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9
The
Regionally
Focused
Specialist
Asset
Manager
MERCIA ASSET MANAGEMENT PLC
ANNUAL REPORT & ACCOUNTS
2019
INTRODUCTION
The UK’s
regional
investor
Mercia is a proactive,
specialist asset manager
focused on supporting
regional SMEs to achieve
their growth aspirations.
We provide capital across
our four asset classes of
balance sheet, venture,
private equity and debt
capital; our Complete
Capital Solution.
1
CONTENTS
Strategic report
1 Highlights
2 At a glance
4 Non-executive Chair’s statement
6 Where we operate
8 Our journey
10 Business model
12 Key performance indicators
13 Chief Executive Officer’s review
16 Corporate, employee and social
responsibility
18 Chief Investment Officer’s review
22 Our portfolio
26 Chief Financial Officer’s review
30 Principal risks and uncertainties
Governance
34 Board of Directors
36 Senior management team
38 Directors’ report
39 Statement of Directors’ responsibilities
40 Corporate governance report
45 Remuneration report
Financial statements
49 Independent auditor’s report
53 Consolidated statement of
comprehensive income
54 Consolidated balance sheet
55 Consolidated cash flow statement
56 Consolidated statement of changes in
equity
57 Notes to the consolidated financial
statements
75 Company balance sheet
76 Company statement of changes in
equity
77 Notes to the company financial
statements
Other information
82 Directors, secretary and advisers
83 Notice of Annual General Meeting
HIGHLIGHTS
Assets under management
Funds under management
c.£507m
c.£381m
£10.7m
£126.1m
Net assets
Revenue
Direct investment portfolio
Net expenses
£1.4m
£87.7m
Unrestricted cash
£29.8m
PORTFOLIO HIGHLIGHTS
— £19.4million invested into 17 portfolio companies during
the year including two new direct investments, W2 Global
Data Solutions and Locate Bio
— Net fair value increase of £3.9million (2018: £2.8million)
— Direct investment portfolio increased to £87.7million
(2018: £66.1million)
— £6.5million syndicated investment into Oxford Genetics
— Significant commercial progress made by a number of
portfolio companies including nDreams, the Group’s
largest direct investment
OPERATIONAL HIGHLIGHTS
— Third-party funds under management (“FuM”) totalling
c.£381million (2018: c.£400million); contributing £9.6million
in revenue
— FuM reduction reflects the winding down of the
RisingStars Growth Fund including returning
c.£17million of capital to fund investors
— Venture FuM £224.1million. RisingStars Growth Fund fully
unwound in March 2019, generating an IRR of 15% and a total
value to paid-in capital (“TVPI”) of 528% for investors
— Private equity FuM £61.2million. Coalfields Growth Fund
has to date generated an IRR of 19% and a TVPI of 236%
for investors
— Debt FuM £96.0million. Finance Yorkshire Small Loans Fund
winding down generating a 107% return on original fund
commitments
STRATEGIC REPORTMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 2
AT A GLANCE
An evolving business model
MERCIA’S INHERENT VALUE
More than the sum of its parts
As at 31 March 2019, Mercia benefits from
a strong balance sheet comprising its direct
investment portfolio valued at £87.7million,
unrestricted cash of £29.8million plus
goodwill, intangible assets and net working
capital combined amounting to £8.6million.
Its wholly-owned profitable fund
management operations, which manage
funds totalling c.£381million, achieved
revenues of £9.6million.
OUR VISION
To be the first choice for investors, investees
and employees
By aspiring to be the first choice, we believe
that this clear vision will enable Mercia to
deliver superior returns over the medium to
long term for both shareholders and fund
investors alike.
Through Mercia’s own balance sheet and
managed funds capital, we can provide the
‘Complete Capital Solution’, offering a range
of balance sheet, venture, private equity
and debt capital to UK SMEs. Mercia’s Board
believes that there is a significantly greater
opportunity to focus outside of London
and the South East through the efficient
and targeted provision of capital and
active support, to create substantial
medium-term value.
REGIONAL FOCUS
Regional businesses with
global aspirations
Mercia has a strong footprint across
the UK regions through its eight offices,
c.£500million of assets under management
(“AuM”) and an increasingly strong network,
which provides deal flow to each of our
managed funds. With established executive
and non-executive director talent pools,
19 university partnerships, extensive
personal networks through one of the
largest investment teams in the UK and a
portfolio of c.400 businesses, Mercia has
developed an extensive deal flow pipeline.
This, in combination with a notable under
supply of capital in the regions, provides an
opportunity for Mercia to source exciting
investment opportunities at realistic entry
valuations and to proactively support
founders and managers to fulfil and beat
their own growth aspirations.
Strategic report 3
DIRECT INVESTMENT PORTFOLIO
As an investor, Mercia is active in each of the businesses in which it invests,
taking a board position in each equity investment to ensure that it provides
support throughout the investee company’s journey. It also stays actively
engaged with each of the businesses to which it lends. This portfolio
support also includes input from Mercia’s Platform, an internal team of
talent resourcing, corporate advisory, legal and research expertise. We
believe these value-added services help investee companies to accelerate
their growth prospects. Amongst the direct portfolios are:
Fair value
£87.7m
World-leading virtual reality
(“VR”) company developing
content for global brands
such as Oculus and Sony
PlayStation
Gene therapy specialist
providing world-leading
technologies and advanced
techniques for drug and
gene therapy development
Experts in web performance
and security supporting
blue chip organisations
including ASOS, Channel 4
and Avis
Leaders in non-aqueous
sodium-ion cell technology
which delivers a high-
performance, safe and
cost-effective battery
solution for key applications
including transportation,
storage, back-up power and
energy in remote locations
MANAGED FUNDS PORTFOLIO
The Group has three distinct fund management operations; venture,
private equity and debt. We offer the most appropriate type of capital
for each investment opportunity that we consider and in many instances,
we can co-invest from more than one pool of capital, which demonstrates the
highly collaborative nature of our business model; our ‘Complete Capital Solution’.
VENTURE
PRIVATE EQUITY
DEBT
Funds under
Management (“FuM”)
£224million
£61million
£96million
Number in portfolio
177
13
181
Investments/loans
in the period
£30.5million
£8.5million
£15.0million
To date, Mercia’s closed and legacy funds have returned c.£176million back to
fund investors at a ratio of c.2.4 times original invested fund capital. The vintages
of these funds vary from 10 to 16 years with certain funds returning IRRs of
15-17%. The balance sheet direct investment portfolio is younger in its journey
with an average investment period of c.2.5 years. As we have observed with our
managed funds, it is realistic to expect upward growth in fair value movements as
the balance sheet investments mature over a three to seven-year period toward
mainly cash exits.
FuM
c.£381m
STRATEGIC REPORTMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT
44
Strategic report
NON-EXECUTIVE
CHAIR’S STATEMENT
An evolving business
model
Direct investment portfolio value
£87.7m2018: £66.1m
Profit for the year
£2.6m2018: £1.7m
Ian R Metcalfe
Non-executive Chair
The year ended 31 March 2019 has seen continued positive progress by the
Group’s direct investment portfolio. This year has also seen the evolution of
Mercia’s business model to that of a proactive, regionally focused specialist
asset manager. This natural progression arises from the increasing maturity and
value of Mercia’s balance sheet direct investments, as well as the significant
success that the Group has achieved in winning new fund management
contracts. This evolution has led to the Group’s change of name and branding
to Mercia Asset Management PLC, which better reflects what the Group has
become and will be in the future.
Having assembled a talented team of
investment and support professionals,
and firmly established its regional footprint,
Mercia is seeing the benefits of being able
to offer a ‘Complete Capital Solution’ to UK
SMEs. In so doing it is identifying, investing
in and supporting an increasing number of
young businesses which have the potential
to deliver significant incremental value.
The Group invests in both its growing
deal flow pipeline and existing portfolio
companies via one or more of the four
pools of capital it has under management:
balance sheet, venture, private equity and
debt. In total c.£507million of capital is now
being managed by the Group.
Direct investment portfolio progress
As the direct investment portfolio matures
it is encouraging to see both the increasing
quality of the businesses being built and
validation of their value-creating growth
strategies, via investment rounds at higher
valuations, some of which include syndicate
investors. In this regard, the Board has been
pleased by the tangible commercial progress
made by both nDreams and Oxford Genetics;
the growing emergence of other portfolio
companies such as Intechnica, Medherant,
Faradion, Voxpopme, Intelligent Positioning
and Eyoto, and the increasing profitability
of The Native Antigen Company.
Two new companies were added to
the direct investment portfolio this year,
W2 Global Data Solutions and Locate
Bio, both of which have come through
Mercia’s managed funds pipeline. The
Board recently conducted a detailed review
of the companies which may emerge from
that pipeline in the foreseeable future. The
list is encouraging, continuing to grow and
balanced by sector.
5
Strategic review – the next chapter
During the early part of 2019 the Board
conducted a detailed strategic review
of the Group’s progress to date, with
the aim of continuing to scale Mercia
to become a profitable, dividend-paying
and self-sustaining investment group. This
review also took account of the ongoing
challenges facing the intellectual property
commercialisation sector.
Mercia’s business model has always
differentiated itself from other sector
participants, having:
• A regional focus where entry pre-money
valuations are often more realistic
• Both university and non-university
deal flow pipelines offering a broader
range of investment opportunities
• A non-therapeutic portfolio bias,
reducing the risk and dependence on
binary outcomes for value inflexion
• Typically, less capital required by
investees to reach profitability
‘Funds first’ before the Group’s balance
sheet capital is invested
•
• A growing and profitable fund
management operation which largely
offsets the Group’s total operating costs,
thus minimising net asset value erosion
and cash burn
Since its inception, Mercia has been clear
in its determination to trade profitably so
that its annual revenues (which exclude
unrealised fair value movements) exceed
the total operating costs of the Group. The
key to reaching this objective is twofold –
continuing to increase the quantum of funds
which the Group manages on behalf of a
growing number of third-party stakeholders,
whilst at the same time maintaining control
of costs.
The Group is also determined to reach
the point of balance sheet sustainability,
such that regular realised cash returns from
trade sales and the unwinding of equity
stakes in listed companies are sufficient
for its annual direct investment needs.
Since its IPO in December 2014 Mercia has
evolved from a Midlands-based, relatively
small technology investor to a much
larger regionally focused, specialist asset
manager with investment expertise across
its four asset classes. Continuing to grow all
four pools of capital will enable the Group
to achieve its twin strategic objectives.
This is the path upon which the Group
has now embarked.
Group Board
Since the appointment of Julian Viggars
as Chief Investment Officer in April 2018
and Caroline Plumb OBE as an additional
Non-executive Director in June 2018, the
Board has focused on the strategic direction
of the Group and its execution priorities. The
Directors (together with the Group’s Chief
Operating Officer, Peter Dines) provide a
balanced and experienced leadership group
to drive shareholder value creation.
Mercia’s former Non-executive Chair,
Susan Searle, recently stepped down
from our Board to make the appropriate
time commitment for her other roles. We
will all miss her passion, enthusiasm and
commitment to Mercia. Given the evolution
of Mercia into a specialist asset manager,
the Board intends to appoint an additional
Non-executive Director with relevant
background experience in due course.
People and culture
During the year the Executive Directors
have continued to lead the development
of the Group’s ‘One Mercia’ culture, details
of which are set out in the Corporate,
Employee and Social Responsibility section
of this year’s Annual Report.
These core competencies will be deployed
to maximise the opportunities which now
exist to increase returns for all stakeholders,
but especially shareholders and the Group’s
investee company community.
Notwithstanding the challenging political,
economic and market sector climate, the
Group looks forward to this financial year
with great energy and purpose. The Board
will remain focused on the progress of the
largest balance sheet direct investments
and the pace and scale at which these are
being developed. Mercia’s venture, private
equity and debt funds activities are also
monitored by the Board. As and when
suitable opportunities present themselves,
we will seek to expand this part of the
Group’s business.
Finally, I would like to thank our
shareholders for their continuing loyal
support, particularly during what has been
a period of challenging investor sentiment.
It is also a pleasure to interact with all the
excellent staff at Mercia and in so doing,
to see their energy and determination to
succeed on behalf of Mercia’s shareholders,
fund investors and investee company
management teams alike.
Ian R Metcalfe
Non-executive Chair
It is pleasing to see the embedding
of Mercia’s core values, being growth-
focused, responsive, knowledgeable and
trusted in all of the Group’s internal and
external stakeholder interactions, which
continue to be strongly supported by
Mercia’s leadership team.
Outlook
All businesses must evolve to meet their
ever-changing market dynamics and
as its new name suggests, Mercia Asset
Management PLC is no exception.
Mercia’s recent strategic review has
reinforced the Group’s core competencies,
being:
• Active direct investment portfolio
management and support, including
a focus on profitable cash exits
• Proven acquisition and integration
expertise
• Fund mandate tendering and
subsequent capital deployment
• Talent acquisition and retention
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 6
WHERE WE OPERATE
A needle
in a stack
of needles
There are c.5.7million small to medium
sized enterprises (“SMEs”) in the UK, a
growth of 63% over the last two decades.
When considering this large number, it
takes a certain skill to be able to identify
a potentially truly great business. Yet it is
precisely this skill on which Mercia focuses.
With regionally spread investment teams,
our aim is to see at least 60% of all new
investment opportunities, which we are on
track to achieve given our scale, networks
and in-house research competence.
In addition to the wellbeing element, there
is also the economic rationale. London and
the South East has a significant oversupply
of capital which is creating relatively high
pre-money valuations when compared to
the UK regions. Mercia’s business model
therefore focuses our time in the regions
where we will uncover just as exciting deals,
but with more appropriate pre-money
valuations, which should deliver better
returns for both shareholders and fund
investors over time.
We take great interest in the development
of the UK’s high growth firms (“HGFs”)
(defined as businesses with revenues
growing at 20% plus per annum for at least
three years) and their distribution across the
UK. Our analysis of the market tells us that
there is a significant opportunity to further
scale our model when we look at the volume
of HGFs set against our own current
transaction levels.
Our venture, private equity and debt
investment teams are focused on the
geographies outside of London and the
South East, which is precisely where we
have our offices. These are regions where
investment capital is relatively sparse, yet
vibrant business communities exist which
require investment and active operational
support to achieve that next commercial
milestone or stage of growth. There is also
increasing evidence to suggest that people
are basing themselves out of London to
achieve a better work/life balance to:
• Avoid lengthy commutes – Londoners
have the longest average commute in the
country at 74 minutes – almost twice
the worldwide average of 40 minutes
•
Improve mental health and wellbeing
– since 2012 the Office for National
Statistics presents a clear pattern: “people
in London have consistently reported
lower personal wellbeing, including lower
levels of happiness, lower levels of life
satisfaction and higher levels of anxiety”.
Strategic report 7
OUR PURPOSE
The Group believes there is a significant opportunity in the UK
regions to develop leading businesses through the efficient and
targeted provision of capital and support, creating substantial
value for both shareholders and fund investors.
SOURCE THE BEST DEALS
5.6m
SMEs
Venture sourcing
PE sourcing
debt sourcing
Exit
4% will grow
to turnover
of £1m
0.4% will grow to
turnover of £10m, at
20% plus per annum:
high growth firms
Offices
Universities
North East Venture Fund Region
Midlands Engine Investment Fund Region
Northern Powerhouse Investment Fund Region
STRATEGIC REPORTMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 8
OUR JOURNEY
A growing track record
From our origin as a single office in Birmingham,
investing in opportunities derived from the
universities of Warwick and Birmingham,
we have been consistent in our vision of
maintaining our investment focus on the UK
Regions. Notwithstanding our 19 important
university partnerships, we have greatly
expanded our deal flow sources over the
past four years to the extent that our partner
universities now account for just under 20%
of our investment activities.
Employees
Offices
Revenue
Profit after tax
Direct investment value
2015 2019
14
85
1
8
£0.5m £10.6m
£2.0m £2.6m
£24.6m £87.7m
No. of portfolio companies
41
371
FuM
AuM
c.£22m c.£381m
c.£31m c.£507m
Strategic report 9
S
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P
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DELIVERING BALANCE SHEET AND FUND VALUE
Mercia Asset Management is focused on delivering value
from its direct investments and its managed funds’ portfolio.
Based in Warwick, Allinea is a
leading provider of software tools
for developing and optimising high
performance computing applications.
The business was sold to ARM, the
world’s leading semiconductor IP
company, in December 2016 for a total
cash consideration of up to £18.1million.
The sale represented a return of c.26x
on the original investment cost of the
managed funds and c.21x the original
direct investment cost.
A spinout from the University
of Leeds, Science Warehouse is
a provider of spend management
and eMarketplace systems to
commercial, government, higher
education, NHS and housing
customers. The business was sold
to Advanced Business Software
and Solutions in March 2018 and
the proceeds received represented
a return to Mercia of 14.8% on its
total investment cost of £9.2million.
Based in Newton Le Willows and
a portfolio company from one of
our managed funds, Blue Prism is
the most successful story from our
portfolios thus far. With a relatively
modest initial investment of
£0.9million over two years in 2004
and 2005, Mercia has subsequently
delivered cash returns of c.95x to
the fund’s investors, as well as a
performance fee to Mercia in 2018.
14%
STRATEGIC REPORTMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORTBALANCE SHEET PORTFOLIO IRR(December 2014 – March 2019)
10
BUSINESS MODEL
INPUTS
INVESTMENT MODEL
Experienced investment teams
Combining highly experienced investment
executives with operational specialists, we
pool our expertise to identify and structure
investment opportunities which we can scale
using the operational insight our team has
gained in industry. We also have a highly
experienced team of former senior banking
professionals to deploy our debt funds. We
pool deal flow across the whole Group and
harness the power of our complementary
investment and lending teams to build
stronger and more valuable syndicates
and pipelines.
Partnerships
Our university networks help us to uncover
IP-rich opportunities and our close working
relationships with the investment community
means we are presented with deals because
we are an investment partner of choice with
a trusted track record.
Regional footprint
From Poulton Le Fylde to Peterborough and
Abingdon to Abertay, our investment teams
hunt in locations which most investors would
not normally consider. The investment teams
are supported by professional staff across our
eight UK offices.
Mercia Platform
We use in-house resources to offer to our
portfolio companies talent management,
corporate advisory, legal and research
services. This means we can build out our
portfolio businesses and the management
teams so that they are prepared for growth.
Capital resources
We have now built our AuM to £507.0million
which includes c.£200million of uninvested
capital from our third-party funds and balance
sheet. We are therefore well resourced and
have built our infrastructure ready for our
next stage of growth.
01
Three discrete specialist investment
strategies (“SIS”) centred on the
UK Regions:
• Venture, private equity and debt funds –
typically in deal sizes of £0.3million to
£10.0million
• Operational improvement/scale –
utilising Mercia’s Platform and internal
sector and operational expertise
• Technology – within Mercia’s four
technology sectors of Life Sciences &
Biosciences, Software & the Internet,
Digital & Digital Entertainment and
Electronics, Materials, Engineering/
Manufacturing
ASSET CLASS
ENQUIRIES
FuM
DEAL TYPE
PERFORMANCE
Balance sheet, proprietary capital
Venture
Private equity
Debt
Investor in FuM and
Portfolio valued at
Invests in portfolio companies
22 active companies in
selectively invests in portfolio
£87.7million with £29.8million
typically emerging from the
the portfolio. Average age
companies within FuM
unrestricted cash
Group’s equity funds, as well
of investment is 2.5 years,
(currently c.400 companies
to source deals from)
as being a limited partner in
c.£14million in realisations to
four of the Group’s venture
date and portfolio performing
and debt funds
at an IRR of 14%
£224.1million in total, with
£80.5million new cash to
For initial investment;
from proof of concept
177 companies in the portfolio.
First fund to close and unwind
invest
with pathfinder funding for
was focused on the North
university spinouts, through
West of England (RSGF) and
to seed and up to Series A
returned an investor IRR of
within Mercia’s SIS
15% and a TVPI of 528%
In 2018/19 we received
2,792 enquiries – up 57%
from the previous year
£61.2million in total, with
£33.9million new cash
to invest
Invests in profitable
businesses where Mercia
brings operational
improvements to scale
profitability
£96.3million in total, with
£53.4million new cash
to lend
Lends to profitable businesses
181 companies in the portfolio.
13 companies in the portfolio.
One of our earliest regionally
focused funds was CGF
which has to date returned
an investor IRR of 19% and
a TVPI of 236%
The first fund to close was
focused on Yorkshire (FY
Small Loans) and is returning
107% of fund capital
Strategic report 11
02
03
Managed third-party funds matched
to one or more of Mercia’s SIS:
• UK domestic SMEs typically with
valuations of £1.0-£25.0million on
first investment
Balance sheet capital is for:
• Direct investment with an emphasis
on Mercia’s four technology sectors
• Equity investment into scalable
opportunities emerging from the
managed funds from which we can
realistically expect to exit in a three
to seven-year timeframe
• Modest capital contribution to four
of our third-party managed funds
• Accelerated growth opportunities
ASSET CLASS
ENQUIRIES
FuM
DEAL TYPE
PERFORMANCE
Balance sheet, proprietary capital
Venture
Private equity
Debt
Investor in FuM and
selectively invests in portfolio
companies within FuM
(currently c.400 companies
to source deals from)
Portfolio valued at
£87.7million with £29.8million
unrestricted cash
£224.1million in total, with
£80.5million new cash to
invest
Invests in portfolio companies
typically emerging from the
Group’s equity funds, as well
as being a limited partner in
four of the Group’s venture
and debt funds
22 active companies in
the portfolio. Average age
of investment is 2.5 years,
c.£14million in realisations to
date and portfolio performing
at an IRR of 14%
For initial investment;
from proof of concept
with pathfinder funding for
university spinouts, through
to seed and up to Series A
within Mercia’s SIS
177 companies in the portfolio.
First fund to close and unwind
was focused on the North
West of England (RSGF) and
returned an investor IRR of
15% and a TVPI of 528%
In 2018/19 we received
2,792 enquiries – up 57%
from the previous year
£61.2million in total, with
£33.9million new cash
to invest
Invests in profitable
businesses where Mercia
brings operational
improvements to scale
profitability
£96.3million in total, with
£53.4million new cash
to lend
Lends to profitable businesses
13 companies in the portfolio.
One of our earliest regionally
focused funds was CGF
which has to date returned
an investor IRR of 19% and
a TVPI of 236%
181 companies in the portfolio.
The first fund to close was
focused on Yorkshire (FY
Small Loans) and is returning
107% of fund capital
STRATEGIC REPORTMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 12
Strategic report
KEY PERFORMANCE INDICATORS
Strategic priorities
We focus on UK regional opportunities where our SIS, combined with our strong capital position, can co-create material
value for all our stakeholders over the medium term. Our strategic priorities therefore underpin our ability to pick the
best deals at the right entry price, accelerate their value via support from Mercia’s Platform and scale FuM to meet both
investment demand and move the Group towards a profitable trading position.
INDICATOR
PERFORMANCE
INDICATOR
PERFORMANCE
Growth in value of
the Group’s portfolio
through investment
activity
£19.4m
2019
2018
£19.4
£21.3
How it was measured
Measured in terms of the
gross cash invested in direct
investments
The Group has demonstrated
continued growth in the value of
its portfolio through investment
activity
Third-party funds
under management
How it was measured
Measured in terms of fund
management contracts
secured and under active
management
Growth in value of the
Group’s portfolio
through fair value
movements
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”)
Number of companies
invested in during
the year
How it was measured
Measured in terms of all
companies invested in (both
existing and new direct
investments) during the year
£3.9m
2019
2018
£3.9m
£2.8m
Reflects a year of continuing
positive momentum in what is
still a relatively young portfolio
17
2019
2018
17
17
The Group has demonstrated
continued growth in its direct
investment activities through the
number of companies in which it
has invested during the year
Unrestricted cash
balances and short-term
liquidity investments
held by the Group at the
year end
£29.8m
2019
£29.8m
2018
£49.4m
Investment realisation
proceeds received
How it was measured
Measured in terms of the
cash proceeds received from
realised investments
Revenue
How it was measured
Measured in terms of all
revenues derived from both
fund management and direct
investing activities
Net expenses
How it was measured
Measured in terms of total
revenue less all staff and
administrative expenses
How it was measured
Measured in terms of cash,
cash equivalents and
short-term liquidity
investments held by the
Group, excluding funds held
on behalf of third-party EIS
investors
Mercia continues to have sufficient
liquidity for its direct investing and
operating activities
Net asset value per
share
How it was measured
Measured in terms of the
Group’s consolidated balance
sheet net assets divided by
the number of shares in issue
at the year end
c.£381m
2019
2018
c.£381m
c.£400m
The FuM reduction was due to
distributions to fund investors
£0.0m
2019
£0.0m
2018
£10.8m
No cash realisations were
completed during the year,
although external interest
in the Group’s direct investments
is increasing
£10.7m
2019
2018
£10.7m
£10.2m
The Group’s revenue increase
was derived from the quantum
of funds under management and
the accelerating deployment
of those funds
£1.4m
2019
£1.4m
2018
£0.4m
2018 benefitted from one-off
profit share and success fees
from fund raises. Net expenses
have now levelled out
41.6p
2019
2018
41.6p
40.7p
The Group’s net asset value
per share continues to increase
as growth in the value of the
direct investment portfolio
exceeds net expenses
13
Strategic report
CHIEF EXECUTIVE
OFFICER’S REVIEW
Focusing on the regions
Assets under management
c.£507m
2018: c.£500m
Companies invested in/lent to
1452018: 90
Dr Mark Payton
Chief Executive Officer
We have begun our new financial year with a solid foundation from
which to further scale Mercia’s funds under management (“FuM”),
whilst remaining focused on our balance sheet direct investment
portfolio. Almost all deal activity is predominantly sourced from the
UK regions where we have established ourselves as one of the most
trusted and active investors. We remain confident in our ability to
accelerate growth in both our FuM and the value of our direct investment
portfolio over the medium term.
The regionally focused
specialist asset manager
In the last 12 months Mercia has
experienced marked growth in capital
deployment from its balance sheet and
managed funds as it builds a strong
foundation from which to further expand
its assets under management (“AuM”). In
this reporting period, Mercia received 2,792
(2018: 1,800) requests for investment and
invested c.£73million (2018: c.£46million)
across the Group into 145 companies (2018:
90). Revenue grew 4.7% to £10.7million
(2018: £10.2million), reflective of the
Group’s consolidation in the year following
a period of recent and rapid expansion.
A simple measure of the progress that
the direct investment portfolio is making
is to compare the number of positive and
negative fair value movements that are
occurring year on year, as well as the
overall value of those movements and
the percentage that the total fair value
movements represent, against each year’s
opening fair value. Given that just over
four and a half years have elapsed since
Mercia’s IPO in December 2014, it is
important to remember that the average
amount of time that the balance sheet’s
capital has been invested in these typically
young and intellectual property-intensive
businesses is just over two years. Mercia’s
objective is to successfully exit following a
three to seven-year timeframe from initial
balance sheet investment. During the year
to 31 March 2019 it is encouraging to see
that there have been 12 fair value uplifts
(2018: nine) and only three fair value
decreases (2018: nine). As a result, the total
net fair value gain has increased 39.3% to
£3.9million (2018: £2.8million). Whilst the
net fair value increase in the year at 5.9%
(2018: 5.4%) is relatively modest, it is
somewhat skewed by the £4.0million
write-off of Mercia’s investment in Smart
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT “ These results mark the
acceleration of Mercia’s
evolution towards becoming
a profitable, proactive and
regionally focused specialist
asset manager. Across our four
different asset classes, balance
sheet, venture, private equity
and debt capital, we recorded
our strongest level of activity by
deal completions and investment
value to date.”
1414
CHIEF EXECUTIVE OFFICER’S REVIEW continued
Antenna Technologies. As set out in the
Chief Investment Officer’s review, the
Executive Directors made the difficult
recommendation, fully supported by the
Board, to cease funding Smart Antenna
Technologies due to a significant change
in the investment needs of the business.
Whilst Mercia’s investment team works
hard to minimise portfolio failures, it is the
nature of venture capital investing that not
every investment will work out as planned.
It is worth noting however, that but for
the Smart Antenna Technologies write-off,
the underlying net fair value increase in the
value of the portfolio during the year was
12.1%, which is a more indicative measure
of the positive progress that the portfolio
is making. Two new businesses were added
to the portfolio during the year, W2 Global
Data Solutions and Locate Bio.
Net expenses at £1.4million (2018:
£0.4million) were better than market
expectations and overall these results set
the backdrop for creating a sustainable
business seeking to accelerate growth
in AuM over the near to medium term,
coupled with a continued direction of
travel towards profitable trading before the
added value of profitable cash realisations
and upward fair value movements.
In the regions, from the
regions, to the regions
Mercia’s stated intent is to become the
leading regional provider of supportive
balance sheet, venture, private equity and
debt capital in transaction sizes typically
below £10.0million. Recent research reports
from Beauhurst have shown Mercia to be the
fourth most active investor nationally and
second most active in the North of England.
We base ourselves in the regions so that
we can access and support ambitious
businesses, enabling us to move capital from
London to the regions, whilst supporting
business growth and providing attractive
investment returns from the regions to our
fund investors, shareholders and business
owners. Mercia’s strategic plan is supported
by data from Beauhurst, the British Business
Bank and the British Venture Capital
Association. As a ratio based on the
percentage of high growth firms to total
equity capital deployed, London has an
approximately three times oversupply of
capital compared to, for instance, the
Midlands at 0.3 times. Our positioning in the
regions provides an attractive opportunity to
source high quality deal flow with relatively
limited competition, whilst helping owners
meet and beat their own growth ambitions.
A maturing direct investment
portfolio underpinned by
proprietary capital
Since Mercia’s IPO in December 2014,
we have to date invested c.£84million
into the balance sheet portfolio of direct
investments (focused on assets initially
developed within Mercia’s FuM) and
£0.8million as a cornerstone investor
in four of our managed funds. Our
direct investment activity has resulted
in c.£14million in realised cash returns thus
far and the IRR of the direct investment
portfolio is currently c.14%.
Our proprietary capital model means that
we do not have the same pressure to invest
capital for the sake of generating fees. Our
teams have the time to actively nurture
interesting companies from within our FuM
and build relationships with management
teams long before we invest directly and so
we seek over the medium to long term to
generate superior returns. The combination
of our balance sheet capital with third-party
FuM, centred on regional investment activity,
is the cornerstone of Mercia’s business
model. This approach ensures that our
shareholders benefit from investment
returns over the medium term with minimal
net asset value erosion from the net
expenses of running our business. Our
ungeared balance sheet, connected internal
processes and focused investment model
allow us to be competitive and agile for the
right investment opportunities.
We ended the year with unrestricted
cash of £29.8million (2018: £49.4million)
and net assets of £126.1million (2018:
£123.5million).
Portfolio performance
The portfolio of investments assembled
within our FuM over the 17-year period
from 2002 (and for our direct investment
portfolio since 2014) is starting to create
and realise significant value.
Notable direct investments initially
supported by our FuM include nDreams
(a fee for service and proprietary content
developer for the virtual reality (“VR”)
gaming sector, which is in a period of
strong revenue growth and has received
further third-party investment post year
end); Oxford Genetics (a promising
synthetic biology business which is
growing rapidly with revenues up by
nearly 300% in the past 12 months and
which recently completed a £6.5million
syndicated investment round to further
15
Mercia’s presence in the UK regions
of the Midlands, the North of England
and Scotland is now firmly established.
We continue to value our relationships
with the Group’s 19 partner universities,
as well as fund investors such as the
British Business Bank, City Councils,
regional pension funds, banks and our
many private investors. We thank them
all for their trust in us with their capital.
Our two clear goals remain to grow the
value of Mercia’s net assets through
accelerated growth of the direct
investment portfolio whilst seeking to
expand our FuM to move the Group to
a sustainable, profitable position before
realised gains and fair value movements.
The Group’s objective is to grow AuM to
at least £1.0billion over the medium term.
We believe that the achievement of these
goals will result in a sustainable business
model which will deliver significant
shareholder value over the medium term.
The Board strongly supports Mercia’s next
stage in its evolution, as demonstrated by
the recent name change to Mercia Asset
Management PLC. Internally, we reference
the Group as ‘One Mercia’ as we leverage
the collective strength of a highly talented
85-plus team. I would like to thank all
our valued staff for their drive and
commitment as we open ‘Chapter Three’
of Mercia’s journey to become the leading,
regionally focused specialist asset manager.
Dr Mark Payton
Chief Executive Officer
5 July 2019
scale the business); Voxpopme (a SaaS
based video analytics business in rapid
revenue growth); Intechnica (a provider
of bot analytics and website optimisation
services and tools in strong revenue
growth); and Faradion (a disruptive
sodium-ion battery cell developer
which completed a syndicated round
of investment post year end).
Notable venture portfolio companies within
our FuM include Axis Spine (a spinal implant
innovator that is attracting significant
attention from the US market) and Sense
Bio (a developer of user-centred, handheld
diagnostic test devices in the fields of
infection and oncology). Another fund
portfolio company, Clear Review (a SaaS
business providing HR management tools),
has been added to the direct investment
portfolio since the year end.
In addition to the considerable new
investment activity during the year, the
Group also unwound its fund investment
in Blue Prism Group (previously held in
the RisingStars Growth Fund) for a money
multiple on initial investment of c.95x; an
outstanding investment return.
As well as our differentiated regional
strategy and FuM combination with
proprietary balance sheet capital, the
Group has developed its own Mercia
Platform for the benefit of its portfolio
companies and our investment teams.
The Platform comprises (i) portfolio
talent management to assess and
support investee boards, ‘C suite’ and
senior management recruitment and
development, plus help build regional
non-executive director networks; (ii)
corporate advisory to manage deal
syndications alongside the Group’s
capital; (iii) legal, where we look to support
portfolio companies with legal investment
documentation expertise; and (iv) research
for the benefit of Mercia’s strategic
execution and our portfolio companies.
These value-added services to investee
companies positively differentiate Mercia
in our marketplace.
Funds’ performance and return
To date, Mercia’s closed and legacy funds
have returned c.£176million. The vintages
of these funds have varied from 10 to 16
years with certain funds returning IRRs
of 15-17%.
Venture
Our first venture fund to be fully
unwound and capital returned to investors,
RisingStars Growth Fund, was an early-
stage fund specifically targeted at young
businesses sourced from the North West
of England. It has generated an investor
IRR of 15%, total value to paid-in capital
(“TVPI”) of 528% and distributions as a
proportion of paid-in capital (“DPI”) of
468%. This fund benefitted from a portfolio
generating nine trade sales and three IPOs.
Private equity
Our oldest private equity fund is another
regional fund, Coalfields Growth Fund,
which has so far generated an investor
IRR of 19%, TVPI of 236% and a DPI of
167%. This fund benefitted from a portfolio
generating three successful exits to date.
Debt
Our first and oldest debt fund which is
currently winding down is the Finance
Yorkshire Small Loans Fund. Focused on
lending to businesses in Yorkshire, it will
return 107% of original fund commitments.
Outlook
We enter our current financial year having
developed a strong foundation for Mercia’s
next chapter as a proactive, regionally
focused specialist asset manager. This
domestic focus in part protects us from
the uncertainties of the UK’s departure
from the EU and the nature of its new
relationship and timing. The Group has a
healthy cash position with c.£168million
in free cash to invest from its FuM and
in addition c.£30million of unrestricted
balance sheet cash to support new and
existing direct investments. We remain
centred on transactions typically requiring
less than £10.0million in total and by
leveraging the four pools of capital that we
manage across the Group, Mercia remains
well positioned to combine third-party
funds with our own balance sheet capital,
where appropriate.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 1616
Strategic report
CORPORATE,
EMPLOYEE AND SOCIAL
RESPONSIBILITY
Our goal is to ensure that Mercia is a great place to work, where we have a shared
sense of purpose and our four core values are at the heart of everything we do.
We believe that ‘how’ we do things is fundamental to our success at all levels and
helps to distinguish us at Mercia. It matters deeply to all of us that we are seen
as trusted and knowledgeable professional partners by all stakeholders.
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 (both PLC and
funds), employees, suppliers and the businesses
in which the Group invests. Mercia seeks to
comply with all laws, regulations and rules
applicable to its business and to conduct that
business in line with established best practice.
The Group takes a zero tolerance approach
to bribery and corruption and has enacted
procedures to prevent both.
People and talent
Recognising the importance of our people to
Mercia’s future success, the people and talent
team was expanded during the year, with their
focus firmly on delivering a great employee
experience. 2018/19 was a year of headcount
growth, recruiting talented individuals to help us
scale, whilst introducing best-in-class ways of
working. 2019/20 will be a year of ensuring
maximum performance from all of our people,
enabling them with training and performance
development opportunities.
Our Mercia team are openly encouraged to share
best practice and knowledge for the benefit of
others, always striving to exceed expectations.
We believe that the best way to ensure that our
team feels engaged and valued for the work
they do is by recognising and rewarding their
contribution to Mercia. We regularly showcase
employee achievements at internal events and
in our bi-weekly newsletter and offer rewards
for successful recruitment introductions, new
investment opportunities, work anniversaries
and other noteworthy accomplishments.
Training and development
Having increased average headcount
significantly in 2018/19 from 65 to 85 people,
with 90 staff at the year end, our new Mercia
Academy initiative focuses on learning and
development throughout each stage of an
employee’s Mercia journey. As a result, we
have invested more than 1,000 hours of
training in our team within the last six
months. This has been largely achieved by
sharing best practice and knowledge in the
form of a planned programme of monthly
internal workshops, providing technical
learning for our investment and operational
teams, as well as bringing in external experts
to equip our staff to deliver at their best.
A buddy system has also been successfully
launched, where new employees can develop
their skills through social interaction and
informal learning, even before joining Mercia.
Our core values
Growth focused
We seek to optimise
performance and
growth at an individual,
team, Group and
investee level
Knowledgeable
We are recognised as
experts in our field,
sharing knowledge for
the benefit of others
Responsive
We think deeply,
always meeting
commitments and
aiming to exceed
expectations
Trusted
We are trusted
partners, known
for being honest,
professional, reliable
and fair
17
Compliance and anti-money laundering
training remains a priority for the Group
and all employees who are involved with
the regulated business of managing
investment transactions receive
appropriate training and refresher courses.
We have held positive meetings with
external training providers, which will
enable us to consider offering professional
apprenticeship qualifications, and we will
explore this further in 2019/20. Support
towards professional qualifications for
members of our Finance and Compliance
team will also continue.
Performance management
Our group-wide performance and
development review process was launched
during the year, with managers actively
helping their teams to achieve career and
personal goals, as well as highlighting
areas where additional support may be
required. Regular ongoing development
discussions between managers and
employees take place, with our Mercia
leaders having undertaken formal
leadership training. This is continuing
in the new financial year as we focus
our managers on developing high-
performing teams.
We care about what our people think
and encouraged participation in our
first employee engagement survey in
August 2018. We believe that gathering
this feedback and providing a formal
channel for employees acts as a healthy
temperature check. Our employee Net
Promoter Score sits at +48, a score which
we will be using as our benchmark to
measure progress in the new financial year.
Employee diversity
Mercia promotes diversity and equal
opportunity for all in our recruitment,
development and promotion of employees.
We do not differentiate on the grounds of
age, gender, religion, sexual orientation,
ethnicity or physical ability. Of our 90
employees at the year end, 38 are female
and 52 are male, with 7% more of an equal
balance compared with last year’s reported
gender split.
Health, mental wellbeing and safety
The health and safety of our people
remains paramount. The Group endeavours
to provide a safe working environment for
all. Our employees are responsible for the
promotion of, and adherence to, health
and safety in the workplace. The primary
purpose of the Group’s health and safety
policy is to enable our team to go about
their work, with the expectation that they
can do so, without risk to their health and
safety, and that of others.
“ Creating a great place to work
and where great work is
accomplished.”
Our proactive approach to mental
wellbeing continues with employees
and their families having access to an
employee assistance helpline. This line
is open 24/7 and offers support from
professional counsellors and advisers
who are available to provide confidential
support and practical advice on personal
and/or work-related issues. Recognising
that mental health should be held in equal
regard to physical health and wellbeing,
we have recently introduced qualified
mental health first aiders within Mercia,
with a planned network of mental health
supporters in each of our office locations.
This ensures that our employees have a
safe and confidential environment in which
to discuss concerns and seek advice on
alternative support options.
The environment
Despite being geographically spread
across eight offices given the overall size
of the Group, Mercia considers the direct
environmental impact of its employees
to be relatively low. However, we remain
committed to operating our business
in an environmentally responsible and
sustainable manner and encourage all
employees to reduce their impact on the
environment in their day-to-day business
activities. We actively encourage cycling
to work, with the benefits being twofold:
reducing our carbon footprint and adding
to our employees’ health and wellbeing.
Our cycle to work scheme is used across
the Group by a number of employees.
During 2018/19 we introduced paper
recycling boxes, reusable glass bottles in
meeting rooms and a ‘ways of working’
policy, which discourages electrical items
such as desk monitors from being left on
while away from the office.
Giving back to society
We recognise our corporate and social
responsibilities and there has been further
positive focus on this area in recent months,
with the introduction of our ‘Mercia Spirit’
initiative. Mercia Spirit is a way of us giving
back; gifting our time, knowledge and
fundraising ideas for the benefit of others.
Our employees have this year chosen to
support two charities, Cancer Research UK
and Enabling Enterprise. With cancer
touching so many lives, we believe this to
be a very worthy choice for our fundraising
activities. We have also made a
commitment to dedicate time in 2019/20
to supporting the Enabling Enterprise
initiative, helping students to build essential
skills and be fully prepared for the
workplace. Investing our time in young
people is crucial, as it enables them to have
a chance to experience real workplaces and
connect with professional adults. During the
year ended 31 March 2019 we have been
able to support schoolchildren from within
our local communities with work experience
placements and undergraduates with
internship opportunities.
Average number of employees
852018: 65
Employee Net Promoter Score
+48
Hours of internal training provided via the
newly introduced ‘Mercia Academy’
1,000+
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 1818
Strategic report
CHIEF INVESTMENT
OFFICER’S REVIEW
A maturing portfolio
Gross cash invested
£19.4m
2018: £21.3m
Net fair value movements
£3.9m2018: £2.8m
Julian Viggars
Chief Investment Officer
Having taken over the role of Chief Investment Officer in April 2018
this has been my first full year to focus on the construction of the direct
investment portfolio and oversee the Group’s activities across all of its
managed equity funds. I am pleased to say that we have made significant
progress in all of these areas and we are now starting to see the benefits
of the previous hard work, as our portfolio companies start to mature;
examples of this progress are highlighted below.
As with any young portfolio, in addition to
the good progress we see, we would of
course expect challenges. I commented in
the half year results that we were prepared
to take action in circumstances where our
fundamental rationale for investment had
changed, which had been the case with
Edge Case Games. This business was sold
to Wargaming in November 2018, returning
an initial £1.1million to us in a deal involving
further deferred contingent consideration
of up to $10.0million in due course. In
January 2019 we took another tough
decision to stop supporting Smart Antenna
Technologies. When the demands of Smart
Antenna Technologies’ mainly Chinese
customers shifted from licensing its
antenna technology to ‘last touch’ volume
manufacture of the antennae themselves,
the change in customer requirements
necessitated a significant increase in the
amount of capital committed by Mercia to
Smart Antenna Technologies. The decision
was therefore taken in January 2019 not to
provide further funding and as a result the
business ceased trading shortly thereafter.
Although this has resulted in a
disappointing write-off, my twenty years’
experience of investing in technology
companies tells me that it is far better
to take these decisions and look at the
strength of the remaining portfolio as a
whole. Decisions like these should always
be made from a position of risk and
portfolio management and we always
consider the opportunity cost of each £1
allocated to one of our assets compared
to that £1 being invested in another.
During the year we conducted an in-depth
review of our direct investment portfolio
and allocated our time, energy and capital
in a structured manner, leveraging the
services of our newly formed Mercia
Platform to help drive investee company
growth. Mercia’s Platform covers the four
disciplines of talent resourcing, corporate
advisory, legal and research, all of which we
see as key to delivering investee company
growth by helping management teams
to scale their businesses. This supportive
approach means that we can both help our
19
“ In summary, and as is evident
from the above, value-creating
momentum continues and I am
pleased to be able to share the
positive progress that our
investee companies are making
alongside our active support.
By using a highly structured
approach over the last 12
months we have been able to
refocus our energy and capital
into the most promising assets,
which we believe will deliver
far greater value to all our
shareholders and fund
stakeholders alike.”
portfolio management teams to take
advantage of the opportunities ahead of
them, as well as helping them to navigate
the inevitable issues associated with
growing and scaling young businesses.
Track record
Track record is crucially important for any
specialist asset manager and our oldest
technology fund, the RisingStars Growth
Fund, was finally closed at the end of
March 2019. It was raised in 2003 and
targeted entrepreneurs and early-stage
ideas across the North West of England,
operating out of Mercia’s second largest
office in the heart of the city of Manchester.
We invested across the geography from
software, through MedTech, AgTech and
FoodTech, to specialty Pharma, in some
35 deals. The fund spawned four listed
businesses, Provexis, Science in Sport and
Plant Impact, but the standout success
was Blue Prism Group. We were the first
investor in Blue Prism Group in 2004 when
the founders, Alistair Bathgate and Dave
Moss, came to us after they had won
their first bespoke deal with Barclays. We
invested £0.9million over the following few
years to support their progress and help
build their team. They moved to a channel
partner model as their newly coined ‘robotic
process automation’ software started
to gain traction. From there the story is
impressive, following its AIM listing in 2016
and stellar subsequent growth to a market
value of c.£1.1billion. That early investment
has now been realised in full and has
resulted in a staggering c.£94million
profit on the original investment cost.
Our first private equity fund is another
regional fund, Coalfields Growth Fund,
which has so far generated an IRR of 19%
and a TVPI of 236%. This fund benefitted
from a portfolio which has generated
three successful exits to date.
Direct investment portfolio overview
We have had another year of good
progress across the direct investment
portfolio, resulting in net upward fair
value movements of £3.9million. The
overall uplift should be considered in
light of the £4.0million write-off of Smart
Antenna Technologies, where we took the
tough but right decision to discontinue
financial support.
We have seen the continued maturing
of the direct investment portfolio with
c.98% of the total portfolio value being
represented by the top 20 investments.
A number of our investee companies have
raised significant sums of capital during
the year to fund their growth and we have
continued to build out the management
teams and boards at our key assets.
£19.4million has been invested over the
past year and investee company loan
repayments have totalled £1.7million. As
at 31 March 2019 the value of the Group’s
direct investment portfolio has increased
to £87.7million from £66.1million, reflecting
the net investment of £17.7million and net
fair value gains of £3.9million.
Investment activity
As many of our direct investment portfolio
companies look to scale their growth,
our aim remains to build and/or maintain
material equity stakes at c.20-40% in
these assets, whilst increasingly looking
to bring in new third-party capital.
We have continued to support our largest
and most promising assets, with both
capital and energy. £8.7million of the total
amount of balance sheet capital invested in
the year was invested into nDreams, Oxford
Genetics, Warwick Acoustics, Intechnica,
Impression Technologies and Voxpopme.
nDreams continues to develop its award-
winning VR content; its own Shooty Fruity
game won best PC Arcade game at the
Viveport Awards in March 2019, making its
first steps into the growing location-based
entertainment (“LBE”) market for VR. It also
announced its first title, Phantom: Covert
Ops, being developed for Oculus, which
has recently received rave reviews and
numerous awards at the global games
Expo, E3 held in Los Angeles in June,
including the Games Critics Award for
best VR/AR game. Global enterprise
VR hardware and software revenue is
estimated to grow by 587% to $5.5billion
in 2023, up from an estimated $800million
in 2018, according to Business Insider
Intelligence.
Oxford Genetics made significant
commercial progress and closed a
new £6.5million funding round in March
2019 led by Canaccord Genuity Wealth
Management (formerly Hargreave Hale)
and Invesco. According to data published
by Allied Market Research the global
synthetic biology market is expected
to reach $38.7billion by 2020.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 2020
CHIEF INVESTMENT OFFICER’S REVIEW continued
Warwick Acoustics continues to
successfully pursue its goal of disrupting
the $8.0billion automotive audio market.
It launched its flagship premium headphone
product, the APERIO, to global critical
acclaim, further enhancing its brand,
proving out its new automotive-grade
transducer design and securing early
commercial interest. On the back of this
achievement, it has gained strong traction
from the car industry, signing its first two
design and development contracts with a
major premium European car manufacturer.
These contracts are helping to accelerate
the growth of its pipeline of car companies
seeking to adopt its premium audio
solutions and should result in the company
securing ’supplier ready’ status with the
automotive industry in early 2020.
Intechnica is a Manchester-based services
and software product business with annual
revenues of c.£6million. Its focus is on
the critical operations of ecommerce
businesses, including website resilience
and efficiency, high volume ordering
systems, online ticketing and mobile
customer relationship management
applications. It is developing a suite of
products to help manage inbound web
traffic. In the last 12 months the business
has raised £4.1million, with £2.0million
from Mercia, to fund the ongoing
commercialisation of its SaaS-based
Netacea product offering. Statistics from
Gartner estimate that the enterprise
software market in 2019 will reach
$427.0billion, up 7.1% from $399.0billion
in 2018.
Impression Technologies has developed a
proven, patented process for manufacturing
advanced, light-weight high-strength
components using aluminium. The process,
known as Hot Form Quenching (“HFQ®")
technology, offers significant savings in
weight, cost and part complexity compared
with existing forming technologies and
enables designers to create complex
shaped components using high-strength
aluminium that are not otherwise possible
today. HFQ® technology addresses
substantial global markets including
automotive, aerospace, mass transit,
industrial and consumer electronics.
Impression Technologies owns and
operates a pilot pressing facility in
Coventry, which opened in 2016. This
facility now houses the world’s first
dedicated HFQ® hot forming press line.
Impression Technologies’ business model
is to license its technology to Automotive
OEMs and to their tier 1 suppliers. The
in-house production line is used for
process development and low volume
supply to Aston Martin and others.
During the year, Impression Technologies
partnered with Novelis Inc., the world
leader in aluminium rolling and recycling,
to explore innovative ways to increase the
broader adoption of aluminium through
the hot stamping process.
Voxpopme is a Birmingham-based video
insights platform that provides innovative
video analytics for marketing purposes
with internationally renowned clients such
as Microsoft, Tesco, Verizon and Accenture.
The business has successfully entered the
US market and Mercia’s capital will help
scale its growth. The Group made its
first direct investment into the company
in March 2018 and with revenues of
c.$5.0million in 2018, c.95% up on the prior
year, Voxpopme is operating in a market
estimated to be worth $46.0billion in
market research and $17.0billion in
customer experience.
During the financial year we also invested
£2.5million into two new direct investments,
W2 Global Data Solutions and Locate Bio,
both of which originated from the managed
funds pipeline. In addition, we contributed
£0.6million of balance sheet capital to four
of our regional managed funds.
W2 Global Data Solutions is a SaaS
business providing real-time identity
verification services to prevent fraud and
money laundering in a market estimated to
grow from $14.4billion in 2016 to $33.2billion
in 2021. The company targets global firms
in regulated, government and business
communities and is primarily focused
on selling to the gaming, payments and
foreign exchange markets on multi-year
revenue contracts.
Locate Bio is a gene and cell therapy
company developing a pipeline of next
generation medicines which utilise its
proprietary technologies for non-viral
gene therapy and cell therapy. The company
operates in the global regenerative medicine
market which is projected to reach
$38.7billion by 2024 from $13.3billion in
2019, at a CAGR of 23.8%. This predicted
growth is largely driven by the rising
prevalence of chronic diseases and genetic
disorders, growing government investments
in regenerative medicine research and the
increasing number of regenerative medicine
companies globally. The company is
currently expanding the application of its
technologies (IntraStem™ and TAOS®) into
new therapy areas, beyond musculoskeletal,
to provide further in-house development
and partnering opportunities.
We have seen strong growth in the pipeline
for direct investment across our sectors in
the last 12 months through the increasing
scale of our managed funds, which have
deployed £30.5million from our venture
funds alone into 61 companies. We will
continue our aim of building excellent
management teams within these
businesses, which can scale before we
commit our balance sheet capital. As a
result, and as shown with Oxford Genetics
above, we expect that in the future larger
and increasingly syndicated investment
rounds will be a growing feature of our
direct investment portfolio.
Some notable businesses in our venture
funds that are making strong progress
include Axis Spine, a spinal implant
innovator that is attracting significant
attention from the US market, and Sense
Bio, a developer of user-centred, handheld
diagnostic test devices in the fields of
infection and oncology.
Fair value movements
The total net fair value gain in the year
amounted to £3.9million compared to
£2.8million in the prior year. We have
recognised notable fair value uplifts at
nDreams (£1.1million), Intelligent Positioning
(£1.3million), Faradion (£1.6million), Oxford
Genetics (£0.6million), Medherant
(£1.2million), The Native Antigen Company
(£0.9million) and Voxpopme (£0.5million).
These fair value uplifts are based on our
existing valuation policy where there is
either third-party involvement and pricing
in an investment round (in most instances),
independent third-party input to valuation,
or the business is profitable and the
valuation is based against market
comparators. We have also released a
previous fair value provision for Soccer
Manager as the company’s revenues have
increased, and in our view its prospects
have materially improved, as we have
helped to engineer operational and
market-facing improvements.
As well as the fair value write-off of Smart
Antenna Technologies we also recognised
a negative fair value movement of
£0.5million on Concepta PLC, an investment
which is listed on AIM so is marked to market
at bid price. However, we have been pleased
with the recent commercial progress that
Concepta is now making, as shown by the
recent agreement with Walgreen Boots
Alliance, and so have continued to support
the team under the oversight of Mercia’s
Chief Operating Officer Peter Dines, who
has become a non-executive director on
Concepta’s board.
21
In summary, and as is evident from
the above, value-creating momentum
continues and I am pleased to be able
to share the positive progress that our
investee companies are making alongside
our active support. By using a highly
structured approach over the last 12
months we have been able to focus our
energy and capital into the most promising
assets, which we believe will deliver far
greater value to all our shareholders and
fund stakeholders alike. This portfolio
discipline is continuing in the current year.
Julian Viggars
Chief Investment Officer
5 July 2019
Third-party funds overview
Our third-party managed funds
encompassing our venture (which includes
c.£49million of EIS capital), private equity
and debt funds are all performing well
against their mandates.
In our primary regions of the Midlands and
the North of England we manage allocations
from the £250.0million Midlands Engine
Investment Fund (“MEIF”), the £400.0million
Northern Powerhouse Investment Fund
(“NPIF”) and the £125.0million North East
Venture Fund (“NEVF”).
Our £23.5million Midlands Engine
Investment Fund Proof of Concept Fund
(“MEIF POC”) first invested in Locate Bio in
April 2018, which subsequently became a
direct investment six months later and has
received significant further funds since the
year end from both Mercia’s balance sheet
and via its third-party managed funds.
In the North of England we manage
c.£110million across the NPIF region in
both venture and debt, with both mandates
on target. Our newest fund covering the
North East region of £27.5million was
launched in April 2018 and made its first
investments during the year.
In Scotland, we have significant relationships
with a number of the leading universities,
most recently the University of Edinburgh,
and have used allocations from our EIS
funds to lead an investment into Invizius,
a company whose technology reduces
the risk of cardiovascular disease among
patients undergoing long-term dialysis.
Our newest £45.0million private equity
fund invests in later-stage profitable
SME businesses; supporting ambitious
management teams by providing the
focus, resources and finance required to
move their companies onto the next level
of growth. The fund operates across the
UK, although makes a strength of its
northern roots and has an experienced
investment team, supported by two
operating partners who regularly meet and
advise management teams. The investment
criteria of the fund starts with identifying
management teams with a shared set of
goals and typical investments will be into
profitable, cash-generative businesses
with a strong market position that can
achieve rapid growth. During the year the
fund invested £8.5million in total into an
online aggregator car park booking site,
ParkVia, and a specialist lifting equipment
provider operating a depot network across
the North of England and the Midlands,
Quick Reach. Since the year end the
fund has made two further investments
including Total Resources, a temporary
traffic management business which was
a c.£8million deal that also included both
our SME Loans Fund and North East
Venture Fund.
Our debt team was active in managing
three third-party debt mandates;
£4.0million of Rosebud Finance on
behalf of Lancashire County Council, the
£40.0million EV SME Loans Fund backed
by Greater Manchester Pension Fund and
Santander, and the £51.0million NPIF Debt
Fund (part of Mercia’s £110.0million NPIF
allocation) focusing on Yorkshire and the
Humber. Our experienced debt team of 18
people operates across the country, but
with a focus on the North of England, and
typically provides term loans of between
£0.1million and £1.0million to established
and profitable SMEs which can demonstrate
growth and an ability to service the
requested levels of debt. All funds are
operating to agreed performance measures
and during the year the team advanced
loans totalling £15.0million to 65 businesses.
We are now investing at a steady rate
across our venture, PE and debt funds,
creating a healthy pipeline of investments
from which we can help shape business
models, strategies and management
teams, before making selective new
direct investments using our balance
sheet capital.
Post period end developments
Investment activities have continued
apace since the year end with new funding
rounds at Medherant and Locate Bio where
we invested a further £1.5million and
£1.8million, respectively. We have also
continued to support Voxpopme as the
company executes its plan to grow its
annual recurring revenues (“ARR”).
Concepta announced a new £2.3million
placing in April, with Mercia contributing
£0.8million, and subsequently the company
announced the first pregnancies by early
users of its MyLotus system.
nDreams announced its partnership with
Oculus and the first title in development,
Phantom: Covert Ops, which received
positive, wide recognition at E3 in Los
Angeles in June 2019, including winning
the Games Critics Award for best VR/AR
game.
Another fund investment, Clear Review, a
SaaS business providing HR management
tools, has become the Group’s latest new
direct investment with an initial £0.5million
equity investment.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 22
Strategic report
BALANCE SHEET
Location:
Farnborough
ndreams.com
An award-winning developer and
publisher delivering world-leading
interactive VR experiences. nDreams
is a trusted partner to global
entertainment businesses with clients
including Oculus, Google, PlayStation
VR and Microsoft. The company’s
journey has been impressive as a
result of a hugely talented team that
has worked in some of the world’s
most successful gaming studios.
Most recently, post year end, nDreams
announced its first title, Phantom:
Covert Ops, in development for
Oculus, the world leader in VR
technology companies.
Location:
Oxford
oxfordgenetics.com
Oxford Genetics operates in the
synthetic biology market providing
cutting-edge technologies and
advanced techniques for drug and
gene therapy development. The
business has made considerable
commercial progress, achieving a
year-on-year revenue growth of
300% as well as closing six new
licensing deals with world-leading
biotech firms including Aldevron in
the financial year ended 30 April 2019.
Location:
Manchester
Intechnica.com
A well-established specialist in
website performance and security,
Intechnica delivers consulting services
in the performance and security of
website applications and technical due
diligence to blue chip organisations
across the UK and internationally,
including ASOS, Channel 4 and Avis
and a growing number of leading
private equity investors. First
customers have been secured for the
company’s AI-based cybersecurity
product, Netacea, developed utilising
the company’s extensive experience in
this area. Revenue for the year ended
31 March 2019 exceeded £6.0million
for the first time, an increase of more
than 20% on the previous year.
Location:
Sheffield
faradion.co.uk
Faradion is the world’s leader
in non-aqueous sodium-ion cell
technology. The company holds
24 patents for its technology which
delivers high-energy-density, safe
and low-cost battery solutions
for key applications including
back-up power supplies, low-cost
transportation and renewable energy
storage. The technology delivers the
performance of lithium-ion batteries
at lead-acid prices but with
significantly safer transportation
benefits. The sector is forecast to
grow from $65.0billion in 2016 to
$100.0billion by 2024 according
to a report published by World
Economic Forum.
VENTURE
Enquiries
2,217
Invested
£30.5m
Transactions
61
These deals come to us via our university
partners, our personal/non-executive director
networks, through proactive analysis via
research within Mercia and, importantly, shared
across the Group via the different teams in the
four asset classes under management. We are
immensely proud of the RisingStars Growth
Fund which was managed by our venture team.
It has one of the best track records of all
European VC funds and has returned over 5.5x
original fund capital to managed fund limited
partners as well as generating a profit share to
Mercia Asset Management PLC (all of which was
received in the previous reporting period).
Will Clark is one of our venture team’s Fund
Principals. He is joint Fund Principal for the
Northern Powerhouse Investment Fund (NPIF
Equity Finance) as well as having responsibility
for the North West Fund for Venture Capital
and the Mezzanine portfolio. A chartered
accountant, before joining the Group in 2011 Will
was previously a director at 3i with responsibility
for a £500.0million portfolio of investments
across the UK. Will has been working with
regionally based growth and venture capital-
backed companies since 1989, and in that time
has been involved in almost 200 transactions.
Location:
Warrington
To find out more visit www.blueprism.com
Invested
£998,140
Blue Prism is considered the pioneer of robotic
process automation (“RPA”) which provides
connected RPA intelligent software to automate
and perform repetitive tasks. Mercia first
invested in BluePrism through the RisingStars
Growth Fund which saw the initial investment
generate a rewarding 95x return. In 2018 the
company’s sales revenue increased c.125% to
c.£55.2million. The company was valued on AIM
at £1.1billion as at 12 July 2019.
23
“Mercia made its first investment
in Blue Prism through the
RisingStars Growth Fund in
2004 and remained a supportive
investor for many years whilst
the business scaled to the size
it is today. We have been grateful
for both the investment and
the significant expertise of the
investment team, in particular
Julian Viggars, who has played
an important role in our success.”
Alistair Bathgate
CEO – Blue Prism
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 24
Strategic report
PRIVATE EQUITY
Enquiries
113
Invested
£8.5m
Transactions
2
Last year was the first full year following the
EVGF II closing. We invested £8.5million into
two great portfolio businesses which have real
promise for significant future value. Our track
record in the private equity space is impressive,
with our previous two funds generating four
exits and partial exits, including the Coalfields
Growth Fund which has delivered an IRR of 19%
and a TVPI of 236% to date.
Our private equity team is headed by Wayne
Thomas. Wayne’s role encompasses both new
deal origination and leading the management
of the private equity portfolio. He is a chartered
accountant and joined the Group in 2006. Prior
to that Wayne spent over 20 years advising and
investing into SMEs and larger corporates across
the UK including senior roles at Aberdeen Asset
Managers Private Equity and in the corporate
finance teams at both Ernst & Young and BDO
where he advised companies, management
teams and investors on a wide range of mid-
market transactions.
Location:
Bolton
To find out more visit www.woodall-nicholson.co.uk
Invested
£975,000
Woodall Nicholson is one of the oldest
coachbuilding companies in the UK, dating back
to the 1820s. Today the group has diversified
and is now the market-leading manufacturer
of a wide range of specialist vehicles including;
hearses and funeral limousines, police and
emergency service vehicles and even electric
buses. Since the investment team began
working with the business in 2014 it has grown
its operating profit by 64.0% to £4.9million.
“Mercia has worked closely
with the management team
and syndicate investors to
successfully grow and develop
the business, achieving
outstanding profitable revenue
growth over the past five years.”
Brian Davidson
Chairman – Woodall Nicholson
DEBT
Enquiries
462
Lent
£15.0m
Transactions
65
Our deals come to us from a variety of sources
including banks and financial advisers, through
proactive research, through sharing contacts
across the Group and by co-investing alongside
deals led by the private equity team. Our
debt teams are looking for established and
profitable businesses which we can help to
grow using our fund capital and balance sheet
structuring experience.
The debt team is headed by Paul Taberner.
Paul is responsible for managing the third-party
debt funds of the Group and implementing the
agreed lending strategy. He has substantial
experience in small and mid-size company
financings, including successful investments
in MBOs and development capital transactions
across numerous business sectors. Prior to
joining Mercia in 2005, Paul spent eight years
with Barclays Ventures as regional director
for the North of England and 15 years as
a commercial banker with Barclays Bank
across the North of England, also spending
time overseas.
Location:
Harrogate
To find out more visit www.harrogatespring.com
Lent
£1.6m
With a history dating from 1571, Harrogate
Spring is Britain’s oldest bottled water and
has been revered by royalty and enjoyed
across the world for centuries. First bottled
in 1740, it is ‘The Original British Bottled Water’
and quintessentially British. Through two
different debt funds we have lent to the business
on four separate occasions. In that time the
business has trebled its turnover and is now
highly profitable.
25
“Mercia is a valued partner to
Harrogate Spring Water and
has demonstrated this through
a good understanding of our
business and our related funding
requirements. Our investment
manager made the funding
application and ongoing
monitoring requirements as pain
free as possible, allowing us to
focus on growing our business.
We look forward to developing
the relationship further.”
Damien Wilkinson
Finance Director – Harrogate Spring Water
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 2626
Strategic report
CHIEF FINANCIAL
OFFICER’S REVIEW
Positive momentum
maintained across all
Group activities
Net assets
£126.1m
2018: £123.5m
Unrestricted cash
£29.8m
2018: £49.4m
Martin Glanfield
Chief Financial Officer
In the year to 31 March 2019 Mercia Asset Management PLC experienced
continuing positive momentum across both its balance sheet and fund
management investing and lending activities.
Net expenses increased by £1.0million
compared with 2018, largely as a result
of average headcount increasing from 68
to 85 during the year. The Group’s drive to
minimise NAV erosion arising as a result of
its operating model will continue.
During the year the Group invested
£19.4million (2018: £21.3million) into 15
existing and two new direct investments
(2018: 14 and three respectively). It also
received investee company loan repayments
of £1.7million (2018: £0.2million). Investment
momentum has been positive at the start of
the new financial year and is expected to
selectively continue.
Revenue (which excludes unrealised
fair value movements) increased 4.7%
to £10.7million (2018: £10.2million).
The Group’s revenue increase was largely
derived from the full year impact of new
fund management contracts won during
the previous year. As referred to last year,
2018 revenue included one-off performance-
related fund management fees totalling
£1.2million.
Staff and administrative expenses
increased by 13.9% to £12.1million (2018:
£10.6million). The cost base increase arose
mainly from the recruitment of additional
investment staff in 2019 to manage and
deploy the substantial new fund mandate
wins of 2018. The Group now anticipates
a levelling off of its cost base, as the
additional investment and support staff
required to invest the substantial fund
mandate wins in both 2017 and 2018
have now largely been recruited.
27
“ Mercia Asset Management has
a strong financial platform from
which to drive growth in net
assets.”
Net fair value increases during the year
totalled £3.9million (2018: £2.8million)
and as at 31 March 2019 the fair value of
the Group’s direct investment portfolio
was £87.7million (2018: £66.1million). Net
assets at the year end were £126.1million
(2018: £123.5million) resulting in an
increase in net assets per share (being
net assets of £126.1million divided by
303,309,707 shares in issue) to 41.6 pence
(2018: 40.7 pence).
Within total net assets, cash and short-term
liquidity investments totalled £30.4million
(2018: £52.9million), including £0.6million
of cash held on behalf of third-party EIS
investors (2018: £3.5million).
The net fair value increases contributed
favourably to result in a 57.6% overall
increase in the consolidated total
comprehensive profit for the year
to £2.6million (2018: £1.7million). This
in turn has resulted in an increase
in earnings per Ordinary share to
0.86 pence (2018: 0.55 pence).
Alternative performance measures
The Group believes that the measurement
and reporting of both ‘net expenses’
and ‘net assets per share’ are important
alternative performance measures of
interest to investors. The reporting of net
expenses enables a clear understanding
of the impact of the Group’s operating
model on net asset value erosion, where
operating costs exceed revenue.
Similarly, the reporting of net asset value
per share provides an indication of the
overall progress that the Group is making
in terms of shareholder value creation
over the medium term. Where there is a
difference between net asset value per
share and the Group’s share price, that
difference represents either a discount
or premium to Mercia’s net asset value.
Goodwill and acquired
intangible assets
The consolidated balance sheet includes
goodwill of £10.3million (2018: £10.3million)
and acquired intangible assets of £0.6million
(2018: £0.9million). £7.9million (2018:
£7.9million) of the goodwill and all of the
intangible assets value arose as a result
of the Group’s acquisition of Enterprise
Ventures Group Limited in March 2016,
with the balance of the goodwill arising on
the acquisition of Mercia Fund Management
Limited in December 2014. 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 charge
of £301,000 (2018: £301,000) in the
consolidated statement of comprehensive
income represents the amortisation for the
year ended 31 March 2019.
Summarised consolidated statement of comprehensive income
Revenue
Other administrative expenses
Net expenses
Realised gains on disposal of investments
Fair value movements in investments
Share-based payments charge
Amortisation of intangible assets
Operating profit before exceptional item
Exceptional item
Finance income
Taxation
Profit and total comprehensive income for the financial year
Basic and diluted earnings per Ordinary share (pence)
Year ended
31 March
2019
£’000
Year ended
31 March
2018
£’000
10,675
(12,115)
10,197
(10,633)
(1,440)
–
3,916
(171)
(301)
2,004
–
562
54
2,620
0.86
(436)
871
2,823
(497)
(301)
2,460
(1,125)
274
54
1,663
0.55
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT
2828
CHIEF FINANCIAL OFFICER’S REVIEW continued
Mercia continues to have strong liquidity and a growing investment portfolio from which to drive future increases in both earnings per
share and net assets per share.
Revenue
Total revenue of £10,675,000 (2018: £10,197,000) comprised fund management fees, initial management fees from new investments,
investment director monitoring fees and sundry business services income.
Other administrative expenses
Total other administrative expenses of £12,115,000 (2018: £10,633,000) consisted of all staff related and office, marketing and
professional adviser costs.
Net expenses
Net expenses of £1,440,000 (2018: £436,000) represents total revenue less all staff and administrative expenses.
Fair value movements in investments
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments
Unrealised losses on the revaluation of investments
Net fair value gain
Year ended
31 March
2019
£’000
Year ended
31 March
2018
£’000
8,622
(4,706)
8,699
(5,876)
3,916
2,823
For the year as a whole, unrealised fair value gains arose in twelve
(2018: nine) of the Group’s 26 (2018: 26) direct investments at
the year end. The largest fair value gain, being Faradion, was
£1,625,000. There were three (2017: nine) fair value decreases,
the largest being £4,048,000 for Smart Antenna Technologies
which ceased trading during the year.
Taxation
The tax credit of £54,000 (2018: £54,000) represents the
unwinding of the deferred tax liability recognised in respect
of the intangible asset which arose on the acquisition of
Enterprise Ventures.
Share-based payments charge
The £171,000 (2018: £497,000) 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 2019.
The year-on-year reduction is due to leavers during the year
forfeiting their share options.
Amortisation of intangible assets
The amortisation charge of £301,000 (2018: £301,000) represents
the amortisation of the acquired intangible assets of Enterprise
Ventures for the year ended 31 March 2019.
Finance income
Finance income of £562,000 (2018: £274,000) comprised
loan interest and redemption premiums received on loans
repaid by investee companies during the year, as well as
interest receivable earned on the Group’s cash and short-term
liquidity investments.
Balance sheet and cash flows
Net assets at the year end of £126,065,000 (2018: £123,470,000)
were predominantly made up of the Group’s direct investment
portfolio, together with cash and short-term liquidity investments.
The Group continues to have limited working capital needs due
to the nature of its business.
Direct investment portfolio
During the year Mercia’s direct investment portfolio grew to
£87,659,000 (2018: £66,070,000). The table below lists the
Group’s investments by value as at 31 March 2019, including
a breakdown of the net cash invested during the year, fair value
movements for the year and the equity percentage of each
investee company owned.
29
Investment
value
As at
1 April
2018
£’000
Net cash
invested
Year to
31 March
2019
£’000
Fair value
movement
Year to
31 March
2019
£’000
Investment
value
As at
31 March
2019
£’000
Percentage
held
As at
31 March
2019
%
12,979
9,090
6,152
4,021
4,216
3,107
3,453
2,538
1,299
1,000
1,942
2,377
2,000
1,199
–
1,913
1,500
1,750
1,650
1,306
–
2,148
430
1,029
433
1,500
2,000
–
2,268
524
1,400
601
1,500
–
–
300
500
2,000
–
334
4
(61)
365
500
1,900
576
1,112
638
252
656
1,257
6
1,228
–
1,625
526
921
–
–
400
–
–
–
1
–
(538)
–
(4,048)
(120)
15,120
10,161
7,904
6,677
5,473
5,381
5,205
3,938
3,525
3,026
2,863
2,377
2,300
2,099
2,000
1,913
1,834
1,755
1,589
1,133
500
–
886
66,070
17,673
3,916
87,659
45.5
33.3
62.5
32.0
28.8
31.4
31.9
28.4
18.1
21.3
32.7
1.5
21.2
31.6
17.4
41.4
24.4
18.8
26.2
18.2
6.0
n/a
n/a
n/a
nDreams Ltd
Oxford Genetics Ltd
Warwick Acoustics Ltd
Intechnica Ltd
Ton UK Ltd t/a Intelligent Positioning
Impression Technologies Ltd
Medherant Ltd
VirtTrade Ltd t/a Avid Games
Faradion Ltd
Voxpopme Ltd
The Native Antigen Company Ltd
PsiOxus Therapeutics Ltd
Edge Case Games Ltd
Soccer Manager Ltd
W2 Global Data Solutions Ltd
LM Technologies Ltd
sureCore Ltd
Eyoto Group Ltd
Crowd Reactive Ltd
Concepta PLC
Locate Bio Ltd
Smart Antenna Technologies Ltd
Other direct investments
Total
Investee company loan repayments
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,
as well as minimising net asset erosion from net expenses. The
Group supports its direct investments via both equity and loan
instruments. During the year loan repayments of £1,711,000 were
received from Crowd Reactive, Edge Case Games and Smart
Antenna Technologies.
Cash and short-term liquidity investments
At the year end, Mercia had total cash and short-term liquidity
investments of £30,398,000 (2018: £52,908,000) comprising
cash of £25,210,000 (2018: £42,908,000) and short-term liquidity
investments of £5,188,000 (2018: £10,000,000), including
£629,000 (2018: £3,473,000) of cash held on behalf of third-party
EIS investors. 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.
The summarised movement in the Group’s cash position during the year is shown below.
Opening cash and short-term liquidity investments
Net cash used in operating activities
Net cash used in direct and other investing activities
Net cash used in financing activities
Cash and short-term liquidity investments at the year end
Year ended
31 March
2019
£’000
Year ended
31 March
2018
£’000
52,908
(5,080)
(17,234)
(196)
63,829
(442)
(10,479)
–
30,398
52,908
The overall positive progress of the direct investment portfolio together with the Group’s significant cash reserves, plus a continued
focus on net expense minimisation, provides Mercia Asset Management with a strong financial platform from which to continue to drive
growth in net assets and with it, NAV per share.
Martin Glanfield
Chief Financial Officer
5 July 2019
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT
3030
PRINCIPAL RISKS & UNCERTAINTIES
RISK FRAMEWORK
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, likelihood of occurrence,
severity of impact and mitigation actions. The Group also considers
identified risks under three categories:
Internal – including the Group’s strategy and business planning
External – for example, competitor risk, regulatory and legal risk
Operational – including internal systems and controls, people and
talent risk, compliance risks such as financial crime
IDENTIFY
EVALUATE
MITIGATE
The Board identifies, evaluates, mitigates
and then monitors 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, ’Project Saturn’,
provides reasonable, but 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, particularly when investing
in young companies.
During the year Mercia has continued to
build on its established risk management
framework with a specific focus on
regulatory compliance, cybersecurity,
internal investment procedure audits and
talent management. The Group has also
considered the possible effects, on both it
and its investee companies, of the United
Kingdom leaving the European Union. The
risk management framework has been
further strengthened during the year by
the formation of the Senior Management
Team (“SMT”), facilitating early
identification, discussion and escalation of
any new risks or increased risk exposure.
The Group’s principal risks and uncertainties,
their possible consequences and mitigation
are set out in the following pages.
31
RISK
POSSIBLE CONSEQUENCES
MITIGATION
The majority of the direct
investment portfolio
comprises 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 flows 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
materially detrimental effect on the overall value
of the Group’s investment portfolio. Currently,
the top five direct investments represent 51.7%
of the total portfolio by value.
All of the Group’s direct investments are companies
which have emerged from the funds managed by
the Group’s fund management operation. The funds
have a fail fast policy, which means that early-stage
businesses which do not achieve commercial traction
within a reasonable timeframe 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 teams,
do not receive direct Group investment.
Secondly, the ‘real-time’ due diligence being undertaken
by the Group’s investment teams during an 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 seeks to balance the total portfolio by quantum and
value by sector, as the total number of direct investments
and their values grow. The current portfolio continues to
be well balanced. 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, and therefore specific sectors,
that dominate the total portfolio by value.
Technology sector evolution and the specific areas
on which Mercia focuses are kept under review and it is
possible that the Group’s areas of investment focus and
expertise may evolve over time.
Proceeds from the trade
sale or IPO of direct
investments may vary
substantially from year
to year.
The Group may not be able
to meet future financial
obligations or future
growth may not occur
because of an inability
to raise additional balance
sheet capital if required.
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.
Such large possible cash flow variations could have
a materially adverse effect on the financial condition
and prospects of the Group.
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 shortage of available capital for direct investment and
operating purposes would necessitate a change in
strategy to one of capital conservation.
A number of Mercia’s direct investments could be sold to
maintain sufficient liquidity.
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 71% by value of the direct investment
portfolio companies 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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 3232
PRINCIPAL RISKS & UNCERTAINTIES continued
RISK
POSSIBLE CONSEQUENCES
MITIGATION
The Group and its portfolio
companies are subject to
competition risk.
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 may not be able
to continue to retain or
attract experienced, skilled
and successful Board
Directors, Investment
Directors and support
staff.
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 managed fund business. 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.
Mercia subsidiaries may
cease to be authorised by
the Financial Conduct
Authority (“FCA”).
Certain Mercia subsidiaries are authorised and regulated
by the FCA as small authorised UK Alternative
Investment Fund Managers (“AIFM”) (Sub-threshold).
Should any of those subsidiaries cease to be authorised
and regulated by the FCA, it would no longer be
authorised to act as the investment manager of the
respective funds being managed. 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)
lose one or more of the principal sources of potential
direct investments for the Group.
The United Kingdom’s
forthcoming exit from the
European Union (‘Brexit’)
may impact upon both the
Group and its portfolio
companies.
Future European trade barriers, tariffs or border controls
may impact portfolio company growth prospects.
Additional equity capital may be more difficult to raise
during periods of economic turbulence.
Portfolio companies may find hiring and retaining
non-UK resident, highly skilled staff more difficult
eg software engineers.
The Group focuses its investment 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 and inclusive working environment,
referred to internally as ‘One Mercia’, 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 introduction of Goalspan, an online
performance management and personal development
system, has enhanced Mercia’s ability to manage
performance and career progression.
The Group mitigates this risk by ensuring that it acts fairly
at all times and with integrity, honesty, skill and diligence
in conducting its investment activities. The Group
regularly reviews the financial position of each Mercia
subsidiary to ensure that adequate financial resources
are maintained in accordance with FCA rules. The Group
also ensures that it employs the resources and
procedures that are necessary for the proper
performance of its business activities and complies with
all regulatory requirements applicable to the conduct of
its business, so as to promote the best interests of the
funds under management and fund investors. The Group
ensures that it communicates information to fund
investors in a way which is fair, clear, timely and not
misleading. It also communicates with the FCA in an
open and transparent manner when submitting regular
reporting, notifications and disclosures. The Group’s
compliance function is staffed by several experienced
and FCA-approved personnel. Mercia applies policies, in
compliance with FCA requirements, across the Group
and is currently implementing the Senior Managers and
Certification Regime to ensure that its senior staff are
appropriately mapped to the new regime and that all
staff understand their obligations to act with integrity.
Mercia has a whistle-blowing policy and reporting
structure in place – no reports have been made in
the period.
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
capital to exercise investment and operational flexibility.
No short-term impact on immigration is envisaged. Only
once the final outcome of Brexit is known will the future
employment landscape become clearer.
33
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 Mercia’s SEIS and EIS funds 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 SEIS and
EIS funds being reduced, or make it difficult for Mercia
to successfully launch one or more similar future 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 minimise the impact of any external security breach.
Critical business continuity plans and disaster recovery
contingencies are in place and are tested annually.
The Group continues to engage with its external IT and
cybersecurity consultants to monitor and periodically
test its cyber defences.
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.
Mercia has established an award-winning reputation
with a proven track record of delivering value to fund
investors and would therefore be well placed to continue
operating in any changed environment.
Dr Nicola Broughton (Investment Director,
Head of Universities) 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 Group’s
SEIS and EIS 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 Mercia’s
ability to raise adequate
funds to support all
suitable investment
opportunities.
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.
Events after the balance sheet date
Other than the continuing completion of approved direct investments, the resignation of Susan Searle on 2 July 2019 and the change
of Company name to Mercia Asset Management PLC on 4 July 2019, there have been no other 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
5 July 2019
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019STRATEGIC REPORT 34
E
C
N
A
N
R
E
V
O
G
BOARD OF DIRECTORS
At the heart of all successful businesses are balanced teams. Mercia Asset Management PLC’s Board
includes Non-executive Directors with proven listed company and corporate growth success, combining
shareholder value creation with good corporate governance at their core. Mercia’s three Executive
Directors have a highly complementary skill set, which is essential to realise the growth potential of the
Mercia Model.
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Mark is the co-founder of Mercia. He has extensive venture
investment experience and led the sale of Hybrid Systems
(to Myotec) to create PsiOxus Therapeutics Ltd, Warwick
Effect Polymers Ltd (to Polytherics Ltd) to create Abzena plc
and led the founding investment in Allinea Software Ltd. Prior
to Mercia, Mark played a leading role within Oxford University
Innovation (“OUI” – 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.
Following his time at OUI Mark was the 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 and the University of
London (King’s College). Mark also has an MBA from the
University of Warwick, is a Sainsbury 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 has an
honours degree in business from Aston University.
Julian Viggars
Chief Investment Officer
Ian Metcalfe
Non-executive Chair
Julian joined Mercia through the 2016 acquisition of
Enterprise Ventures, which he joined in 2004 and was head
of technology investments at the time of its acquisition. He
has over 20 years of venture capital experience, including the
successful listings of companies such as Blue Prism Group plc
and OptiBiotix Health plc. Julian leads the equity investment
team as well as managing the pipeline of Mercia’s future
direct investments. Alongside his deep knowledge of the
technology sector, Julian is fund manager for the Northern
Powerhouse Investment Fund (“NPIF”), the RisingStars
Growth Funds and the Finance Yorkshire Seedcorn Fund.
Julian played a leading role in securing the managed funds
contracts awarded by the British Business Bank and North
East Fund Ltd and was promoted to Chief Investment Officer
in April 2018. Julian has a geology with chemistry degree
from the University of Southampton and qualified as a
chartered accountant with accountants Smith & Williamson.
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. Ian is currently a
director and chair of Commonwealth Games England and a
director of the Board of the Organising Committee of the
Birmingham 2022 Commonwealth Games. He is also a
non-executive director of the global waste management group
TRRG Holdings Ltd and a non-executive director of the AIM
listed Arena Events Group plc. A double rugby blue, Ian
represents Cambridge University on the RFU Council. Ian has
an MA in law from Cambridge University and his appointment
as Mercia’s Senior Independent Director in January 2017
recognised the continuing development and scale of the Group.
He became Non-executive Chair on 2 July 2019.
35
Ray Chamberlain
Non-executive Director
Dr Jonathan Pell
Non-executive Director
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 Asset Management through its
first 18 months as a listed company, moved to a non-executive
position in May 2016.
Jonathan brings extensive experience in the technology sector,
originally in both finance director and chief executive roles and
latterly in investing in and helping to scale up technology
ventures. Having qualified as a chartered accountant at PwC,
Jonathan gained significant executive experience firstly in senior
finance positions at Convergys Corporation (NYSE – CVG),
Geneva Technology Ltd, Thomas Cook Retail Ltd and Semitool
Inc. He then became CEO at Datanomic Ltd, where he oversaw
a twenty-fold increase in the company’s global customer base
and compound revenue growth of 105% over a four-year period,
before being purchased by Oracle Inc (NYSE – ORCL) in 2011.
Since leaving Oracle Inc in 2012, Jonathan has founded his own
early-stage technology investment vehicle, Thorium Technology
Investors, and currently sits on the boards of a number of young
technology businesses. Jonathan has a degree in zoology with
marine zoology from the University of Wales, Bangor and a PhD
in cell proliferation from the University of East Anglia.
Caroline Plumb OBE
Non-executive Director
Caroline is a serial entrepreneur who previously co-founded
recruitment and innovation consultancy FreshMinds with clients
including Jaguar Land Rover, Vodafone and Google. She remains
involved with FreshMinds as non-executive chair and is CEO
of Fluidly which she founded in 2016, a venture-backed SaaS
business in the fintech space. Caroline was previously an
independent panel member of the £2.7billion Regional Growth
Fund and served as one of Prime Minister David Cameron’s
Business Ambassadors representing the Professional and
Business Services sectors. Caroline was awarded an OBE in the
2016 Birthday Honours’ list for services to business and charity.
She has an MEng in engineering, economics and management
from Oxford University.
GOVERNANCEMERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019 36
SENIOR MANAGEMENT TEAM
Mercia’s senior management team, led by Chief Operating Officer Peter Dines, has day-to-day
responsibility for all of the Group’s investment activity and support functions. They are all subject
matter experts with many years of experience and success.
Peter Dines
Chief Operating Officer,
Head of Life Sciences and
Biosciences
Peter is responsible for overseeing
the operational aspects of the
Group, a number of portfolio
investments, the Mercia EIS Funds
and leads the Senior Management
Team. Prior to joining Mercia in 2015,
Peter had been involved with several
turnarounds and exits, including the
acquisition of Surgicraft’s loss-
making UK business where, as
managing director, sales quadrupled
within three years and the business
was subsequently sold to a private
equity-backed business, and
Diagnostic World, a fast-growing
diagnostic provider to the NHS.
Ceri Bailey
Group Financial Controller
Rosie Bhattacharjee
Group Compliance Director
Having joined Mercia immediately
post IPO, Ceri reports
to the Chief Financial Officer and has
day-to-day responsibility for all
aspects of Mercia’s management
accounting and financial reporting,
whilst ensuring the integrity of the
Group’s internal control
environment. Particular areas of
expertise include implementing
accounting and management
information systems, process
improvement, developing finance
policies and embedding clear
procedures and processes. Ceri is a
chartered accountant with over 20
years’ experience working in senior
financial roles, predominantly within
listed businesses operating in the
software and manufacturing sectors.
Rosie has responsibility for
group-wide compliance including
FCA registrations, CASS Operational
Oversight and Money Laundering
Reporting Officer for the Group’s
FCA-regulated entities. Reporting to
the Chief Financial Officer and the
Audit Committee, Rosie joined the
Group in 2017. Rosie has a
background in FCA regulation and
compliance, having joined the
regulator where she worked for a
decade followed by a period in
consultancy, advising a range of
regulated firms, including private
equity and venture capital firms,
stockbrokers and fund managers.
Will Clark
Fund Principal – Venture
Julian Dennard
Fund Principal – Venture
Michelle Heaselgrave
Head of People & Talent
Will is joint Fund Principal (with
Julian Viggars) for the Northern
Powerhouse Investment Fund (NPIF
Equity Finance) as well as having
responsibility for the North West
Fund for Venture Capital and the
Mezzanine portfolio. A chartered
accountant, before joining the Group
in 2011 Will was previously a director
at 3i with responsibility for a
£500.0million portfolio of
investments across the UK. Will has
been working with regionally-based
growth and venture capital-backed
companies since 1989, and in that
time has been involved in almost
200 transactions.
Julian is the Fund Principal for the
Midlands Engine Investment Fund
Proof of Concept Fund ("MEIF POC")
with responsibility for investment
across the wider Midlands region.
His focus is to invest in high-growth
technology businesses across the
whole of the area, with a particular
focus on the Software & the Internet,
and the Electronics, Materials,
Manufacturing & Engineering
sectors. Prior to joining Mercia in
2016, Julian was a partner for over
10 years with Technology Venture
Partners LLP/YFM Equity Partners
and an associate director for KPMG
Corporate Finance in London and
Sydney between 2000 and 2006.
Michelle leads our People & Talent
function and is responsible for
delivery of our people strategy,
engagement and embedding our
people processes group-wide. An
experienced HR generalist, Michelle
has worked across multiple sectors
and globally for small start-ups and
large enterprises. She is well versed
in working with agility and pace in
split strategic/operational roles and
much of her previous experience lies
with fast growing tech-based
organisations, creating process and
enabling organisational growth and
transformation. Michelle joined
Mercia in 2017, having been involved
in her previous role with the
scale-up and successful exit of
a tech consultancy, based in the
South of England.
SENIOR MANAGEMENT TEAM
37
Katy Horrocks
Director of Marketing
John Simpson
Finance Director
Paul Taberner
Fund Principal – Debt
Sarah Thawley
Head of Legal
Katy is responsible for the
Group-wide marketing strategy and
marketing operations, including
providing support to the Executive
Directors with investor relations, as
well as fund marketing, event
management, PR and brand
management. Katy joined the Group
in 2014 and was previously
employed by a division of the Bibby
Line Group and has worked in a
senior management capacity for
more than 15 years. She has a wealth
of experience across all aspects of
marketing and has led key business
change projects, including rebrands
and a large software development
initiative.
John is a highly respected financial
professional and a member of all
fund investment committees. He
joined the former Enterprise
Ventures Group as Finance Director
in 2006 and has over 30 years’
experience in managing all aspects
of venture and private equity as an
investor, portfolio director and in
fundraising. A chartered accountant,
John spent 11 years with Murray
Johnstone Private Equity, followed
by four years with Aberdeen Murray
Johnstone Private Equity as
portfolio director and a member of
the executive management
team. He is a former member of the
British Venture Capital Association
Hi-tech Committee and the VCT
Fund Managers’ Forum.
Paul is responsible for managing the
third-party debt funds of the Group
and implementing the agreed
investment strategy. He has
substantial experience in small and
mid-size company financings,
including successful investments in
MBOs and development capital
transactions across numerous
business sectors. Prior to joining
Mercia in 2005, he also spent eight
years with Barclays Ventures as
regional director for the North of
England and 15 years as a
commercial banker with Barclays
Bank across the North of England,
also spending time overseas.
A qualified solicitor, Sarah is the
Head of Legal and provides both
legal advice and manages the
Group’s relationships with legal
advisers. She joined Mercia from
private practice in 2018 as an
experienced corporate lawyer. Sarah
previously specialised in
transactional work including venture
and growth capital investments,
management buy-ins and buy-outs,
and mergers and acquisitions.
Wayne Thomas
Fund Principal – Private Equity
Angela Warner
Head of Portfolio and Platform
Ian Wilson
Fund Principal – Venture
Wayne is the Fund Principal for
Mercia’s private equity team and his
role encompasses both new deal
origination and leading the
management of the Private Equity
portfolio. He is a chartered
accountant and joined the Group in
2006. Prior to that Wayne has spent
over 20 years advising and investing
into SMEs and larger corporates
across the UK including senior roles
at Aberdeen Asset Managers Private
Equity and in the corporate finance
teams at both Ernst & Young and
BDO where he advised companies,
management teams and investors
on a wide range of mid-market
transactions.
Angela heads up the newly-formed
Platform Team which offers support
to both the Group and portfolio
companies in areas such as
recruitment, corporate finance,
research and legal. Prior to joining
Mercia in 2018, Angela had over 20
years’ experience in venture capital
and private equity including a
partner role at YFM Equity Partners,
where she specialised in portfolio
management including trade sales,
secondary buyouts and fundraisings.
Ian is Fund Principal for the North
East Venture Fund which is focused
on early-stage and technology
investments in the region. Ian is a
chartered accountant and holds the
Investment Management Certificate
from the CFA. He is an experienced
investment professional having
fulfilled both M&A advisory positions
in practice and investment
management roles in early-stage
funds since 2006. He
has taken a number of software
companies from first investment
through to exit in recent years. Ian
joined Mercia in 2017 and also
assists with the delivery of the
venture capital and investment
modules at Alliance Manchester
Business School.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE 38
DIRECTORS’ REPORT
The Directors present their Annual Report and the audited financial
statements of Mercia Asset Management PLC (formerly Mercia
Technologies PLC) for the year ended 31 March 2019. The change of
name better reflects its current trading activities and business model.
Results and dividends
The profit for the year was £2,620,000 (2018: £1,663,000). The
Directors do not recommend the payment of a dividend (2018: £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 33 which forms part of this report by cross-reference.
Directors
The Directors who were in office during the year and up to the
date of signing the financial statements were:
Ian Roland Metcalfe
Dr Mark Andrew Payton
Martin James Glanfield
Julian George Viggars
Matthew Sidney Mead
Susan Jane Searle
Raymond Kenneth Chamberlain
Dr Jonathan David Pell
Caroline Bayantai Plumb OBE
(appointed 17 April 2018)
(resigned 17 April 2018)
(resigned 2 July 2019)
(appointed 12 June 2018)
Directors’ shareholdings and other interests
A table showing the interests of Directors in the share capital of
Mercia Asset Management PLC is shown in the Remuneration
Report on page 48.
Directors’ indemnities
Mercia Asset Management PLC has made qualifying third-party
indemnity provisions for the benefit of all Directors of the
Company and its subsidiaries. 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.
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 25 to the consolidated financial statements.
Substantial shareholdings
As at 31 March 2019, 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
88,670,000
Woodford Investment Management 74,980,042
Forward Innovation Fund1
34,072,336
Forward Nominees Limited1
16,481,456
NFU Mutual Insurance Society
13,860,000
Baillie Gifford & Co
11,567,100
29.2
24.7
11.2
5.4
4.6
3.8
1 Shareholdings connected to Ray Chamberlain.
Political donations
During the year ended 31 March 2019 the Group made no political
donations (2018: £nil).
Employees
The Group employed an average of 85 (2018: 68) staff throughout
the year and is therefore of a size where it is not necessary to have
introduced a formal employee consultation process. However, and
as more fully set out in the Corporate, Employee and Social
Responsibility review, 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, talent
management encompassing recruitment, retention,
communication, training and performance management remains
an important area of focus.
The Group operates a discretionary annual bonus scheme for all of
its employees with bonuses being awarded based on both their
and the Group’s overall performance, against defined objectives
which encompass the Group’s four core values.
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.
Disclosure of information to the auditor
So far as each of the persons who are Directors at the date of
signing the financial statements are aware, there is no relevant
audit information of which the Group’s auditor is unaware, and
each Director has taken all the steps that he or she ought to have
taken as a Director in order to make himself or herself aware of
any relevant audit information and to establish that the Group’s
auditor is aware of that information.
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
5 July 2019
Forward House, 17 High Street, Henley-in-Arden
Warwickshire B95 5AA
39
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.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
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 Article 4 of the
International Accounting Standards (“IAS”) Regulation and have
elected to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law), including 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:
•
•
•
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 5 July
2019 and signed on its behalf by:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
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 applicable UK Accounting Standards have 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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE
40
CORPORATE GOVERNANCE REPORT
Non-executive Chair’s corporate governance statement
As Non-executive Chair, I have overall responsibility for
implementing corporate governance within Mercia Asset
Management PLC (formerly Mercia Technologies PLC) ('Mercia', the
'Company' or the 'Group'). Working with the Company Secretary, I
am responsible for our corporate governance standards. The
Board is collectively responsible for setting the tone and culture of
the Company and promoting good corporate governance.
Mercia has been a member of the Quoted Companies’ Alliance
(“QCA”) since 2015 to further its understanding of, and adherence
to, good corporate governance practice. While adherence to the
QCA’s Corporate Governance Code (the “QCA Code”) was not
mandatory at that time, the Group sought to follow its
recommendations where practical. For Mercia, 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.
In March 2018 the London Stock Exchange introduced a new
requirement for companies admitted to trading on AIM to adopt
and comply with a recognised corporate governance code by 28
September 2018. Mercia formally adopted the QCA Code on 21
September 2018. It sets out 10 corporate governance principles
and requires the Group to publish certain related disclosures; these
appear in this section of the Annual Report and on our website.
This information will be reviewed annually and the date of each
review will be noted on our website.
Our primary means of communicating our corporate governance
structure is through our Annual Report and our website
disclosures. When on occasions specific questions are raised by
private individual shareholders and/or institutional investors on
such matters, we engage directly with those shareholders,
generally through either the Chief Executive Officer or the Chief
Financial Officer. I also meet from time to time with our leading
institutional investors to maintain an open dialogue in respect of
progress against Mercia’s business objectives and any other
matters which our shareholders wish to raise. I set out below how
the Board is led, matters specifically reserved for it, our risk
framework and governance structures. Mercia’s Directors, both
Executive and Non-executive, believe in robust corporate
governance, and we concur with the principles of the QCA Code, in
that it is key to the long-term success of the Company – by
helping, inter alia, to improve performance and mitigate risk.
A few words about our corporate culture. We communicate our
corporate culture through regular staff communications, an
induction programme for all new joiners and, most important of all,
through the way the Executive Directors conduct themselves. We
promote openness and respectfulness in all our dealings. Our
relatively flat management structure and internal communication
channels enable us to monitor that ethical values are being
respected and that the state of our corporate culture remains
strong – both from an internal and external perspective. Our
purpose and core values are communicated regularly to all staff
and form part of our performance management framework.
Furthermore, all employees are encouraged to contribute to our
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 our open and inclusive culture.
Given the Group’s significant growth since IPO, Mercia’s people
and talent management now encompasses recruitment, retention,
communication, training and performance management; all
important areas of focus where our staff are our most important
asset. Mercia actively encourages open dialogue between all staff
and we hold regular face to face gatherings, both formal and
informal, to elicit feedback and gauge how our values are being
maintained throughout the business.
Finally, from an external perspective 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 within Mercia who
are involved with the regulated business of managing investment
transactions receive compliance and anti-money laundering
training, with periodic refresher updates.
The Directors recognise the importance of sound corporate
governance and fully supported the adoption of the QCA Code.
We remain committed to delivering the long-term success of the
Group through an effective framework of leadership, management
and controls. In all its activities, the Group aims to be commercial
and fair, to display integrity and professionalism and to have due
regard for the interests of all of its investors, employees, suppliers,
local communities and the businesses in which the Group invests.
Board composition
The Chief Financial Officer is also the Company Secretary.
The Board considers that it contains a range of skills, knowledge,
experience and backgrounds that is appropriate for the business.
Furthermore, the Board members are of sufficient calibre to bring
independent judgement on issues of strategy, performance,
resources and standards of conduct, which are vital to the success
of the Group. The Board believes that it operates in an open and
constructive manner and works effectively. Given the Group's
evolution as a specialist asset manager it intends to appoint an
additional Non-executive Director with a relevant background in
due course.
Brief biographies of the Directors are set out on pages 34 and 35.
Their membership of committees is set out on page 41 and 42.
Independence of Non-executive Directors
The Board considers many criteria in assessing the independence of
the Non-executive Directors including the criteria recommended by
the QCA Code. The Non-executive Chair and Non-executive
Directors are all considered by the Board to be independent of
management and not influenced by any relationship which could
interfere with the exercise of their independent judgement.
Notwithstanding this conclusion, Ray Chamberlain is interested in
20.1% of the Company’s issued share capital.
Board operation
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,
authorising all material direct investment decisions and all
corporate transactions, ensuring effective communication with
shareholders and approving changes to Board membership
and structure.
41
Board effectiveness
In April 2019 a board effectiveness review was undertaken. Belinda Hudson Limited ("BHL"), experts in enhancing board effectiveness,
was appointed to undertake the externally facilitated review after a tender exercise. BHL has not provided any other service to the
Company during the year.
The process comprised a review of board and committee papers over the preceding year, and confidential one-to-one discussions
between BHL and members of the Board and executive team. BHL compiled a report which identified what was working well
and those areas where there was scope for development. The report was discussed at a Board meeting in June 2019 and actions were
subsequently agreed to implement the areas for development.
Key insights included:
•
•
•
refreshing the skills matrix and reviewing the composition of the Board to ensure that the Non-executive Directors bring the skills
and experience necessary to meet the future needs of the Company;
reviewing the extent of the Board’s involvement in relation to the oversight of balance sheet investments;
reviewing the Board meeting agenda to ensure that there is strong strategic focus and all matters within the Board’s remit are
covered;
• encouraging the Executives to be clear on what they are seeking from the Board when they present investment proposals or other papers;
• creating more opportunities for the Non-executive Directors to interact with a broader range of employees; and
•
including more time in the Board calendar for the Non-executive Directors to meet without the Executives present.
Board meetings
The Board meets formally for a minimum of eight times each year. In addition, the Non-executive Directors communicate directly with
the Executive Directors between Board meetings. The Board holds two dedicated meetings each year to discuss strategy, the most
recent one being held in March 2019.
Directors are expected to attend all meetings of the Board and the committees on which they sit, and to devote sufficient time to the
Group’s affairs to enable them to fulfil their duties as Directors. In the event that Directors are unable to attend a meeting, their
comments on papers to be considered at the meeting are discussed in advance with the Chair so that their contribution can be included
in the wider Board discussion.
During the year to 31 March 2019 eight Board meetings occurred. Details of attendance at scheduled Board and committee meetings
during the year is as follows:
Director
Ian Metcalfe
Dr Mark Payton
Martin Glanfield
Julian Viggars
Ray Chamberlain3
Dr Jonathan Pell
Caroline Plumb OBE4
Susan Searle
Board
Audit
Remuneration
Nominations
8/8
8/8
8/8
8/8
8/8
8/8
7/8
8/8
2/32
3/31
3/31
1/31
2/32
3/3
3/3
3/3
3/3
3/31
3/31
1/31
1/32
1/32
3/3
3/3
2/2
–
1/21
–
2/2
2/2
1/22
2/2
1 Attended by invitation.
2 The composition of the Committee changed during the year, as outlined below.
3 Ray Chamberlain is entitled to appoint an alternate Director in his absence.
4 Caroline Plumb attended all meetings held since her appointment on 12 June 2018.
Board committees
The Board delegates specific duties and responsibilities to certain committees and has established a Nominations Committee, an Audit
Committee and a Remuneration Committee and, as described more fully below, except in respect of the Remuneration Committee,
whose report is set out on pages 45 to 48 of this Annual Report. On 26 November 2018 the Board decided to reduce each committee’s
composition to three Non-executive Directors per committee, rather than as had previously been the case, with all five Non-executive
Directors sitting on all three committees. This decision was taken so as to bring more specialised focus to the work of each committee.
The Company Secretary attends all Committee meetings by invitation. Subsequent to Susan Searle's resignation on 2 July 2019, Ian
Metcalfe became Chair of the Nominations Committee and re-joined the Audit Committee.
Nominations Committee
The Nominations Committee is responsible for identifying and nominating members of the Board and recommending the composition
of each committee of the Board, including the Chair of each committee, together with evaluating the balance of skills, knowledge,
experience and independence of the Board. The Committee also considers succession planning for Executive Directors, Non-executive
Directors and other senior executives.
During the year the Committee comprised Susan Searle as Chair and all four other Non-executive Directors up until 26 November 2018,
after which Susan Searle remained as Chair and the other Committee members were Ian Metcalfe and Dr Jonathan Pell. The
Nominations Committee met twice during the year and may also meet at other times if so required. Both meetings were fully attended.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE 42
CORPORATE GOVERNANCE REPORT continued
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 compliance, 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, reviewing audit fees and reviewing the audit findings). The Audit Committee also reviews the provision of any non-audit services
by the external statutory auditor.
The Audit Committee will monitor the need for a dedicated internal audit function. During the year the Committee comprised Dr
Jonathan Pell as Chair and all four other Non-executive Directors up until 26 November 2018, after which Dr Jonathan Pell remained as
Chair and the other Committee members were Susan Searle and Caroline Plumb OBE. Executive Directors attend by invitation. The Audit
Committee met three 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. All of the meetings were fully attended.
The QCA Corporate Governance Code
From the date of our Admission to trading on AIM in December 2014, we have made robust corporate governance part of our culture
and business values. Mercia’s governance framework is not static and will continue to evolve over time.
Set out below is how Mercia complies with the 10 key principles set out in the QCA Code.
Governance principles
Compliant Explanation
Deliver
growth
1. Establish a strategy and
business model which promote
long-term value for
shareholders
2. Seek to understand and meet
shareholder needs and
expectations
3. Take into account wider
stakeholder and social
responsibilities and their
implications for long-term
success
4. Embed effective risk
management, considering both
opportunities and threats,
throughout the organisation
Maintain a
dynamic
management
framework
5. Maintain the Board as a
well-functioning, balanced team
led by the Chair
ü
ü
ü
ü
ü
The Strategic Report section of this Annual Report
clearly explains Mercia’s business model and strategy
in detail, including how it expects to create long-term
value for shareholders.
A key strand of Mercia’s strategy is its investment
policy, which is included in the AIM Rule 26 section of its
website at www.mercia.co.uk.
Mercia’s Executive Directors participate in institutional
and retail investor roadshows throughout the year and
following the announcement of its annual and interim
results. The Group’s Chair also meet with existing
shareholders from time to time as do the Executive
Directors. Sector specific Investor Relations updates
are published periodically. Capital Market Days, to
which all shareholders are invited, are held from time to
time. The Group also uses its Annual General Meeting as
an opportunity to communicate with its shareholders.
Mercia’s Annual Report identifies its key stakeholders
within the Corporate, Employee and Social
Responsibility section and how seriously the Group
takes its social responsibilities.
The Group’s approach to risk management together
with the principal risks and uncertainties applicable to
Mercia, their possible consequences and mitigation are
set out in the Principal Risks and Uncertainties section
of this Annual Report. The Board reviews, evaluates and
prioritises risks to ensure that appropriate measures
are in place to effectively manage and mitigate those
identified – both risk tolerance (focusing on Mercia-
specific internal, external and strategic risks) and risk
appetite (specifically in terms of the Group’s investing
policy).
The Board has a formal schedule of matters reserved
for its approval and is supported by the Nominations,
Audit and Remuneration Committees. All Directors are
required to devote sufficient time to carry out their
role. The Governance section of Mercia’s Annual Report
details the composition of its Board and Committees.
These are also included within the Investor Relations
section of its website, under the ‘Organisational
Structure’ page.
Further reading
Pages 2 to 33
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Page 40 of this
Annual Report
and the AIM Rule
26 section of the
Group’s website
Pages 16 to 17
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Pages 30 to 33
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Pages 40 to 42
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Governance principles
Compliant Explanation
6. Ensure that between them the
Directors have the necessary
up-to-date experience, skills and
capabilities
ü
7. Evaluate Board performance
based on clear and relevant
objectives, seeking continuous
improvement
8. Promote a corporate culture
that is based on ethical values
and behaviours
9. Maintain governance structures
and processes that are fit for
purpose and support good
decision-making by the Board
Build trust
10. Communicate how the
Company is governed and is
performing by maintaining a
dialogue with shareholders and
other relevant stakeholders
ü
ü
ü
ü
The Board is satisfied that, between the Directors, it has
an effective and appropriate balance of experience,
skills and capabilities. To ensure that the Directors
maintain appropriate skills they are provided with
training when identified as appropriate by the Chair.
Mercia’s Annual Report includes a biography of each
Board member. These are also included within the
Investor Relations section of its website, under “Meet
the Board”. These list the current and past roles of each
Board member and also describe the relevant business
experience that each Director brings to the Board, plus
their academic and professional qualifications. This
Annual Report describes and explains where external
advisers have been engaged (e.g. by the Remuneration
Committee in 2016). Internal advisory responsibilities,
such as the role performed by the Company Secretary
in advising and supporting the Board, are also
described in this Annual Report.
The Board regularly considers and evaluates its own
performance and that of its individual members.
An externally-facilitated Board evaluation and
effectiveness review was undertaken during 2016/17
and its results were considered carefully by the Board. A
second externally-facilitated Board effectiveness review
took place in April 2019 and the recommendation arising
from of this review are set out in this Annual Report.
The Board believes that the promotion of a corporate
culture based on sound ethical values and behaviours
is essential to creating a workplace environment that
allows people to flourish and that this will contribute to
enhancing shareholder value. Within this Annual Report,
the Chair’s statement includes specific reference to
people and culture. The Corporate, Employee and
Social Responsibility section of the Strategic Report
includes a section on business ethics and further details
on how Mercia’s culture is consistent with the Group’s
objectives, strategy, business model and approach to
risk management. The Remuneration Report refers to
the Executive Directors’ KPIs – those for 2018/19 and
2019/20 include Mercia’s cultural values.
The Board is collectively responsible for the long-term
success of Mercia. It has a schedule of matters
reserved for its approval which covers the key areas of
the management and governance of the Group. This
Annual Report details the composition and terms of
reference of its Board and Committees. These are also
included within the Investor Relations section of its
website.
Mercia’s Annual Report includes disclosure of Board
Committees, their composition and where relevant, any
work undertaken during the year. It includes a detailed
Remuneration Report. Mercia’s website includes all
historic Annual Reports, results announcements, results
presentations and other governance-related material,
including notices of all AGMs. These can be found in the
Investor Relations section, under Regulatory News. This
section of the website also includes the results of all
AGMs.
43
Further reading
Pages 34 to 35
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Page 41 of this
Annual Report
and the AIM Rule
26 section of the
Group’s website
Pages 16 to 17
and page 45 of
this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Pages 40 to 42
of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
Pages 40 to 42
and pages 45 to
48 of this Annual
Report and the
AIM Rule 26
section of the
Group’s website
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE 44
CORPORATE GOVERNANCE REPORT continued
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
company of the size and complexity of Mercia Asset Management.
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 controls system are
as follows:
Investor relations
The Group is committed to developing and maintaining open
channels of communication with its shareholders and the
mercia.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
24 September 2019.
Ian R Metcalfe
Non-executive Chair
5 July 2019
• 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 the Group’s internal policies,
communicated to all employees. 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 also adopted the requirements of the Market Abuse
Regulations, to the extent required by AIM companies.
45
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 2019 the Remuneration Committee
comprised Ian Metcalfe as Chair, Susan Searle, Ray Chamberlain,
Dr Jonathan Pell and Caroline Plumb OBE (from the date of her
appointment on 12 June 2018) until 26 November 2018. From that
date the Committee comprised Ian Metcalfe as Chair, Susan Searle
and Caroline Plumb OBE. The Remuneration Committee meets at
least twice a year and otherwise as required. During the year the
Committee met three times formally, with all meetings being fully
attended, and on several 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 Executive
Directors and senior 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 syndicated investment in, and
subsequent exit from, technology-based companies.
Base salaries – these should move gradually towards lower
quartile market levels of the comparator group, reflecting the
lower market capitalisation of the Group in its relatively early
stage of development.
Annual bonuses – 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 – asset management 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 1x
base salary. Having taken recent soundings from both the Group’s
Nominated Adviser and remuneration specialists the Committee
has agreed in principle to continue with this policy for the next three
years to 31 March 2022, although this will be reviewed annually.
Having carefully considered these and other recommendations,
the Committee adopted them as the Group’s performance-
focused remuneration policy. Having agreed to a maximum bonus
of 100% of base salary for exceptional performance for 2018/19,
the Committee determined that any bonus award would be
payable in cash up to 50% of base salary with the remainder in
deferred shares. The agreed criteria for determining the ultimate
2018/19 award were:
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 the performance of the Group, against a set of
pre-agreed and largely financial objectives. 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
plans. 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.
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. At least one cash realisation, revenue and net expenses targets
– 10% weighting
4. Managed funds target of £12.0million of new SEIS/EIS capital
raised and at least 80% of fund investment targets achieved
– 10% weighting
5. Subjective measure of performance by each Executive Director
reflecting their specific areas of responsibility and influence,
including Mercia’s core values – 20% weighting
Given the Group’s still relatively early stage in its development,
there remains natural tension between ‘affordability’ and the need
to ‘attract and retain talent’ in what remains a competitive sector.
In 2016 the Committee engaged external remuneration
consultants to review executive remuneration throughout the
Group. The review 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 were 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:
Having considered the performance of the Group and the
Executive Directors against each of these criteria, the Committee
awarded bonuses to Executive Directors between 45% and 46%
of their base salary for 2018/19.
The Committee has also agreed to a maximum bonus of 100% of
base salary for exceptional performance for 2019/20, with the
bonus award again payable in cash up to 50% of base salary and
the remainder in deferred shares. The agreed criteria for
determining the ultimate 2019/20 award are:
1. Material growth in assets under management – 30% weighting
2. Qualitative and quantitative progress by the direct investment
portfolio – 40% weighting
3. Operational efficiency – 10% weighting
4. Subjective measure of performance by each Executive Director
reflecting their specific areas of responsibility and influence,
including Mercia’s core values – 20% weighting
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE 46
REMUNERATION REPORT continued
The Committee will continue to monitor the affordability and suitability of the Group’s remuneration policy and performance criteria
and will maintain informal dialogue on this subject with both the Group’s Nominated Adviser and remuneration specialists.
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
Julian Viggars
Ian Metcalfe
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE
Effective date
of appointment
15 December 2014
1 October 2014
17 April 2018
15 December 2014
15 December 2014
22 December 2017
12 June 2018
Annual
salary
£’000
235
200
200
46
40
40
40
Notice
period
6 months
6 months
6 months
3 months
3 months
3 months
3 months
The Executive Directors have voluntarily agreed to no base salary increase for 2019/20, as part of the Group’s drive towards
profitability in its day-to-day operations.
Equity-based incentive schemes
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 Asset Management 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.
The first options granted under the Mercia CSOP (‘Initial Options’) have an exercise price equal to the IPO Placing price, being 50.00
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.
Initial Options were conditionally granted on 8 December 2014 and became unconditional on Admission. Awards are subject to a
performance condition. The condition would have been satisfied if the total shareholder return (being the increase in the price of an
Ordinary share from a 50.00 pence base value plus any dividend yield), from Admission to the third anniversary of Admission, was not
less than 9.55 pence (being 6% compound per annum) ie a share price at the exercise date of at least 59.55 pence.
The performance condition was not satisfied on the third anniversary of Admission. However, prior to that date, having considered
the matter (including discussions with the Group’s largest shareholders) and pursuant to the rules of the Mercia CSOP, the
Remuneration Committee resolved to vary the vesting period in which the performance condition of the Options had to be satisfied.
Accordingly, the Options will now vest on the fifth anniversary of Admission (being 17 December 2019) if the total shareholder return
from Admission to the fifth anniversary of Admission is not less than 9.55 pence ie a share price at the exercise date of at least 59.55
pence. The Remuneration Committee considers that this is the most appropriate way of continuing to align the interests of the
Executive Directors with the shareholders of the Company, whilst continuing to provide a strong incentive, thereby facilitating the
retention of high calibre individuals.
In accordance with the recommendations of the 2016 remuneration review, further options have been issued in subsequent years to
new joiners. In the year to 31 March 2019 additional options were also granted to the Executive Directors. The total number of options in
issue at the year end was 13,413,000 (2018: 11,702,000).
47
The options subsequently granted to the Executive Directors and new staff 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 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 Asset Management operates carried interest plans for the Executive Directors and certain other senior investment-focused staff
(‘Plan Participants’). Each CIP will operate in respect of direct investments made by Mercia Asset Management 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. The second plan period
ran from 1 April 2017 until 31 March 2019. The third plan period runs from 1 April 2019 until 31 March 2021.
Once Mercia Asset Management 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,
including taking account of any investment losses. Plan Participants’ carried interest is subject to good and bad leaver provisions.
Mercia Asset Management also 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 in December 2014 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 (audited)
The aggregate remuneration received by the Directors who served during the year is set out below:
Salaries payable
Pension contributions
Taxable benefits
Performance
related bonus
Total
2019
£’000
2018
£’000
2019
£’000
2018
£’000
Executive Directors
Dr Mark Payton
Martin Glanfield
Julian Viggars1
Matthew Mead2
Non-executive Directors
Ian Metcalfe
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE3
Susan Searle
2019
£’000
235
200
192
9
46
40
40
32
75
2018
£’000
212
189
–
219
46
40
10
–
65
26
22
21
–
–
–
–
–
–
23
21
–
–
–
–
–
–
–
2
4
2
–
–
–
–
–
–
8
2019
£’000
108
92
86
–
–
–
–
–
–
2018
£’000
88
78
–
83
–
–
–
–
–
2019
£’000
371
318
301
9
46
40
40
32
75
2018
£’000
326
292
–
305
46
40
10
–
65
3
4
–
3
–
–
–
–
–
869
781
69
44
10
286
249
1,232
1,084
Mercia pays reasonable expenses incurred by its Non-executive Directors and may settle any tax and National Insurance due on such
payments where relevant.
Julian Viggars was appointed on 17 April 2018.
1
2 Matthew Mead resigned on 17 April 2018.
3 Caroline Plumb OBE was appointed on 12 June 2018.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019GOVERNANCE 48
REMUNERATION REPORT continued
Share options (audited)
The number of options over Mercia Asset Management’s Ordinary shares held by Directors as at 31 March 2019 is set out below:
Executive Directors
Dr Mark Payton
Martin Glanfield
Julian Viggars5
Number of options
As at
31 March 2019
As at
31 March 2018
Date of
grant
Exercise
price
Period of exercise
1,000,000
400,000
400,000
400,000
1,000,000
400,000
400,000
400,000
300,000
100,000
1,200,000
1,000,000
400,000
400,000
8 Dec 2014
27 Jul 2016
24 Jul 2017
– 28 Aug 2018
1,000,000
400,000
400,000
8 Dec 2014
27 Jul 2016
24 Jul 2017
– 28 Aug 2018
27 Jul 2016
n/a
n/a
24 Jul 2017
n/a 28 Aug 2018
50.00p
51.25p
36.00p
30.80p
50.00p
51.25p
36.00p
30.80p
51.25p
36.00p
30.80p
18 Dec 2019 to 7 Dec 20241
27 Jul 2019 to 26 Jul 20262
24 Jul 2020 to 23 Jul 20273
28 Aug 2021 to 27 Aug 20284
18 Dec 2019 to 7 Dec 20241
27 Jul 2019 to 26 Jul 20262
24 Jul 2020 to 23 Jul 20273
28 Aug 2021 to 27 Aug 20284
27 Jul 2019 to 26 Jul 20262
24 Jul 2020 to 23 Jul 20273
28 Aug 2021 to 27 Aug 20284
1 The options will be exercisable as to one-third from 18 December 2019, one-third from 18 December 2020 and the remaining one-third from 18 December 2021.
2 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.
3 The options will be exercisable as to one-third from 24 July 2020, one-third from 24 July 2021 and the remaining one-third from 24 July 2022.
4 The options will be exercisable as to one-third from 28 August 2021, one-third from 28 August 2022 and the remaining one-third from 28 August 2023.
5 Julian Viggars was appointed on 17 April 2018.
Directors’ share interests (audited)
The interests of the Directors and their connected persons in the Ordinary shares of Mercia Asset Management are set out below:
Number of
Ordinary shares
as at 31 March
2019
Number of
Ordinary shares
as at 5 July
2019
Ian Metcalfe
Dr Mark Payton1
Martin Glanfield1
Julian Viggars1
Ray Chamberlain2
Dr Jonathan Pell
Caroline Plumb OBE
Susan Searle3
132,609
6,655,472
293,369
424,325
132,609
6,699,653
343,369
482,325
60,824,766 60,824,766
–
–
n/a
–
–
1,097,388
1
In April 2019 Dr Mark Payton, Martin Glanfield and Julian Viggars each increased their shareholding in Mercia Asset Management PLC by purchasing 44,091 shares,
50,000 shares and 58,000 shares respectively.
2 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).
3 Susan Searle resigned on 2 July 2019.
Ian R Metcalfe
Chair of the Remuneration Committee
5 July 2019
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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF MERCIA ASSET MANAGEMENT PLC
49
Report on the audit of the financial statements
Opinion
In our opinion:
•
the financial statements of Mercia Asset Management PLC (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a
true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 March 2019 and of the Group’s
profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards
(“IFRSs") as adopted by the European Union;
the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
We have audited the financial statements which comprise:
the consolidated statement of comprehensive income;
•
the consolidated and parent Company balance sheets;
•
the consolidated cash flow statement;
•
the consolidated and parent Company statements of changes in equity; and
•
the related notes 1 to 40.
•
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent
Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure
Framework’ (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements
section of our report.
We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the Financial Reporting Council’s (the “FRC’s”) Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matter that we identified in the current year was:
• Valuation of investments
Materiality
The materiality that we used for the Group financial statements was £2.3million, which represents 2.4%
of the Group’s net assets less cash and cash equivalents and short-term liquidity investments.
Scoping
100% of the Group revenue, profit after taxation and net assets was audited to full scope audit procedures.
Significant changes
in our approach
No significant changes were made from our planned audit approach.
Conclusions relating to going concern
We are required by ISAs (UK) to report in respect of the following matters where:
•
the Directors’ use of the going concern basis of accounting in preparation of the financial
statements is not appropriate; or
the Directors have not disclosed in the financial statements any identified material
uncertainties that may cast significant doubt about the Group’s or the parent Company’s
ability to continue to adopt the going concern basis of accounting for a period of at least
12 months from the date when the financial statements are authorised for issue.
•
We have nothing to report in
respect of these matters.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
50
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF MERCIA ASSET MANAGEMENT PLC continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Valuation of investments
Key audit matter
description
As disclosed by the Directors as a critical accounting judgement in note 2 on page 65 of the Annual
Report, the judgement required to determine the appropriate valuation methodology of
investments is significant.
The Group has investments with a net carrying value of £87.7million (2018: £66.1million). The majority
of these investments have no quoted market price available. Based on the nature of the Group’s
investments in early-stage companies, there are often no current or short-term future earnings or
positive cash flows. Therefore, it can be difficult to evaluate probability of success or failure of
commercial development or research activities that support the business models.
As a result, each non-listed investment is initially carried at cost, with adjustments subsequently
made to reflect changes in fair value; typically with reference to the price at which third-party
transactions in the equity of that portfolio company have taken place and the Directors’ fair review
of the value of investment.
If there is no readily available value following the ‘price of recent investment’ methodology, the
Group considers alternative methodologies requiring the Directors to make assumptions over the
timing and nature of future revenues when calculating fair value for these investments.
There is a risk with the ongoing valuation of investments since this is a highly complex area for the
business and requires judgement. The movement in the fair value of the investments has a direct
impact on the results reported by the Group.
How the scope of
our audit responded
to the key audit matter
We assessed the appropriateness of the Directors’ valuations of the investment portfolio by
assessing the Directors’ key judgements and assumptions, as follows:
• we reviewed the Directors’ processes for valuing investments, which includes a detailed review
by the Executive Directors and the Board as a whole and evaluated whether the valuation
methodologies applied are appropriate and where applicable, appropriate alternative valuation
methodologies have been considered;
• we engaged our valuation experts to critically assess the approach adopted by the Directors and
evaluated the valuation methodology applied in reference to the Group’s own valuation policies.
We have also considered the effects of potential uncertainties from the UK's proposed future exit
from the European Union;
• we have visited certain investee companies each year to obtain a better understanding of their
business and local management expectations;
• we investigated any changes in the fair value of investments and corroborated any such fair
value uplifts or write-downs to supporting rationale; and
• we reviewed the Directors’ process for valuation of each investment against the Directors’ own
formalised valuation process and investigated any exceptions.
Key observations
Based on these procedures, we found the judgements and assumptions used to be materially
appropriate.
We note that the valuation methodology applied by management includes a level of prudence in
determining the fair value of investment; however, we concluded that the overall carrying value
of investments in the financial statements is appropriate.
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Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Materiality
£2.3million (2018: £2.1million)
Parent Company financial statements
£1.3million (2018: £2.0million)
Basis for
determining
materiality
Materiality of £2.3million represents 2.4% of the Group’s
net assets less cash and cash equivalents and short-term
liquidity investments.
Materiality of £1.3million represents less than 2.4%
of parent Company net assets less cash and cash
equivalents and short-term liquidity investments.
When determining materiality, we also considered
that this materiality was appropriate for the
consolidation of this set of financial statements into
the Group’s results.
Rationale for
the benchmark
applied
We determined net assets less cash and cash equivalents and short-term liquidity investments to be the most
appropriate benchmark in determining materiality as this represents the most appropriate measure to assess
the performance of the Group and the parent Company and which may directly influence decisions made by
third-party investors.
Net assets includes amounts of cash and short-term liquidity investments, which are significant in value. We then
do not deem these balances to be direct indicators of the Group’s and parent Company’s performance and
growth. As such, we have determined it appropriate to adjust net assets by removing cash and short-term
liquidity investments and use the resulting value as a basis of our materiality determination.
We agreed with the Audit Committee that we would report to the Audit Committee all audit differences in excess of £115,000
(2018: £42,000) for the Group, as well as differences below that threshold that, in our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation
of the financial statements.
An overview of the scope of our audit
Our Group audit scoping was determined by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level. Based on that assessment, our Group audit scope
focused on all entities within the Group and covered all of the material balances in the consolidated statement of comprehensive
income and consolidated balance sheet of the Group.
The audit of the Group and components were executed at levels of materiality applicable to each individual entity, which were lower
than Group materiality and ranged from £0.5million to £1.4million. These account for 100% of the Group’s revenue, profit after
taxation and net assets. Each component of the audit was subject to full scope audit procedures and an independent audit report is
issued for each component’s statutory financial statements. The Group has several components, all of which are in the United
Kingdom. Teams from our offices in Manchester and Birmingham have performed audit work. Furthermore, we also audited the
consolidation schedule prepared at the Group level for accuracy and completeness.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the Annual Report, other than the financial statements and our
auditor’s report thereon.
We have nothing to report in
respect of these matters.
Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to
be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or
a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to
report that fact.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
52
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF MERCIA ASSET MANAGEMENT PLC continued
Responsibilities of Directors
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, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
Opinions on other matters 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 of the parent Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
Opinion on other matter prescribed by our engagement letter
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
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent Company, or returns
adequate for our audit have not been received from branches not visited by us; or
the parent Company financial statements are not in agreement with the accounting
records and returns.
•
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain
disclosures of Directors’ remuneration have not been made.
We have nothing to report in
respect of these matters.
We have nothing to report in
respect of this matter.
Use of our report
This report is made solely to the Company’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 Company’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 Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Andrew Halls FCA (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
5 July 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2019
Revenue
Other administrative expenses
Net expenses
Realised gains on disposal of investments
Fair value movements in investments
Share-based payments charge
Amortisation of intangible assets
Operating profit before exceptional item
Exceptional item
Operating profit
Finance income
Profit before taxation
Taxation
Profit and total comprehensive income for the financial year
Basic and diluted earnings per Ordinary share (pence)
All results derive from continuing operations.
The notes on pages 57 to 74 are an integral part of these financial statements.
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£’000
Year ended
31 March
2018
£’000
10,675
(12,115)
10,197
(10,633)
(1,440)
–
3,916
(171)
(301)
2,004
–
2,004
562
2,566
54
2,620
0.86
(436)
871
2,823
(497)
(301)
2,460
(1,125)
1,335
274
1,609
54
1,663
0.55
Note
3
4
6
7
7
8
9
10
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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CONSOLIDATED BALANCE SHEET
As at 31 March 2019
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
Total equity
As at
31 March
2019
£’000
As at
31 March
2018
£’000
Note
11
13
14
15
16
17
17
18
19
20
21
22
10,328
584
153
87,659
10,328
885
145
66,070
98,724
77,428
782
5,188
25,210
1,057
10,000
42,908
31,180
53,965
129,904
131,393
(3,730)
(7,760)
(109)
(163)
(3,839)
(7,923)
126,065
123,470
3
49,324
70,000
5,401
1,337
3
49,324
70,000
2,977
1,166
126,065
123,470
The notes on pages 57 to 74 are an integral part of these financial statements.
The consolidated financial statements of Mercia Asset Management PLC, registered number 09223445, on pages 53 to 74 were
approved by the Board of Directors and authorised for issue on 5 July 2019. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March 2019
Cash flows from operating activities:
Operating profit
Adjustments to reconcile operating profit to net cash flows used in operating activities:
Depreciation of property, plant and equipment
Realised gains on disposal of investments
Fair value movements in investments
Share-based payments charge
Amortisation of intangible assets
Exceptional item – deferred consideration
Working capital adjustments:
Decrease in trade and other receivables
Decrease in trade and other payables
Net cash used in operating activities
Cash flows from direct investment activities:
Purchase of direct investments
Investee company loan repayments
Proceeds from the sale of direct investments
Net cash used in direct investment activities
Cash flows from other investing activities:
Purchase of property, plant and equipment
Investee company loan redemption premiums and interest received
Decrease in short-term liquidity investments
Net cash generated from other investing activities
Net cash (used in)/generated from total investing activities
Cash flows from financing activities:
Redemption of subsidiary undertaking preference shares
Net cash used in financing activities
Net (decrease)/increase 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
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55
Year ended
31 March
2019
£’000
Year ended
31 March
2018
£’000
Note
14
4
6
13
16
18
15
15
14
17
2,004
1,335
84
–
(3,916)
171
301
–
306
(4,030)
(5,080)
81
(871)
(2,823)
497
301
1,125
19
(106)
(442)
(19,384)
1,711
–
(21,282)
150
10,468
(17,673)
(10,664)
(92)
531
4,812
(75)
260
25,000
5,251
25,185
(12,422)
14,521
(196)
(196)
–
–
(17,698)
42,908
14,079
28,829
17
25,210
42,908
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
56
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
As at 1 April 2017
Profit and total comprehensive income for the year
Share-based payments charge
Deferred consideration
Settlement of deferred consideration
As at 31 March 2018
Profit and total comprehensive income for the year
Share-based payments charge
Redemption of subsidiary undertaking preference
shares
As at 31 March 2019
Issued
share
capital
£’000
(note 20)
3
–
–
–
–
3
–
–
–
3
Share
premium
£’000
(note 21)
48,243
–
–
–
1,081
49,324
–
–
Other
distributable
reserve
£’000
(note 22)
70,000
–
–
–
–
70,000
–
–
–
–
49,324
70,000
Retained
earnings
£’000
Share-based
payments
reserve
£’000
1,314
1,663
–
–
–
2,977
2,620
–
(196)
5,401
669
–
497
–
–
1,166
–
171
–
1,337
Other
reserve
£’000
1,125
–
–
1,125
(2,250)
–
–
–
–
–
Total
£’000
121,354
1,663
497
1,125
(1,169)
123,470
2,620
171
(196)
126,065
57
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nOtes tO tHe cOnsOliDateD Financial statements
For the year ended 31 march 2019
1. accounting policies
The principal accounting policies applied in the presentation of these consolidated financial statements are set out below. These
policies have been consistently applied throughout the year unless otherwise stated.
General information
Mercia Asset Management PLC (formerly Mercia Technologies PLC) (‘the Group’, ‘Mercia’) is a public limited company, incorporated and
domiciled in England, United Kingdom, and registered in England and Wales with registered number 09223445. The change of name
better reflects the Group’s current trading activities and business model. Its Ordinary shares are admitted to trading on the AIM
market of the London Stock Exchange. The registered office address is Mercia Asset Management PLC, Forward House, 17 High Street,
Henley-in-Arden, B95 5AA. Mercia Asset Management 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 1.
Basis of preparation
The consolidated financial statements of Mercia Asset Management 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 an historical cost basis, as modified by the revaluation of certain financial assets
and financial liabilities in accordance with IFRS 9 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
• Level 3 inputs are unobservable inputs for the asset or liability
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
financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the
going concern basis in preparing these consolidated financial statements.
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate the financial statements of Mercia Asset Management 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 subsidiary;
•
• 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 subsidiary; and
The Group reassesses whether or not it controls a subsidiary 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:
•
• 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
the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
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.
Subsidiaries and subsidiary undertakings are consolidated from the date of their acquisition, being the date on which the Group
obtains control, and continue to be consolidated until the date that such control ceases.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
1. accounting policies continued
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.
Direct investments
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 IFRS 9 ‘Financial Instruments’, with changes in fair value
recognised in the relevant period.
New standards, interpretations and amendments not yet effective
New standards and changes in accounting policies
New standards impacting the Group that have been applied in the presentation of these consolidated financial statements are
IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’.
IFRS 9 ‘Financial Instruments’
This standard replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and introduces new guidance under three
main components being classification and measurement, impairment and hedge accounting. IFRS 9 is based on the concept that
financial assets should be classified and measured at fair value, with changes in fair value being recognised through profit or loss
(“FVTPL”) or fair value through other comprehensive income (“FVTOCI”) only, without the recycling of fair value changes to profit or
loss. Given that the majority of the Group’s financial assets, and specifically its direct investments, are already held at fair value
through profit or loss, the adoption of IFRS 9 has not had any impact on the Group’s results.
IFRS 9 also establishes a new approach for loans and receivables, including trade receivables, in that its ‘expected credit loss’ model
focuses on the risk that a loan or trade receivable will default rather than whether a loss has been incurred. Under this model, an
entity calculates the allowance for credit losses by considering on a discounted basis the cash shortfalls it would incur in various
default scenarios for prescribed future periods and the probability of each scenario occurring. The Group has one type of financial
asset that is subject to the new expected credit model, being trade and other receivables. Given that the change in methodology
gives rise to a consistent result, compared with the approach previously applied by the Group, the adoption of IFRS 9 has not had
any impact on the Group’s results.
The third component of the new standard, hedge accounting, is not applicable to the Group because it has no derivatives, nor does
it apply hedge accounting to any of its transactions.
In summary, the Group has concluded that the application of IFRS 9 results in no differences in the classification and measurement
nor impairment of its financial instruments and as a result, there is no requirement to restate the comparative information provided
in these consolidated financial statements, nor change its accounting policy.
IFRS 15 ‘Revenue from Contracts with Customers’
This standard replaces revenue recognition guidelines including IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’ and revenue
related IFRICs and introduces a new revenue recognition model that recognises revenue either at a point in time or over time. The
model provides a contract-based, five-step analysis of transactions to determine whether, how much and when revenue is
recognised, based on the nature, amount, timing and uncertainty of revenue and cash flows arising from a company’s contracts
with customers.
The standard implements a uniform method of recognising revenue based on the actual contract and performance obligation.
Revenue will be recognised when an entity satisfies a performance obligation by transferring a promised good or service to its
customer. As such, the amount of revenue recognised is the amount allocated to the satisfied performance obligation. A
performance obligation may be satisfied at a point in time (typically the promise to transfer goods to a customer) or over time
(typically the promise to provide services to a customer).
The Group’s revenue 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, from its investment and fund management activities. The Group’s revenue
recognition policy is outlined in the Revenue Recognition section below.
In summary, the Group has assessed that the application of IFRS 15 results in no differences in the timing of revenue recognition and
as a result, there is no requirement to restate the comparative information provided in these consolidated financial statements. The
Group has, however, changed its revenue recognition policy to adopt the standard’s five-step framework, such that revenue in
respect of services provided is recognised when a contractual performance obligation can be identified, a transaction price can be
determined and allocated to that performance obligation and that performance obligation has been or is being satisfied.
59
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Standards issued not yet effective
IFRS 16, ‘Leases’ is effective for accounting periods beginning on or after 1 January 2019 (with earlier adoption permitted if IFRS 15
‘Revenue from Contracts with Customers’, is also adopted). The standard will first be adopted by the Group in its financial
statements for the year ending 31 March 2020.
Under IFRS 16, which replaces IAS 17 ‘Leases’, lessees will be required to apply a single model to recognise both a lease liability and
asset for all leases, including those classified as operating leases under current accounting standards, unless the underlying asset
has a low value or the lease term is 12 months or less. A review of IFRS 16 has been conducted to determine its impact on the Group.
The new standard will impact three of its current land and buildings’ operating leases, as those with a term of more than 12 months
will give rise to a right-of-use asset (the right to use the leased offices), which will be amortised on a straight-line basis and a lease
liability (the obligation to make lease payments) which will be amortised using the effective interest method. Depreciation and
interest will replace the operating lease payments currently recognised as a rent expense.
As at 31 March 2019, the Group has non-cancellable operating lease commitments of £1,344,000 (see note 24). In transitioning to
IFRS 16 the Group expects to recognise right-of-use assets of approximately £740,000 on 1 April 2019 and lease liabilities of
approximately £740,000. The Group expects that there will be no material impact on the net profit after tax for the year ending
31 March 2020 as a result of adopting the new standard.
The Group intends to apply IFRS 16 initially on 1 April 2019, using the modified retrospective approach. The cumulative effect of
adopting IFRS 16 will be recognised as an adjustment to the opening balance of retained earnings at 1 April 2019, with no
restatement of comparative information required.
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 were previously recognised as
the related services were provided. Under IFRS 15, the performance obligation of providing those services is satisfied over a period
of time, being the contractual period for which the services are provided. Accordingly, the Group continues to recognise annual fund
management fee revenue over the contractual period for which the services are provided, as performance criterion are met.
Initial management fees
Initial management fees are generally earned as a fixed percentage of the amounts invested by the Group in recognition of the
work involved in each investment round, are one-off payments made by the investee company and were previously recognised
upon completion of the investment. Under IFRS 15, the performance obligation of providing those services is satisfied at a point in
time, being upon completion of the investment. Accordingly, the Group continues to recognise initial management fee revenue 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
usually annual fees, typically charged quarterly in advance to the investee company. They are distinct and separable to annual fund
management fees and initial management fees. Previously, amounts were initially recorded as deferred income, included under
current liabilities and amortised in the consolidated statement of comprehensive income over the period to which the service
related. Under IFRS 15, the performance obligation of providing the portfolio directors’ services is satisfied over a period of time, as
specified in the investment agreement. Accordingly, the Group continues to record amounts invoiced as deferred income, included
under current liabilities and then amortises them in the consolidated statement of comprehensive income over the contractual
period for which the services are provided, as performance criterion are met.
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 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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
1. accounting policies continued
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.
The Group primarily seeks to generate capital gains from its holdings in direct investments over the longer term but has, since its
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 continue to 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.
61
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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:
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.
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 (“FVTPL"), which are initially measured at fair value.
Financial assets are classified into the following specified categories: FVTPL and ‘amortised cost’. The classification depends on the
nature and purpose of the financial assets and is determined at the time of initial recognition.
Amortised cost
Financial assets that were part of the category of ‘loans and receivables’ under IAS 39 Financial Instruments: Recognition and
measurement are now are measured at amortised cost using the effective interest method, less any expected losses and
categorised as financial assets held at amortised cost.
The Group’s financial assets held at amortised cost comprise trade receivables, loans and other receivables that have fixed or
determinable payments that are not quoted in an active market. They arise principally through the provision of services to
customers (trade receivables).
Financial assets that meet the following conditions are measured subsequently at amortised cost:
•
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash
flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
•
Financial assets that meet the following conditions are measured subsequently at fair value through other comprehensive income
(“FVTOCI"):
•
the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and
selling the financial assets; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
•
By default, all other financial assets are measured subsequently at FVTPL.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
62
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
1. accounting policies continued
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. 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 on disposal of investment in profit or loss.
Financial liabilities and equity instruments
Financial liabilities
Current financial liabilities are composed of trade payables and other short-term monetary liabilities, which are recognised at
amortised cost.
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. Repurchase of the
Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on
the purchase, sale, issue or cancellation of the Company’s own equity instruments.
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’.
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.
63
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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 assessed that the Group has no critical accounting judgements and have identified one key source of estimation
uncertainty, being fair value measurements and valuation processes, which has 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 observable 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 IPEVCVG, 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.
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.
New IPEVCVGs, effective for accounting periods beginning on or after 1 January 2019, were published on 21 December 2018 and
may impact the Group’s fair value measurements included in its financial statements for the financial year ending 31 March 2020.
The principal change in the new guidelines clarifies that using the price of a recent investment should not be the basis for
determining the investment valuation and reinforces the premise that fair value must be estimated at each measurement date as
required by the relevant accounting standards. Fair value may equal the price of a recent investment, however, this assessment will
require careful consideration of the facts and circumstances.
The Directors have considered the impact of the United Kingdom’s forthcoming exit from the European Union (‘Brexit’) and how it
may impact upon the valuation of the Group’s investments in portfolio companies. At the portfolio company level, the most
commonly-cited potential impacts for Mercia’s investee companies arise from potential changes to regulations (particularly for life
sciences companies), supply chain, financing, hiring and retaining talent, all of which are likely to be more prevalent in a ‘hard’ Brexit
scenario. The Group continues to monitor the situation closely for both short-term and longer-term impacts at both the Group and
portfolio company level. Mercia will continue to monitor the outcome of the negotiations between the United Kingdom and the
European Union and factor any relevant impacts into the fair value assessment of its direct investments.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
64
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
3. segmental reporting
For the year ended 31 March 2019, 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 active specialist asset management, 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 (note 15)
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
7,282
1,134
2,139
120
7,187
1,074
1,847
89
10,675
10,197
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
3,916
2,823
No other gains or losses have been recognised in respect of financial assets held at amortised cost. No gains or losses have been
recognised on financial liabilities held at amortised cost.
5. employees and Directors
The average monthly number of persons (including Executive and Non-executive Directors) employed by the Group during the
year was:
Asset management
Central functions
Year ended
31 march
2019
number
Year ended
31 March
2018
Number
61
24
85
44
24
68
Central functions comprise senior management (including Executive and Non-executive Directors), finance, compliance, legal,
administration, people and talent and marketing.
The aggregate employee benefit expense (including Executive and Non-executive Directors) was:
Wages and salaries
Social security costs
Other pension costs (note 23)
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
7,006
917
479
8,402
6,398
718
384
7,500
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 47, which forms part of these financial statements.
65
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 46 to 48 of the Remuneration Report.
Total options existing over Ordinary shares as at 31 March 2019 are summarised below:
F
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m
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scheme
Approved share option scheme
Unapproved share option scheme
Date of grant
Date of expiry
8 December 2014
31 July 2015
11 August 2015
27 July 2016
24 April 2017
24 July 2017
7 December 2024
30 July 2025
10 August 2025
26 July 2026
23 April 2027
23 July 2027
15 December 2017 14 December 2027
27 August 2028
7 December 2024
30 July 2025
10 August 2025
26 July 2026
23 April 2027
23 July 2027
15 December 2017 14 December 2027
27 August 2028
28 August 2018
8 December 2014
31 July 2015
11 August 2015
27 July 2016
24 April 2017
24 July 2017
28 August 2018
number of
share options
120,000
–
–
1,307,203
474,296
55,000
368,537
941,445
1,880,000
–
–
2,477,797
283,704
1,700,000
119,463
3,685,555
13,413,000
exercise price
50.00p
70.00p
69.00p
51.25p
40.05p
36.00p
37.25p
30.80p
50.00p
57.50p
57.50p
51.25p
40.05p
36.00p
37.25p
30.80p
Details of the share options outstanding as at 31 March 2019 and 31 March 2018 are as follows:
Year ended 31 march 2019
Year ended 31 March 2018
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
11,702,000
4,629,000
(2,168,000)
–
(750,000)
Weighted
average
exercise
price
43.70p
30.80p
51.22p
–
56.50p
Number of
share
options
8,715,000
3,517,000
(530,000)
–
–
share options outstanding as at 31 march
13,413,000
41.99p
11,702,000
Weighted
average
exercise
price
50.16p
34.09p
42.95p
–
–
43.70p
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
8 December 2014
31 July 2015
31 July 2015
11 August 2015
11 August 2015
27 July 2016
24 April 2017
24 July 2017
15 December 2017
28 August 2018
exercise
price
50.00p
70.00p
57.50p
69.00p
57.50p
51.25p
40.05p
36.00p
37.25p
30.80p
share price
at date of
grant
50.00p
70.00p
70.00p
69.00p
69.00p
51.25p
40.05p
36.00p
37.25p
30.80p
Risk-free
rate
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
1.0%
assumed
time
to exercise
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
assumed
volatility
Fair value
per option
30%
30%
30%
30%
30%
30%
30%
30%
30%
30%
19.84p
27.78p
32.24p
27.38p
31.45p
20.35p
15.89p
14.28p
14.78p
12.22p
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
66
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
6. share-based payments continued
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.
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 £171,000 (2018: £497,000).
7. Operating profit
Operating profit is stated after charging:
Other administrative expenses:
Staff costs (note 5)
Marketing, professional adviser, travel and entertainment and other administration costs
Depreciation of property, plant and equipment (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 audit of the interim accounts of the Company
– The audit of accounts of subsidiaries of the Company
– CASS related assurance services
– All other non-audit services
Total other administrative expenses
Share-based payments charge (note 6)
Amortisation of intangible assets (note 13)
total administrative expenses
8. Finance income
Interest income arising from:
Cash and cash equivalents
Short-term liquidity investments
Investee company loans (interest and redemption premiums)
total interest receivable
9. taxation
Corporation tax:
Current year
Deferred tax
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
8,402
3,103
84
364
7,500
2,594
81
310
43
22
67
30
–
39
18
58
29
4
12,115
171
301
10,633
497
301
12,587
11,431
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
147
74
341
562
70
161
43
274
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
–
54
54
–
54
54
The UK standard rate of corporation tax is 19% (2018: 19%). There is no current tax charge in the year (2018: £nil). The deferred tax
credit of £54,000 (2018: £54,000) represents the unwinding of the deferred tax liability recognised in respect of the intangible
asset arising on the acquisition of Enterprise Ventures.
9. taxation continued
A reconciliation from the reported profit to the total tax credit is shown below:
Profit before taxation
Tax at the standard rate of corporation tax in the UK of 19% (2018: 19%)
Effects of:
Income not subject to tax
Expenses not deductible for tax purposes
Other timing differences not recognised
Unwinding of deferred tax liability
total tax credit
67
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s
Year ended
31 march
2019
£’000
Year ended
31 March
2018
£’000
2,566
1,609
488
306
(913)
(1,210)
1,635
54
54
(802)
(647)
1,143
54
54
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 2019, a deferred tax liability of £109,000 (2018: £163,000) has been recognised in respect of the intangible asset
arising on the acquisition of Enterprise Ventures. A deferred tax asset of £5,995,000 (2018: £4,163,000) for cumulative unrelieved
management expenses and other tax losses has not been recognised due to uncertainty regarding its future recoverability.
10. earnings per share
Basic earnings per share is calculated by dividing the profit for the financial year by the weighted average number of Ordinary shares
in issue during the year. Diluted earnings per share is calculated by dividing the profit for the financial year by the weighted average
number of Ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share
options on an as-if-converted basis. The potential dilutive shares are included in diluted earnings per share calculations on a weighted
average basis for the year. The profit and weighted average number of shares used in the calculations are set out below:
earnings per Ordinary share
Profit for the financial year (£’000)
Weighted average number of Ordinary shares (basic) (‘000)
Weighted average number of Ordinary shares (diluted) (‘000)
earnings per Ordinary share basic and diluted (pence)
The calculation of the basic and diluted earnings per share is based on the following data:
Weighted average number of shares
Basic
Dilutive impact of share options
Diluted
11. Goodwill
cost
As at 1 April 2017
Additions
As at 31 March 2018
Additions
as at 31 march 2019
Year ended
31 march
2019
Year ended
31 March
2018
2,620
1,663
303,310
300,617
305,018
300,617
0.86
0.55
Year ended
31 march
2019
‘000
Year ended
31 March
2018
‘000
303,310
1,708
300,617
–
305,018
300,617
£’000
10,328
–
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 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 balance of £2,455,000 arose on the acquisition of Mercia Fund Management Limited in
December 2014.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
68
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
11. Goodwill continued
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 the Directors 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 (being 12
months from the date of approval of these financial statements) increase in expectations for the results of the CGU since
acquisition, and specifically its fund management revenue and cash inflows, 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. On the basis that any changes in key
assumptions are unlikely and even if they did change, they would not cause the CGU's carrying amount to be lower than its
recoverable amount, there is no requirement to disclose any sensitivity analysis.
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.
12. subsidiaries
The Group consists of Mercia Asset Management PLC and its subsidiary undertakings. Note 32 to the Company’s financial
statements lists details of the Company’s subsidiary undertakings.
13. 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 those the assets will flow to the
Group and the fair value of the assets can be measured reliably.
cost
As at 1 April 2017
Additions
As at 31 March 2018
Additions
as at 31 march 2019
accumulated amortisation
As at 1 April 2017
Charge for the year
As at 31 March 2018
Charge for the year
as at 31 march 2019
net book value
As at 31 March 2018
as at 31 march 2019
14. Property, plant and equipment
cost
As at 1 April 2017
Additions
As at 31 March 2018
Additions
as at 31 march 2019
accumulated depreciation
As at 1 April 2017
Charge for the year
As at 31 March 2018
Charge for the year
as at 31 march 2019
net book value
As at 31 March 2018
as at 31 march 2019
£’000
1,504
–
1,504
–
1,504
318
301
619
301
920
885
584
total
£’000
396
75
471
92
563
245
81
326
84
410
145
153
leasehold
improvements
£’000
Furniture
and fixtures
£’000
Office
equipment
£’000
40
–
40
2
42
5
5
10
5
15
30
27
62
6
68
9
77
35
13
48
12
60
20
17
294
69
363
81
444
205
63
268
67
335
95
109
69
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15. investments
The net change in the value of investments for the year is £21,589,000 (2018: £14,042,000).
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, investee company loans repaid and the direct investment fair value movements.
As at 1 April 2018
Investments 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 2019
£’000
66,070
19,384
(1,711)
8,622
(4,706)
87,659
In accordance with the Group’s accounting policy in respect of direct investments, 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 2019 the Group had investments
where it holds an economic interest of 20% or more as follows:
Warwick Acoustics Limited
nDreams Limited
LM Technologies Limited
Oxford Genetics Limited
The Native Antigen Company Limited
Intechnica Limited
Medherant Limited
Soccer Manager Limited
Impression Technologies Limited
Ton UK Limited t/a Intelligent Positioning
Nightingale-EOS Limited
VirtTrade Limited t/a Avid Games
Crowd Reactive Limited
sureCore Limited
Voxpopme Limited
Edge Case Games Limited
16. 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
interest
held
%
net assets/
(liabilities)
£’000
62.5
45.5
41.4
33.3
32.7
32.0
31.9
31.6
31.4
28.8
28.5
28.4
26.2
24.4
21.3
21.2
2,154
557
502
6,357
1,463
2,476
3,493
(996)
4,165
1,117
1,040
(1,722)
594
(211)
811
1,759
Profit/
(loss)
£’000
(2,211)
(2,282)
(246)
(2,738)
346
(1,760)
(1,736)
(1,376)
(1,867)
(245)
24
(1,064)
32
(555)
(846)
(673)
Date of financial statements
30 September 2018
31 March 2018
31 December 2018
30 April 2018
30 September 2018
31 March 2018
31 March 2018
31 October 2017
31 December 2017
31 December 2018
31 July 2018
31 August 2018
31 December 2017
30 June 2018
31 December 2017
30 September 2018
as at
31 march
2019
£’000
As at
31 March
2018
£’000
569
(184)
385
4
393
782
572
(234)
338
318
401
1,057
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
70
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
16. 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 2018
Provisions made
Provisions released
amounts written off
as at 31 march 2019
Gross
£’000
impairment
£’000
165
27
62
6
309
569
(1)
(5)
(22)
(3)
(153)
(184)
£’000
234
72
(96)
(26)
184
The Group applies the IFRS 9 expected credit loss model. The expected credit losses on trade receivables are by reference to past
default experience of the debtors and an analysis of the debtors’ current financial position, adjusted for factors that are specific to
the debtors, general economic conditions of the industry in which the debtors operate and an assessment of both the current as
well as the forecast conditions at the reporting date.
The impairment provision at 31 March 2019 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 £72,000 (2018: £138,000) 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.
17. cash, cash equivalents and short-term liquidity investments
Cash at bank and in hand
total cash and cash equivalents
total short-term liquidity investments
18. trade and other payables
Trade payables
Tax and social security
Other payables
Accruals and deferred income
Other payables includes £629,000 (2018: £3,473,000) of cash held on behalf of third-party EIS investors.
as at
31 march
2019
£’000
As at
31 March
2018
£’000
25,210
42,908
25,210
42,908
5,188
10,000
as at
31 march
2019
£’000
206
225
794
2,505
3,730
As at
31 March
2018
£’000
241
1,377
3,714
2,428
7,760
19. Deferred taxation
Recognition of deferred tax liability
71
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
as at
31 march
2019
£’000
As at
31 March
2018
£’000
109
163
As at 31 March 2019 a deferred tax liability of £109,000 (2018: £163,000) has been recognised in respect of the intangible asset
arising on the acquisition of Enterprise Ventures.
20. 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 2019
As at 31 March 2018
number
£’000
Number
£’000
303,309,707
–
303,309,707
3
–
3
300,602,232
2,707,475
303,309,707
3
–
3
On 26 March 2018 2,707,475 new Ordinary shares of £0.00001 each were issued at a price of 39.9 pence in settlement of the
deferred consideration payable in respect of the acquisition of Enterprise Ventures. These new shares were admitted to trading on
AIM on 29 March 2018.
Each Ordinary share is entitled to one vote and has equal rights as to dividends. The Ordinary shares are not redeemable.
21. share premium
As at the beginning of the year
Premium arising on the issue of Ordinary shares
as at the end of the year
as at
31 march
2019
£’000
49,324
–
As at
31 March
2018
£’000
48,243
1,081
49,324
49,324
The premium on the issue of Ordinary shares in the prior year arises from the issue of 2,707,475 new Ordinary shares of £0.00001
each issued at a price of 39.9 pence on 26 March 2018, in settlement of the deferred consideration for the acquisition of
Enterprise Ventures.
22. 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.
23. Retirement benefit schemes
The Group contributes into the personal pension plans of all qualifying employees. The amount charged in the year to 31 March 2019
was £479,000 (2018: £384,000). As at 31 March 2019, contributions amounting to £30,000 (2018: £20,000) had not yet been paid
over to the plans and are recorded in other payables (note 18).
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
72
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
24. 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
Over five years
as at 31 march 2019
As at 31 March 2018
land and
buildings
£’000
261
907
160
1,328
Other
£’000
22
20
–
42
Land and
buildings
£’000
314
800
319
1,433
Other
£’000
14
14
–
28
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 approximately six years now remaining. The typical lease term for office
equipment is three years.
25. 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 30 to 33 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
description of each category of financial asset and financial liability and the related accounting policies are shown below. Prior to
the adoption of IFRS 9 and in accordance with IAS 39, the financial assets and liabilities were classified as FVTPL or as loans and
receivables. The carrying amounts have not changed on adoption of IFRS 9. The carrying amounts of financial assets and financial
liabilities in each category are as follows:
as at 31 march 2019
Financial assets
long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term liquidity investments
short-term financial assets
total financial assets
Financial liabilities
Trade and other payables
total financial liabilities
as at 31 march 2018
Financial assets
long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term liquidity investments
short-term financial assets
total financial assets
Financial liabilities
Trade and other payables
total financial liabilities
FVtPl
£’000
amortised
cost
£’000
total
£’000
87,659
–
87,659
–
–
–
–
389
25,210
5,188
389
25,210
5,188
30,787
30,787
87,659
30,787
118,446
–
–
(1,000)
(1,000)
(1,000)
(1,000)
FVtPl
£’000
amortised
cost
£’000
total
£’000
66,070
–
66,070
–
–
–
–
656
42,908
10,000
656
42,908
10,000
53,564
53,564
66,070
53,564
119,634
–
–
(3,955)
(3,955)
(3,955)
(3,955)
73
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25. Financial risk management continued
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.
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 is exposed to this risk for various financial instruments; for example, by granting receivables to customers and from placing
cash and deposits with banks. The Group’s trade receivables are amounts due from the investment funds under management, from
those investee companies held by its managed funds and from its directly invested portfolio companies. The Group’s maximum
exposure to credit risk is limited to the carrying amount of trade receivables net of provisions, cash and cash equivalents and
short-term liquidity investments as at 31 March, as summarised below:
net trade receivables
cash at bank and in hand
short-term liquidity investments
as at
31 march
2019
£’000
385
25,210
5,188
As at
31 March
2018
£’000
338
42,908
10,000
30,783
53,246
The Directors consider that all the above financial assets are of good credit quality. In respect of trade and other receivables, the
Group is not exposed to significant risk as the principal customers are the investment funds managed by the Group, and in these the
Group has control of the banking as part of its management responsibilities.
The credit risk of cash and cash equivalents and short-term liquidity investments held on deposit is limited by the use of reputable
UK banks with high quality external credit ratings and as such is considered negligible. All cash, cash equivalents and short-term
liquidity investments are held with banks with an A rating as at year ended 31 March 2019.
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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
74
nOtes tO tHe cOnsOliDateD Financial statements continued
For the year ended 31 march 2019
25. Financial risk management continued
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 2019. The table in note 16 of these consolidated financial
statements sets out the movement in the balance sheet value of investments from the start to the end of the year.
assets:
Financial assets at fair value through profit or loss (“FVtPl”)
level 1
£’000
level 2
£’000
level 3
£’000
total
£’000
1,133
–
86,526
87,659
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 2019, the Group had one direct investment listed on AIM (Concepta); this has been classified as Level 1 and valued at
its bid price as at 31 March 2019.
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 or cost adjusted for impairment
Fair value
as at
31 march
2019
£’000
1,133
57,230
8,822
14,237
6,237
87,659
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. Three direct investments are valued at an enterprise value, based on a multiple of revenues, given their
stage of development and profitability.
Note 2 to these financial statements provides further information on the Group’s valuation methodology.
26. 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 47. Directors’ shareholdings in the Group are disclosed on page 48 of the Remuneration Report.
The Group leases its head office premises from Forward Midland LLP, of which Ray Chamberlain, a Non-executive Director of Mercia
Asset Management PLC, is a member. During the year ended 31 March 2019, 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 £235,000 plus VAT
(2018: £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. The change compared with the prior year resulted from an
increase in the amount of space being occupied by the Group. Rent and service charges are invoiced quarterly in advance. As at 31
March 2019, prepaid rent and service charges amounted to £52,000 plus VAT (2018: £43,000 plus VAT).
During the year preference shares held by the former owners of Mercia Fund Management Limited, including Ray Chamberlain and
Dr Mark Payton, were redeemed at par.
27. Ultimate controlling party
The Group has no single ultimate controlling party.
COMPANY BALANCE SHEET
As at 31 March 2019
Assets
Non-current assets
Property, plant and equipment
Investments in subsidiary undertakings
Trade and other receivables
Total non-current assets
Current assets
Trade and other receivables
Short-term liquidity investments
Cash at bank and in hand
Total current assets
Total assets
Current liabilities
Trade and other payables
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Other distributable reserve
Retained earnings
Share-based payments reserve
Total equity
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
75
Note
31
32
33
33
34
35
35
36
As at
31 March
2019
£’000
As at
31 March
2018
£’000
139
23,533
74,500
134
23,533
61,500
98,172
85,167
299
5,188
13,815
224
20,112
10,709
19,302
31,045
117,474
116,212
(374)
(374)
(542)
(542)
117,100
115,670
3
49,324
70,000
(3,564)
1,337
3
49,324
70,000
(4,823)
1,166
117,100
115,670
The Company’s profit for the year was £1,259,000 (2018: £733,000 loss).
The notes on pages 77 to 81 are an integral part of these financial statements.
The Company financial statements of Mercia Asset Management PLC, registered number 09223445, on pages 75 to 81 were
approved by the Board of Directors and authorised for issue on 5 July 2019. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
76
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2019
As at 1 April 2017
Total comprehensive loss for the year
Share-based payments charge
Deferred consideration payable
Settlement of deferred consideration
As at 31 March 2018
Total comprehensive income for the year
Share-based payments charge
As at 31 March 2019
Issued
share
capital
£’000
(note 35)
3
–
–
–
–
3
–
–
3
Share
premium
£’000
(note 35)
48,243
–
–
–
1,081
49,324
–
–
Other
distributable
reserve
£’000
(note 36)
70,000
–
–
–
–
70,000
–
–
Retained
earnings
£’000
(4,090)
(733)
–
–
–
(4,823)
1,259
–
49,324
70,000
(3,564)
Share-based
payments
reserve
£’000
669
–
497
–
–
1,166
–
171
1,337
Other
reserve
£’000
1,125
–
–
390
(1,515)
–
–
–
–
Total
£’000
115,950
(733)
497
390
(434)
115,670
1,259
171
117,100
77
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A
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M
E
N
T
S
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 March 2019
28. Accounting policies
Basis of preparation
The financial statements of Mercia Asset Management PLC (formerly 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.
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:
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 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.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries 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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
78
NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
For the year ended 31 March 2019
29. 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’;
•
•
• paragraphs 28 to 30 of IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’ specifically in respect of the
•
•
disclosure of new standards in issue but not yet effective;
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).
30. 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.
31. Property, plant and equipment
Cost
As at 1 April 2018
Additions
As at 31 March 2019
Accumulated depreciation
As at 1 April 2018
Charge for the year
As at 31 March 2019
Net book value as at 31 March 2018
Net book value as at 31 March 2019
Leasehold
improvements
£’000
Furniture
and fixtures
£’000
Office
equipment
£’000
40
2
42
10
5
15
30
27
38
–
38
26
9
35
12
3
194
80
274
102
63
165
92
109
Total
£’000
272
82
354
138
77
215
134
139
79
£’000
23,533
–
23,533
F
I
N
A
N
C
I
A
L
S
T
A
T
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M
E
N
T
S
32. Investments in subsidiary undertakings
Carrying amount
As at 1 April 2018
Additions
As at 31 March 2019
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 2019 are as follows:
Name
Mercia Investments Limited
Mercia Fund Management Limited1
Enterprise Ventures Group Limited
Enterprise Ventures Limited
EV Business Loans Limited
Mercia Fund 1 General Partner Limited
Mercia (General Partner) Limited
Mercia Investment Plan LP2
WM AHSN SME General Partner 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 Growth Nominees 8 Limited
Mercia Digital Nominees Limited
UGF Nominees Limited
Mercia Investment Management Limited
Mercia Technologies Limited3
Place of
incorporation
and operation
Proportion of
Ordinary
shares owned
Nature of business
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
Investment company
100%
100%
Fund management company
100% Intermediate holding company
Fund management company
100%
Fund management company
100%
General partner
98%
General partner
100%
Limited partnership
–
General partner
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
Dormant
100%
1. The Company owns 100% of Mercia Fund Management Limited’s Ordinary shares and thus has a 100% controlling interest in the subsidiary undertaking.
2. The Company owns 90% of the capital invested in Mercia Investment Plan LP.
3 On 4 July 2019 the name of the subsidiary undertaking was changed to Mercia Technologies Limited, at the same time as the Company’s name was changed
to Mercia Asset Management PLC.
The companies listed above have their registered offices at Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA
with the following exceptions:
Enterprise Ventures Group Limited and its subsidiaries are registered at Unit F26, Preston Technology Management Centre, Marsh
Lane, Preston, Lancashire PR1 8UQ
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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NOTES TO THE COMPANY FINANCIAL STATEMENTS continued
For the year ended 31 March 2019
33. Debtors
Amounts falling due within one year:
Other debtors
Prepayments and accrued income
Amounts falling due after more than one year:
Amounts due from subsidiary undertakings
As at
31 March
2019
£’000
As at
31 March
2018
£’000
108
191
299
78
146
224
74,500
61,500
74,500
61,500
Amounts due from subsidiary undertakings are in respect of unsecured, interest-bearing loans. Interest is charged on the principal
sum of the loans typically at a rate of 4% and is paid half yearly. The terms of the loans are such that the earliest date on which
Mercia Asset Management PLC can recall a loan is five years from the loan agreement date.
34. Creditors – amounts falling due within one year
Trade creditors
Accruals and deferred income
As at
31 March
2019
£’000
46
328
374
As at
31 March
2018
£’000
47
495
542
35. Issued share capital and share premium
The movements in issued share capital and share premium are disclosed in notes 20 and 21 to the consolidated financial statements.
36. Other distributable reserve
The movements in other distributable reserve are disclosed in note 22 to the consolidated financial statements.
37. Directors’ emoluments and employee information
The average monthly number of persons (including Executive and Non-executive Directors) employed by the Company during the
year was:
Central functions
Year ended
31 March
2019
Number
Year ended
31 March
2018
Number
12
11
Central functions comprise senior management (including Executive and Non-executive Directors), finance, compliance, legal,
administration, people and talent and marketing.
The aggregate employee benefit expense (including Executive and Non-executive Directors) was:
Wages and salaries
Social security costs
Other pension costs (note 38)
Year ended
31 March
2019
£’000
Year ended
31 March
2018
£’000
1,092
142
64
1,298
1,116
120
61
1,297
Information in respect of Directors’ emoluments, share options and pensions is given in the Remuneration Report on pages 46 to 48
of this Annual Report.
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38. Retirement benefit schemes
The Company contributes into the personal pension plans of all qualifying employees. The amount charged in the year to 31 March
2019 was £64,000 (2018: £61,000). As at 31 March 2019, no contribution payments were outstanding (2018: £nil).
39. 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:
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Within one year
In the second to fifth years inclusive
Over five years
As at
31 March
2019
Land and
buildings
£’000
227
906
160
As at
31 March
2018
Land and
buildings
£’000
186
746
319
1,293
1,251
Lease commitments represent amounts payable by the Company for office premises. The lease term in respect of the head office
premises is 10 years from 18 December 2014 with approximately six years now remaining.
40. 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 26 of the consolidated financial statements details the Group’s related
party transactions.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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DIRECTORS, SECRETARY AND ADVISERS
Directors
Ian Roland Metcalfe
Dr Mark Andrew Payton
Martin James Glanfield
Julian George Viggars
Raymond Kenneth Chamberlain
Dr Jonathan David Pell
Caroline Bayantai Plumb OBE
(Non-executive Chair)
(Chief Executive Officer)
(Chief Financial Officer)
(Chief Investment Officer)
(Non-executive Director)
(Non-executive Director)
(Non-executive Director)
Company Secretary
Martin James Glanfield
Company website
www.mercia.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 B4 6GN
Lloyds Bank plc
125 Colmore Row
Birmingham B3 3SD
Company registration number
09223445
Company registrar
SLC Registrars
Elder House
St Georges Business Park
Brooklands Road
Weybridge
Surrey KT13 0TS
Solicitors
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Nominated adviser and broker
Canaccord Genuity Ltd
88 Wood Street
London EC2V 7QR
Investor relations adviser
Buchanan Communications Ltd
107 Cheapside
London EC2V 6DN
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NOTICE OF ANNUAL GENERAL MEETING
Mercia Asset Management PLC
(Incorporated and registered in England and Wales with registered number 09223445)
Notice is hereby given that the Annual General Meeting
(‘AGM') of Mercia Asset Management PLC (the ‘Company’)
will be held at Forward House, 17 High Street, Henley-in-Arden,
Warwickshire B95 5AA on 24 September 2019 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 6 as ordinary resolutions and resolutions 7 and
8 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 2019
together with the Directors’ Report and Auditor’s Report
thereon.
2. To approve the Directors’ Remuneration Report for the
financial year ended 31 March 2019.
3. 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.
4. 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.
5. 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
6. 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
£303.31 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 2020 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.
Special resolutions
7. That, subject to the passing of resolution 6, 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 6 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 £303.31 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 2020 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.
8. 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 30,330,971;
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 2020 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
26 July 2019
Registered Office: Forward House, 17 High Street,
Henley-in-Arden, Warwickshire B95 5AA
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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NOTICE OF ANNUAL GENERAL MEETING continued
Mercia Asset Management PLC
(Incorporated and registered in England and Wales with registered number 09223445)
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 20 September 2019 (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, Elder House, St Georges Business Park,
Brooklands Road, Weybridge, Surrey KT13 0TS, 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 20 September
2019 (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 20 September 2019 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 of its powers as a member provided that no more than
one corporate representative exercises powers over the
same share.
8. As at 26 July 2019, being the latest practicable date before
the publication of this notice of AGM, the Company’s issued
share capital consisted of 303,309,707 Ordinary shares each
carrying one vote. Therefore, the total voting rights in the
Company as at 26 July 2019 is 303,309,707.
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 26
July 2019 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.
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 Accounts 2019.
2. Resolution 2 – the shareholders are required to approve the
Remuneration Report for the year ended 31 March 2019.
3. Resolutions 3 to 4 – retirement of Directors by rotation
– pursuant to Article 89.1 of the Articles, 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 5 – 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 auditor.
5. Resolution 6 – 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
2020 and 30 September 2020 (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 £303.31
(representing 10% of the issued Ordinary share capital of the
Company as at 26 July 2019 (the latest practicable date prior
to the publication of this document).
6. Resolution 7 – 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,
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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 £303.31 (representing 10% of
the issued Ordinary share capital of the Company as at
26 July 2019 (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 2020 and
30 September 2020 (being six months after the financial year
end of the Company), unless the authority is renewed or
revoked prior to such time.
7. Resolution 8 – market purchases – the Directors are
requesting authority for the Company to make market
purchases of up to 30,330,970 Ordinary shares (representing
10% of the issued Ordinary share capital of the Company as
at 26 July 2019 (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.
MERCIA ASSET MANAGEMENT PLCANNUAL REPORT & ACCOUNTS 2019
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MERCIA ASSET MANAGEMENT PLC
Forward House
17 High Street Henley-in-Arden
Warwickshire B95 5AA
+44 (0) 330 223 1430
www.mercia.co.uk