,829
20,932
28,829
20,932
35,000
10,000
As at
31 March
2017
£’000
As at
31 March
2016
£’000
225
159
4,335
1,979
6,698
370
204
33
914
1,521
Other payables includes £4,228,000 (2016: £nil) in respect of Mercia Growth Funds’ cash balances held by Mercia Fund
Management Limited on their investors’ behalf, pending investment through Mercia Growth Funds.
Mercia Technologies PLC
Annual Report and Accounts 2017
81
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
20. Deferred taxation
Recognition of deferred tax liability
As at
31 March
2017
£’000
As at
31 March
2016
£’000
217
271
As at 31 March 2017 a deferred tax liability of £217,000 (2016: £271,000) has been recognised in respect of the intangible asset
arising on the acquisition of Enterprise Ventures.
21. Issued share capital
Allotted and fully paid
As at the beginning of the year
Issue of share capital during the year
As at the end of the year
As at 31 March 2017
As at 31 March 2016
Number
£’000
Number
£’000
213,645,711
86,956,521
2 212,000,000
1,645,711
1
300,602,232
3 213,645,711
2
–
2
On 18 December 2014 212,000,000 new Ordinary shares of £0.00001 each were admitted to trading on AIM.
On 9 March 2016 1,645,711 new Ordinary shares of £0.00001 each were issued at a price of £0.42 as part of the initial
consideration for the acquisition of Enterprise Ventures. These shares were admitted to trading on AIM on 16 March 2016.
On 16 February 2017 the Group issued 86,956,521 new Ordinary shares of £0.00001 at a price of £0.46 per share via a Placing
which raised £40,000,000 (before share issue costs).
Each Ordinary share is entitled to one vote and has equal rights as to dividends. The Ordinary shares are not redeemable.
22. Share premium
As at the beginning of the year
Premium arising on the issue of Ordinary shares
Cost of share capital issued
As at the end of the year
As at
31 March
2017
£’000
9,494
39,999
(1,250)
48,243
As at
31 March
2016
£’000
8,825
691
(22)
9,494
The premium on the issue of Ordinary shares in the year arises from the placing of 86,956,521 new Ordinary shares of £0.00001
each issued at a price of £0.46 on 16 February 2017.
23. Other distributable reserve
On 18 March 2015, the Group successfully applied to the Court for the partial cancellation of its share premium account.
£70,000,000 was transferred from the share premium account to a distributable reserve, thereby allowing the Group flexibility to
pay a dividend distribution to shareholders in the future.
24. Other reserve
The other reserve of £1,125,000 (2016: £nil) represents 50% of the total anticipated deferred consideration payable in respect of
the acquisition of Enterprise Ventures (note 8). To the extent payable, the deferred consideration will be satisfied by the issue of
additional Mercia Technologies’ Ordinary shares.
25. Retirement benefit schemes
The Group contributes into the personal pension plans of all qualifying employees. The amount charged in the year to 31 March
2017 was £285,000 (2016: £161,000). As at 31 March 2017, contributions amounting to £18,000 (2016: £24,000) had not yet been
paid over to the plans and are recorded in other payables (note 19).
82 Mercia Technologies PLC
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Other information
26. Operating lease commitments
At the year end, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating
leases, falling due as follows:
Within one year
In the second to fifth years inclusive
As at 31 March 2017
As at 31 March 2016
Land and
Buildings
£’000
193
43
236
Other
£’000
9
3
12
Land and
Buildings
£’000
312
150
462
Other
£’000
8
4
12
Operating lease payments represent rentals payable by the Group for office premises and office equipment. The lease term in
respect of the head office premises is 10 years with a break clause after three years. The typical lease term for office equipment is
three years.
27. Financial risk management
In its normal course of business, the Group uses certain financial instruments including cash, trade and other receivables and
equity investments. The Group is exposed to a number of risks through the performance of its normal operations. These are
discussed in more detail in the Strategic Report on pages 47 to 50 of this Annual Report.
Categories of financial instruments
The Group recognises financial instruments in its financial statements when it enters into a binding agreement to receive cash
or other economic benefits and derecognises them once all parties to the agreements have discharged all of their obligations.
The Group’s financial instruments are categorised below.
Assets per the balance sheet as at the year end:
Trade and other receivables
Financial assets at fair value through profit or loss
Short-term liquidity investments
Cash and cash equivalents
Liabilities per the balance sheet as at the year end:
Trade and other payables (excluding accruals, tax and social security)
As at
31 March
2017
£’000
211
52,028
35,000
28,829
As at
31 March
2016
£’000
325
38,143
10,000
20,932
116,068
69,400
As at
31 March
2017
£’000
4,560
4,560
As at
31 March
2016
£’000
403
403
Financial risk management objectives
The Group’s main objective in using financial instruments is to create, fund and develop technology businesses through the raising
and investing of capital for this purpose. The Group’s policies in calculating the nature, amount and timing of investments are
determined by forecast future investment activity. Financial risks are usually grouped by risk type, being: market, liquidity and
credit risk. These risks are identified more fully below.
Market risk
Price risk
The Group is exposed to price risk in respect of equity rights and equity investments held by the Group and classified on the
balance sheet at fair value through profit or loss. The Group seeks to manage this risk by routinely monitoring the performance of
these investments, employing stringent investment appraisal processes. Regular reports are made to the Board on the status and
valuation of investments.
Mercia Technologies PLC
Annual Report and Accounts 2017
83
Notes to the consolidated financial statements continued
For the year ended 31 March 2017
27. Financial risk management continued
Interest rate risk
The Group holds no interest-bearing borrowing and, as such, has fully mitigated such a risk.
Liquidity risk
Cash and cash equivalents include cash in hand and deposits held with UK banks with original maturities of less than three months.
Short-term liquidity investments comprise deposits with a maturity of over three months but less than 12 months, also with UK
banks.
Ultimate responsibility for liquidity risk management rests with the Directors, who have established an appropriate liquidity risk
management framework for the management of the Group’s short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate cash reserves, by continuously monitoring forecast and
actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group’s trade receivables are amounts due from the investment funds under management, from those investee companies
held by the Mercia Fund Management and Enterprise Ventures funds and from its directly invested portfolio companies.
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the
return to shareholders through the optimisation of any debt and equity balance.
The capital structure of the Group consists solely of equity (comprising issued capital, reserves and retained earnings). The Group
had no debt instruments during the year.
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 balance sheet. Subsequent to their initial recognition at fair value, measurements of movements in fair values of
financial instruments are grouped into Levels 1 to 3, based on the degree to which the fair value is observable. The fair value
hierarchy used is outlined in more detail in note 2 to these financial statements.
The following table gives information about how the fair values of these financial assets and financial liabilities are determined
and presents the Group’s assets that are measured at fair value as at 31 March 2017.
Assets:
Financial assets at fair value through profit or loss (“FVTPL”)
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
3,400
3,400
–
–
48,628
52,028
48,628
52,028
The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the
financial statements approximate to their fair values.
Financial instruments in Level 1
As at 31 March 2017, the Group had one direct investment listed on AIM (Concepta PLC) and this has been classified as Level 1 and
valued at its bid price as at 31 March 2017.
84 Mercia Technologies PLC
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Financial statements
Other information
27. Financial risk management continued
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 as Level 1, all other investments held in the Group’s direct
investment portfolio have been classified as Level 3 in the fair value hierarchy and the individual valuations for each of the
companies have been arrived at using appropriate valuation techniques.
A detailed explanation of the valuation techniques used for Level 3 financial instruments is given in note 2 to these financial statements.
The table below summarises the fair value measurements.
Valuation technique
Listed investments
Price of recent funding round
Cost
Enterprise value
Price of recent funding round/cost adjusted for impairment
Fair value
as at
31 March
2017
£’000
3,400
32,841
12,750
1,141
1,896
52,028
Level
1
3
3
3
3
The price of recent funding round or cost of investment provide observable inputs into the valuation of an individual investment.
However, subsequent to the funding round or initial investment, the Directors are required to reassess the carrying value of
investments at each year end, including assessment of any impairment indicators, which result in unobservable inputs into the
valuation methodology. One direct investment is valued at an enterprise value, based on a multiple of revenues, given its stage of
development and profitability.
Note 2 to these financial statements provides further information on the Group’s valuation methodology.
28. Related party transactions
Transactions with Directors
The Group considers all members of the Board to be key management and their remuneration is disclosed in the Remuneration
Report on page 62. Directors’ shareholdings in the Group are disclosed on page 63 of the Remuneration Report.
The Group leases its premises from Forward Midland LLP, of which Ray Chamberlain, a Non-executive Director of Mercia
Technologies PLC, is a member. During the year ended 31 March 2017, and under the terms of a lease agreement which
commenced on 18 December 2014 and terminates on 17 December 2024, rent and service charges amounting to £186,000 plus
VAT (2016: £186,000 plus VAT) were invoiced to and paid in full by the Group. The rent charged was determined by an independent
market rent valuation of the property, undertaken in October 2014. Rent and service charges are invoiced quarterly in advance. As
at 31 March 2017, prepaid rent and service charges amounted to £43,000 plus VAT (2016: £43,000 plus VAT).
Also during the year the Group received secretarial and administrative support services from Forward Venture Management
Limited, a company of which Ray Chamberlain is a director. The amount charged in the year to 31 March 2017 was £12,000 plus
VAT (2016: £13,000 plus VAT), of which £2,000 plus VAT (2016: £13,000 plus VAT) was outstanding at the year end.
Mercia Technologies PLC
Annual Report and Accounts 2017
85
Company balance sheet
As at 31 March 2017
Fixed assets
Tangible assets
Investments in subsidiary undertakings
Current assets
Debtors due within one year
Debtors due after one year
Short-term liquidity investments
Cash at bank and in hand
Creditors: Amounts falling due within one year
Net current assets
Net assets
Capital and reserves
Called-up share capital
Share premium account
Other distributable reserve
Profit and loss account
Share-based payments reserve
Other reserve
Shareholders’ funds
As at
31 March
2017
£’000
As at
31 March
2016
£’000
Note
32
33
131
22,799
107
22,799
22,930
22,906
34
34
203
38,500
35,000
19,816
322
28,500
10,000
15,569
93,519
(499)
54,391
(567)
35
93,020
53,824
115,950
76,730
36
36
37
38
3
48,243
70,000
(4,090)
669
1,125
2
9,494
70,000
(3,040)
274
–
115,950
76,730
The loss for the year was £2,605,000 (2016: £1,090,000).
The notes on pages 88 to 92 are an integral part of these financial statements.
The Company financial statements of Mercia Technologies PLC, registered number 09223445, on pages 86 to 92 were approved
by the Board of Directors and authorised for issue on 30 June 2017. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
86 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
Company statement of changes in equity
For the year ended 31 March 2017
As at 1 April 2015
Total comprehensive loss for the year
Issue of share capital
Costs of share capital issued
Share-based payments charge
Deferred consideration payable
As at 31 March 2016
Total comprehensive loss for the year
Issue of share capital
Costs of share capital issued
Share-based payments charge
Deferred consideration payable
Dividends received
As at 31 March 2017
Called-up
share
capital
£'000
(note 36)
Share
premium
account
£'000
(note 36)
Other
distributable
reserve
£'000
(note 37)
Profit
and loss
account
£'000
Share-based
payments
reserve
£'000
Total
shareholders’
funds
£'000
Other
reserve
£’000
(note 38)
2
–
–
–
–
–
2
–
1
–
–
–
–
3
8,825
–
691
(22)
–
–
9,494
–
39,999
(1,250)
–
–
–
70,000
–
–
–
–
–
70,000
–
–
–
–
–
–
(1,950)
(1,090)
–
–
–
–
(3,040)
(2,605)
–
–
–
–
1,555
48,243
70,000
(4,090)
44
–
–
–
230
–
274
–
–
–
395
–
–
669
–
–
–
–
–
–
–
–
–
–
–
1,125
–
76,921
(1,090)
691
(22)
230
–
76,730
(2,605)
40,000
(1,250)
395
1,125
1,555
1,125
115,950
Mercia Technologies PLC
Annual Report and Accounts 2017
87
Notes to the company financial statements
For the year ended 31 March 2017
29. Accounting policies
Basis of preparation
The financial statements of Mercia Technologies PLC (‘the Company’) have been prepared in accordance with Financial Reporting
Standard 101, ‘Reduced Disclosure Framework’ (“FRS 101”) and the Companies Act 2006 (‘the Act’). FRS 101 sets out a reduced
disclosure framework for a ‘qualifying entity’ as defined in the standard, which addresses the financial reporting requirements
and disclosure exemptions in the individual financial statements of qualifying entities that otherwise apply the recognition,
measurement and disclosure requirements of EU-adopted IFRS.
FRS 101 sets out amendments to EU-adopted IFRS that are necessary to achieve compliance with the Act and related Regulations.
The financial statements have been prepared on the going concern basis and under the historical cost convention. A summary of
the most important Company accounting policies, which have been consistently applied except where noted, is set out below.
Investments in subsidiary undertakings
Investments in subsidiary undertakings are stated at cost less provision for any impairment losses.
Tangible fixed assets
Tangible assets are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised
so as to write off the cost or valuation of assets less their residual values over their expected useful lives, using the straight-line
method, on the following basis:
Furniture, fixtures and office equipment
Leasehold improvements
33%
over the remaining life of the lease
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective basis.
Share-based payments
Equity-settled share-based payments to Executive Directors and certain employees of the Company, whereby recipients render
services in exchange for shares or rights over shares, are measured at the fair value of the equity instruments at the grant date.
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Company’s
estimate of equity instruments that will eventually vest. At each balance sheet date, the Company reviews its estimate. The impact
of any revision of original estimates is recognised in profit or loss, such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity.
Cash, cash equivalents and short-term liquidity investments
Cash and cash equivalents include cash in hand, deposits held with banks and other short-term highly liquid investments with
original maturities of less than three months. Short-term liquid investments with a maturity of over three months but less than
12 months are included in a separate category, ‘short-term liquidity investments’.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognised in
profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in reserves, in which
case the current and deferred tax are also recognised in other comprehensive income or directly in reserves respectively. Where
current or deferred tax arises from the initial accounting of a business combination, the tax effect is included in the accounting for
the business combination.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the profit
and loss account because it excludes items of income or expense that are taxable or deductible in other periods and it further
excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted
for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary timing
differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference
arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
88 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
29. Accounting policies continued
Taxation continued
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary
differences associated with such investments and interests are only recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.
30. Summary of disclosure exemptions adopted
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in
accordance with FRS 101:
• paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payments’ (details of the number and weighted-average exercise prices
•
•
•
•
of share options, and how the fair value of goods or services received was determined);
IFRS 7, ‘Financial Instruments: Disclosures’;
IAS 7, ‘Statement of Cash Flows’;
the requirement in IAS 24, ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more
members of a group; and
the following paragraphs of IAS 1, ‘Presentation of Financial Statements’:
– 10(d), (statement of cash flows),
– 16 (statement of compliance with all IFRS),
– 111 (cash flow statement information), and
– 134-136 (capital management disclosures).
31. Results for the Company
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and have not
presented a statement of comprehensive income or a cash flow statement for the Company.
The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated financial statements.
32. Tangible assets
Cost
As at 1 April 2016
Additions
As at 31 March 2017
Accumulated depreciation
As at 1 April 2016
Charge for the period
As at 31 March 2017
Net book value as at 31 March 2016
Net book value as at 31 March 2017
Leasehold
improvements
£’000
Furniture and
fixtures
£’000
Office
equipment
£’000
36
4
40
1
4
5
35
35
32
3
35
3
12
15
29
20
56
69
125
13
36
49
43
76
Total
£’000
124
76
200
17
52
69
107
131
Mercia Technologies PLC
Annual Report and Accounts 2017
89
Notes to the company financial statements continued
For the year ended 31 March 2017
33. Investments in subsidiary undertakings
Carrying amount
As at 1 April 2016 and 31 March 2017
£’000
22,799
The Directors believe that the carrying values of the subsidiary undertakings are supported by their underlying net assets.
Details of the Company’s subsidiary undertakings as at 31 March 2017 are as follows:
Name
Mercia Investments Limited
Mercia Fund Management Limited1
Enterprise Ventures Group Limited
Mercia Fund 1 General Partner Limited
Mercia (General Partner) Limited
Mercia Investment Plan LP2
WM AHSN SME General Partner Limited
Lothian Shelf (582) Limited
Mercia Fund Management (Nominees) Limited
Mercia Growth Nominees Limited
Mercia Growth Nominees 2 Limited
Mercia Growth Nominees 3 Limited
Mercia Growth Nominees 4 Limited
Mercia Growth Nominees 5 Limited
Mercia Growth Nominees 6 Limited
Mercia Growth Nominees 7 Limited
Mercia Digital Nominees Limited
UGF Nominees Limited
Mercia Investment Management Limited
Mercia Business Services Limited
Place of
incorporation
and operation
Proportion of
Ordinary shares
owned
England
England
England
England
England
England
England
Scotland
England
England
England
England
England
England
England
England
England
England
England
England
100%
100%
100%
98%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Investment company
Fund management company
Investment fund management services
Investment fund general partner
General partner
Limited partnership
General partner
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
1 The Company owns 100% of Mercia Fund Management Limited’s Ordinary shares and 56% of its Preference shares. It has a 100% controlling interest in the
subsidiary undertaking.
2 The Company owns 90% of the capital invested in Mercia Investment Plan LP.
The companies listed above have their registered offices at Forward House, 17 Henley High Street, Henley-in-Arden, Warwickshire
B95 5AA with the following exceptions:
Enterprise Ventures Group Limited: Unit F26, Preston Technology Management Centre, Marsh Lane, Preston, Lancashire PR1 8UQ
Lothian Shelf (582) Limited: 50 Lothian Road, Festival Square, Edinburgh EH3 9WJ
34. Debtors
Amounts falling due within one year:
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Amounts falling due after more than one year:
Amounts due from subsidiary undertakings
As at
31 March
2017
£’000
As at
31 March
2016
£’000
17
20
166
203
11
133
178
322
38,500
28,500
38,500
28,500
Amounts due from subsidiary undertakings are in respect of unsecured, interest bearing loans. Interest is charged on the principal
sum of the loans at a rate of 4% and is paid half yearly. The loans have no formal repayment dates but the Directors do not
anticipate the loans will be recalled within a year, nor for the foreseeable future.
90 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Other information
35. Creditors – amounts falling due within one year
Trade creditors
Amounts owed to group undertakings
Accruals and deferred income
As at
31 March
2017
£’000
As at
31 March
2016
£’000
114
–
385
499
218
90
259
567
36. Called-up share capital and share premium account
The movements in called-up share capital and the share premium account are disclosed in notes 21 and 22 to the consolidated
financial statements.
37. Other distributable reserve
The movements in other distributable reserve are disclosed in note 23 to the consolidated financial statements.
38. Other reserve
The other reserve of £1,125,000 (2016: £nil) represents 50% of the total anticipated deferred consideration payable in respect of
the acquisition of Enterprise Ventures (note 8). To the extent payable, the deferred consideration will be satisfied by the issue of
additional Mercia Technologies Ordinary shares.
39. Directors’ emoluments and employee information
The average number of persons (including Executive and Non-executive Directors) employed by the Company during the
year was:
Central functions
Year ended
31 March
2017
Number
Period
ended
31 March
2016
Number
10
8
Central functions comprise senior management (including Non-executive Directors), finance, health and safety, compliance,
human resources and administration.
The aggregate employee benefit expense (including Directors) was:
Wages and salaries
Social security costs
Other pension costs (note 38)
Year ended
31 March
2017
£’000
1,004
103
53
1,160
Period
ended
31 March
2016
£’000
699
75
45
819
The exceptional item disclosed in note 8 to these consolidated financial statements will only be payable to the extent that each
of the vendors are still employees of Mercia at the end of the deferred consideration period, being 9 March 2018. Therefore
accounting standards require that this is included as an expense in the Company’s statement of comprehensive income.
Information in respect of Directors’ emoluments, share options and pensions is given in the Remuneration Report on pages 60 to
63 of the Annual Report.
40. Retirement benefit schemes
The Company contributes into the personal pension plans of all qualifying employees. The amount charged in the year
to 31 March 2017 was £53,000 (2016: £45,000). As at 31 March 2017, no contribution payments were outstanding (2016: £nil).
Mercia Technologies PLC
Annual Report and Accounts 2017
91
Notes to the company financial statements continued
For the year ended 31 March 2017
41. Operating lease commitments
At the year end, the Company had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, falling due as follows:
Within one year
In the second to fifth years inclusive
As at
31 March
2017
Land and
buildings
£’000
132
–
132
As at
31 March
2016
Land and
buildings
£’000
186
132
318
Lease commitments represent amounts payable by the Company for office premises. The lease term is 10 years from
18 December 2014 with a break clause after three years.
42. Related parties
The Company has taken advantage of the exemption available to companies under FRS 101 not to disclose transactions and
balances between members of the same group. Note 28 of the consolidated financial statements details the Group’s related
party transactions.
92 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Financial statements
Other information
Other information
Directors, secretary and advisers
Directors
Susan Jane Searle
Dr Mark Andrew Payton
Martin James Glanfield
Matthew Sidney Mead
Jonathan Brett Diggines
Ian Roland Metcalfe
Raymond Kenneth Chamberlain
Martin James Lamb
(Non-executive Chair)
(Chief Executive Officer)
(Chief Financial Officer)
(Chief Investment Officer)
(Executive Director, Funds)
(Senior Independent Director)
(Non-executive Director)
(Non-executive Director)
Company Secretary
Martin James Glanfield
Company website
www.merciatech.co.uk
Registered office
Forward House
17 High Street
Henley-in-Arden
Warwickshire B95 5AA
Independent auditor
Deloitte LLP
Statutory Auditor
Four Brindleyplace
Birmingham B1 2HZ
Principal bankers
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham B3 2WN
Lloyds Bank plc
125 Colmore Row
Birmingham B3 3SD
Company registration number
09223445
Solicitors
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Mills & Reeve LLP
Botanic House
100 Hills Road
Cambridge CB2 1PH
Nominated adviser and broker
Cenkos Securities plc
6.7.8 Tokenhouse Yard
London EC2R 7AS
Company registrar
SLC Registrars
42-50 Hersham Road
Walton-on-Thames
Surrey KT12 1RZ
Public relations adviser
Buchanan Communications Ltd
107 Cheapside
London EC2V 6DN
Mercia Technologies PLC
Annual Report and Accounts 2017
93
Notice of Annual General Meeting
Mercia Technologies PLC
(Incorporated and registered in England and Wales with registered number 09223445)
SPECIAL RESOLUTIONS
8. That, subject to the passing of resolution 7, the Directors be
and are hereby empowered pursuant to sections 570 and
573 of the Act to allot equity securities (as defined in section
560 of the Act) for cash either pursuant to the authority
conferred by resolution 7 above or by way of sale of
treasury shares as if section 561(1) of the Act did not apply
to such allotment, provided that this power shall be limited
to the allotment and/or sale of equity securities up to an
aggregate nominal amount of £300.60 provided that this
authority shall expire (unless renewed, varied or revoked by
the Company in general meeting) on the earlier of the
conclusion of the next AGM of the Company and 30
September 2018 save that the Company shall be entitled to
make, prior to the expiry of such authority, offers or
arrangements which would or might require equity
securities to be allotted and/or sold after such expiry, and
the Directors may allot and/or sell equity securities in
pursuance of any such offer or agreement as if the power
conferred by this resolution had not expired. The authority
granted by this resolution shall replace all existing
authorities previously granted to the Directors to allot
equity securities for cash or by way of a sale of treasury
shares as if section 561(1) of the Act did not apply.
9. That the Company be authorised generally and
unconditionally, in accordance with section 701 of the Act, to
make market purchases (within the meaning of section
693(4) of the Act) of Ordinary shares provided that:
(a) the maximum number of Ordinary shares that may be
purchased is 30,060,223;
(b) the minimum price which may be paid for an Ordinary share
is 0.001 pence; and
(c) the maximum price which may be paid for an Ordinary share
is the higher of: (i) 5% above the average of the mid-market
value of the Ordinary shares for the five business days
before the purchase is made; and (ii) the higher of the last
independent trade and the highest current independent bid
for any number of Ordinary shares on the trading venue
where the purchase is carried out.
The authority conferred by this resolution will expire on the
earlier of the conclusion of the next AGM of the Company and
30 September 2018 save that the Company may, before the
expiry of the authority granted by this resolution, enter into a
contract to purchase Ordinary shares which will or may be
executed wholly or partly after the expiry of such authority.
By order of the Board of Directors
Martin Glanfield
Company Secretary
21 July 2017
Registered Office: Forward House, 17 High Street,
Henley-in-Arden, Warwickshire B95 5AA
Notice is hereby given that the Annual General Meeting (“AGM”)
of Mercia Technologies PLC (the “Company”) will be held at
Forward House, 17 High Street, Henley-In-Arden, Warwickshire
B95 5AA on 18 September 2017 at 10.00 a.m. for the purpose
of considering and, if thought fit, passing the following
resolutions (which will be proposed in the case of resolutions 1
to 7 as ordinary resolutions and resolutions 8 and 9 as
special resolutions):
Ordinary business
ORDINARY RESOLUTIONS
1. To receive and adopt the Annual Report and Accounts of
the Company for the financial year ended 31 March 2017
together with the Directors’ Report and Auditor’s
Report thereon.
2. To approve the Directors’ Remuneration Report for the
financial year ended 31 March 2017.
3. That Susan Searle, who retires as a Director in accordance
with Article 89.1 of the Articles of Association (the “Articles”)
and being eligible to do so, offers herself for re-election as a
Director, be re-elected as a Director of the Company.
4. That Ian Metcalfe, who retires as a Director in accordance
with Article 89.1 of the Articles and being eligible to do so,
offers himself for re-election as a Director, be re-elected as
a Director of the Company.
5. That Dr Mark Payton, who retires as a Director in accordance
with Article 89.1 of the Articles and being eligible to do so,
offers himself for re-election as a Director, be re-elected as
a Director of the Company.
6. To re-appoint Deloitte LLP as auditor of the Company to
hold office from the conclusion of this meeting until the
conclusion of the next AGM of the Company at which the
Company’s accounts are laid and to authorise the Directors
to determine the amount of the Auditor’s remuneration.
Special business
ORDINARY RESOLUTION
7. That the Directors be and are hereby generally and
unconditionally authorised pursuant to section 551 of the
Companies Act 2006 (the ‘Act’) to exercise all powers of the
Company to allot shares in the Company and to grant rights
to subscribe for or convert any security into shares in the
Company up to an aggregate maximum nominal amount of
£300.60 provided that this authority shall expire (unless
renewed, varied or revoked by the Company in general
meeting) on the earlier of the conclusion of the next AGM of
the Company and 30 September 2018 save that the
Company shall be entitled to make, prior to the expiry of
such authority, any offer or agreement which would or might
require shares to be allotted or rights to subscribe for or
convert any security into shares to be granted after the
expiry of such authority and the Directors may allot shares
or grant rights to subscribe for or convert securities into
shares in pursuance of such offer or agreement as if the
authority conferred hereby had not expired. The authority
granted by this resolution shall replace all existing
authorities to allot any shares in the Company and to grant
rights to subscribe for or convert any security into shares in
the Company previously granted to the Directors pursuant
to section 551 of the Act.
94 Mercia Technologies PLC
Annual Report and Accounts 2017
Strategic report
Governance
Financial statements
Financial statements
Other information
Other information
NOTES
Proxies
1. A member is entitled to appoint one or more proxies to
exercise all or any of the member’s rights to attend, speak
and vote at the AGM. A proxy need not be a member of the
Company and a member may appoint more than one proxy
in relation to a meeting to attend, speak and vote on the
same occasion provided that each proxy is appointed to
exercise the rights attached to a different share or shares
held by a member. To appoint more than one proxy, the
proxy form should be photocopied and the name of the
proxy to be appointed indicated on each form together with
the number of shares that such proxy is appointed in respect
of (which, in aggregate, should not exceed the number of
shares held by the member). Please also indicate if the proxy
instruction is one of multiple instructions being given. All
forms must be signed and should be returned together in
the same envelope.
2. A form of proxy is enclosed with this notice. Forms of proxy
may also be obtained on request from the Company’s
registered office. In order to be valid any proxy form
appointing a proxy must be returned duly completed no
later than 10.00 a.m. on 14 September 2017 (or, if the AGM is
adjourned, no later than 48 hours before the time fixed for
the adjourned meeting), in hard copy form by post, by
courier, or by hand to the Company’s Registrar, SLC
Registrars, 42-50 Hersham Road, Walton-on-Thames,
Surrey KT12 1RZ, United Kingdom.
Submission of a proxy appointment will not preclude a
member from attending and voting at the AGM should they
wish to do so.
To direct your proxy on how to vote on the resolutions, mark
the appropriate box on your proxy form with an ‘X’. To
abstain from voting on a resolution, select the relevant “Vote
withheld” box. A vote withheld is not a vote in law, which
means that the vote will not be counted in the calculation of
votes for or against the resolution. If no voting indication is
given, your proxy will vote or abstain from voting at his or
her discretion. Your proxy will vote (or abstain from voting)
as he or she thinks fit in relation to any other matter which is
put before the AGM.
3. Any power of attorney or any other authority under which
your proxy form is signed (or a duly certified copy of such
power or authority) must be returned to the office of the
Company’s Registrar with your proxy form.
Thresholds and entitlement to vote
4. To be passed, ordinary resolutions require a majority in
favour of the votes cast in person or by proxy at the AGM
and special resolutions require a majority of not less than
75% of members who vote in person or by proxy at the AGM.
On a show of hands every shareholder who is present in
person (or being a company is present by a representative
not himself a shareholder) and who is allowed to vote at a
general meeting shall have one vote. Upon a poll every
member holding Ordinary shares who is present in person
or by proxy (or being a company is represented) shall have
one vote for every Ordinary share of which he is the
registered holder.
5. The Company, pursuant to Regulation 41 of the
Uncertificated Securities Regulations 2001 (as amended),
specifies that only those members registered in the Register
of Members of the Company at 6.00 p.m. on 14 September
2017 (or if the AGM is adjourned, members entered on the
Register of Members of the Company no later than 48 hours
before the time fixed for the adjourned AGM) shall be
entitled to attend, speak and vote at the AGM in respect of
the number of Ordinary shares registered in his or her name
at that time. Changes to entries on the Register of Members
of the Company after 6.00 p.m. on 14 September 2017 shall
be disregarded in determining the rights of any person to
attend, speak or vote at the AGM.
6. In the case of joint holders, where more than one of the joint
holders purports to appoint a proxy, only the appointment
submitted by the most senior holder will be accepted.
Seniority is determined by the order in which the names of
the joint holders appear in the Company’s Register of
Members in respect of the joint holding (the first named
being the most senior).
7. A corporation which is a member can appoint one or more
corporate representatives who may exercise, on its behalf,
all its powers as a member provided that no more than
one corporate representative exercises powers over the
same share.
8. As at 20 July 2017, being the latest practicable date before
the publication of this notice of AGM, the Company’s issued
share capital consisted of 300,602,232 Ordinary shares
each carrying one vote. Therefore, the total voting rights in
the Company as at 20 July 2017 is 300,602,232.
Miscellaneous
9. Copies of the Directors’ service contracts and letters of
appointment are available for inspection at the registered
office of the Company during normal business hours from
21 July 2017 and will be available for inspection at the place
where the meeting is being held from 15 minutes prior to
and during the meeting.
10. Members who have general queries about the AGM should
write to the Company Secretary at the registered office of
the Company: Forward House, 17 High Street, Henley-in-
Arden, Warwickshire B95 5AA, United Kingdom.
Mercia Technologies PLC
Annual Report and Accounts 2017
95
Notice of Annual General Meeting continued
Mercia Technologies PLC
(Incorporated and registered in England and Wales with registered number 09223445)
7. Resolution 9 – market purchases – the Directors are
requesting authority for the Company to make market
purchases of up to 30,060,223 Ordinary shares
(representing 10% of the issued Ordinary share capital of the
Company as at 20 July 2017 (the latest practicable date prior
to the publication of this document)). There is no present
intention to exercise such general authority. Any repurchase
of Ordinary shares will be made subject to the Act and
within guidelines established from time to time by the
Directors (which will take into account the income and cash
flow requirements of the Company) and will be at the
absolute discretion of the Directors, and not at the option of
shareholders. Subject to shareholder authority for the
proposed repurchases, general purchases of the Ordinary
shares in issue will only be made through the market. Such
purchases may only be made provided the price to be paid
is not more than the higher of: (i) 5% above the average of
the middle market quotations for the Ordinary shares for
the five Business Days before the purchase is made; or (ii)
the higher of the price of the last independent trade and the
highest current independent bid at the time of purchase.
The Directors will not exercise their power to make market
purchases if to do so would result in Invesco Perpetual
having to make a mandatory takeover offer under the
Takeover Code.
Explanation of certain resolutions
1. Resolution 1 – The Directors are required to present the
accounts, Directors’ Report and auditor’s report to the
meeting. These are contained in the Company’s Annual
Report and financial statements 2017.
2. Resolution 2 – The Directors are required to approve the
Remuneration Report for the financial year.
3. Resolutions 3 to 5 – retirement by rotation – At each AGM,
any Directors who are required to retire by rotation pursuant
to the Articles, shall retire and submit themselves for
re-election by shareholders.
4. Resolution 6 – auditor re-appointment and remuneration
– At each meeting at which the Company’s accounts are
presented to its shareholders, the Company is required to
appoint an auditor to serve until the next such meeting and
seek shareholder consent for the Directors to set the
remuneration of the auditors.
5. Resolution 7 – general authority to allot – this resolution, to
be proposed as an ordinary resolution, relates to the grant
to the Directors of authority to allot unissued Ordinary
shares until the earlier of the conclusion of the AGM to be
held in 2018 and 30 September 2018 (being six months after
the financial year end of the Company), unless the authority
is renewed or revoked prior to such time. This authority is
limited to a maximum of nominal amount of £300.60
(representing 10% of the issued Ordinary share capital of the
Company as at 20 July 2017 (the latest practicable date prior
to the publication of this document)).
6. Resolution 8 – statutory pre-emption rights – the Act
requires that if the Directors decide to allot unissued shares
in the Company or transfer them out of treasury, the shares
proposed to be issued or transferred must be first offered
to existing shareholders in proportion to their existing
holdings. This is known as shareholders’ pre-emption rights.
However, to act in the best interests of the Company, the
Directors may require flexibility to allot and/or transfer
shares out of treasury for cash without regard to the
provisions of section 561(1) of the Act. Therefore this
resolution, to be proposed as a special resolution, seeks
authority to enable the Directors to allot and/or transfer
equity securities out of treasury up to a maximum nominal
amount of £300.60 (representing 10% of the issued
Ordinary share capital of the Company as at 20 July 2017
(the latest practicable date prior to the publication of this
document)). This authority expires on the earlier of the
conclusion of the AGM to be held in 2018 and 30 September
2018 (being six months after the financial year end of the
Company), unless the authority is renewed or revoked prior
to such time.
96 Mercia Technologies PLC
Annual Report and Accounts 2017
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Mercia Technologies PLC
Forward House
17 High Street Henley-in-Arden
Warwickshire B95 5AA
+44 (0) 330 223 1430
www.merciatech.co.uk
mercia
technologies