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Annual Report & Accounts 2023
Welcome
We are trusted to deliver time and time
again for all of our stakeholders.
Mercia’s investment
has been truly
transformational.
John von Benecke,
CEO of Locate Bio
Impact
investor
Our vision is to be the first choice for our
investors, investees and employees. How we
succeed forms the narrative of this report.
Annual Report & Accounts 2023
Mercia Asset Management PLC
1
Mercia by numbers
Financial highlights
£25.9m
Revenue
2022: £23.2m
£2.4m
Profit before taxation (“PBT”)
2022: £27.4m
£3.0m
£37.8m
Cash*
2022: £61.3m
£202.9m
Net assets
2022: £200.6m
45.4p
Cash generated from operating activities
2022: £9.2m
Net assets per share (“NAV”)
2022: 45.6p
0.53 pence/share
£1.4bn
Proposed final dividend
2022: 0.50 pence/share
Assets under Management (“AuM”)
2022: c.£959m
* Including short-term liquidity investments
Operational highlights
Contents
• Frontier Development Capital Limited
(“FDC”) acquired in December 2022
adding c.£415million of funds under
management (“FuM”)
Strategic report
1
2
4
Mercia by numbers
Non-executive Chair’s statement
Investment case
• Organic FuM inflows of c.£134million
during the year and no redemptions
• Strong liquidity across both
6 Chief Executive Officer’s review
the Group’s balance sheet and
managed funds, with c.£378million
of unrestricted cash
8
Strategy
• c.£165million invested into
176 businesses, including 85
new companies
• Proposed final dividend increase
of 6.0%
10 Strategy in action
12
14
Engaging with our stakeholders
Responsible investment
18 Chief Investment Officer’s review
23
24
24
25
25
Our portfolio – National venture
Our portfolio – Regional venture
Our portfolio – Private equity
Our portfolio – Debt
Our portfolio – Direct investments
For more and the latest information please visit
our website at: www.mercia.co.uk
26 Chief Financial Officer’s review
31
Principal risks and uncertainties
Governance
40
42
44
45
51
Board of Directors
Directors’ report
Statement of Directors’ responsibilities
Corporate governance report
Remuneration report
Financial statements
56
63
Independent auditor's report
Consolidated statement of
comprehensive income
Consolidated statement of
financial position
Consolidated statement of cash flows
Consolidated statement of changes
in equity
Notes to the consolidated financial
statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial
statements
64
65
66
67
90
91
92
Other information
97
98
Directors, secretary and advisers
Notice of Annual General Meeting
Strategic report
2
Mercia Asset Management PLC
Annual Report & Accounts 2023
Non-executive Chair’s statement
Ian R Metcalfe OBE
Non-executive Chair
Profitable
growth
It is just over three years since we
all heard those words “you must stay
at home” and it is sometimes easy
to forget just how tough those early
days and months in particular were.
In my Chair statement for the year ended 31 March 2020, I said
that “times such as these can be challenging and difficult, but
they can also be defining moments”. I am pleased to say that the
latter has proven to be the case for Mercia Asset Management
PLC during the unprecedented period of pandemic, economic
and geo-political upheaval which has followed.
It is worth reflecting on the tangible progress that has been
made by Mercia during this three-year period, by comparing
the following two reporting years:
Assets under management
Revenue
Adjusted operating profit
Operating cash inflow
Unrestricted cash (incl. short-term liquidity investments)
Net assets
Net assets per share (pence)
Dividends per share (interim paid and final proposed) (pence)
Number of colleagues
31 March 2023
£’000
1,437,300
25,881
7,586
3,019
37,834
202,921
45.4
0.86
142
31 March 2020
£’000
Movement
%
798,700
12,747
518
136
30,653
141,460
32.1
–
93
+80
+103
+1,364
+2,120
+23
+43
+41
–
+53
This material growth in all key metrics, in the face of the last three challenging years, amply validates our business model.
Progressing our strategy despite market headwinds –
Mercia 20:20
Launched on 1 April 2021, the Group’s current three-year
strategic plan is known as Mercia 20:20. The Group’s twin
objectives are to:
• grow AuM by an average of 20% per annum over the three
years to 31 March 2024; and
• deliver average pre-tax profits of £20million per annum over
the same three-year period.
The Group remains focused on seeking to achieve both of these
objectives during this, the final year of the current strategic plan.
In relation to the Group’s AuM growth objective, in December
2022 we were pleased to welcome the staff of FDC into our
#OneMercia family. A highly respected and growing regionally
focused specialist lender, FDC complements our existing small
and medium-sized enterprise (“SME”) lending operations.
It has already grown its own FuM in the first few months since
acquisition. We not only welcome FDC’s staff to Mercia, but also
their key fund investors and regional stakeholders, whom we
will ensure continue to receive the standard of professional
investment and service that they have come to expect from FDC.
Dividend
Mercia adopted its progressive dividend policy in December 2020,
when the Group declared its maiden interim dividend of 0.10
pence per share. Since then, Mercia’s continued progress has
merited measured increases in both the interim and final
dividends. Last December, the Group paid an interim dividend
of 0.33 pence per share and is now recommending a final dividend
of 0.53 pence per share, making 0.86 pence per share for the full
year (2022: 0.80 pence per share), a 7.5% increase on the prior year.
Given the strength of Mercia’s business model and its continuing
excellent cash position, the Board’s objective remains to maintain
this progressive policy.
Governance and engagement
Good governance is fundamental to the long-term success of
any company. Last year, as part of our continuing commitment
to the governance principles of the Quoted Companies Alliance
Corporate Governance Code, we commissioned our third
independent external Board effectiveness review, since our
admission to the AIM in December 2014. In May this year, we
invited the independent reviewer back to check on our progress
against her recommendations, which she confirmed have been
positive. Further information on the review is on page 46 of this
annual report.
Part of the Board’s work during the past year has been the
evolution and composition of its governance structures. This has
included Mercia’s Senior Independent Director, Diane Seymour-
Williams, succeeding myself as Chair of the Remuneration
Committee and joining the Nominations Committee. The terms
of reference of each Committee have also been reviewed and
where appropriate, updated.
It remains critical to our future success that we continue to
meet the investment objectives agreed with our many asset
class fund investors. This includes our institutional investors,
individual investors and the independent boards of the three
Northern VCTs. In order to continue to support the VCT
investment team in successfully managing and expanding the
VCT portfolios and respective NAVs, Peter Dines has relinquished
his Chief Operating Officer role to dedicate himself to co-leading
our national venture team.
Annual Report & Accounts 2023
Mercia Asset Management PLC
3
We have begun the search for Peter’s replacement as COO,
and have received many high-quality applications.
Proactive engagement with all of our stakeholder groups
remains particularly important to our Board. Hence, for
the first time since our early years, we will be holding our
forthcoming Annual General Meeting in London. I look
forward to engaging with all of our leading stakeholders
during the current financial year.
Responsible investing and culture
For Mercia, responsible investing and company culture
go hand-in-hand. We invest with purpose to make a return
for our investors, but in such a manner that treats all of our
stakeholders and the environment with respect. This respect
includes the careful management of any potential conflicts of
interest, be they perceived or actual. Culture should never be
static and we continue to look at ourselves to see how we can
increase our own contribution to the fundamentally important
areas of employee well-being and support. We do this through
proactive engagement together with a commitment to
diversity, wider society and the environment. Our #OneMercia
ethos embodies all of these aspects of life. We have continued
to adopt a flexible approach to the working week, recognising
the needs and mental well-being of our staff. We also recognise
the importance of face-to-face collaboration, side-by-side
training and the many psychological and social benefits of our
friendly open-plan office culture. We believe that team working
is best achieved when everyone is together, and we will
continue to balance all of these aspects to provide the best
possible outcomes for our investors, investees and employees.
Although not yet mandatory for Mercia, we continue to
measure and offset our environmental impact. We are fortunate
that our business model leaves a relatively small carbon
footprint, but we still want to play our part in helping the
environment. In terms of both good governance and good
citizenship, we believe in practising what we ask of our investee
companies, all as part of our mantra of ‘responsible investing
with purpose’. Carbon offsetting is a positive step, and we will
continue to seek ways to reduce our carbon footprint over time.
Opportunity
The many varied and well documented challenges of the
last three years have shown the importance of our strong
#OneMercia culture, which underpins all that we do, particularly
our strong overall financial performance. The significant
profitable and cash generative growth that we have achieved
during this period has been funded entirely from our own
financial resources, without dilutive recourse to shareholders
or the need to borrow from third-parties. We see no need for
this to change in the foreseeable future.
These financial results clearly demonstrate the robustness
and continued maturing of our business model, which is now
proven to work in both good and tough times. As Chair, I remain
immensely proud to be part of #OneMercia, and on behalf of
our Board, I sincerely thank each and every person connected
in one way or another with our Group for your continuing
support. Notwithstanding the uncertain backdrop, our carefully
managed and healthy funds and balance sheet cash positions
allow us to remain entirely focused on our respective fund
mandates and our strategic priorities, and as a result, we are
optimistic for further near and long-term growth.
Ian R Metcalfe OBE
Non-executive Chair
Strategic report 4
Mercia Asset Management PLC
Annual Report & Accounts 2023
Investment case
Daniela Tsoneva
Investment Director
Our hybrid investment
model of profitable fund
management operations
and proprietary
investments, enables
sustainable growth.
Preferred
choice
Mercia by numbers
Hybrid investment model: A successful formula
Investments this year
176
#OneMercia team members
142
Non-executives in our network
1,170
Number of companies in our portfolios
c.570
Mercia offers a comprehensive range of investment solutions
through a robust hybrid investment model, including balance
sheet investment, venture capital, private equity and debt
finance. By achieving critical mass and leveraging synergies,
Mercia seeks to establish itself as the preferred choice for
investors, providing opportunities for investment across
the regions of the UK.
Investment focus
Mercia has a broad sector focus with a strong track record for our
expertise in supporting high-potential businesses across various
sectors. This enables us to capture opportunities in emerging
industries and adapt to evolving market trends.
Accelerating growth through support
Going beyond capital investment, Mercia provides extensive support
and guidance to our portfolio companies. Our relentless focus
on value-add provides founders with strategic advice, operational
expertise, mentoring and access to a vast network of industry
connections, fostering growth and success.
National footprint, regional strength
Mercia has a strong presence in regional ecosystems throughout
the UK. By actively engaging with local businesses, universities and
research institutions, Mercia taps into a rich pipeline of innovative
ventures. This regional strength enhances deal flow and fosters
collaboration, driving regional economic growth.
Annual Report & Accounts 2023
Mercia Asset Management PLC
5
Case studies
Social Value Portal:
The UK’s Social Value Portal, a tech-for-good platform,
assists global organisations in measuring and reporting
their social, environmental and economic impact.
Providing a user-friendly platform based on the National
Themes, Outcomes and Measures Framework, it helps
businesses, public sector entities and social enterprises
quantify and monitor their contributions. This aligns with
environmental, social and governance (‘‘ESG’’) principles,
helping to identifying improvement areas, setting goals
and creating strategies for greater impact. A £6.5million
investment from Mercia’s funds as part of an £8.5million
funding round, enabled expansion, product diversification
and extended reach. The funding underscores the growing
demand for impact measurement solutions, highlighting
how tech-for-good platforms can transform sustainability
practices. Social Value Portal is advancing social progress,
environmental protection and responsible governance.
Cornerstone Partnerships:
Cornerstone Partnerships was established in 2016 to address
homelessness in the UK by providing socially responsible housing
solutions. Through collaboration with local authorities, charities
and other similar organisations, the company aims to tackle
homelessness, promote social welfare and improve social
mobility. Starting with 78 fully furnished properties for The
Salvation Army in Coventry, Cornerstone has formed strategic
partnerships with various local authorities and charities. Their
investment strategy involves extending leasehold terms for
existing properties and acquiring additional properties to
enhance their quality, value, energy efficiency and sustainability.
The company plans to provide 1,000 properties by 2035 by
securing funding, reducing cash outflows and acquiring more
properties. Cornerstone’s approach exemplifies the integration of
business objectives with social responsibility, making a significant
impact on the lives of homeless individuals and families while
fostering collaboration within the communities it serves. FDC
structured debt funding on behalf of West Midlands Combined
Authority to enable Cornerstone to continue its impressive growth
and support many more homeless families in the region.
Tech-for-good investment
£8.5m
Social mobility investment:
£9.0m
Building lasting partnerships
Mercia’s strong reputation and emphasis on responsible
investment solidifies our position as a trusted ally, fostering
enduring partnerships in the UK market. Our network of
Non-executive directors (“NXD”), industry specialists and
trusted advisers significantly bolsters our standing as a trusted
investment partner, thereby enhancing our deal origination.
Beyond aiding boards in achieving optimal outcomes,
our cohesive network consistently shares best practices
on fostering business growth, fortifying the resilience
of our portfolios in the process.
Strong team and positive working environment
Mercia is proud of its highly skilled team of investment and
support professionals, many with diverse backgrounds and
deep industry knowledge. Their collective experience which
enables them to identify promising investment opportunities,
navigate complex markets and provide comprehensive
support to portfolio companies thereby generating value
for investors, is a testament to our performance track record.
Mercia’s emphasis on being a responsible employer creates
a rewarding and responsible work environment, attracting
and retaining top talent.
Exit strategies for mutual benefit
Mercia has a proven track record of successful investments,
including numerous exits, IPOs and secondary investments.
Mercia strategically plans exits to generate favourable returns
for shareholders, investors and management teams, ensuring
mutually beneficial outcomes.
Upholding core values
Mercia recognises the importance of ESG factors in long-term
value creation. We evaluate potential investments based on
ESG criteria, ensuring alignment with sustainable business
practices and responsible investing.
Access to capital networks
Mercia has strong relationships with a wide range of capital
providers, including other venture capital firms, private equity
co-investors and institutional funds. This network enables
Mercia to facilitate follow-on funding rounds and support
portfolio companies with the capital runway needed to
enable optimum exits and timely realisations.
Hybrid investment model: A successful formula
Strategic report 6
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Executive Officer’s review
Dr Mark Payton
Chief Executive Officer
Since our IPO in 2014, each
year we have met or beaten
market expectations.”
Focused
strength
With strong regional roots and an established
track record, Mercia is a ‘one stop’ responsible
financial partner contributing towards the growth
of the UK economy.
Our physical presence in some of the key cities across the UK,
including Birmingham, Manchester, Sheffield, Leeds, Bristol,
Newcastle and London, results in sight of a significant number
of investment opportunities in our sweet spot of ambitious
business owners who are looking for between £250,000 and
£10million of investment. It is interesting to reflect on the
progress made in the last three years since COVID struck in
March 2020, with AuM up by c.80%, revenue up by c.103% and
NAV per share up by c.41% and with the completion of FY23,
our third consecutive year of adjusted operating profits.
Strategy
Despite a challenging FY23 for specialist asset managers in
general, Mercia has nevertheless been able to continue with
its growth journey. We are now two years into our current
three-year strategic plan, Mercia 20:20. Our strategy is to grow
our AuM by an average of 20% per annum and deliver average
PBT of £20million per annum over three years. Another way of
looking at this is reaching c.£1.6billion in AuM and achieving
c.£60million in cumulative PBT by the end of FY24.
Annual Report & Accounts 2023
Mercia Asset Management PLC
7
S
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Mercia 20:20 is set in parallel with our aspirations to also achieve
top quartile performance by our managed funds in their asset
categories, plus continued growth in the direct investment
portfolio as the key element of our consolidated balance sheet.
We also remain focused on growing our third-party funds under
management resulting in further growth in adjusted operating
profit. To achieve these growth targets, we have established
interconnected pools of capital and a capability to invest
from as little as £250,000 through to £10million. Our average
investment size per investee continues to grow, standing at
£0.9million in FY23, and we are looking to increase this further
in FY24 as we continue to scale Mercia’s capital deployment
and AuM.
Our focused approach of only investing in domestic UK
businesses with relatively modest capital needs (typically
less than £30million in their entire growth journey to exit)
as a generalist, but with several key sector themes, means that
we have a portfolio which we can, if necessary, support entirely
from within our own capital resources – thus protecting and
preserving value during periods of economic instability.
The majority of our AuM (c.86%) is in third-party managed
funds, all of our direct investments benefit from shared equity
positions alongside one or more of the funds we manage and,
as a debt-free Group, we remain confident in Mercia’s profitable
and cash generative investment model.
Positive progress during the year
Whilst the markets, both public and private, have cooled over
the last 12 months, we have seen this as an opportunity to step
forward with both corporate and organic investment activity.
Testament to this is the recent acquisition of FDC, a business
capable of lending up to £10million per transaction, now with
c.£445million in third-party FuM, headquartered in the heart
of Birmingham. In addition, in the last financial year we have
supported 173 businesses and invested c.£155million, of which
c.£21million was from our own cash resources. Since Mercia’s
inception, we have backed countless founders with their
ambitious goals for growth and we will continue to do so, as we
seek to become one of the leading wealth enablers in the UK.
In addition to the acquisition of FDC, we have seen capital
inflows of c.£134million from the three pools of capital that
we manage: retail (c.£31million from EIS and c.£43million from
VCT), British Business Bank (c.£30million) and institutional
capital (c.£30million). We are targeting further organic growth
from all three pools of capital during FY24.
Summary financials
The last 12 months have been tough for many, with the
technology sector being largely out of favour with investors,
impacting confidence and valuations. Despite the war
in Ukraine, double-digit inflation, interest rates growing
almost six fold, and marked domestic liquidity reductions,
it is pleasing to report continued year-on-year growth,
as summarised by:
• AuM of c.£1.4billion, a c.50% increase;
•
• final proposed dividend up 6.0% to 0.53 pence per share
revenue of c.£26million, a c.12% increase; and
making, if approved by shareholders, 0.86 pence per share
for the year, an increase of 7.5%.
Outlook
Whilst the sector that we operate in has generally seen
liquidity pressures and material reductions in portfolio
values, we see an opportunity during this current financial
year to increase our investment activity by taking advantage
of our strong, unrestricted liquidity of c.£378million across
the Group. Based on our physical presence across the UK
and continued improvement in both the quality and volume
of investment opportunities, we have set an ambitious
target of increasing capital deployment to a record level
of £250million in FY24.
Since our IPO in December 2014, each year we have either
met or beaten market forecasts from a trading outturn
perspective. To achieve this requires an exceptional team at
Mercia, as we look to deliver on our vision of being the first
choice for investors, investees and employees. At the top of
our list of ‘value drivers’ for any acquisition that we make is
cultural fit, and I warmly welcome all FDC staff to Mercia, as
we continue on our growth journey together underpinned by
our shared values. I am sincerely grateful to the entire team
at Mercia, our portfolio companies working tirelessly to fulfil
their own growth aspirations, our managed fund investors,
and last but by no means least, the continued belief and
support of our shareholders.
Dr Mark Payton
Chief Executive Officer
8
Mercia Asset Management PLC
Annual Report & Accounts 2023
Strategy
Preston
Manchester
Henley-in-Arden
Bristol
Newcastle
Hull
Leeds
Sheffield
Nottingham
Birmingham
London
Sustained
growth
We support high-growth companies across the UK
with global potential, providing sustained investment
to foster their growth and accelerate value creation.
Mercia 20:20: Driving sustainable growth and
value for all stakeholders
With our raised ambition, Mercia 20:20, we actively seek
to create value for all Mercia stakeholders – employees,
investors, investee companies, shareholders and communities.
Our sustainable growth strategy embodies responsible investing
and employment practices, anchored in strong ESG
commitment. Mercia’s ‘Complete Connected Capital’ solution,
national footprint and added-value support, uniquely positions
us to meet the growing demand for capital from UK SMEs.
Our targets include achieving 20% average annual AuM growth
and £20.0million average pre-tax profits per annum over three
years, delivering substantial shareholder returns and value for
all stakeholders.
We are an established
impact investor operating
from key cities across the
UK, targeting ambitious
founders who are seeking
growth capital.”
Sustained
growth
Supportive balance sheet investment
Up to £10m
Aligned with our investment strategy, our disciplined use of
proprietary capital forms the core of our ambitions, allowing
us to strategically invest and provide optimised returns. Our
managed funds incorporate a shadow portfolio specifically
designed to identify businesses seeking Series A capital
and displaying potential for rapid growth. By adopting
a partnership approach and integrated investment practices,
we generate value for both shareholders and other investors.
Annual Report & Accounts 2023
Mercia Asset Management PLC
9
Maximising value through private equity
Up to £10m
Mercia’s active participation in private equity investments
allows for ownership stakes in established companies.
Employing a hands-on approach, we enhance operations
to unlock value and achieve attractive long-term returns.
Our capital investment caters to profitable businesses
seeking transition, offering solutions tailored to their
specific needs. From buyouts to buy-ins, cash-outs to growth
capital, we work closely with regional SMEs, implementing a
focused equity value-creation plan. This strategic approach
empowers these businesses to achieve their full potential
and capitalise on growth opportunities.
Unrestricted cash
£37.8m
FuM
c.£48m
See page 25 for more details
See page 24 for more details
Mercia’s venture capital approach
£250k – £10m
Mercia, as a venture capital investor, identifies early-stage and
high-growth companies. By deploying capital, expertise and
guidance, we foster their development and expansion. Our
primary objective is to capture the growth potential of these
businesses, generating substantial returns for our investors.
Through our focused strategy and comprehensive support,
we empower promising SMEs to thrive and maximise their
profitability, delivering significant value and long-term success.
Flexible financing solutions
£250k – £10m
Mercia specialises in providing debt financing solutions
to SMEs, addressing today’s macroeconomic challenges,
including the lack of interest from traditional high-street
lenders. Our financing solutions offer flexibility while
preserving the business’ ownership and control. We have
specialisms in funding buyouts, replacement capital and
property finance. Working alongside other funds in our
‘Complete Connected Capital’ model, we support ambitious
teams, many of whom return for further lending, cementing
our reputation as a trusted partner in their growth journey.
FuM
c.£630m
FuM
c.£556m
See pages 23 and 24 for more details
See page 25 for more details
Case study – Medherant
The challenge:
Menopause often results in a reduced sex drive in women due
to declining testosterone levels. There is a notable absence of
approved, women-specific testosterone replacement therapies
in the UK and globally.
The solution:
Medherant, a University of Warwick spin-out, is developing the
world’s first testosterone patch for post-menopausal women.
Supported by investment from Mercia and other investors, the
company plans to start clinical trials and seek international
regulatory approval. The patch provides a precise dose of
testosterone and is replaced twice weekly, resolving issues of
irregular dosage and transfer to other surfaces.
The impact:
Medherant’s testosterone patch could transform the lives of
millions of post-menopausal women globally. It will provide a
targeted, consistent, and convenient testosterone replacement
therapy, improving quality of life and addressing a significant
healthcare concern.
The future:
With continued investment support, Medherant aims to
progress their clinical trial programme for the testosterone
patch and bring this innovative product to market, expanding
treatment options in women’s health.
FY23 net cash invested
£1.7m
Strategic report
10
Mercia Asset Management PLC
Annual Report & Accounts 2023
Strategy in action
Sue Summers
Chief Executive Officer
Frontier Development
Capital
Frontier Development
Capital joining Mercia will
complement its financial
services and help fuel
further growth for SMEs
in the UK.
Shared
success
We’re delighted to have acquired Frontier
Development Capital, which represents an
important strategic milestone for Mercia, as we
drive towards our twin Mercia 20:20 objectives.
Sue Summers and her team have built an
outstanding and highly regarded UK lender,
and the acquisition will bring complementary
capital, capabilities and reach across the UK’s
regions, whilst also seeing our AuM grow to
£1.4billion.”
Mercia has long been a business we’ve
admired. Our shared passion for helping
some of the UK’s most exciting SMEs to thrive
through supportive capital, made Mercia the
natural partner of choice for us as we look
to continue the growth we have experienced
since launching in 2016.”
Dr Mark Payton
Chief Executive Officer,
Mercia Asset Management
Sue Summers
Chief Executive Officer,
Frontier Development Capital
Annual Report & Accounts 2023
Mercia Asset Management PLC
11
growth. In the first four months of the new partnership, FDC has
secured a further £30.1million of new funds into the FDC Debt LP
fund, which is already testimony to the benefits of this united
entity. FDC and Mercia are well-positioned to capitalise on
opportunities in the UK’s dynamic economic landscape,
ultimately contributing to the prosperity of the national
economy and the success of regional SMEs.
Strategic benefits:
• Significantly expands the Group’s profitable
AuM to c.1.4billion and takes the Group within
reach of one of its two Mercia 20:20 goals
• Strengthens Mercia’s position as a leading,
regionally focused and proactive supporter
of SMEs
• Collaboration between the complementary
expertise and deal flow networks of both FDC’s
and Mercia’s successful lending teams, should
result in additional lending opportunities for
both teams across the UK
• Positions the enlarged Group ready to capitalise
on further organic FuM growth opportunities
• Acquisition is immediately earnings enhancing
and supports Mercia’s strategy of growing its
adjusted operating profits.
This past year was an exciting period for FDC, not least because
of the transaction that saw FDC become part of the Group.
Since formation in late 2016, FDC has enjoyed year-on-year
success, with investor confidence growing at the same pace.
Through the resilience and longstanding experience of an
exceptional team, FDC delivered record results in 2021, going on
to grow funds under management to c.£415million at the date
of acquisition. Critically, both businesses are well-aligned, with
FDC able to offer complementary capital, expertise and regional
coverage across the UK. FDC offers commercial loans typically
starting from £2.0million, while Mercia’s existing lending range is
between £250,000 and £1.0million. The combined lending team
of Mercia will now consist of 41 staff, managing c.£556million of
FuM, including 28, regionally-based lending specialists.
FDC has assembled loan portfolios comprising c.100 companies,
primarily situated in the Midlands and the North of England.
This accomplishment has been founded on several core values
that both FDC and Mercia share, particularly in relation to
corporate culture. This cultural compatibility will be crucial to
the success of this promising new partnership that will be of
strategic significance in the coming years. There is a renewed
determination among businesses to persevere despite
prevailing macroeconomic and geopolitical conditions, and
strong regional enterprises are seeking to secure investment
in anticipation of growth in 2024. Sustained support for these
businesses is crucial as they remain the backbone of the UK’s
national economy. Offering larger cheque sizes, strong liquidity
and an expanded regional footprint will greatly enhance
Mercia’s market offering. SMEs greatly benefit from FDC’s
practical and adaptable approach to debt financing and deal
structuring, that has enabled them to establish meaningful and
enduring relationships with clients across a variety of sectors
and businesses throughout the UK.
FDC joining Mercia results in an enhanced range of financial
products and services, increased market presence and sustained
FDC investee portfolio
Strategic report 12
Mercia Asset Management PLC
Annual Report & Accounts 2023
Engaging with our stakeholders
Dr Abbie-Lee Hollister
Inbound Marketing Manager
Mercia’s vision is to be the
first choice for investors,
investees and employees.
This vision guides our
strategic growth.
Strategic
interactions
The Board
Mercia’s Board is committed to promoting the Group’s
long-term success for the benefit of its shareholders, whilst
considering other stakeholders’ interests, thereby meeting
the requirements of section 172 of the Companies Act 2006.
Through transparent and fair operations, strategic decision-
making, fostering business relationships and prioritising
environmental impact, we fulfill this requirement.
Effective stakeholder engagement
drives progress, fostering mutual
understanding, shared objectives
and ultimately, sustainable success.”
Shareholder engagement: Strengthening
relationships with shareholders
and consistently communicating
Mercia’s progress
Employee wellbeing: Fostering work/life
balance and prioritising employee health
to ensure a thriving workforce
Investor trust: Demonstrating integrity and
transparency to foster trust among investors
Investee growth: Supporting investees
for regional business growth and
community development
Sustainable partnerships: Cultivating
value-aligned relationships with partners
and suppliers
Community impact: Contributing to local
communities through regional investment
and striving for carbon neutrality
See page 14 for more details
Annual Report & Accounts 2023
Mercia Asset Management PLC
13
Our 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, are always meeting commitments and
aiming to exceed expectations.
Trusted
We are trusted partners, known for being honest,
professional, reliable and fair.
Stakeholder
Stakeholder
group
group
Employees
Description
Description
Why we engage
Why we engage
How we engage
How we engage
Crucial to our business, we
focus on their development
and mental wellbeing.
Fostering a supportive
environment.
Mercia Heart initiative,
comprehensive benefit
package, counselling
service, webinars,
Headspace app,
professional development.
Shareholders
Their relationship is
crucial to us. We aim
for transparency and
clear understanding
of our performance.
We operate with
transparency and integrity,
keeping them informed
about our progress.
Shareholder and
investor events,
face-to-face meetings
and video updates.
Examples of
Examples of
engagement
engagement
The all-company Mercia
Away Day in Manchester.
The integration activities
including a company-wide
conference welcoming FDC.
Mercia branded items for
staff use.
The Investor Meet Company
retail investor showcase.-
‘In Conversation with
Mercia’. Mercia’s results
roadshows and retail
investor evenings.
Investees
Essential to our
ecosystem. Their success
contributes to regional
business growth.
Our regional investment
initiatives contribute
to business growth
while supporting
local communities.
Webinars, panel
discussions, insight
articles, interviews,
commentary shared across
digital channels.
Chair Summits,
newsletters, Portfolio
Summit, seminars, insight
articles, interviews.
Partners and
suppliers
Vital to our strategy.
We cultivate beneficial
relationships.
Webinars, newsletters,
prompt payment, access to
key information that might
impact them.
Portfolio Summit, Starter
for Ten newsletter.
We recognise that our
partners and suppliers are
also often SME businesses,
and need to be included in
relevant communications
and provided with
transparency of our policies
and processes that we
strictly adhere to.
Community
Our operations directly
impact the communities
in which we invest. We aim
to generate demand for
local services.
We recognise the need to
have the support of the
communities in which we
are located and do business
in, and fairly engage with
these cohorts.
Sponsored events, clothing
drive, coat collection,
photography competition.
Skills Builder Partnership.
Supporting charities.
Strategic report 14
Mercia Asset Management PLC
Annual Report & Accounts 2023
Responsible investment
Responsible
investment
Key considerations during FY23
and beyond
Increase engagement with portfolio
companies on ESG issues
Continue focus on diversity and inclusion
Measure, monitor and communicate
Responsible investment
is central to our growth
strategy and guides
our behaviours.”
Exec
MEIF
P&T
Legal
Finance
Compliance
Responsible
Investment
Committee
EIS
Debt
Debt
NEVF
VCT
VCT
VCT
Progression on our pathway
In last year’s report we shared our vision for ESG and at the
same time demonstrated early signs of progress across all
elements of our business.
Responsible Investment Committee
Earlier this year we wished Jill Williams, who had played
an important role in developing many of our ESG initiatives,
well as she moved to a regional portfolio role.
We are pleased to report that in every case where an objective
was set for the year, our teams did everything in their power
to meet our commitment, which, set against the difficult
economic backdrop, is a significant achievement.
Alice Grieve, who previously worked alongside Jill on
the committee, now chairs the group, and her significant
experience in portfolio engagement has ensured a smooth
transition in leading the Group’s ESG programme.
As a UK domestic only investor focused on moving capital
into regional economies, we see our own business model
as purpose led and for that reason, we will continue to act
as the voice for change in capital allocation debates. Our
model is predicated on searching for businesses that make
a difference to the world around us, whether that’s having
a positive impact on health or environmental matters.
Our natural gravitation towards these businesses
can be traced back to some of our Group’s earliest
investments including:
2007 – Electro acoustic panel technology,
Warwick Acoustics
2010 – Lithium battery developer, Faradion
2014 – Lightweight metal manufacturer,
Impression Technologies
The committee’s considerations remain the same:
•
increase engagement with portfolio companies
on ESG issues;
• continue focus on diversity and inclusion; and
• measure, monitor and communicate.
Last year we set out key considerations for the financial
year and beyond and with each consideration we have
documented our reporting baselines. These were
not arbitrary targets simply to be ticked off a list,
but fundamental principles that we must adopt
to drive behaviours.
The ESG arena continues to be subject to rapid change
which is why we have adopted monthly responsible
investment committee meetings. The committee is made up
of employees from across the business representing a range
of business functions, seniorities and backgrounds and it is
this team which helps to drive our strategy and initiatives.
Annual Report & Accounts 2023
Mercia Asset Management PLC
15
We are pleased with our progress but we also recognise that
we operate in an industry where much more can be done.
We feel it is our responsibility to push the boundaries on
what can be achieved.
Update on our EIS Impact Fund
Last year we launched our first Knowledge-intensive Impact EIS
Fund which was a natural progression of our gravitation towards
impactful businesses that operate in fields like Biomedicine and
Clean Tech.
The Knowledge-intensive Impact EIS Fund only invests in
businesses that provide solutions to environmental or societal
challenges. To ensure these businesses affect real and
quantifiable change, we will judge their qualitative and
quantitative impact in three ways:
i) in relation to our three guiding principles developed from
the UN’s sustainable development goals;
ii) by referencing our portfolio against the IRIS+ system
(developed by the Global Impact Investing Network)
for measuring, managing and optimising impact; and
iii) with our own approach to measurement, which we will
refine in line with industry standards as recognition of
impact develops in the years ahead.
The launch of this first Knowledge-intensive Impact EIS fund raised c.£5million, with the first 10 investments having been made into
a range of businesses:
Aceleron – developer of sustainable and
reusable battery solutions
Axis Spine Technologies – implant systems
that achieve and maintain superior spinal
alignment for improved clinical outcomes
CanSense Group – delivering an accurate,
non-invasive, inexpensive blood test to
diagnose bowel cancer early
Corrosion Radar – global leader in remote
sensing technologies and advanced analytics
for smart infrastructures
Dxcover – liquid biopsy and artificial
intelligence for early detection of cancers
Eventum Orthopaedics – developer of
innovative sensor technology to improve
outcomes for knee replacement operations
Invizius – clinical stage biotech developing
second generation complementary therapies
to treat inflammatory, fibrotic and
autoimmune disorders
Medherant – developer of transdermal drug
delivery patch
Optellum – lung health company developing
products to help clinicians in the
management, diagnosis and care of patients
Social Value Portal – technology
platform to measure social impact against
ESG frameworks
Engaging with our portfolio
With a portfolio of c.570 companies we have a very real
opportunity to positively influence change. After a successful
pilot scheme in 2021, this is now the second year our portfolio
companies have completed ESG surveys and we were delighted
with response levels which increased fivefold on the initial year.
The questionnaire is designed to assist companies in responding
to ESG risks and opportunities and evaluate how these are
considered as part of their operations. The survey asks portfolio
companies a range of questions across key environmental,
social and governance factors including relevance of those to
their business, as well as their ability to influence those factors.
This initiative:
• encourages early-stage companies to map their current
position and flag potential focus areas;
• produces a data set for tracking performance in influencing
ESG factors within the portfolio, and changes over time; and
• enables comparison between portfolio companies and,
when aggregated with the anonymised data of other venture
capital portfolio companies, allows Mercia to determine
how best to target its support.
Insights we have gained from the initiative this year will inform
how we refine support for portfolio companies over the coming
year and help shape future investment decisions.
Strategic report
16
Mercia Asset Management PLC
Annual Report & Accounts 2023
Responsible investment continued
Environmental
Mercia is committed to investing in companies that are
aware of their impact on the environment and, as part of
our investment process, the risks associated with potential
portfolio companies are evaluated. If during the evaluation
we believe the environmental risks are too high then we will
walk away from the process, regardless of the potential
returns. We do not believe the risk justifies the reward
when our reputation and the environment are at stake.
During our period of stewardship, we use our influence to
encourage portfolio companies to adopt environmentally
friendly practices, and we take an active role in connecting
our management teams with organisations and individuals,
that can provide support with their own pathway.
Mercia’s carbon emissions
Mercia first engaged the sustainability experts, Positive
Planet, in 2022 to calculate the Group’s carbon emissions.
Their initial analysis was an estimate based on data we
provided, and during this year we have refined our data set
to move away from the use of assumptions. This has included
surveying staff to ascertain detailed travel, energy and
personal focuses.
During the coming year we will further improve the quality
and measurement of our carbon data and undertake initiatives
to reduce our emissions on a per head of staff basis.
To achieve this, we have a number of ‘environment first’ policies:
• video conferencing – we encourage face to face meetings
for office days but where we have remote work, we have
a video first meeting policy;
• public transport – all team members are encouraged to use
public transport where possible. Not only does this reduce
the carbon emissions of private vehicles but it also provides
additional time for our colleagues to relax listening to
podcasts or focus on personal development reading;
• electric cars – we launched our company wide electric
vehicle (“EV”) leasing scheme in 2022, and 7% of staff
have now moved to an EV via the scheme; and
• electric communications – we have written to
shareholders confirm that, as we continue our migration
to electronic communications in order to reduce our use
of paper, this annual report will be the last paper copy
to be automatically posted to shareholders.
Social
Mercia understands the importance of social impact both
internally and across the portfolios.
We have committed to encouraging this with several
initiatives in place including:
• signing up to the Investing in Women Code, a commitment
to support the advancement of female entrepreneurship
in the United Kingdom by improving female entrepreneurs’
access to tools, resources and finance from the financial
services sector;
• committing to improving diversity in our hiring practices;
•
implementing new family leave policies which are
inclusive of the LGBTQQIA+ community;
• actively encouraging employees to become involved in
volunteering and charitable community projects through
initiatives such as Mercia Spirit. This includes working
with the Skills Builder Partnership where colleagues
support students to build key skills and become better
prepared to enter the workplace;
• engaging with outreach programmes within our regions
and the investment management industry. Last year our
teams were involved in several high value initiatives
including Fund Her North; and
• providing a range of initiatives and benefits to enable
employees to learn well, work well and live well.
Mercia’s very purpose lies in addressing the imbalance
of capital between London and the UK regions, a purpose
borne from the frustration of seeing investment activity
concentrated in London with regional businesses so
often overlooked.
Whilst industry reports show there is still much work to
be done with c.68% of venture capital or private equity
funds invested into businesses in London, we are pleased
to report that we continue to reverse that trend. In FY23,
76% of our funds invested were completed into companies
outside London.
Governance
Investment process
As part of our standard investment process, we look for
companies with independent and diverse boards, robust
internal controls and a commitment to ethical behaviour and
transparency. Management due diligence is performed as
part of the investment process, feeding into the investment
decision. Each investment appraisal includes a dedicated
section discussing ESG specific risks and value creation
opportunities, encouraging our investment teams and
management teams to engage.
Encouraging best practice and value creation
By attending board meetings and engaging with
management teams, Mercia encourages best practice.
Examples of this over the past 12 months have been:
• working with management teams to ensure they had
support during the recent banking sector issues, including
strengthening their treasury policies;
• enacting our corporate KPIs, for the year to 31 March 2023,
we ensured that ESG is raised regularly for all of our
portfolio companies; and
• bringing portfolio CEOs together for events to network
and learn from each other.
Annual Report & Accounts 2023
Mercia Asset Management PLC
17
Alice Grieve
Compliance Manager
and ESG Lead
Mark Baglow
Talent Development
Coordinator
Diversity
Learning
Our commitment to diversity isn’t
just good governance; it’s a strategic
imperative that strengthens our
insights and decisions.”
Empowering growth through training
and development, Mercia invests in its
team’s success and fosters personal
and professional progression.”
Mercia is dedicated to promoting diversity and inclusion
across its operations. The Board recognises the significance
of a diverse and inclusive team environment, both in
terms of corporate governance and delivering value to
shareholders. Our ongoing Board succession plan aims
to cultivate a diverse group of individuals with varied
backgrounds and perspectives. We have actively embraced
initiatives such as the Investing in Women Code,
demonstrating our commitment to supporting female
entrepreneurship. In our hiring practices, we strive to
enhance diversity in all its guises and seek to provide
a true sense of belonging, irrespective of gender, race,
age, sexual orientation, religious belief and neurodiversity.
Mercia is deeply committed to the training, mentoring and
professional development of its team members. Feedback
from employees has been listened to, leading to investment
in the Kallidus learning platform. The People & Talent team
work tirelessly to provide tailored courses and accessible
information suitable for all stages of the learning journey.
This commitment extends to all team members, from the
most senior to the newest appointee. Mercia recognises
the importance of empowering its team with the necessary
skills and tools to advance both the goals of the Group and
their personal and professional growth. With a strong focus
on continuous development, Mercia ensures its team is
equipped for success in a dynamic and evolving industry.
Strategic report 18
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Investment Officer’s review
Julian Viggars
Chief Investment Officer
Despite market
challenges, our outlook
remains positive.”
Mercia’s
progress
We stand ready to navigate the ever-changing
landscape, guided by our expertise and supported
by our exceptional team.
Navigating challenges with strength
FY22 was a remarkable year for Mercia’s portfolio companies,
with record-breaking fair value movements. But as we ventured
into the spring of 2022, the landscape shifted. Geo-political
conflicts, inflation and rising interest rates ushered in
uncertainty, casting a shadow over the public markets.
Technology and high-growth companies bore the brunt,
witnessing significant value decreases.
Against this backdrop, I am pleased to confirm that Mercia’s
portfolio companies have risen above the storm in this
reporting period.
Our equity funds have realised an impressive c.£71million
from 39 companies, delivering an average return of 2x. This
is another excellent performance, to add to the c.£250million
of realisations over the previous two years on behalf of
individual and Limited Partner (“LP”) investors, alongside
our own balance sheet.
Investor confidence
The confidence placed in us is further evidenced by the inflow
of an additional c.£134million (including £30.1million inflow
to FDC) of capital to our FuM. Such inflows are only achieved
when investors are pleased with our performance, and we are
delighted to see their commitments extended in this manner.
Annual Report & Accounts 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
Mercia Asset Management PLC
19
19
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Direct investments: Solid progress driven by advancing gaming portfolio
The table below lists Mercia’s top 20 investments by fair value as at 31 March 2023, including the net cash invested, realisation
proceeds, realised gains/(loss), fair value movements and the fully diluted equity percentage held.
Net
investment
value as at
1 April 2022
£’000
Year of first
direct
investment
Net cash
invested
year to
31 March
2023
£’000
Investment
realisations
year to
31 March
2023
£’000
Realised
gains/(loss)
year to
31 March
2023
£’000
Fair value
movement
year to
31 March
2023
£’000
Net
investment
value as at
31 March
2023
£’000
Equity
percentage
held as at
31 March
2023
%
2014
2015
2022
2018
2016
2015
2014
2015
2017
2015
2018
2022
2016
2022
2015
2021
2020
2021
2016
2022
n/a
2017
25,761
10,372
–
10,511
8,989
5,387
6,306
4,600
2,960
6,074
4,858
–
2,417
–
1,780
1,750
1,449
1,375
1,632
–
8,926
14,411
–
4,888
3,000
625
1,709
550
1,450
626
1,514
–
–
3,000
–
2,250
–
–
–
–
–
550
491
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13)
(4,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,642)
1,793
–
–
8,693
(121)
236
4,145
1,939
3,471
1,013
(692)
–
–
–
–
–
–
–
–
(663)
–
(4,616)
(12,204)
25,761
15,260
11,693
11,015
10,934
10,082
9,695
8,697
5,487
5,382
4,858
3,000
2,417
2,250
1,780
1,750
1,449
1,375
969
550
2,146
–
119,558
20,653
(4,013)
(849)
1,201 136,550
33.2
65.1
24.1
16.6
38.4
40.6
40.3
35.5
24.7
29.9
18.1
9.4
22.0
–
1.4
8.2
10.2
5.7
13.1
–
n/a
–
n/a
nDreams Ltd
Impression Technologies Ltd
Netacea Group Ltd
Voxpopme Ltd
Medherant Ltd
VirtTrade Ltd *
Warwick Acoustics Ltd
Invincibles Studio Ltd
Eyoto Group Ltd
Ton UK Ltd **
Locate Bio Ltd
Axis Spine Technologies Ltd
sureCore Ltd
Nova Pangaea (Holdings) Ltd
Akamis Bio Ltd ***
Forensic Analytics Ltd
MIP Discovery Ltd
Pimberly Ltd
MyHealthChecked PLC
Uniphy Ltd
Other direct investments
Intechnica Holdings Ltd
Total
Trading as Avid Games.
*
** Trading as Intelligent Positioning.
*** Formerly PsiOxus Therapeutics Limited, prior to a change in registered name to Akamis Bio Limited in January 2023.
As at 31 March 2023, the value of our direct investment portfolio
was £136.6million (2022: £119.6million). This reflects a net
£20.7million invested during the year, and a £1.2million fair
value increase resulting principally from the continued growth
of our mobile and digital gaming companies.
Whilst the fair value movements overall for the year appear
modest, our core companies continue to expand revenues and
forge valuable partnerships, with five of our direct investments
seeing fair value uplifts.
Amid the software sector’s downward movement we had one
successful realisation in January 2023, the sale of Intechnica
Holdings, a software and technology consultancy business.
Mercia’s 25.5% direct holding generated £3.7million in cash
proceeds, achieving an internal rate of return (“IRR”) of 27%
and a 1.7x multiple on its holding value.
We continue to provide support to our top 10 direct investments,
with £14.4million invested during the year. Our focus on
evaluating new opportunities has resulted in three new direct
investments which exhibit growth potential in exciting markets.
Market challenges have inevitably impacted businesses across
our direct portfolio. Netacea experienced lower growth than
forecast and, coupled with market revenue multiples falling,
has led to a £3.5million fair value decrease (excluding the impact
of the demerger from Intechnica). Intelligent Positioning and
W2 Global Data Solutions both experienced similar pressures
during the year. Furthermore, Edge Case Games was informed
that Wargaming.net Limited has ceased work on its original game
that was subject to royalty receipts, resulting in a downward fair
value movement.
Strategic report
20
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Investment Officer’s review continued
The caution from potential acquirers in purchasing relatively early-stage and often loss-making assets, has made them increasingly
risk-averse. This approach had noticeable effects throughout the financial year, particularly in the last quarter when exit processes
stalled and later-stage investors focused on their existing portfolios. As a result, co-investors and acquirers scaled back or withdrew
from assets struggling for growth or exhibiting high cash-burn rates. One such example was the exit process for Sense Biodetection,
which was ultimately sold through an accelerated process for a fraction of the initially indicated amounts, when buyers and their
US funders pulled back. This disappointing outcome amounted to a £2.6million realised loss, as later-stage investors were compelled
to accept a minimal stake in the ultimate acquirer, Sherlock Biosciences Inc., through a share-based deal.
Our equity performance
IRR
Proprietary capital
TVPI*
Institutional Funds
Legacy
Current
Retail EIS Funds
Legacy
Current
VCTs (pence per Ordinary share)
Northern Venture Trust
Northern 2 VCT
Northern 3 VCT
31 March 2023
13%
31 March 2022
16%
Venture
Private Equity
Venture
Private Equity
188%
113%
108%
92%
NAV **
62.1
59.0
91.6
149%
119%
n/a
n/a
Total return **
250.6
195.0
205.0
193%
111%
139%
96%
NAV
68.4
64.4
97.9
132%
109%
n/a
n/a
Total return
252.9
196.8
206.3
TVPI % defined as; distributions + total value + cash/capital paid in.
*
** VCT Total return growth over 12 months, based on 31 March 2023 cumulative total return, of -0.6% to -0.9%.
We use different performance measures across our asset classes. For our direct portfolio, IRR is adopted because our proprietary
capital is also used for other activities. As at 31 March 2023, the direct portfolio IRR had decreased to c.13%, with slower growth
in fair values.
We measure ‘Total Value to Paid In’ (“TVPI”) across our regional and private equity (“PE”) funds as it shows total value returned
and accruing to investors after fees; this naturally increases over time as more capital is returned and the portfolio values grow.
Our legacy venture funds, at a TVPI of 188%, are largely flat year-on-year as several assets were marked down during FY23. Our
newest PE fund saw a recovery in asset values as the impact of the pandemic on its portfolio businesses receded.
For our VCTs, ‘total return’ includes cumulative dividends paid alongside current net asset value to give a true total performance
measure. It has been principally flat year-on-year.
Our continuing strong overall investment performance enables us to raise additional inflows, with a further £30.3million allocated
from additional contributions to the Northern Powerhouse Investment Fund Equity and our Midlands Engine Investment Fund
Proof of Concept mandate by British Business Bank (“BBB”). Alongside this, our EIS team raised new funds totalling £31.0million,
in addition to our Northern VCTs raising £40.0million, with investors re-investing £2.9million of dividends paid during the year.
Since year end, a further £18.0million has been successfully raised by our Northern VCTs, together with a £5.0million additional
contribution to the North East Venture Capital fund (“NEVF”).
Annual Report & Accounts 2023
Mercia Asset Management PLC
21
At the year end, we had c.£378million of liquidity across all our funds and balance sheet, c.£128million of which sits within FDC’s
debt funds.
Asset class
Venture
Private Equity
Debt
Total FuM
Proprietary Capital
Total AuM
AuM
1 April 2022
£’m
592
48
118
758
201
959
Acquired
£’m
Inflows
£’m
Performance
£’m
Distributions
£’m
–
–
415
415
–
415
104
–
30
134
–
134
(32)
1
(4)
(35)
6
(29)
(34)
(1)
(3)
(38)
(4)
(42)
AuM
31 March 2023
£’m
630
48
556
1,234
203
1,437
Post
year end
inflows
£’m
23
–
–
23
–
23
Our managed funds as at 31 March 2023 totalled £1.2billion. During the year, we invested c.£165million into 176 businesses,
including 85 new companies.
Venture
UK retail investor-focused VCT and EIS managers raised record amounts of capital in FY23 for disruptive businesses, supporting
high-quality management teams. This has provided a solid foundation for entry valuations in the pre-series A space where
we operate. Our EIS, regional and VCT equity funds’ successful track records, supported by consistently high deployment
rates and profitable exits, has resulted in c.£104million of capital inflows. During the year, EIS fundraising totalled c.£31million,
with a further c.£30million allocated from our LP partners to our regional funds and c.£43million in new VCT subscriptions.
Notable realisations include robust returns from our investments in Ideagen (9.8x return) and Lineup Systems (7.5x return) from
the Northern VCT portfolio, plus C7 (14.2x return) from the EIS portfolio.
The Group’s overarching strategy is to make a positive impact through investment in purpose-led companies. We have an
investment track record in the Life Sciences, Digital and Deep Tech sectors, aiming for a sustainable, healthier and tech-enabled
future. These innovative companies are largely located in the regions outside of London.
Private equity
Tough economic times have presented a challenging terrain for lower mid-market, regional PE investors. This has impacted deal
volumes and raised entry valuations as mid-market PE firms have been bidding on substantially smaller deals. We have focused
on improving performance within our portfolios, yielding significant results with the total fair value growing by 33%, alongside
the exit of D&P Group from one of our legacy funds, giving an overall 3x return on the portfolio.
Debt
Leveraging a variety of government-backed schemes and privately raised funds, we are a go-to lender in the regional SME debt
market. Our recent acquisition of FDC in the Midlands has extended our services to enable us to offer higher loan values of up
to £10million, which were previously capped at £1million.
With a strong performance, Mercia’s Debt funds completed 82 deals, resulting in a c.154% increase in the total amount invested
to £34.1million (2022: £13.4million). As a highly agile and flexible lender, our expansion has further demonstrated our ability
to meet the evolving needs of SMEs.
Post period events
Post year end, £4.2million has been invested into Voxpopme, Eyoto, Netacea, Impression Technologies and TON UK t/a
Intelligent Positioning.
Strategic report
22
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Investment Officer’s review continued
Summary and look forward
In the current year, I have encouraged our investment staff to be bold and unwavering in their support of teams and assets we
believe in. We have leveraged the expertise of our Mercia Nucleus network to provide experienced advice to these entrepreneurial
teams. At the same time, we have made conscious decisions to allocate capital only to those whose models remain differentiated
and aligned with our investment strategy.
Over the past three extraordinary years, we have generated significant realisations, surpassing £320million. This accomplishment
not only solidifies our business model and investment expertise, but also enhances our resilience as a proactive specialist asset
manager. By carefully selecting assets across sectors, we have avoided overreliance on those specific tech sectors that faced
challenges during this period.
While our path to achieving Mercia 20:20 may not be a straight line across the three years, our portfolios are well-run and contain
incredibly promising assets. I am confident that we are excellently positioned to deliver significant value over the medium
term. I would like to thank all the team members of #OneMercia who have shown unwavering dedication throughout another
challenging year. They are the driving force behind our achievements, and I am very grateful for their continued commitment
to our shared vision.
Mercia’s journey is marked by strength, resilience and a commitment to excellence. Despite the challenges faced, we have emerged
with solid performance, robust investments and an optimistic outlook. We stand ready to navigate the ever-changing landscape,
guided by our expertise and supported by our exceptional team. Together, we will continue to unlock value for our shareholders,
investors and investees.
Julian Viggars
Chief Investment Officer
Our portfolio
Annual Report & Accounts 2023
Mercia Asset Management PLC
23
Peter Dines
Managing Director,
Mercia Ventures
The Group’s overall
strategy is to make
a positive impact
through investment in
purpose-led companies.
Complete
capital
National venture
National EIS & VCT funds driving regional successes
The strength of Mercia’s national reach lies in the combined
quantum of c.£421million that Mercia manages and equally,
in our successful exit track record. Our legacy of success from
which these Mercia funds draw their credibility is underpinned
by two simple proof points: our record fundraising this year and
our speed of deployment.
This financial year witnessed ongoing realisations across
Mercia’s EIS and Northern VCT funds. Two exits from the
Northern VCT portfolios are particularly noteworthy. Ideagen,
a software company based in Nottingham, was successfully
sold in July 2022 yielding a 9.8x return. This was followed by
the exit of Lineup Systems in March, generating a 7.5x return.
For our EIS portfolio, the exit of C7 in July 2022 yielded
an impressive 14.2x money multiple, demonstrating an
industry-leading return for Mercia’s EIS investors.
We maintain considerable pipeline strength, particularly within
the Life Sciences and Digital sectors. The Group’s overarching
strategy is to make a positive impact through investment in
purpose-led companies. The companies we are helping to
nurture from world-leading research will ensure that our role
as venture builders contributes to a sustainable, healthier and
tech-enabled future.
We are dedicated to identifying
the most promising teams and
successfully scaling businesses
that will contribute to a sustainable,
healthier and tech-enabled future.”
Strategic report
24
Mercia Asset Management PLC
Annual Report & Accounts 2023
Our portfolio continued
Will Clark
Managing Director,
Mercia Ventures
Wayne Thomas
Managing Director,
Mercia Private Equity Funds
Regional venture
Private equity
The effects of public market pricing and the retrenchment
of global investors have impacted early-stage venture-
backed businesses. They continue to navigate supply
chain disruptions, while others adapt their offerings
to accommodate changes in customer and employee
behaviours. Talent management remains a hurdle for
budding tech players across the UK, as teams devise
innovative solutions to the ‘enterprise brain drain’. This
involves global companies offering higher salaries for
home-based workers with specific skillsets, potentially
slowing the growth rate within even the most promising
early-stage technology ventures.
This environment has tempered the confidence of many
Series A venture capital firms, especially in the US, leading
to a more cautious risk appetite and extended fundraising
cycles. In response, we’ve encouraged our portfolio to
explore alternative fundraising strategies, supplementing
rounds with EIS or VCT funding from Mercia, or utilising
follow-on capital with the support of BBB.
Over the year, our venture funds invested £31.3million
into 56 businesses (2022: £26.3million and 48 businesses).
Investment highlights include £2.0million into
Middlesbrough-based e-commerce business Salesfire and
follow-on investments such as £1.1million into Ilkley-based
Eventum Orthopaedics and £1.0million into Nova Pangaea,
alongside Mercia’s proprietary capital. These transactions
align with our strategy of putting larger cheques to work in
the very best regionally based, early-stage businesses.
FY23 saw 20 regional venture realisations with an average
multiple of c.2x, generating proceeds of c.£25million for
our managed funds.
Our Limited Partners’ confidence in Mercia remains robust.
The past 12 months have presented a challenging terrain
for lower mid-market, regional private equity investors.
Economic turbulence has impacted deal volumes, intensifying
competition as investors vie for deals across tiers. PE funds
traditionally associated with mid-market transactions
have been bidding on substantially smaller deals, inflating
valuations beyond our acceptable transaction levels. Against
this backdrop, we have concentrated on enhancing the
performance of our existing portfolio, which has notably
borne fruit in the form of substantial growth.
Our investment strategy is rooted in strong regional
networks, robust industry expertise and the ability to
identify undervalued growth opportunities. As a sector-
agnostic fund, we invest in traditional businesses in need of
professionalisation, complemented by investments in people
and technology, to drive efficiencies and create value for our
management teams and investors.
Our extensive experience investing in regional SMEs
underscores the fact that businesses need more than mere
capital to unlock growth and value. They require strategic
input and a patient, long-term management approach –
principles that are fundamental to Mercia’s investment
ethos and have once again been evidenced during this
financial year.
Across our PE funds, we have experienced a c.33% growth
in the total value of our portfolios. This attests to the
resilience of our management teams and our ability
to capitalise on emerging commercial opportunities.
During this period, the sale of D&P Group facilitated the
closure of the Coalfields Growth Fund, resulting in an overall
fund return of 3x. Following the year end, we announced
completion of the sale of Manchester-based ParkVia to a
division of Manchester Airport Group. As a digital parking
business, ParkVia was the first to feel the pandemic’s impact
due to its airport parking connection. However, we are
pleased with the operational response from the business,
which has shown significant growth by adapting its model.
As anticipated in our investment cycle, our future
fundraising discussions are now in progress and I look
forward to providing further updates upon conclusion.
Annual Report & Accounts 2023
Mercia Asset Management PLC
25
Paul Taberner
Managing Director,
Mercia Debt Funds
Angela Warner
Managing Director,
Mercia Investments
Debt
As the direct consequences of the global pandemic
subsided entering 2022, businesses across the UK
continued to suffer its after effects, grappling with high
debt levels, constricted cash flows and unparalleled supply
chain disruptions.
These repercussions that have reverberated through both
the SME market and larger corporations, have been further
compounded as traditional banking lenders continue to
consolidate their centralised models with the ongoing
closures of high street branches and aversion to risk.
Mercia Debt Funds have long been instrumental in filling
the funding gap facing so many viable SMEs across the
UK. This past financial year, Mercia has once again proven
it is well-positioned to back companies demonstrating
strong financial controls and unwavering determination
to regain growth.
This blend of economic challenges and Mercia’s unique
standing in the market has fueled a robust financial
performance for our Debt Funds. The Debt team completed
82 deals (2022: 63 deals), with total lending up by c.154%
to £34.1million (2022: £13.4million). This lending growth
is a direct consequence of our adaptability and holistic
approach to lending decisions, relying on personal insight
and market experience rather than restrictive algorithms.
The UK’s regional SME market demands remain consistent
across economic cycles, necessitating agility and flexibility
from lenders. Mercia’s ability to act swiftly, leveraging a
variety of government-backed schemes and privately raised
funds, solidifies our position as one of the leading go-to
lenders in the regional debt market.
Our recent acquisition of FDC in the Midlands has expedited
this goal, extending our services to higher loan values of up
to £10million, which were previously capped at £1million.
With our fund range now encompassing the entire debt
market, from £250,000 to £10million, we are optimistic that
the year ahead will yield increased activity and returns for
our private capital debt funds and public sector partners.
Direct investments
Both financial markets and the broader UK landscape have
faced daunting challenges. Private company valuations
inevitably reacted to public market fluctuations. Mercia’s
Direct Investment portfolio has not been entirely insulated,
primarily seen through decelerated revenue growth as
customers’ budgets tighten and spending patterns undergo
stringent scrutiny.
One sector that continues to display a growth trajectory is
our mobile gaming sector. The most substantial fair value
increases were £4.1million for Avid Games and £3.5million
for Invincibles Studio. Avid Games saw a revenue boost
driven by encouraging user-acquisition metrics. Invincibles
Studio launched their latest proprietary game in September
2022, recording a 30% revenue rise, a remarkable feat
amidst globally depressed gaming advertising revenues.
Our largest investment, Farnborough-based nDreams has
grown its revenues by 60% in FY23, moving into profitable
trading, with a healthy number of projects signed so far.
In our Deep Tech sectors, Warwick Acoustics and Impression
Technologies continue to make strong progress. Warwick
Acoustics successfully demonstrated its electrostatic acoustic
panel technology in premium marque vehicles for globally
recognised car brands, securing two more automotive
original equipment manufacturers for proof of concept
projects. Impression Technologies secured its first aerospace
licence and showcased its capability to produce battery
boxes for electric vehicles incorporating recycled aluminium
in its HFQ® pressing process.
Our Life Sciences portfolio continues to exhibit steady
progress. Medherant has furthered the development
of its testosterone patch in tandem with a key partner
programme, Locate Bio pre-clinical trials have shown
promising results and MIP Discovery has met its technical
and commercial milestones with its synthetic antibodies.
Additionally, Eyoto has received European clearance
for its slit lamp product while progressing Food and Drug
Administration clearance procedures in the US and drawing
in orders for its products.
We are pleased to have three new companies in our
portfolio: Uniphy, a Deep Tech business transforming
surfaces into a smart human-machine interface; Axis Spine,
a Med Tech firm delivering spinal implants; and Nova
Pangaea, a Clean Tech business dedicated to producing
biofuels and biochar to address urgent climate concerns.
Strategic report 26
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Financial Officer’s review
Martin Glanfield
Chief Financial Officer
These results
demonstrate Mercia’s
robust business
fundamentals, during a
year of significant market
and economic instability.”
Continued
growth
Despite a challenging year for the specialist
asset management sector, and venture capital
in particular, Mercia has remained profitable,
operating cash flow generative and debt free.
2023
Highlights
£25.9m
Revenue
2022: £23.2m
£2.4m
Profit before taxation
2022: £27.4m
£3.0m
Cash generated
from operating activities
2022: £9.2m
£37.8m
Cash*
2022: £61.3m
£202.9m
Net assets
2022: £200.6m
45.4p
Net assets per share
2022: 45.6p
* Including short-term liquidity investments
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
Annual Report & Accounts 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
Mercia Asset Management PLC
27
27
Overall financial performance
From a fund management profitability perspective, Mercia was able to maintain its first-half momentum in the second half
of the financial year, which was supplemented by the first four months’ profitable contribution from FDC, which was acquired
on 5 December 2022.
Whilst the Group’s direct investment portfolio performance against a challenging market backdrop was satisfactory overall,
one material full-cash exit was achieved and the Group finished the year in a strong liquidity position, with no debt.
Acquisition of Frontier Development Capital Limited
Mercia acquired the entire issued share capital of the central-Birmingham headquartered FDC on 5 December 2022, for a total
consideration of up to £9.5million plus net cash of £1.5million.
This strategic acquisition was for an initial consideration of £5.5million, satisfied in cash and funded from Mercia’s own liquid
resources. In addition, deferred consideration of up to £4.0million in cash will be payable, contingent upon the achievement
of future revenue and net new institutional third-party fundraising targets, for the two years to 30 November 2024.
The acquisition is earnings enhancing and in the post-acquisition trading period to 31 March 2023, FDC has performed in line
with the Group’s expectations. Further details of the transaction are shown in note 14 to the consolidated financial statements.
Proposed final dividend
The Board adopted Mercia’s progressive dividend policy in December 2020, and since then has announced interim dividends
of 0.10 pence per share in December 2020 and 0.30 pence per share in December 2021. Shareholders also approved a maiden
final dividend of 0.30 pence per share in September 2021 and 0.50 pence per share in September 2022.
Given the Group’s twin sources of profitability and cash inflow, being regionally focused, proactive specialist asset management,
plus direct investment and periodic cash realisations, the Group’s dividend policy does not need to be anchored to one or other
source of liquidity, hence the Board’s intention to grow the total dividend year-on-year.
The continuing positive overall Group performance, coupled with its future prospects, enables Mercia’s Board to recommend
a proposed final dividend of 0.53 pence per share. If approved by shareholders at the Annual General Meeting in September 2023,
the total dividend for the year will be 0.86 pence per share (2022: 0.80 pence per share), a 7.5% total year-on-year increase.
If approved by shareholders, the final dividend will be paid on 27 October 2023 to shareholders on the register at close of business
on 29 September 2023, with the total dividend payable being £2,367,000 (2022: £2,201,000).
Adjusted operating profit
The Directors believe that the reporting of adjusted operating profit assists in providing a consistent measure of operating performance
for businesses such as Mercia and is an important alternative performance measure (“APM”) of interest to shareholders.
Adjusted operating profit is defined as operating profit before net exceptional performance fees, depreciation, realised gains/(losses)
on the sale of direct investments, fair value movements in direct investments, share-based payments charge, amortisation of intangible
assets, movement in fair value of deferred consideration and exceptional items. It includes net finance income.
Results reported on an APM basis are denoted by1 throughout this review.
Revenue
Administrative expenses
Net finance income
Adjusted operating profit
Net exceptional performance fees
Depreciation
Net finance income
Realised (loss)/gains on sale of direct investments
Fair value movements in direct investments
Share-based payments charge
Amortisation of intangible assets
Movement in fair value of deferred consideration
Operating profit before exceptional item
Exceptional item
Operating profit
Net finance income
Profit before taxation
Taxation
Profit and total comprehensive income
Year ended
31 March
2023
£’000
25,881
(20,692)
2,397
7,586
–
(309)
(2,397)
(849)
1,201
(1,049)
(2,337)
(1,462)
384
(372)
12
2,397
2,409
427
2,836
Year ended
31 March
2022
£’000
20,576
(16,618)
4,437
8,395
1,592
(224)
(4,437)
9,878
11,385
(1,109)
(2,033)
(522)
22,925
–
22,925
4,437
27,362
(1,262)
26,100
Strategic report
28
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Financial Officer’s review continued
A reconciliation of these results prepared in accordance with International Financial Reporting Standards (“IFRS”) to those
presented on an APM basis are as follows:
Revenue
Administrative expenses
Depreciation
Revenue
Administrative expenses
Depreciation
Year ended 31 March 2023
IFRS
as reported
£’000
Performance
fees
£’000
Depreciation
£’000
25,881
(21,001)
–
–
–
–
–
309
(309)
APM basis1
£’000
25,881
(20,692)
(309)
Year ended 31 March 2022
IFRS
as reported
£’000
23,183
(17,857)
–
Performance
fees
£’000
(2,607)
1,015
–
Depreciation
£’000
–
224
(224)
APM basis1
£’000
20,576
(16,618)
(224)
Revenue
Total revenue increased 11.6% to £25,881,000 (2022: £23,183,000) and comprised fund management related fees, initial
management and arrangement fees from investment rounds, investment director monitoring fees, sundry business services income
and VCT share offer fees. Excluding the four-month revenue contribution from FDC, the VCT share offer fees received in the year and
the exceptional performance fee revenue received in the prior year, the like-for-like increase was 11.1%.
Administrative expenses
Total administrative expenses increased 17.6% to £21,001,000 (2022: £17,857,000) and comprised predominantly staff-related,
office, marketing, cyber security and professional adviser costs. Excluding the impact of FDC’s staff and administrative expenses,
VCT share offer-related costs incurred in the year and the staff bonuses paid in the prior year in respect of the exceptional
performance fee revenue, the like-for-like increase was 10.0%.
Net finance income
Total gross finance income of £2,428,000 (2022: £4,452,000) arose primarily from crystallised loan interest and redemption
premiums received on convertible loans within the direct investment portfolio. Gross finance income also includes £449,000
(2022: £14,000) of interest received on cash deposits, following Bank of England base rate rises during the year.
Finance costs of £31,000 (2022: £15,000) comprised interest payable on office leases and the Groupʼs staff electric car scheme.
Realised gains/(loss) on sale of direct investments
During the year, a realised gain of £1,793,000 (2022: £9,878,000) arose on the disposal of Mercia’s direct investment in Intechnica
Holdings. Total cash proceeds of £3,731,000 were received upon completion, with a further £269,000 released from escrow held by
a third party in May 2023, following finalisation of the completion accounts. A gain of £2,000 also arose on the disposal of the Group’s
equity holding in Ventive.
In January 2023, the Group realised a loss of £2,644,000 on the disposal of its direct investment in Sense Biodetection, further details
of which are given in Julian Viggars’ CIO review on page 18.
Fair value movements in direct investments
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of direct investments*
Unrealised losses on the revaluation of direct investments*
Net fair value movements
*
Excluding the demerger of Netacea Limited from Intechnica Holdings Limited during the year.
Year ended
31 March
2023
£’000
Year ended
31 March
2022
£’000
11,324
(10,123)
1,201
15,122
(3,737)
11,385
Net fair value movements during the year totalled £1,201,000 (2022: £11,385,000) and as at 31 March 2023, the fair value of the
Group’s direct investment portfolio was £136,550,000 (2022: £119,558,000).
Annual Report & Accounts 2023
Mercia Asset Management PLC
29
For the year as a whole, and excluding the impact of the Netacea and Intechnica demerger, unrealised fair value gains arose in five
(2022: 10) of the Group’s direct investments. The largest fair value gain was in respect of VirtTrade, which accounted for £4,145,000
of the total (2022: £6,734,000 fair value gain in respect of nDreams).
There were six (2022: three) fair value decreases, the largest being £3,511,000 which arose in respect of Netacea Group (2022: £2,856,000
fair value decrease in MyHealthChecked PLC).
Share-based payments charge
The £1,049,000 non-cash charge (2022: £1,109,000) arises from the issued share options held by all employees throughout the
Group, ranging from 28 January 2020 to 31 March 2023.
Amortisation of intangible assets
The amortisation charge for the year of £2,337,000 (2022: £2,033,000) represents amortisation of the intangible assets recognised
on both the recent acquisition of FDC, and the VCT fund management contracts in 2019.
Movement in fair value of deferred consideration
FDC’s total purchase price includes £4,000,000 of contingent deferred consideration, which is subject to a number of targets being
met in the two-year period to 30 November 2024. Movement in the fair value of contingent consideration from 5 December 2022
to 31 March 2023 has resulted in a charge to the income statement of £131,000.
The VCT fund management contracts’ total purchase price included a number of contingent deferred consideration elements
payable over a three-year period. The total deferred consideration was fair valued at the date of acquisition in December 2019.
A charge to the income statement of £1,331,000 (2022: £522,000) represents the unwinding of the discount on the final deferred
consideration payment settled in cash in December 2022, and new Mercia Asset Management PLC Ordinary shares issued in
January 2023.
Exceptional item
The exceptional item for the year ended 31 March 2023 relates to professional fees incurred in respect of the acquisition of FDC
in December 2022.
Taxation
The components of the Group’s tax charge are shown in note 11 to the consolidated financial statements.
Profit and total comprehensive income for the year
The adjusted operating profit, net realised loss on the sale of direct investments and net fair value increase, all contributed
to a consolidated total profit and comprehensive income of £2,836,000 (2022: £26,100,000). This has resulted in basic earnings
per Ordinary share of 0.64 pence (2022: 5.93 pence).
Summarised statement of financial position
Goodwill and intangible assets
Direct investment portfolio
Other non-current assets, trade and other receivables
Cash and short-term liquidity investments
Total assets
Trade, other payables and lease liabilities
Deferred consideration
Deferred taxation
Total liabilities
Net assets
Net assets per share (pence) **
As at
31 March
2023
£’000
39,051
136,550
4,751
37,834
218,186
(7,720)
(3,005)
(4,540)
(15,265)
202,921
45.4p
As at
31 March
2022
£’000
32,355
119,558
1,604
61,284
214,801
(7,415)
(2,869)
(3,928)
(14,212)
200,589
45.6p
**
In settlement of the final deferred consideration liability in respect of the VCT fund management business acquired in 2019, 6,471,495 Mercia Asset Management PLC Ordinary
shares were admitted to trading on the AIM Market of the London Stock Exchange on 31 January 2023. Subsequent to this, 446,581,202 Ordinary shares were in issue and therefore
used as the denominator for calculating net assets per share as at 31 March 2023. 440,109,707 Ordinary shares were in issue as at 31 March 2022.
Strategic report 30
Mercia Asset Management PLC
Annual Report & Accounts 2023
Chief Financial Officer’s review continued
Intangible assets
Details of the Group’s intangible assets, including the intangible asset recognised following the acquisition of FDC, are shown in
notes 15 and 16 to the consolidated financial statements.
Direct investment portfolio
During the year under review, Mercia’s direct investment portfolio grew from £119,558,000 as at 1 April 2022 (2022: £96,220,000
as at 1 April 2021) to £136,550,000 as at 31 March 2023 (2022: £119,558,000), a c.14% increase notwithstanding the sale of Intechnica
Holdings during the year (2022: c.24% increase).
The Group invested £20,653,000 net (2022: £18,384,000) into 10 existing and three new direct investments (2022: 14 and two
respectively), with the top 20 direct investments representing 98.4% of the total direct investment portfolio by value (2022: 98.6%).
Further detail on the fair value movements of individual direct portfolio companies can be seen in Julian Viggars’ CIO review on
page 18.
Cash and short-term liquidity investments
At the year end, Mercia had cash and short-term liquidity investments (which is cash on deposit with maturities of between 32 days
and three months) totalling £37,834,000 (2022: £61,284,000), comprising cash of £37,555,000 (2022: £56,049,000) and short-term
liquidity investments of £279,000 (2022: £5,235,000).
The Group continues to have limited working capital needs due to the nature of its business and generated operating cash inflow
of £3,019,000 (2022: £9,150,000 inflow).
The overriding priorities of the Group’s treasury policy remains firstly the preservation of its shareholders’ cash for investment,
corporate and working capital purposes, secondly timely availability and finally yield. As at 31 March 2023, the Group’s cash and
short-term liquidity investments were spread across four leading United Kingdom banks.
Notwithstanding the Group’s overarching treasury priority, namely preservation, the Board has recently approved a measured focus
on yield in the current year.
The summarised movements in the Group’s cash and short-term liquidity investments position during the year are shown below.
Opening cash and short-term liquidity investments
Cash generated from operating activities
Corporation tax paid
Net cash (used in)/generated from direct investment activities
Acquisition of Frontier Development Capital Limited
Cash acquired with Frontier Development Capital Limited
Purchase of VCT fund management contracts (deferred consideration)
Cash inflow/(outflow) from other investing activities
Net cash used in financing activities
Closing cash and short-term liquidity investments
Year ended
31 March 2023
£’000
Year ended
31 March 2022
£’000
61,284
3,019
(1,819)
(14,930)
(6,951)
2,882
(2,100)
371
(3,922)
37,834
54,725
9,150
–
2,363
–
–
(2,100)
(62)
(2,792)
61,284
Outlook
Despite a challenging year for the specialist asset management sector, and venture capital in particular, Mercia has remained
profitable, operating cash flow generative and debt free, and as a result is able to continue to support and maximise value from
its direct investment portfolio uninhibited by any liquidity constraints.
Mercia’s third acquisition since its IPO in December 2014, FDC, has been integrated into the Group and is performing well,
having already secured £30.1million of additional funds to manage, in the short post-acquisition period to 31 March 2023.
Overall therefore, these results demonstrate Mercia’s robust business fundamentals, during a year of significant market and
economic instability. In financial terms, Mercia’s focus for the current financial year is centred on organic growth in its funds
under management and continued disciplined support for its direct investment portfolio.
Martin Glanfield
Chief Financial Officer
Principal risks and uncertainties
Annual Report & Accounts 2023
Mercia Asset Management PLC
31
Rosie Bhattacharjee
Compliance Director
An assessment of the
strength of mitigating
actions determines the
net risk score for each
identified risk and any
further actions required.”
Risk
management
The Board considers that the principal risks and uncertainties detailed in
this Annual Report represent the current key potential obstacles to achieving
the Group’s strategic objectives. They form part of 45 (2022: 42) separately
identified risks which are being monitored. The key controls over the Group’s
principal risks and uncertainties are documented in Mercia’s risk register,
which includes an assessment of the risk including the potential severity
of impact, likelihood of occurrence and mitigating actions.
An assessment of the strength of mitigating actions determines the net risk score for each identified risk and any further
actions required.
Mercia’s risk dashboard is drawn from the overall ‘net’ risk score of each risk. New risks added or updates to risk scores will result
in movement of the ‘dials’ to give the Board an immediate visual awareness of our changing risk profile, when compared with the
previous period’s dashboard.
See page 32 for the Dashboard
Strategic report 32
Mercia Asset Management PLC
Annual Report & Accounts 2023
Principal risks and uncertainties continued
Mercia’s Risk Dashboards as at 31 March 2023 and 31 March 2022
Definitions
Dashboards 31 March 2023
Strategic risks
include longer-term,
structural risks such
as geopolitical risks
and changes to
individual investor
tax reliefs available.
Operational risks
include internal systems
and controls, people
and talent risks such
as staff retention,
and compliance risks
such as financial crime
and reputational risks
arising therefrom.
External risks
include cyber, regulatory,
competitor, legal, force
majeure, long-term
geopolitical and
economic risks and
inflationary pressures.
Internal risks
include the successful
execution of the Group’s
strategy and adequate
management of conflicts
of interest.
External
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
High
7.50
1.50
High
8.00
1.00
Low
8.50
0.50
9.00
0
Very low
7.50
8.00
8.50
9.00
Strategic
Operational
1.50
1.00
0.50
0
Low
Very low
Internal
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
1.50
1.00
0.50
0
Low
Very low
High
7.50
1.50
High
8.00
1.00
Low
8.50
0.50
9.00
0
Very low
7.50
8.00
8.50
9.00
Strategic
Operational
Dashboards 31 March 2022
External
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
High
7.50
1.50
High
8.00
1.00
Low
8.50
0.50
9.00
0
Very low
7.50
8.00
8.50
9.00
Strategic
Operational
1.50
1.00
0.50
0
Low
Very low
Internal
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
4.00
4.50
5.00
5.50
3.50
3.00
2.50
2.00
Medium
6.00
6.50
7.00
1.50
1.00
0.50
0
Low
Very low
High
7.50
1.50
High
8.00
1.00
Low
8.50
0.50
9.00
0
Very low
7.50
8.00
8.50
9.00
Strategic
Operational
Annual Report & Accounts 2023
Mercia Asset Management PLC
33
We have also maintained our focus on regulatory risk.
During the year we have implemented the new financial
rules under MIFIDPRU, for relevant regulated entities and
we have developed our Internal Capital Adequacy and Risk
Assessment process (“ICARA”), which we have undertaken
on a group basis, whilst maintaining separate regulated
entity wind down plans, where required for regulated entities
subject to MIFID. We have included FDC in our consolidation
group for the purposes of regulated returns and will include
FDC in our ICARA analysis in the future. We have also
implemented the required rule changes for the promotion of
higher risk funds outlined by the Financial Conduct Authority
(“FCA”) in its Policy Statement in August 2022, to strengthen
risk warnings and the “appropriateness” test for non-advised
investors. We are on course with our implementation of the
FCA’s new Consumer Duty principles, outcomes and detailed
rules, including working with our distribution partners,
in respect of our EIS and VCT products and investors.
Furthermore, we have maintained a Remuneration Code
in compliance with the FCA requirements.
We continue to monitor the risk of failure to fully embrace the
ESG agenda as set out on page 14. We continue to focus on
climate change and have again assessed our carbon footprint
and the measures possible to reduce it, with the objective of
reaching ‘net-zero’. We have once again offset our footprint
to be carbon neutral across the Group.
The Group’s Compliance Director reports on the current
risks being monitored, plus new or emerging risks, to each
meeting of the Board and the Audit Committee. Operational-
level monitoring is conducted through the senior leadership
of the Group and immediately escalated to the Executives
and/or Board when appropriate.
The Group’s principal risks and uncertainties, their possible
consequences and mitigation are set out in the following pages.
Rosie Bhattacharjee
Compliance Director
The Group’s risk monitoring framework has been further
developed over the course of the financial year, with the
creation of a risk heat map, in order to provide the Board
with greater visibility of the highest risks identified, categorised
as Strategic or Operational as to their nature, with their origin
being categorised as either External or Internal.
The Board monitors, evaluates and mitigates key risks to ensure
that appropriate measures are in place to minimise the likely
occurrence and impact of those risks identified, should they
materialise. There may be additional risks and uncertainties
that are not known to the Board, or deemed to be less material,
which may also adversely impact performance and thus are
monitored within the Group’s overall risk management
framework. The framework provides reasonable, but not
absolute, assurance that the Group’s principal risks are
managed to an acceptable level, whilst acknowledging that the
specialist asset management sectors in which Mercia operates
have investment risk inherent within them. Mercia’s risk
management framework is therefore constructed to identify
and navigate downside risks, whilst seeking to take advantage
of upside risk, particularly when investing in young companies.
Geopolitical risk has remained a strong focus given Russia’s
ongoing war in Ukraine, and we are continuing to monitor
associated risks such as investee company supply chain risk and
financial risks associated with the current elevated interest rate
environment and high inflation. The Group’s cautious treasury
policy recently proved its worth during the venture capital
industry crisis involving Silicon Valley Bank. We have also
maintained a high focus on risks such as cyber crime, given
the increased potential for cyber attacks and continue to
invest heavily in cyber defence and detection software tools.
The risks associated with the COVID-19 pandemic have
significantly subsided during last financial year as incidence
levels and severity of infection have reduced. Staff welfare
has continued to be of paramount importance and we offer a
range of tools to help staff with their mental wellbeing. We have
embraced a ‘3 + 2’ flexible approach to office working, whilst
continuing to trust our staff to work at all times in Mercia’s best
interests, whether in the office or working remotely. Similarly,
we have maintained a strong focus on our portfolio companies,
providing support in the form of topical webinars, weekly
informative communications etc., whilst closely monitoring and
supporting their funding requirements and helping to source
additional management, non-executive and venture partner
expertise, where needed, through our ‘Mercia Nucleus’ network.
Our significant available pools of capital across all of our asset
classes form a vital part of our investee company risk mitigation
approach at times such as this, both in terms of preserving value
and by being able to continue supporting our most exciting
investee companies.
We have built an effective recruitment and talent-management
network to help ensure that we mitigate, as far as reasonably
possible, the risk of losing key staff.
Strategic report
34
Mercia Asset Management PLC
Annual Report & Accounts 2023
Principal risks and uncertainties continued
Risk
Possible consequences
Mitigation
High inflation puts
increased pressure on
the cost bases of both
portfolio companies
and Mercia, principally
salaries and other
operating costs.
Cost increases add pressure
to the liquidity of SME portfolio
companies, increasing the risk of
failure where the costs cannot be
passed onto customers.
An increase in Mercia’s cost base
puts adverse pressure on the
short-term financial performance
of the Group.
Cyber security or infrastructure
failures may result in the loss
of data, misuse of sensitive
information, systems downtime,
reputational damage and legal
or regulatory breaches.
Attacks on portfolio companies
could, in addition, result in the loss
of valuable intellectual property or
be disruptive to business activities.
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.
The incidence of cyber
crime attempts and
reports from portfolio
companies has
increased in the wake
of COVID-19 and in light
of the war in Ukraine
with the potential for
Russian-backed cyber
crime or sabotage.
Mercia’s portfolio companies are generally well led and well
funded, with proportionally modest cost bases and are therefore
relatively resilient to short-term inflationary pressures.
The Group’s cost base is largely made up of staff costs,
with a highly competitive staff remuneration package offered,
including the potential to receive performance-related bonuses,
share options and other benefits, such as an electric company
car scheme. The market has been very tight for experienced
investment professionals and following a benchmarking
exercise, the Group has responded by ensuring that all staff
employment packages are competitive.
The Group reviews its infrastructure and cyber security
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 security breach. The Group uses Office 365 which,
combined with the use of SharePoint, enables the secure
storage and sharing of data internally.
Business continuity plans and disaster recovery contingencies
are tested and have proved to be effective in enabling
continuity via remote working. The Group continues to
work with its cyber security consultants to periodically
test its cyber defences.
Regular testing is conducted through using fake phishing/spam
emails to test staffs’ ability to identify suspicious emails and the
need for prompt escalation.
Our IT providers have enhanced their utilisation of software
patches when issued so that upgrades are made immediately,
which increases resilience. Darktrace technology is installed
to monitor spam filters and also to monitor network activity
by internal users, such as downloading data, thereby alerting
senior management to any suspicious activity.
As part of our due diligence in respect of the acquisition
of Frontier Development Capital we carried out a review
of and tested their digital security environment and have
implemented appropriate enhancements.
The continuing risk
of illness affecting
key staff, operational
services to portfolio
companies and
business development.
Market falls and risks
to portfolio companies
affect valuations and
net asset values,
which impact asset
price-related fund
management revenues.
Staff welfare issues, due to direct
illness, family illness and/or
bereavement. Potential mental
health impacts, due to a range of
factors including isolation and/or
a lack of available support from
friends and family.
Resultant impact on the individual
and the operational efficiency of
the Group.
Risk to the valuation of funds and
VCT portfolios managed by Mercia
regulated entities, as well as
general market pressures impacting
on direct investment fair values.
Staff welfare is kept high on the agenda of the Executives with
morale being maintained using communication tools such as
Zoom and Slack for meetings, social interaction and to support
information sharing. Staff are offered free counselling for any
mental health issues arising. Mercia has recognised the impact
of staff balancing work and childcare and has supported staff
with a culture of trust and flexibility, to which our staff have
responded by continuing to deliver our priorities and
objectives. The Group has a policy of three days in the office
each week for all operational staff. Investment staff are once
again having face-to-face meetings and attending investee
board meetings, investment conferences and networking
events in person.
Mercia’s existing investment in IT systems and connectivity
allows staff to seamlessly work remotely and for operational
activities to continue.
Annual Report & Accounts 2023
Mercia Asset Management PLC
35
Risk
Possible consequences
Mitigation
Potential impact on
portfolio companies
individually, leading
to failures and loss
of revenues and
shareholder value
as a consequence.
The Group may not
be able to continue
to retain or attract
experienced, skilled
and successful Board
Directors, investment
professionals and
support staff.
Increased risk of portfolio valuation
reductions and/or failures, and the
consequent reduction in revenues
from fund management contracts
and portfolio companies.
Opportunity loss, where remote
working reduces the ability
to source and assess new
opportunities for investment
and the general advantages of
collaborative office environments.
The Group depends on the
experience, skill and judgement
of staff in, amongst other things,
selecting possible future successful
businesses in which to invest.
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.
The Group also depends on its
network of deal flow introducers
to the managed fund business.
Portfolio valuations have remained under regular review and
fair values amended where appropriate. We have organised
briefings and webinars to assist portfolio companies and have
made use of existing forums such as a Mercia Slack channel,
exclusively for portfolio company CEOs. We have assisted firms
through our ‘Mercia Nucleus’ non-executive director network to
strengthen boards and increase resilience during these difficult
economic conditions. In general, investee company valuation
multiples are continuing to stabilise at ‘new norm’ levels and
asset price linked revenues have also stabilised as a result.
The Group seeks to reduce this risk by maintaining
an entrepreneurial and inclusive working environment,
referred to internally as #OneMercia.
The Group offers balanced and competitive remuneration
packages to all its staff, overseen by the Remuneration
Committee, including the potential to receive performance-
related bonuses and share options. The Committee and/or
Senior Executives periodically undertake external
benchmarking reviews, the most recent being in spring 2023,
to monitor and adjust, where appropriate, the Group’s overall
remuneration, to remain competitive.
Staff welfare remains a high priority and our teams have risen
to the challenges presented to them during the past three years,
allowing us to continue to operate and grow. We continue to be
successful in recruiting the highest possible quality candidates,
and the agile working environment in which we operate is
another key factor in our successful recruitment of new staff.
Performance management systems are in place to monitor
progress against objectives and development milestones,
as well as the Group’s core values.
We have a broad training offering covering core matters, such
as regulatory requirements, technical training for investment
teams, as well as personal skills development, whilst also
focusing on managerial development during the financial year,
to continue to drive high-performing teams.
We support staff through monthly investment team meetings
and ‘all hands’ Zoom calls with our Chief Executive Officer.
Our annual staff survey results are evaluated by the Board, and
any issues or areas of concern, as well as new proposals from
staff, are thoroughly considered and acted upon wherever
appropriate to do so.
Mercia has grown a strong pool of talent, reducing the overall
impact of any single leaver.
Strategic report 36
Mercia Asset Management PLC
Annual Report & Accounts 2023
Principal risks and uncertainties continued
Risk
Possible consequences
Mitigation
Tax efficient
investments may fail to
meet the criteria for HM
Revenue and Customs
(“HMRC”) clearance,
either at the outset or
on a continuing basis,
due to a lack of internal
controls, or awareness
and diligence by the
staff undertaking such
investments, or
responsibility for
ensuring the eligibility
criteria are met.
EIS and Seed Enterprise Investment
Scheme (“SEIS”) investments
may be declared by HMRC to be
outside the regulations and the
tax advantages would be lost
for that investment, and Mercia
may suffer complaints and
reputational damage.
VCT investments may be found
not to qualify, or may not continue
to meet the qualifying criteria
on an ongoing basis, resulting in
the entire VCT losing its tax status,
with a consequential impact on
investors, reputational damage
and complaints.
Prior to any investment, the EIS/SEIS team undertake the
necessary checks and research, and may refer to professional
advisers for specialist qualifying advice. The team then
monitors the ongoing eligibility criteria of all EIS investments.
For proposed VCT investments, due diligence is commissioned
at the outset and prior to actual investment by the investment
team which obtains a report from external VCT tax advisers.
Ongoing monitoring of all VCT investments occurs to ensure
no investment breaches the qualifying criteria, nor any VCT
as a whole.
Possible risks are further mitigated by the regulatory investment
periods for the EIS/SEIS funds raised, and the ability to declare
special dividends to return money to VCT investors if necessary,
to prevent a breach of the VCT investment period rules.
Mercia subsidiaries may
cease to be authorised
by the FCA, resulting in
them being unable to
continue their fund
management activities.
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, they would
no longer be authorised to act
as the investment manager of
the respective funds or VCTs,
nor would Mercia be able to
tender for further mandates.
In those circumstances, 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.
Mercia’s compliance function undertakes internal audit
monitoring of investment files to ensure initial due diligence
has been undertaken, that advanced assurance clearance
has been obtained from HMRC where necessary and that
the required final investment approvals have been obtained.
The Group mitigates this risk by ensuring that it always
acts fairly 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 maintains its
position, as regulated by the Alternative Investment Fund
Managers Directive (“AIFMD”), in respect of its quantum
of FuM. The Board receives regular reports from the Group’s
Compliance Director as to regulatory developments and
any possible impact on the Group, including any new
regulatory requirements.
The Group also ensures that it employs the resources that are
necessary for the proper performance of its business activities
and seeks to comply with all regulatory requirements
applicable to the conduct of its business, to promote the
best interests of its FuM and underlying fund investors.
The Group 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 other required disclosures.
The Group’s compliance function is staffed by experienced
and FCA-approved personnel. Mercia applies policies and
procedures in compliance with FCA requirements across its
regulated subsidiaries. Mercia also has a whistleblowing policy
and reporting structure in place. No whistleblowing reports
have been received in the year.
Annual Report & Accounts 2023
Mercia Asset Management PLC
37
Risk
Possible consequences
Mitigation
The risk of reputational
damage due to third-
party custodian services
not being provided as
required, or being
withdrawn or our due
diligence on a third
party being inadequate.
The Group now has
£1.2billion of FuM
and derives the
majority of its
revenues under
fund management
contracts linked to
each specific fund.
The Group, including
its fund management
subsidiaries and
portfolio companies
are subject to
competition risk.
Our EIS/SEIS investors’ assets are
held by an external custodian and
such custodian services may be
withdrawn under the contractual
arrangements. There are risks
with all third-party suppliers and
an associated risk with sourcing
an acceptable alternative, ensuring
that the transfer is completed
appropriately to minimise
disruption to investors and
reputational risk, and with
ensuring that our regulatory
obligations for due diligence
are adequately undertaken,
maintained and documented,
prior to any new appointments.
The loss of one or more of the
contracts due to poor performance
or other irreconcilable differences
could have a material impact on
the trading performance of the
Group and reputationally, its future
ability to win new contracts.
The Group operates both
a direct investment and a fund
management portfolio model
and both may find themselves in
competition when new investment
or lending opportunities arise. In
addition, all portfolio businesses
are predominantly focused on
the technology sector, which
is intensely competitive on
a global scale.
Portfolio companies’ competitors
may 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 portfolio companies, with
a potential knock-on effect
on fund management and
director monitoring fees,
as well as impacting on direct
investment performance.
The Group has appointed an external custodian, Mainspring
Fund Services. Prior to appointment, detailed due diligence
was undertaken from both a commercial and a regulatory
perspective and the commercial terms were reviewed by the
Group’s in-house General Counsel. Mercia Fund Management
Ltd, as fund manager for the EIS/SEIS funds, is subject to
full regulatory scrutiny and an annual Client Assets audit,
which is undertaken by the Group’s external auditors who
review our arrangements.
We undertake an annual due diligence exercise, including
a site visit, to maintain oversight of the custodian, in addition
to regular two-way contact between key team members.
Dedicated investment teams operate in respect of each asset
class and, in many cases, each fund mandate. Fund Principals
oversee both fund performance and client relationships.
Detailed quarterly reports are issued to fund investors.
Investment committees provide a robust review of all proposed
investments and ensure that investments meet the mandate
of the fund and that any conflicts are managed appropriately.
The Group’s compliance function monitors adherence to
investment procedures through its internal audit reviews,
which also monitor adherence to regulatory requirements.
The Board oversees the Group’s fund management operations,
performance and client relations.
The Group focuses its investment activities predominantly
on the historically under-served regions of the UK, 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 a degree
of commercial interest or traction.
The Group conducts all of its investment activities in a fair and
transparent manner and is increasingly recognised as a trusted
investment partner for entrepreneurially minded, ambitious
management teams.
The Group’s fund management entities have maintained
a strong performance against their institutional mandates,
including with BBB, with further allocations having recently
been awarded under existing mandates.
Portfolio company competitiveness is monitored and
additional support and expertise is provided by ‘Mercia
Nucleus’ when required.
Strategic report 38
Mercia Asset Management PLC
Annual Report & Accounts 2023
Principal risks and uncertainties continued
Risk
Possible consequences
Mitigation
The risk that conflicts
of interest are not
properly identified and
managed, leading to
reputational damage,
loss of mandates and
loss of investment.
The presence of conflicts of interest
is inherent in our business model,
deriving from the range of different
fund management mandates and
direct investment activities
undertaken. There is potential
for reputational risk arising from
a failure to appropriately manage
conflicts. Reputational damage
could lead to an inability to attract
new mandates, individual
investors, and/or portfolio
companies for investment, leading
to a drop in deal flow and revenues.
A comprehensive conflicts policy has been developed to
deal with conflicts that arise, particularly in connection with
investment mandate priorities or follow-on investments in an
existing investee company, by more than one Mercia fund or
asset class.
In addition, the Group always carefully considers the conflicts
that may arise where Mercia holds investments in more than
one portfolio company with a similar product or service
business model.
The separate fund and balance sheet investment committees
consider any potential conflicts highlighted in respect of
individual investments on a case-by-case basis.
The policy also deals with potential conflict situations arising
with staff, for example, being closely involved in developing
‘home grown’ investee companies or holding shares. A register
of conflicts is maintained and overseen by the Group’s
Compliance Director.
We have the ability to convene a Conflicts Committee in
order to ensure that any particularly complex conflicts are
appropriately managed. During the year, two such meetings
were held, led by the Non-executive Chair of the Audit
Committee, to provide independent oversight of proposed
investment decisions affecting more than one fund.
With the exception of Forensic Analytics, all of the Group’s
current direct investment portfolio have originated from the
Group’s fund management operations. Those funds have a
fail-fast policy, which means that early-stage businesses, which
do not achieve commercial traction within a reasonable period,
are not supported further.
In addition, ‘real-time’ due diligence is being undertaken by the
Group’s investment teams during an investee company’s early
stage of development within the Group’s funds. This means
that Mercia is already familiar with the business, its commercial
prospects and its management team before it becomes
a direct investment.
This process of monitoring reduces, although does not
eliminate, the risk of direct investment failure, particularly in
the current volatile macro-economic and geopolitical climate.
The strength of the Group’s financial position means that
we have been able to provide greater funding runway to
companies, where this is appropriate, and to offer other
support. In addition, our ability to source high-quality non-
executive directors via ‘Mercia Nucleus’ to assist company
boards, increases their resilience and helps in protecting
long-term value, notwithstanding near-term market-based
changes in fair value.
The majority of the
direct investment
portfolio comprises
businesses at a
relatively early stage
in their development,
and as a result, carries
inherently elevated
risks including
technical, commercial,
liquidity and valuation
risks. 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, especially in
high inflation economic conditions.
They may not be able to attract
sufficient funding to achieve their
commercial objectives; their
technology niche may be overtaken
by competing technologies or they
may not achieve commercial
traction. Take-up of their product
or service offering in their chosen
markets may not occur at levels
sufficient to generate positive
cash flows and to 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.
Changing market valuation
multiples or access to third-party
funding may adversely impact
period end fair values and ultimate
exit proceeds.
Annual Report & Accounts 2023
Mercia Asset Management PLC
39
Risk
Possible consequences
Mitigation
The value of the Group’s
direct investment
portfolio may be
dominated by a single
or limited number
of companies.
The Group seeks to balance the total portfolio by sector
quantum and value, as the total number of direct investments
and their values grow over time. The current portfolio
continues to be well balanced.
Concentration risk is further mitigated by the increased
resources available to assess and monitor the direct
investments and by the fact that the overall portfolio is
maturing. The balance sheet is an evergreen investment vehicle
and can support investees for longer, where appropriate.
As well as the Group’s increasing investment team talent,
Mercia has focused its attention on strengthening investee
company boards through its non-executive director network
and venture partners, further mitigating against investee
failure risk.
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 fair values
were to be adversely affected, this
could have a materially detrimental
effect on the overall value of the
Group’s investment portfolio,
and greater skew fair value
concentration into a smaller
number of companies. Currently,
the top five direct investments
represent 54.7% (2022: 58.6%)
of the total portfolio by value.
Events after the balance sheet date
Other than closure of the Northern VCT’s fund raise, additional ‘top-up’ fund allocations and the continuing completion of approved
direct investments, 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
3 July 2023
Strategic report 40
Mercia Asset Management PLC
Annual Report & Accounts 2023
Board of Directors
Right skills, right experience, right people
Committees membership
Audit & Risk
Remuneration
Nomination
Committee Chair
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Julian Viggars
Chief Investment Officer
Ian Metcalfe OBE
Non-executive Chair
Date of appointment
December 2014
Date of appointment
December 2014
Date of appointment
April 2018
Date of appointment
December 2014
Experience
Martin has significant public markets
and business experience. He 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 the main market listed
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 main
market-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 the private equity
business 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. As well as his CFO
responsibilities, Martin also chairs
Mercia’s two lending subsidiaries.
He has an honours degree in
business from Aston University
and has recently passed the FT
Non-executive Director Diploma.
External appointments
None
Experience
Mark has extensive investment
and scale-up experience. Since
co-founding Mercia, he has led
the sales of Hybrid Systems Ltd
(to Myotec) to create PsiOxus
Therapeutics Ltd, Warwick Effect
Polymers Ltd (to Polytherics Ltd) to
create Abzena plc, Oxford Genetics
Ltd (sold to WuXi AppTec) and led
the founding investment in Allinea
Software Ltd (sold to ARM). 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 Ltd (sold
to Millipore), Oxford Immunotec Ltd
(listed on NASDAQ), Oxitec Ltd (sold
to Intrexon) and Natural Motion Ltd
(sold to Zynga). Following his time
at OUI, Mark was the vice president
of corporate development at Oxxon
Therapeutics Inc, prior to its sale to
Oxford BioMedica plc.
Mark 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).
External appointments
None
Board composition
Experience
Julian joined Mercia through the 2016
acquisition of Enterprise Ventures
Group Ltd, 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. Through the
subsequent sell-down of its holding
in Blue Prism, Mercia’s RisingStars
Growth Fund realised £95.0million,
105x the cost of its investment.
Julian leads the equity investment
team as well as managing the pipeline
of Mercia’s direct investments.
Alongside his wide experience
of investing across many sectors,
Julian is Fund Manager for 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 BBB and
North East Fund Ltd and has been
Mercia’s Chief Investment Officer
since April 2018. Julian has a geology
with chemistry degree from the
University of Southampton and
qualified as a chartered accountant
with accountants Smith & Williamson.
External appointments
None
Experience
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 has over 30 years
experience advising businesses of
all types and sizes on their growth
activities. He also has deep corporate
governance experience, both as
a legal adviser to listed businesses
and as a current and previous
non-executive board member
of public and private companies,
and leading sports organisations.
Ian was Chair of Commonwealth
Games England and a director of the
Board of the Organising Committee
of the Birmingham 2022
Commonwealth Games, stepping
down from these roles after last year’s
very successful Games.
In October 2022, Ian became a
non-executive director of Swing
Fitness Limited, a technology
start up providing high quality gym
equipment to communities in a
simple and accessible way. Ian has an
MA in law from Cambridge University.
He became Mercia’s Non-executive
Chair on 2 July 2019.
Tenure
0-2 years
Members
3-5 years
Members
6-10 years
Members
–
4
4
Gender
Male
Members
Female
Members
6
2
Annual Report & Accounts 2023
Mercia Asset Management PLC
41
Diane Seymour-Williams
Senior Independent Director
Ray Chamberlain
Non-executive Director
Dr Jonathan Pell
Non-executive Director
Caroline Plumb OBE
Non-executive Director
Date of appointment
November 2020
Date of appointment
December 2014
Date of appointment
December 2017
Date of appointment
June 2018
Experience
Diane has non-executive experience
across the quoted and asset
management, global equity, private
equity, investment services and VCT
sectors. She is currently a non-
executive director of Abrdn Private
Equity Opportunities Trust plc,
PraxisIFM Group Ltd and SEI
Investments (Europe) Ltd and a
member of the Valuation Committee
of Chrysalis Investments Ltd. Diane
was the co-founder of Acorn Capital
Advisers Ltd and previously Diane
was also a non-executive director and
Remuneration Committee Chair of
Brooks Macdonald Group Plc. Diane
has significant industry experience,
having worked at Deutsche Asset
Management Group (previously
Morgan Grenfell) for over 23 years
where she held various senior
positions, including CIO and CEO
for Asia.
Diane has an MA in economics from
Cambridge University and with a
longstanding interest in sustainable
investing, she also completed
Cambridge University’s Sustainable
Finance course.
She is a pro-bono Investment
Committee member of Newnham
College, Cambridge and the Canal
& River Trust.
Experience
Ray is an entrepreneur with
an established track record of
shareholder value-creation. Until
1997, Ray was executive chair 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’s board
accepted a substantial offer for the
group. Subsequently, Ray diversified
his interests, including establishing a
trust focused on investing in
technology-led start-ups. In 2014, at
the time of the Group’s IPO, Ray was
appointed Non-executive Chair and
having steered the company through
its first 18 months, moved to his
current non-executive position.
Ray has deep venture experience
across several decades and sectors,
as both a founder of and investor
in many start-up businesses, which
have resulted in successful exits.
Experience
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 in roles of CFO and COO.
More latterly as CEO at Datanomic
Ltd, were he oversaw a twenty-fold
increase in the company’s global
customer base and compound
revenue growth over a four-year
period, before being purchased by
Oracle Inc (NYSE – ORCL) in 2011.
Since leaving Oracle 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.
Experience
Caroline is a serial entrepreneur who
previously co-founded recruitment
and innovation consultancy
FreshMinds Ltd, with clients including
Jaguar Land Rover, Vodafone and
Google. She also founded Fluidly Ltd,
a venture-backed SaaS business in
the Fintech space which was acquired
by OakNorth Bank in December 2021.
Caroline was appointed as Group
CEO of accountancy practice Gravita
in February 2022. 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 Order of the
British Empire in the 2016 Birthday
Honours list for services to business
and charity. She has an MEng in
engineering, economics and
management from Oxford University.
Caroline is highly effective in bringing
her current venture capital investee
insights to Mercia’s Board and
strategy meetings.
Independence
Meetings
Attendance (Total 8)
Executive
Members
3
Non-executive
5
Members
Executive
Dr Mark Payton
Martin Glanfield
Julian Viggars
Non-executive
Ian Metcalfe OBE
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE
Diane Seymour-Williams
8
8
8
7
8
7
7
8
Governance 42
Mercia Asset Management PLC
Annual Report & Accounts 2023
Directors’ report
The Directors present their Annual Report and the audited
financial statements of Mercia Asset Management PLC (“Mercia”,
the “Company” or the “Group”) for the year ended 31 March 2023.
Substantial shareholdings
As at 31 March 2023, 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:
Results and dividends
The profit for the year was £2,836,000 (2022: £26,100,000).
An interim dividend of 0.33 pence per share was paid on
4 January 2023 at a cost of £1,452,000 (2022: 0.30 pence
per share at a cost of £1,320,000). In accordance with the
progressive dividend policy adopted by the Board, the Directors
recommend the payment of a final dividend of 0.53 pence per
share for the year ended 31 March 2023 (2022: 0.50 pence per
share). If approved by shareholders at the Annual General
Meeting (“AGM”), the final dividend will be paid on 27 October
2023 to shareholders on the register on 29 September 2023.
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 39, 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 OBE
Dr Mark Andrew Payton
Martin James Glanfield
Julian George Viggars
Diane Seymour-Williams
Raymond Kenneth Chamberlain
Dr Jonathan David Pell
Caroline Bayantai Plumb OBE
Directors’ shareholdings and other interests
A table showing the interests of Directors in the share capital
of Mercia is shown in the Remuneration Report on page 55.
Directors’ indemnities
Mercia 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.
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 30 to the
consolidated financial statements.
Number of
Ordinary
shares
Percentage
%
Invesco Limited
Forward Innovation Fund1
Ruffer LLP
Forward Nominees Limited1
Blackrock
Chelverton Asset Management
Columbia Threadneedle
Fidelity International
GPIM
NVM Private Equity LLP
The Hargreaves No 11 Settlement
63,113,333
39,272,336
30,750,000
21,801,208
21,460,000
20,000,000
18,055,110
17,998,709
15,047,233
14,240,579
14,000,000
14.1
8.9
6.8
5.0
4.8
4.5
4.0
4.0
3.4
3.2
3.1
1 Shareholdings connected to Ray Chamberlain.
Political donations
During the year ended 31 March 2023, the Group made no
political donations (2022: £nil).
Employees
The Group employed an average of 116 (2022: 108) staff
throughout the year and is therefore of a size where it is not
necessary to have introduced a formal employee consultation
process. However, employees are encouraged to be involved in
decision-making processes and are provided with information
on the financial and economic factors affecting the Group’s
performance through regular team meetings, updates from the
CEO and via an open and inclusive culture. Talent management,
encompassing recruitment, retention, communication, training
and performance management and employee well-being,
remains an important area of focus.
The Group operates a discretionary annual bonus scheme for all
its employees with bonuses being awarded based on both their
and the Group’s overall performance, against defined objectives
which encompass the Group’s 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 have 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, BDO LLP, has indicated its willingness
to continue in office and a resolution concerning its
reappointment will be proposed at the forthcoming AGM.
Approved by the Board and signed on its behalf by:
Sarah-Louise Williams
Company Secretary
3 July 2023
Forward House, 17 High Street, Henley-in-Arden
Warwickshire B95 5AA
Annual Report & Accounts 2023
Mercia Asset Management PLC
43
Sarah-Louise Williams
Group General Counsel &
Company Secretary
Date of appointment
July 2020
Experience
Sarah joined the Group as Head of Legal in October 2018
and was promoted to Group General Counsel & Company
Secretary in July 2020. Sarah qualified as a corporate
solicitor in 2007 and has extensive experience in all aspects
of corporate transactional and advisory work. She is
responsible for providing legal advice across the Group
and managing the Group’s relationship with external
legal advisers, as well as performing the role of Company
Secretary for both the Group and the Northern VCTs. Sarah
is actively involved in transactions relating to Mercia’s direct
investment portfolio and has overseen the exits from The
Native Antigen Company, Clear Review, OXGENE, Faradion
and Intechnica Holdings. Sarah is also heavily involved in
the Group’s M&A activities and led the integration planning
process for the FDC acquisition.
Governance 44
Mercia Asset Management PLC
Annual Report & Accounts 2023
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.
the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance
with UK-adopted International Accounting Standards (“IAS”) in
conformity with the requirements of the Companies Act 2006
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, the Directors are
required to:
• properly select and apply accounting policies
• present information, including accounting policies,
Directors’ responsibility statement
We confirm that to the best of our knowledge:
•
•
•
the financial statements, prepared in accordance with
the relevant financial reporting framework, give a true
and fair view of the assets, liabilities, financial position
of the Group and the Company 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 Company 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
Company’s and the Group’s position and the Group’s
performance, business model and strategy.
in a manner that provides relevant, reliable, comparable
and understandable information
This responsibility statement was approved by the Board
on 3 July 2023 and signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
• provide additional disclosures when compliance with
the specific requirements of IAS in conformity with the
requirements of the Companies Act 2006 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
• 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
• 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 key 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
Corporate governance report
Annual Report & Accounts 2023
Mercia Asset Management PLC
45
Non-executive Chair’s corporate governance statement
As Non-executive Chair, I have overall responsibility for implementing corporate governance within Mercia Asset Management PLC
(“Mercia”, the “Company” or the “Group”). Working with the Senior Independent Director, Chief Financial Officer and 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. It formally adopted the QCA Corporate Governance Code (the “QCA Code”) on 21 September
2018, following the introduction in March 2018 of the London Stock Exchange’s new requirement for companies admitted to trading
on AIM to adopt and comply with a recognised corporate governance code.
The QCA Code 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 is reviewed annually and the date of each review
is noted on our website.
Our primary means of communicating our corporate governance structure is through our Annual Report and our website
disclosures. When, on occasion, specific questions are raised by private individual shareholders and/or institutional investors
on such matters, we engage directly with those shareholders, generally by 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 strategic 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 management 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.
We communicate our corporate culture through regular staff communications, an induction programme for all new joiners and,
most importantly, through the way in which 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. Mercia’s people and talent management 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 gatherings, both formal
and informal, to elicit feedback and gauge how our values are being maintained throughout the business.
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. We remain committed to delivering the long-term success
of the Group through an effective framework of leadership, management and controls. Under the direction of Alice Grieve, ESG
Lead and Compliance Manager, our ESG policy has continued to sit at the heart of our Group operations. 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 its investors,
employees, suppliers, local communities and the businesses in which the Group invests. Consistent with our commitment to reduce
our carbon emissions, Mercia continues its migration to communicate electronically with our shareholders and this 2023 annual
report will be the last paper version to be automatically issued to shareholders.
Board composition
The Board considers that it contains a range of skills, knowledge, experience and backgrounds that are 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.
Brief biographies of the Directors and their relevant experience are set out on pages 40 an 41. Their membership of Committees
is set out on pages 47 and 51.
Governance 46
Mercia Asset Management PLC
Annual Report & Accounts 2023
Corporate governance report continued
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, that provides that a director tenure of nine years or more creates a rebuttable presumption that
a non-executive is no longer independent. Additionally, both the QCA Code and the articles of association of the Company provide
that a director with a tenure of nine years or more shall be required to retire annually but shall still be eligible for re-election.
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. In the case of Ray
Chamberlain, the Board considers that his independent judgement is not compromised notwithstanding his interest in 14.8% of the
Company’s issued share capital. Furthermore, the Board is of the view that Ray Chamberlain’s tenure of nine years is not prejudicial
to his ability to carry out his duties effectively or independently. His individual experience and continuity of Board membership
enhances the effectiveness of the Board as a whole.
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 committees.
Board effectiveness
In January 2022, Lorraine Young Board Advisory Services (“LYBAS”) was appointed to facilitate an external review of the
effectiveness of the Board.
The process comprised observation of a Board meeting, a review of Board and Committee papers issued during the year,
questionnaires completed by the Board relating to competency and experience and confidential one-to-one discussions between
LYBAS and members of the Board and Executive Team. LYBAS provided a report which identified what was working well and those
areas where there was scope for development. Overall, LYBAS concluded that the Board was performing very well.
Following the recommendation of the Nominations Committee, the Board has been developing areas identified in the LYBAS report.
Significant progress has been made towards planned and emergency succession planning for the Board. Membership of the Board
Committees has been reviewed and Diane Seymour-Williams is now Chair of the Remuneration Committee.
Subsequent to the 2022 review, LYBAS joined the Board meeting of the Company in May 2023 to review progress of the areas
previously identified for development. LYBAS was complimentary of the progress made since the 2022 review.
Board meetings
The Board meets formally a minimum of seven times each year. In addition, the Non-executive Directors communicate directly
with the Executive Directors between Board meetings. The Board typically holds a dedicated meeting each year to review strategy.
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 2023 eight Board meetings occurred. Details of attendance at the scheduled Board and Committee
meetings during the year are as follows:
Director
Ian Metcalfe OBE
Dr Mark Payton
Martin Glanfield
Julian Viggars
Diane Seymour-Williams
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE
1 Attended by invitation.
2 Caroline Plumb OBE stepped down from the Remuneration Committee on 26 July 2023.
3 Diane Seymour-Williams was appointed to the Remuneration Committee on 26 July 2023.
4 Diane Seymour-Williams was appointed to the Nominations Committee on 26 July 2023.
Board
Audit and Risk
Remuneration
Nominations
7/8
8/8
8/8
8/8
8/8
8/8
7/8
7/8
3/3
3/31
3/31
3/31
–
–
3/3
3/3
4/5
3/51
–
–
5/51,3
–
5/5
2/32
2/2
–
–
–
2/21,4
–
2/2
2/2
Annual Report & Accounts 2023
Mercia Asset Management PLC
47
Board Committees
The Board delegates specific duties and responsibilities to certain Committees and has established a Nominations Committee,
an Audit and Risk Committee and a Remuneration Committee, as described more fully below, except in respect of the Remuneration
Committee, whose report is set out on pages 51 to 55 of this annual report. The Company Secretary attends all Committee meetings
as Committee Secretary.
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.
Throughout the year, the Committee comprised Ian Metcalfe OBE as Chair, Dr Jonathan Pell, Caroline Plumb OBE and Diane
Seymour-Williams who joined the Committee on 26 July 2022. The Nominations Committee met twice formally during the year.
Audit and Risk Committee
The Audit and Risk 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 Client Assets Sourcebook (“CASS”) auditors (including advising
on their appointment, agreeing the scope of the audits, agreeing audit fees and reviewing the audit findings). The Committee
also reviews the provision of any non-audit services by the external statutory auditor.
During the year the Committee’s specific areas of focus were:
reviewing the work undertaken by the Group’s external auditor;
•
• closely monitoring the changing risk profile of the Group and the mitigating actions being taken by the Executive Directors;
• considering the pronouncements of the Financial Reporting Council in respect of best practice in financial reporting, with
particular reference to the emphasis given to Alternative Performance Measures and climate reporting; and
• considering the independence of the Group’s external auditor in respect of its appointment to conduct financial due diligence
on the proposed acquisition of Frontier Development Capital Ltd.
The Committee Chair also maintained a regular dialogue with the Chief Financial Officer, to ensure his current awareness of all
financial, audit and risk related matters.
The Committee will monitor the need for a dedicated internal audit function, focusing on financial controls. An internal audit
function already exists in respect of investment-related compliance matters, under the independent leadership and direction
of the Group’s Compliance Director. The Compliance Director reports directly to the Committee on all findings.
Throughout the year, the Committee comprised Dr Jonathan Pell as Chair, Ian Metcalfe OBE and Caroline Plumb OBE. Executive
Directors attend by invitation. The Committee met three times during the year under review at appropriate times in the financial
reporting and audit cycle. It may also meet at other times if so required. It has unrestricted access to the Group’s external auditor.
Governance 48
Mercia Asset Management PLC
Annual Report & Accounts 2023
Corporate governance report continued
The QCA Corporate Governance Code
Since the date of our Admission to trading on AIM in December 2014, we have embedded robust corporate governance as part of our
culture. 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.
2.
3.
4.
Establish a
strategy and
business model
which promotes
long-term value
for shareholders
Seek to
understand
and meet
shareholder
needs and
expectations
Take into
account wider
stakeholder
and social
responsibilities
and their
implications
for long-term
success
Embed
effective risk
management,
considering both
opportunities
and threats
throughout
the organisation
5.
Maintain a
dynamic
management
framework
Maintain the
Board as a
well-functioning,
balanced team
led by the Chair
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, currently through its Mercia
20:20 vision.
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 meets with existing
shareholders on occasion as do the Executive Directors.
Capital Market Days, to which all shareholders are
invited, are held from time to time. The Group also
uses its AGM as an opportunity to communicate with
its shareholders.
Mercia’s Annual Report identifies its key stakeholders
within the Responsible Business section and how
seriously the Group takes its ESG 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 – for 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 Risk, 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 1 to 39 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Pages 12 and 45 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Pages 14 to 17 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Pages 31 to 39 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Pages 40 to 55 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Annual Report & Accounts 2023
Mercia Asset Management PLC
49
Governance principles
Compliant
Explanation
6.
Ensure that
between them
the Directors
have the
necessary
up-to-date
experience, skills
and capabilities
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
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’. They 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 Board in
January 2022 and May 2023). 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 January
2022. The actions to be taken in response to the
recommendations arising from this review commenced
in 2022/23 and continue to be implemented in 2023/24.
A follow up review in May 2023 was positive in respect
of progress made.
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 Responsible
Investment 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 2022/23 and
2023/24 include Mercia’s cultural values.
Further reading
Pages 40 and 41 of this
Annual Report and the
AIM Rule 26 section of
the Group’s website
Page 46 of this Annual
Report and the AIM
Rule 26 section of the
Group’s website
Pages 3 and 14 to 17
of this Annual Report
and the AIM Rule 26
section of the
Group’s website
9.
Maintain
governance
structures and
processes that
are fit for
purpose and
support good
decision-making
by the Board
The Board is collectively responsible for the long-term
success of Mercia. It has a schedule of matters reserved
for its approval which covers key areas of management
and governance of the Group. This Annual Report
details the composition and terms of reference
of the Board and its Committees. These are also
included within the Investor Relations section of
Mercia’s website.
Pages 44 to 55 of this
Annual Report and the
AIM Rule 26 section
of the Group’s website
Governance 50
Mercia Asset Management PLC
Annual Report & Accounts 2023
Corporate governance report continued
Build trust
Governance principles
Compliant
Explanation
10. Communicate
how the
Company is
governed and is
performing by
maintaining a
dialogue with
shareholders and
other relevant
stakeholders
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.
Further reading
Page 13 and pages 51
to 55 of this Annual
Report and the AIM
Rule 26 section of
the Group’s website
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. 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:
• 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; and
• financial and custodial asset controls operate to ensure that the assets of the Group are safeguarded and that appropriate
accounting and FCA-related 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.
Investor relations
The Group is committed to developing and maintaining open channels of communication with its shareholders and the
www.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 AGM,
which this year will be held on 21 September 2023 in London.
Ian R Metcalfe OBE
Non-executive Chair
3 July 2023
Remuneration report
Annual Report & Accounts 2023
Mercia Asset Management PLC
51
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. Within the terms of the agreed framework, it is also
responsible for determining the total individual remuneration packages of those 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. The remuneration of the Chair is a matter for the Board. No Director is involved in any decision as to their
own remuneration.
From 1 April 2022 until 26 July 2022, the Remuneration Committee comprised Ian Metcalfe OBE as Chair, Caroline Plumb OBE and
Dr Jonathan Pell. On 26 July 2022, Diane Seymour-Williams became Chair of the Committee, Caroline Plumb OBE stepped down
as a member of the Committee and Ian Metcalfe OBE and Dr Jonathan Pell continued as Committee members. The Remuneration
Committee is expected to meet at least twice a year and otherwise as required. During the year, the Committee met formally five
times, and on other occasions on an ʻas requiredʼ basis.
Remuneration policy
The Remuneration Committee continues to believe that the success of the Group depends in large 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 ones of which are to achieve incremental total shareholder returns over
the long term, through the successful investment in, and subsequent exit from, technology-based companies, leading to growth in
pre-tax profits and net assets per share, as well as growth in the Group’s total assets under management together with an increasing
annual dividend.
Accordingly, the Committee seeks to provide a fair, balanced, competitive and affordable remuneration package for its Executive
Directors and all other 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-determined and largely financial objectives. For Executive Directors,
the main elements of their remuneration package are base salary, an annual performance-related bonus scheme and participation
in the Group’s long-term share option scheme, carried interest and performance plans. Other benefits include employer contributions
to a defined contribution personal pension scheme, life assurance, private health insurance and permanent health insurance. Only
base salaries are pensionable.
In December 2020 the Committee commissioned an external remuneration review. The remuneration consultants were asked to
consider both short and long-term remuneration structures for the Group’s senior Executive Team, as well as a number of other
senior investment roles. Existing base salaries, which had not been increased in 2020 due to the economic impact of the pandemic,
were reviewed against a listed peer group and were found to be in the lower quartile for that group. These base salaries were
subsequently increased for the year to 31 March 2021. No changes were recommended to existing bonus and benefits policies,
but the review also recommended the introduction of a new Executive performance share plan (“PSP”) linked to total shareholder
return. Following extensive consultation with the Company’s Nominated Adviser and leading shareholders, a new long-term
incentive plan was announced for the four senior executives on 12 July 2021, with effect from 1 April 2021.
Having, as in previous years, agreed to a maximum bonus award of up to 100% of base salary for exceptional performance in the
year to 31 March 2023, the Committee initially determined once again that any bonus award would be payable in cash up to 50%
of base salary with the remainder in a form of restricted Mercia shares. The agreed criteria for determining the ultimate award were:
i) FuM performance – 30% weighting;
ii) Total shareholder return – 45% weighting; and
iii) ESG progress, high-performing teams and Mercia core values – 25% weighting.
In determining the bonus payable for the year to 31 March 2023, the Committee first noted that the Group’s financial performance
was, for the third year running, achieved without having to apply for any Government-backed financial support, nor delay any
payments to HMRC or suppliers.
Having considered the financial performance of the Group and the continuing successful leadership of the senior executives against
each of the above criteria, the Committee awarded 55% bonuses to each of the four senior executives. The Committee has agreed
that on this occasion, the full bonus award will be paid in cash.
The Committee has agreed to a maximum bonus of 100% of base salary depending upon the Group’s performance for the year
to 31 March 2024, with the bonus award payable in cash up to 50% of base salary and the remainder settled in cash, with the net
payment receivable applied in purchasing shares in Mercia, which will be held for a minimum of one year.
Governance 52
Mercia Asset Management PLC
Annual Report & Accounts 2023
Remuneration report continued
The agreed criteria for determining the ultimate award are as per last year, namely:
i) FuM performance – 30% weighting;
ii) Total shareholder return – 45% weighting; and
iii) ESG progress, high-performing teams and Mercia core values – 25% weighting.
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 OBE
Diane Seymour-Williams
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE
Date
of appointment
15 December 2014
15 December 2014
17 April 2018
15 December 2014
3 November 2020
15 December 2014
22 December 2017
12 June 2018
Annual
salary
£’000
298
243
243
88
50
42
49
42
Notice
period
6 months
6 months
6 months
3 months
3 months
3 months
3 months
3 months
The following Non-executive Director annual salary bandings, as approved by the full Board, apply for the foreseeable future:
• Chair – £87,980
• Senior Independent Director – £50,350
• Committee Chair – £48,760
• Non-executive Director – £42,400.
Equity-based incentive schemes
The Group has a number of long-term incentive and retention 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 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 Mercia 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 methodology for determining the market value of an Ordinary share for all grants of options under the Mercia CSOP has 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.
All awards are subject to a performance condition. The performance condition requires that the total shareholder return from the
date of grant to the third anniversary, is not less than 6% (compound) per annum for CSOPs issued up to and including 28 January
2020 and then from 1 April 2022 to 31 March 2023, and 8% (compound) per annum for options issued between 29 January 2020 and
31 March 2022. Where the performance condition has not been achieved on the third anniversary or if an employee leaves before
the third anniversary, those options lapse.
Annual Report & Accounts 2023
Mercia Asset Management PLC
53
In the year to 31 March 2023, new share option awards were granted to a number of staff. The total number of options in issue as at
31 March 2023 was 28,598,579, split between 1,540,714 of options which were exercisable as at 31 March 2023 following the vesting
of January 2020 issued options during the year, and 27,057,865 which were not exercisable. Included in the options in issue as
at 31 March 2023 are 1,998,439 2022 SAYE Options (described below) and 8,800,000 Performance Share Plan options granted to
the four senior executives in 2021 (2022: 25,507,139, none of which were exercisable and included 8,800,000 Performance Share
Plan options).
The Mercia Save As You Earn (“SAYE”) Plan
On 29 June 2022, the Company adopted the SAYE Option Plan Rules 2022 (“SAYE Rules”) to support the Company’s SAYE share
option scheme (“SAYE Scheme”), established with Equiniti Group as the scheme provider.
On 15 September 2022, all employees of the Company with continued employment of at least six months were invited to join the
SAYE Plan. In accordance with the SAYE Rules and as approved by HMRC, the price of the SAYE share options offered to employees
(“2022 SAYE Options”) was the closing share price of the Company on the last business day before the invitation (being 30.25 pence)
discounted by 20% (being 24.20 pence, the “Option Price”).
The 2022 SAYE Options are connected to a three-year savings contract which commenced on 1 November 2022. The Bonus Date
of the savings plan is 1 November 2025 and the SAYE Options are exercisable within six months of the Bonus Date. The Options may
be exercised earlier than the Bonus Date in the limited circumstances specified in the SAYE Plan.
Fifty-one employees applied to join the scheme subscribing for an aggregate of 2,028,191 2022 SAYE Options, which were granted
on 9 September 2022. As at 31 March 2023, a total of 1,998,439 2022 SAYE Options were in issue. These options are included within
the 10% limit referred to above.
The Mercia Carried Interest Plans (“CIPs”)
Mercia Asset Management operates CIPs 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 and the third plan period ran from 1 April 2019 to 31 March 2021. The fourth plan commenced
on 1 April 2021 and ran to 31 March 2023.
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, after 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 to AIM 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. No payments to Plan Participants under
the CIPs have yet been made.
Directors’ remuneration
The aggregate remuneration received by the Directors who served during the year is set out below:
Executive Directors
Dr Mark Payton
Martin Glanfield
Julian Viggars
Non-executive Directors
Ian Metcalfe OBE
Diane Seymour-Williams
Ray Chamberlain
Dr Jonathan Pell
Caroline Plumb OBE
Salaries payable
Pension contributions
Taxable benefits
Performance-related
bonus
Total
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
2023
£’000
2022
£’000
281
229
229
83
48
40
46
40
270
220
220
83
48
40
46
40
31
25
25
–
–
–
–
–
30
24
24
–
–
–
–
–
996
967
81
78
2
4
3
–
–
–
–
–
9
2
3
3
–
–
–
–
–
8
155
126
126
230
187
187
–
–
–
–
–
–
–
–
–
–
469
384
383
83
48
40
46
40
532
434
434
83
48
40
46
40
407
604
1,493
1,657
Mercia reimburses the reasonable expenses incurred by its Non-executive Directors and may settle any tax and National Insurance
due on such payments where relevant.
Governance 54
Mercia Asset Management PLC
Annual Report & Accounts 2023
Remuneration report continued
Mercia Fund Management Phantom Carried Interest Plans (“MFM Plan”)
The Group’s wholly owned subsidiary, Mercia Fund Management Limited (“MFM”) raises annual EIS funds. The fee structure for each
fund includes a performance incentive. MFM is entitled to a performance incentive equivalent to 20% of the return achieved by each
fund over a hurdle of £1.05 per £1.00 invested in qualifying companies. Since 1 August 2015, MFM has adopted an MFM Plan for each
EIS fund raised. The purpose of the MFM Plan is to incentivise and retain those Mercia employees directly involved in the raising,
investment, realisation and administration of each EIS fund. Up to 45% of any receipts by MFM under the performance incentives
for each fund raised, is payable as a bonus to those staff. Any bonuses due to staff are paid half yearly and are subject to Income Tax.
As a result of a number of successful MFM Plan exits, the following bonuses were paid during the year:
Executive Directors
Dr Mark Payton
Martin Glanfield
Julian Viggars
Year ended
31 March 2023
£’000
Year ended
31 March 2022
£’000
161
11
89
261
–
–
–
–
Calculations supporting the amounts payable under the MFM Plans are independently verified prior to settlement.
2021 Performance Share Plan (“PSP”)
On 9 July 2021, the Remuneration Committee put in place a PSP to align the incentives of the Executive Directors with the future
performance of the business and shareholders’ interests. The PSP comprises 8,800,000 nil cost options awarded to the four senior
executives under the existing 2014 CSOP. These PSP options, which are subject to the satisfaction of a performance condition,
may vest on the third anniversary of the date of grant and are subject to a subsequent two-year holding period. The number
of PSP options which ultimately vest will depend on the Company’s total shareholder return (“TSR”) over a performance period
of three financial years, starting on 1 April 2021. The number of PSP options vesting will be calculated as follows:
• 50% of the PSP options will vest based on the achievement of 10% TSR over the three-year performance period.
• Vesting will then increase on a straight-line basis to full vesting for the achievement of 20% TSR.
TSR will be measured using the average share price for the three days immediately prior to 31 March 2024. The PSP options granted
to the four senior executives are subject to typical malus and clawback provisions.
Share options
The number of options over Mercia Asset Management’s Ordinary shares, held by Directors as at 31 March 2023, are set out below:
Executive Directors
Dr Mark Payton
Martin Glanfield
Julian Viggars
Number of options
As at 31 March
2023
As at 31 March
2022
946,502*
1,880,000
2,596,430
823,045**
1,600,000
2,113,652
823,045**
1,600,000
2,113,652
946,502
1,880,000
2,596,430
823,045
1,600,000
2,113,652
823,045
1,600,000
2,113,652
Date of grant
Type of interest
Exercise price
Period of exercise
28 Jan 2020
21 Aug 2020
9 Jul 2021
28 Jan 2020
21 Aug 2020
9 Jul 2021
28 Jan 2020
21 Aug 2020
9 Jul 2021
CSOP
CSOP
PSP
CSOP
CSOP
PSP
CSOP
CSOP
PSP
24.30p
21.50p
0.001p
24.30p
21.50p
0.001p
24.30p
21.50p
0.001p
28 Jan 2023 to 27 Jan 20301
21 Aug 2023 to 20 Aug 20302
9 July 20243
28 Jan 2023 to 27 Jan 20301
21 Aug 2023 to 20 Aug 20302
9 July 20243
28 Jan 2023 to 27 Jan 20301
21 Aug 2023 to 20 Aug 20302
9 July 20243
*
Following satisfaction of the performance condition, 946,502 of options held by Dr Mark Payton vested on 28 January 2023, with one-third exercisable from 28 January 2023,
one-third from 28 January 2024 and the remaining one-third from 28 January 2025. As at 31 March 2023, 315,501 of these options were exercisable.
** Following satisfaction of the performance condition, 823,045 of options held by Martin Glanfield and 823,045 of options held by Julian Viggars vested on 28 January 2023, with
one-third exercisable from 28 January 2023, one-third from 28 January 2024 and the remaining one-third from 28 January 2025. As at 31 March 2023, 274,348 of options held
by Martin Glanfield and 274,348 of options held by Julian Viggars were exercisable.
1 Of the total options which vested on 28 January 2023, none of the 315,501 options held by Dr Mark Payton, 274,348 held by Martin Glanfield and 274,348 held by Julian Viggars
were exercised in the subsequent period to 31 March 2023, and so remained outstanding as at 31 March 2023. A further one-third will become exercisable from 28 January 2024
with the final one-third from 28 January 2025.
2 The options will be exercisable as to one-third from 21 August 2023, one-third from 21 August 2024 and the remaining one-third from 21 August 2025, if the performance condition is met.
3 The PSP options will vest on 9 July 2024 subject to satisfaction of the performance condition. If the performance condition is met, the shares issued and allotted are subject to
a two-year lock-in period from 9 July 2024 to 8 July 2026.
Annual Report & Accounts 2023
Mercia Asset Management PLC
55
Directors’ share interests
The interests of the Directors and their connected persons in the Ordinary shares of Mercia Asset Management PLC are set out below:
Ian Metcalfe OBE1
Dr Mark Payton1, 2
Martin Glanfield1, 2
Julian Viggars1
Diane Seymour-Williams
Ray Chamberlain3
Dr Jonathan Pell
Caroline Plumb OBE
Number of
Ordinary shares
as at 31 March
2023
Number of
Ordinary shares as
at 31 March
2022
357,709
7,184,876
1,599,118
978,640
250,000
65,194,766
–
40,000
292,609
7,021,604
1,466,887
846,385
250,000
65,194,766
–
40,000
1
2
In July 2022, Ian Metcalfe OBE, Dr Mark Payton, Martin Glanfield and Julian Viggars each increased their shareholding in Mercia Asset Management PLC by purchasing
65,100 shares, 163,272 shares, 132,231 shares and 132,255 shares respectively.
In January 2022, a person closely associated with Dr Mark Payton, and Martin Glanfield, each increased their shareholding in Mercia Asset Management PLC by purchasing
12,793 shares and 39,470 shares respectively.
3 Ray Chamberlain is indirectly interested in 65,194,766 Ordinary shares via the Forward Innovation Fund (39,272,336 Ordinary shares), Croftdawn Limited (3,994,786 Ordinary
shares), Mercia Growth Nominees Limited (126,436 Ordinary shares) and Forward Nominees Limited (21,801,208 Ordinary shares as nominee for certain members of the
Chamberlain family and close associates, including Ray Chamberlain).
Diane Seymour-Williams
Chair of the Remuneration Committee
3 July 2023
Governance 56
Mercia Asset Management PLC
Annual Report & Accounts 2023
Independent auditor’s report
to the members of Mercia Asset Management PLC
Opinion on the financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March
2023 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
•
We have audited the financial statements of Mercia Asset Management PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 March 2023 which comprise the Consolidated statement of comprehensive income, the Consolidated statement
of financial position, the Company balance sheet, the Consolidated statement of cash flows, the Consolidated and Company’s statement
of changes in equity and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
UK adopted international accounting standards. 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 Financial Reporting
Standard 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain 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 FRC’s Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Parent
Company’s ability to continue to adopt the going concern basis of accounting included:
• Assessing the forecast cash flows that support the Directors’ assessment of going concern to check that they are in line with our
expectations based on our understanding of the Group. Key assumptions include forecast direct investment, forecast revenues
and investment realisations. These have been reviewed against current performance, availability of cash resources and the other
stress tested scenarios;
• Evaluating the Directors’ method of assessing going concern in light of market volatility; and
• Calculating financial ratios to consider the financial health of the Group and Parent Company.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Overview
Coverage1
Key audit matters
95% (2022: 97%) of Group profit after tax
89% (2022: 96%) of Group revenue
96% (2022: 99%) of Group total assets
Valuation of Unquoted Investments
Revenue Recognition
Valuation of Goodwill and Intangible Assets
Acquisition of Frontier Development Capital Limited
2023
2022
1 These are areas which have been subject to a full scope audit by the group engagement team and specified audit procedures performed by the group engagement team and the
component auditor teams.
Annual Report & Accounts 2023
Mercia Asset Management PLC
57
Materiality
Group financial statements as a whole:
2023: The materiality for the Group was set at £5,200,000 based on 2.5% of net assets.
2022: The materiality for the Group was set at £5,000,000 based on 2.5% of net assets.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system
of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk
of management override of internal controls, including assessing whether there was evidence of bias by the Directors that
may have represented a risk of material misstatement.
The scope of our Group audit included those Group entities which were deemed to be significant components as a result of their
contribution to the material balances in the consolidated statement of comprehensive income and consolidated statement of
financial position of the Group as well as those that are qualitatively significant to the Group. The significant components included
Mercia Asset Management PLC (stand-alone), Mercia Fund Management Limited, and Enterprise Ventures Limited. The financial
information of all significant components were subject to full scope audits with EV Business Loans Limited, Mercia Investments
Limited and Frontier Development Capital Limited, the non-significant components, subject to procedures, including specific
testing and analytical procedures. All procedures were performed by the Group engagement team.
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, including 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.
Key audit matter
Revenue
Recognition
(Note 1
and 3 to the
financial
statements)
Revenue is earned through the following ways:
– Fund management fees,
– Initial management fees,
– Portfolio director’ fees,
– VCT share offer fees,
– Exceptional performance fees,
– Custodian fees and Business services fees
(other revenue).
How the scope of our audit addressed the key audit matter
We assessed whether the accounting policies of
the Group are in accordance with the applicable
accounting standards.
A sample of fund management fees due from the
limited partnerships were recalculated based on the
underlying Limited Partnership Agreements in place
between the general partner and the fund.
There is a risk that fund management fees are
not calculated or recognised in accordance with
relevant accounting standards or the relevant
Limited Partnership Agreements or investment
management agreements.
In relation to the Enterprise Investment Scheme funds,
a sample of annual fund management fees were
recalculated using the investment memorandums
and commitments were agreed to custodian reports,
where applicable.
Having regard to the potential for fraud in relation
to revenue recognition, we consider this risk most
prevalent in areas subject to potential manipulation or
judgement. For example fees based on an unlisted NAV.
In respect of initial management fees and portfolio
directors’ fees there is a risk that these are not
recorded in the correct period in accordance with
the requirements of applicable accounting standards.
In respect of VCT share offer and custodian fees
there is a risk that these are not correctly calculated.
In relation to the VCT share offer and custodian fees,
a recalculation was performed based on the NAV,
agreeing this to audited or half year financial statements.
Initial management fees and portfolio director fees
were sampled, agreed to the signed funding agreement
and recalculated to determine whether they were
recognised in the correct period.
Key observations
Based on the procedures performed we consider that
revenue has been recognised appropriately.
Due to the risks attaching to the various revenue
streams, we considered revenue recognition to
be a key audit matter.
Financial statements 58
Mercia Asset Management PLC
Annual Report & Accounts 2023
Independent auditor’s report continued
to the members of Mercia Asset Management PLC
Key audit matters continued
Key audit matter
Valuation of
Unquoted
investments
(Note 1 and
19 to the
financial
statements)
The share price valuation of
the Group is driven in part by
the value of the investments
in the Consolidated Statement
of Comprehensive Income.
There is a high level of
estimation uncertainty involved
in determining the valuation of
the unquoted investments in the
portfolio. Investments are also
the most significant balance
contributing to the Net Asset
Value (NAV) of the Group, and
therefore may be subject to
management bias.
How the scope of our audit addressed the key audit matter
For a sample of loans held at fair value we:
– Agreed security held to supporting documentation
– Considered the assumption that fair value is not significantly different to
cost by challenging the assumption that there is no significant movement
in the market interest rate since acquisition and considering the “unit of
account” concept
– For the Convertible Loan Notes (“CLNs”) we have challenged management
on whether accrued interest should be included in the valuation of these
on the basis of future recoverability.
For a sample of unquoted investments, we performed the following procedures
where relevant:
– Checked whether the valuation had been prepared by a suitably
qualified individual
– Considered whether a valid International Private Equity and Venture
Capital Valuation (“IPEV”) methodology had been adopted
– Verified whether the valuation used up to date trading information.
We tested a sample of 92% of the unquoted investment portfolio by value
of investment holdings.
Valuations based on cost/price of recent investment
For valuations based on cost or price of recent investment, we checked the
recent investment to supporting documentation and, where relevant, reviewed
the calibration of fair value using an alternative valuation methodology and
considered the Investment Manager’s determination of whether there were any
reasons why the valuation and the valuation methodology was not appropriate
at 31 March 2023.
Valuations based on indicative offers
For such investments we performed the following procedures for all investments
within our sample:
– Considered whether the valuation methodology is the most appropriate
in the circumstances under the IPEV Guidelines
– Checked the arithmetic accuracy of the investment valuations
– Verified and benchmarked key inputs and estimates, i.e. the indicative offer
to independent information.
Valuations based on multiples
For such investments we performed the following procedures for all investments
within our sample:
– Considered whether the valuation methodology is the most appropriate
in the circumstances under the IPEV Guidelines
– Checked the arithmetic accuracy of the multiples-based investment valuations
– Verified and benchmarked key inputs, and estimates, i.e. the multiples,
to independent information such as broker supplied multiples.
Key observations
Based on the procedures performed we consider the methodology and
assumptions used by management to value the investments to be appropriate.
Annual Report & Accounts 2023
Mercia Asset Management PLC
59
Key audit matter
Valuation of
Goodwill and
Intangible
Assets (Note
1, 15 and 16
to the
financial
statements)
The Group is required by
applicable accounting standards
to undertake an annual
impairment review of all
assets including goodwill.
The impairment assessment
was required for each of the
three cash generating units.
This assessment has been
included as a key audit matter
due to the significance of
the goodwill and intangible
assets balance at year end
and the level of management
judgement inherent in the
impairment assessment.
Acquisition
of Frontier
Development
Capital
Limited
(Notes 1 and
14 of the
Financial
Statements)
During the year the Group
acquired Frontier Development
Capital Limited (”FDC).
Associated with this acquisition
are intangible assets that
need to be recognised upon
acquisition, as well as any
goodwill from this acquisition.
There is a considerable amount
of subjectivity in valuing
intangibles of this nature.
The accounting treatment of
acquisitions under IFRS 3 can
be complex. In particular any
split between consideration
and post combination
remuneration along with the
split of consideration between
cash and share-based payments
are complex areas that are
susceptible to error.
For these reasons, the
acquisition of Frontier
Development Capital Limited
was determined to be a key
audit matter.
How the scope of our audit addressed the key audit matter
We have obtained and read Management’s impairment assessment of goodwill
and intangible assets.
We have considered whether the key assumptions and judgements used in
Management’s impairment assessment were appropriate and reasonable.
These included review of the value in use calculations as well as profitability
of each CGU since inception, underlying management contracts and the
investment track records. We corroborated key assumptions to the financial
performance of each CGU and those of the underlying funds.
For amounts recognised as goodwill and intangible assets, we have performed
sensitivity analysis to identify whether there is a suitable amount of headroom
before the goodwill or intangible assets shows signs of potential impairment. In
addition, we have assessed current year performance indicators against budgets
i.e. profitability, revenue growth and other indicators such as cash on hand and
net asset value to ascertain whether there were any indicators of impairment.
We have considered the reasonability of forecast cash flows by performing
an assessment of the performance of the underlying VCT’s over the year based
on the division’s year to date results, inquiries with Management and inspection
of Board Meeting Minutes.
Key observations
Based on the work performed we did not identify any indications that the
carrying value of goodwill and intangible assets is inappropriate.
We obtained, read and assessed the valuation of the intangible asset performed
by Management and reviewed by Management’s expert. We assessed the
independence, objectivity, capability and credentials of Management’s expert
before engaging our own internal valuations experts to assist with challenging
the key assumptions, such as discount rate applied, underlying the valuation.
We read the relevant paragraphs of IFRS 3 Business Combinations and
compared this to management’s treatment to ensure the accounting treatment
adopted is reasonable.
When considering the cash flow forecasts used to value the intangible,
we challenged the appropriateness of revenue figures, anticipated growth,
staff costs and period of recognition (based on the likely life of the funds).
We tested the accuracy of the fair value calculation.
We tested the amount of the consideration recognised. As this is formed of
initial and deferred consideration, we tested both of these items to the relevant
agreement and bank statements (where already paid), considering also the
recognition criteria applied to the deferred consideration. Where expenses
have been declared as acquisition-related costs we ensured that they meet
the criteria for being recognised as such.
We considered the accounting treatment of the deferred tax liability being
recognised with regards to the intangible asset, ensuring the tax rate used
is the correct one and that deferred tax has been appropriately included
in the goodwill calculation.
We agreed cash to supporting documentation and performed analytical review
procedures on the acquisition date balance sheet to assess the appropriateness
of the fair values.
Key observations
Based on the work performed we did not identify any indications that the
carrying value of goodwill and acquired intangible assets is inappropriate.
Financial statements 60
Mercia Asset Management PLC
Annual Report & Accounts 2023
Independent auditor’s report continued
to the members of Mercia Asset Management PLC
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements.
We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions
of reasonable users that are taken on the basis of the financial statements.
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these
levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance
materiality as follows:
2023
2022
Group financial statements
£
Parent Company financial
statements
£
Group financial statements
£
Parent Company financial
statements
£
Materiality
5,200,000
3,700,000
5,000,000
3,800,000
Basis for determining materiality
2.5% of net assets
2.5% of net assets
2.5% of net assets
2.5% of net assets
Rationale for the benchmark
applied
Performance materiality
Basis for determining
performance materiality
In setting materiality, we have focused on the needs of the users of the financial statements
and their interests which are likely to be more in the statement of financial position as the
purpose of the Group and Parent Company is long-term shareholder value. Therefore, net
assets was considered to be the most appropriate benchmark as this is the ultimate value
of the Group and Parent Company that shareholders would receive.
3,800,000
2,500,000
3,500,000
2,600,000
70% of materiality
The level of performance materiality applied was set after having considered a number
of factors including the level of transactions in the year and significant areas subject to
estimation together with our assessment of the Group’s and Parent Company’s overall
control environment, the expected total value of known and likely misstatements and
the level of transactions in the year.
Component materiality
For the purposes of our Group audit opinion, we set materiality for each significant component of the Group, apart from the Parent
Company whose materiality is set out above, based on a percentage of between 2.5% and 73% (2022: 2.2% and 76% ) of Group
materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component
materiality ranged from £127,000 to £3,800,000 (2022: £38,000 to £3,800,000). In the audit of each component, we further applied
performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £260,000 (2022:
£187,500). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report
and accounts other than the financial statements and our auditor’s report thereon. 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
We have nothing to report in this regard.
Annual Report & Accounts 2023
Mercia Asset Management PLC
61
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report and Directors’ report
Matters on which we are required to
report by exception
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 Parent Company
and its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
– 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; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
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.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below:
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates,
and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We considered
the significant laws and regulations to be compliance with the applicable accounting frameworks, Companies Act 2006, the FCA
listing and AIM rules and the principles of the QCA Corporate Governance Code.
Our tests included, but were not limited to:
• obtaining an understanding of the control environment in monitoring compliance with laws and regulations;
• agreement of the financial statement disclosures to underlying supporting documentation;
• enquiries of management and those charged with governance; and
•
review of minutes of board meetings throughout the year.
Financial statements 62
Mercia Asset Management PLC
Annual Report & Accounts 2023
Independent auditor’s report continued
to the members of Mercia Asset Management PLC
Auditor’s responsibilities for the audit of the financial statements continued
Extent to which the audit was capable of detecting irregularities, including fraud continued
We assessed the susceptibility of the financial statements to material misstatement, including fraud. Our audit work focussed
on revenue recognition, the valuation of unquoted investments and the valuation of goodwill and intangible assets, where the
risk of material misstatement due to fraud is the greatest (refer to the Key Audit Matter section). We also:
• Obtained independent evidence to support the ownership of investments;
• Recalculated fund management fees in total; and
• Obtained independent confirmation of bank balances.
In addressing the risk of management override of controls we sample tested journals to supporting documentation and evaluated
whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members
who were deemed to have the appropriate competence and capabilities and remained alert to any indications of fraud or
non-compliance with laws and regulations throughout the audit.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the
events and transactions reflected in the financial statements, the less likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the Parent Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Vanessa-Jayne Bradley (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
3 July 2023
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Consolidated statement of comprehensive income
For the year ended 31 March 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
63
Revenue
Administrative expenses
Realised (loss)/gains on sale of direct investments
Fair value movements in direct investments
Share-based payments charge
Amortisation of intangible assets
Movement in fair value of deferred consideration
Operating profit before exceptional item
Exceptional item
Operating profit
Finance income
Finance expense
Profit before taxation
Taxation
Profit and total comprehensive income for the year
Basic earnings per Ordinary share (pence)
Diluted earnings per Ordinary share (pence)
All results derive from continuing operations.
The notes on pages 67 to 89 are an integral part of these financial statements.
Year ended
31 March
2023
£’000
25,881
(21,001)
(849)
1,201
(1,049)
(2,337)
(1,462)
384
(372)
12
2,428
(31)
2,409
427
2,836
0.64
0.63
Year ended
31 March
2022
£’000
23,183
(17,857)
9,878
11,385
(1,109)
(2,033)
(522)
22,925
–
22,925
4,452
(15)
27,362
(1,262)
26,100
5.93
5.82
Note
3
7
19
4
6
16
24
8
9
10
11
12
12
Financial statements 64
Mercia Asset Management PLC
Annual Report & Accounts 2023
Consolidated statement of financial position
As at 31 March 2023
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Right-of-use assets
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
Lease liabilities
Deferred consideration
Total current liabilities
Non-current liabilities
Lease liabilities
Deferred consideration
Deferred taxation
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Other distributable reserve
Retained earnings
Share-based payments reserve
Total equity
Note
15
16
17
18
19
20
21
21
22
23
24
23
24
25
26
27
28
As at
31 March
2023
£’000
20,892
18,159
122
842
136,550
176,565
3,787
279
37,555
41,621
As at
31 March
2022
£’000
16,642
15,713
113
417
119,558
152,443
1,074
5,235
56,049
62,358
218,186
214,801
(6,813)
(333)
(1,227)
(8,373)
(574)
(1,778)
(4,540)
(6,892)
(6,963)
(157)
(2,869)
(9,989)
(295)
–
(3,928)
(4,223)
(15,265)
202,921
(14,212)
200,589
4
83,744
63,266
51,341
4,566
4
81,644
66,919
48,505
3,517
202,921
200,589
The notes on pages 67 to 89 are an integral part of these financial statements.
The consolidated financial statements of Mercia Asset Management PLC, registered number 09223445, on pages 63 to 89 were
approved by the Board of Directors and authorised for issue on 3 July 2023. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Consolidated statement of cash flows
For the year ended 31 March 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
65
Cash flows from operating activities:
Operating profit
Adjustments to reconcile operating profit to net cash generated from
operating activities:
Depreciation of property, plant and equipment
Depreciation of right-of-use assets
Loss/(gains) on sale of direct investments
Fair value movements in direct investments
Share-based payments charge
Amortisation of intangible assets
Movement in fair value of deferred consideration
Working capital adjustments:
(Increase)/decrease in trade and other receivables
(Decrease)/increase in trade and other payables
Cash generated from operating activities
Corporation tax paid
Net cash generated from operating activities
Cash flows from direct investment activities:
Sale of direct investments
Purchase of direct investments
Investee company loan repayments
Investee company loan interest and redemption premiums received
Net cash (used in)/generated from direct investment activities
Cash flows from other investing activities:
Interest received from cash deposits
Purchase of property, plant and equipment
Acquisition of subsidiary undertaking
Cash acquired with purchase of subsidiary undertaking
Purchase of fund management contracts
Decrease/(increase) in short-term liquidity investments
Net cash used in other investing activities
Net cash used in total investing activities
Cash flows from financing activities:
Dividends paid
Interest paid
Payment of lease liabilities
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
Year ended
31 March
2023
£’000
Year ended
31 March
2022
£’000
Note
12
22,925
17
18
19
4
6
16
24
19
19
19
9
9
17
14
14
24
21
13
10
21
68
239
849
(1,201)
1,049
2,337
1,462
(1,087)
(709)
3,019
(1,819)
1,200
3,744
(20,778)
125
1,979
(14,930)
404
(77)
(6,951)
2,882
(2,100)
5,000
(842)
(15,772)
(3,653)
(31)
(238)
(3,922)
(18,494)
56,049
37,555
70
154
(9,878)
(11,385)
1,109
2,033
522
2,986
614
9,150
–
9,150
16,309
(19,884)
1,500
4,438
2,363
13
(76)
–
–
(2,100)
(5,000)
(7,163)
(4,800)
(2,641)
(15)
(136)
(2,792)
1,558
54,491
56,049
Financial statements 66
Mercia Asset Management PLC
Annual Report & Accounts 2023
Consolidated statement of changes in equity
For the year ended 31 March 2023
As at 1 April 2021
Profit and total comprehensive income
for the year
Dividends paid
Share-based payments charge
As at 31 March 2022
Issue of share capital
Profit and total comprehensive income
for the year
Dividends paid
Share-based payments charge
As at 31 March 2023
Issued
share capital
(note 26)
£’000
4
–
–
–
4
–
–
–
–
4
Share
premium
(note 27)
£’000
81,644
–
–
–
81,644
2,100
–
–
–
Other
distributable
reserve
(note 28)
£’000
69,560
–
(2,641)
–
66,919
–
–
(3,653)
–
Retained
earnings
£’000
22,405
26,100
–
–
48,505
–
2,836
–
–
83,744
63,266
51,341
Share-based
payments
reserve
£’000
Total
£’000
2,408
176,021
–
–
1,109
3,517
–
–
–
1,049
4,566
26,100
(2,641)
1,109
200,589
2,100
2,836
(3,653)
1,049
202,921
Notes to the consolidated financial statements
For the year ended 31 March 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
67
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 (the “Group”, “Mercia”) is a public limited company, incorporated and domiciled in England,
United Kingdom, and registered in England with registered number 09223445. Its Ordinary shares are admitted to trading
on the AIM market of the London Stock Exchange. The registered office address is Mercia Asset Management PLC, Forward House,
17 High Street, Henley-in-Arden, Warwickshire, B95 5AA.
Details of the Group’s activities and strategy are given in the Strategic Report which begins on page 1 of this Annual Report.
For the financial year ended 31 March 2023, the following subsidiaries of Mercia were entitled to exemption from audit under section
479A of the Companies Act 2006 relating to subsidiary companies:
Name
Mercia Investments Limited
Mercia Fund 1 General Partner Limited
Mercia (General Partner) Limited
Mercia Investment Plan LP
Mercia (Special Limited Partner) LP
Mercia VCT Nominee Limited
Mercia Company Secretarial Services Limited
Enterprise Ventures Group Limited
Enterprise Ventures (General Partner EVF/LEV) Limited
Enterprise Ventures (General Partner HSBC UK Enterprise Fund) Limited
Enterprise Ventures (General Partner HSBC UK European Fund) Limited
Enterprise Ventures (General Partner Coalfields) Limited
Enterprise Ventures (General Partner Coalfields Growth) Limited
Enterprise Ventures (General Partner EV Growth) Limited
Enterprise Ventures (General Partner EV Growth II) Limited
Enterprise Ventures (General Partner EVG II North West) Limited
Enterprise Ventures (General Partner FY Seedcorn) Limited
Enterprise Ventures (General Partner Midlands POC) Limited
Enterprise Ventures (General Partner NE Venture) Limited
Enterprise Ventures (General Partner NPIF YHTV Equity) Limited
Enterprise Ventures (General Partner NW Venture) Limited
Enterprise Ventures (General Partner RisingStars) Limited
Enterprise Ventures (General Partner RisingStars II) Limited
Enterprise Ventures (General Partner RSGF MPF) Limited
EV Business Loans Group Limited
EVBL (General Partner FY Small Loans) Limited
EVBL (General Partner EV SME Loans) Limited
EVBL (General Partner EV SME Loans II) Limited
EVBL (General Partner NPIF Y&H Debt) Limited
Frontier Development Capital Limited
FDC SPV Limited
FDC General Partner Limited
Company
number
09108131
03676974
09705072
LP016783
LP016780
10552972
14365190
04161494
02487876
02816740
03909893
04585313
06354288
06354293
10202807
11101233
07227779
10553329
10514693
10514398
07397841
04322437
05713861
08379651
07110694
07222495
08901773
12872349
10514387
09967393
12641163
11958527
In accordance with section 479C of the Companies Act 2006, Mercia Asset Management PLC will guarantee the debts and liabilities
of the above subsidiary undertakings.
Basis of preparation
The consolidated financial statements of Mercia Asset Management PLC have been prepared in accordance with UK-adopted
International Accounting Standards and the applicable legal requirements of the Companies Act 2006.
The preparation of financial statements under International Financial Reporting Standards (“IFRS”) 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 to these consolidated financial statements.
Financial statements 68
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
1. Accounting policies continued
Basis of preparation continued
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, Financial Instruments, and explained within the Group’s accounting policies.
Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements
are observable. These are described more fully below:
•
•
•
level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access
at the measurement date;
level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability,
either directly or indirectly; and
level 3 inputs are unobservable inputs for the asset or liability.
Going concern
Based on the Group’s balance sheet, including its liquidity position at the year end, its forecast future operating and investment
activities, the Directors have a reasonable expectation that the Group has adequate financial resources to manage business risks
in the current economic environment, and continue in operational existence for a period of at least 12 months from the date of this
report. 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). The financial statements of entities held within the Group’s direct investment portfolio are not included
within these consolidated financial statements, as the Group accounts for these in accordance with the IFRS 10 Investment Entity
exemption. 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:
the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
•
• potential voting rights held by the Group, other vote holders or other parties;
•
• any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the
rights arising from other contractual arrangements; and
relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.
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.
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 with transaction
costs expensed as incurred. Goodwill arising on acquisitions is tested annually for impairment. Deferred consideration payable to
the vendors is measured at fair value at acquisition and assessed annually with particular reference to the conditions upon which
the consideration is contingent.
Annual Report & Accounts 2023
Mercia Asset Management PLC
69
Direct investments
Investments that are held as part of the Group’s investment portfolio are carried at fair value. The Group does not consolidate or
apply IFRS 3 to subsidiaries held as direct investments as a result of applying the Investment Entity exemption in compliance with
IFRS 10. Direct investments held are measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments,
with changes in fair value recognised in the relevant period.
New standards, interpretations and amendments effective in the current financial year
No new standards, interpretations and amendments effective in the year have had a material effect on the Group’s
financial statements.
New standards, interpretations and amendments not yet effective
No new standards, interpretations and amendments not yet effective are expected to have a material impact on the Group’s
future financial statements.
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
is recognised when the Group satisfies its performance obligations, in line with IFRS 15. Revenue from services comprises:
Fund management fees
Fund management fees are generally earned as a fixed percentage of funds under management (“FuM”) and are recognised as the
related services are provided as the performance obligations are met. Amounts invoiced are recorded as deferred income, included
in current liabilities and then recognised in the consolidated statement of comprehensive income over the contractual period for
which the related services are provided. Cash receipts in relation to revenues earned are generally received shortly after the start
of the relevant invoicing period.
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. These one-off payments made by the investee company are recognised when the performance
obligation of providing those services is satisfied at a point in time, being upon completion of the investment. Cash receipts in
relation to revenues earned are generally received shortly after completion of the relevant 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 from annual
fund management fees and initial management fees. Amounts invoiced are recorded as deferred income, included in current
liabilities and then recognised in the consolidated statement of comprehensive income over the contractual period for which
the related services are provided, as performance obligations are met. Cash receipts in relation to revenues earned are generally
received shortly after the start of the relevant invoicing period.
VCT share offer fees
VCT share offer fees are typically earned from managed funds on a ‘percentage of funds raised’ basis. They are recognised in
the consolidated statement of comprehensive income upon completion of the fundraising as the performance obligation is met.
Cash receipts are received upon the allotment of shares to investors. Costs associated with the fundraising are recognised in the
consolidated statement of comprehensive income within administrative expenses when incurred.
Net exceptional performance fees
Net exceptional performance fees are earned when specified performance metrics exceed hurdles set out within VCT fund
management agreements. These fees are recognised in the consolidated statement of comprehensive income only when the
Group is entitled to receive a fee based on performance, the quantum of fee is known and it is highly probable that payment
will be received by the Group. Performance fees are received shortly after confirmation of entitlement. Directly attributable costs,
such as staff compensation linked to the performance in excess of the hurdle, are recognised in the consolidated statement of
comprehensive income within administrative expenses upon recognition of the performance fee.
Interest income
Interest income on debt investments made to direct portfolio investee companies, including any redemption premiums, is recognised
when it is highly probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.
Interest income earned on cash deposits and short-term liquidity investments is accrued on a time basis, by reference to the
principal outstanding and at the interest rate applicable.
Financial statements 70
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
1. Accounting policies continued
Exceptional item
The Group classifies items of income and expenditure as exceptional when, in the opinion of the Directors, the nature of the item or
its size is likely to be material, so as to assist the reader of the financial statements to better understand the results of the operations
of the Group. Such items are, by their nature, not expected to recur as part of the normal operation of the business and are shown
separately on the face of the consolidated statement of comprehensive income.
Leases
A lease is defined as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. All leases in excess of one year, where the Group is the lessee, are included on the Group’s statement of financial
position and recognised as a right-of-use asset with a related lease liability representing the obligation to make lease payments.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred. Subsequently, the right-of-use asset is
depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use
asset or the end of the lease term. The estimated useful lives of right-of-use property assets are determined on the same basis as
those of property and equipment. The estimated useful lives of right-of-use vehicle assets are determined on the length of the lease
term. The right-of-use assets are reviewed annually for impairment in accordance with IAS 36 Impairment of Assets.
The lease liability is initially measured as the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental
borrowing rate. Subsequently the lease liability decreases by the lease payments made, offset by interest on the liability, and may
be remeasured to reflect any reassessment of expected payments or to reflect any lease modifications.
Short-term leases (lease term of 12 months or less) and leases of low-value assets (which includes portable electronic devices, small
items of office furniture and fixed telephones) are expensed on a straight-line basis over the term of the lease and presented within
‘administrative expenses’ in the income statement.
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 statement of financial position.
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. Current and deferred tax are recognised in
the income statement, 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.
Annual Report & Accounts 2023
Mercia Asset Management PLC
71
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. 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 consider 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 cannot be offset by the Group’s brought forward
tax losses.
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’ FuM
acquired through the acquisition of Frontier Development Capital Limited (“FDC”) and, in respect of FuM, acquired through the
acquisition of the Venture Capital Trust (“VCT”) fund management business of NVM Private Equity LLP. At the date of acquisition,
the fair values of these contracts were calculated and subsequently the assets are held at amortised cost.
The fair value of the intangible assets arising from the acquisition of FDC is being amortised on a straight-line basis over the
expected average duration of the remaining fund management contracts of five years.
The fair value of the intangible assets arising from the acquisition of the VCT fund management business is being amortised
on a straight-line basis over the expected useful life of the fund management contracts, namely 10 years.
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
3 years
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 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 (“FVTPL”)) 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 FVTPL are recognised immediately in the income statement.
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 time frame established by the market concerned, and
are initially measured at fair value plus transaction costs, except for those financial assets classified as at 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.
Financial statements
72
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
1. Accounting policies continued
Financial instruments continued
Amortised cost
Financial assets are measured at amortised cost using the effective interest method, less any expected losses and are categorised
as financial assets held at amortised cost. The Group applies the simplified approach to trade receivables when recognising a loss
allowance within the financial statements, through the measurement of the expected credit loss of trade receivables at both initial
recognition and throughout the life of the receivable.
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.
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 the consolidated income statement.
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 the income
statement 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.
Annual Report & Accounts 2023
Mercia Asset Management PLC
73
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 between three and 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 to these
consolidated financial statements.
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 the consolidated statement of comprehensive income,
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 consolidated financial
statements gives further details on the Group’s segmental reporting.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies described in note 1, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods,
if the revision affects both current and future periods.
The Directors have made the following judgements and estimates, which have had the most significant effect on the carrying
amounts of the assets and liabilities in these consolidated financial statements.
Fair value measurements and valuation processes
The judgements required to determine the appropriate valuation methodology of unquoted equity investments mean there is risk
of a material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision on whether or not
to impair or uplift investment valuations.
The fair value of unlisted securities is established using the International Private Equity and Venture Capital Valuation Guidelines
(“IPEVCVG”) as revised in December 2022.
Investments are measured at fair value at each measurement date. Fair value is the price that would be received to sell an asset in an
orderly transaction between market participants at the measurement date. A fair value measurement assumes that a hypothetical
transaction to sell an asset takes place in the principal market or, in its absence, the most advantageous market for the asset. For
quoted investments, available market prices will be the exclusive basis for the measurement of fair value for identical instruments.
For unquoted investments, the measurement of fair value requires the valuer to assume the underlying business or instrument
is realised or sold at the measurement date, appropriately allocated to the various interests, regardless of whether the underlying
business is prepared for sale or whether its shareholders intend to sell in the near future.
Financial statements 74
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
2. Critical accounting judgements and key sources of estimation uncertainty continued
Fair value measurements and valuation processes continued
In estimating fair value for an investment, the valuer should apply a methodology that is appropriate in light of the nature, facts
and circumstances of the investment in the context of the total investment portfolio and should use reasonable current market
data and inputs, combined with reasonable market participant assumptions. The price of recent investment can be used to estimate
the enterprise value, before allocating to the various interests. The Group believes that this is still the most relevant technique to
measure fair value for early-stage investments. However, it has also taken into consideration time elapsed, performance since the
investment round and external market events to help inform its judgements.
0-6 months post last funding round
The Group will apply the price of a recent investment for up to six months post the last funding round, subject to there being
no material change to the investee company’s prospects (which would include the prospects of drawing down the next tranche
or raising the next round of funding).
7-18 months post last funding round
Beyond the six months point, the Group seeks assurance that the investee company is progressing against the development
milestones which were set out in the initial assessment. Failing to hit milestones will not necessarily impact the valuation – this
may simply be an indicator that incremental value will take longer to deliver, but the performance against milestones is assessed
as an indicator of a potential change in value. The Group will be cautious about increasing the valuation of an early-stage investee
company, unless it is based on a new market price or maintainable revenues and/or earnings.
19+ months post last funding round
From this point onwards, the Group looks for additional support for the ‘price of recent investment’ by calibrating back to that using
a discounted cash flow (“DCF”) methodology. However, unless the investee company has become established with maintainable
revenues and/or earnings and can be valued on an earnings basis, given the inherent risk in early-stage investing and the lack of
reliability of using estimates yet to be delivered a number of years into the future, the Group is unlikely to increase the fair value,
even if a DCF calculation suggests a higher value. Nevertheless, the DCF calculation helps support the proposed fair value at the
valuation point.
Accounting for the acquisition of Frontier Development Capital Limited
On 5 December 2022, Mercia acquired the entire issued share capital of Frontier Development Capital Limited (“FDC”), including its
wholly owned subsidiaries, FDC General Partner Limited and FDC SPV Limited. The fund management contracts held by FDC have
been fair valued on a discounted cash flow basis. A post-tax discount rate of 15.0% has been used and is considered a significant
assumption. Should this discount rate be increased by 1.0%, the value of the fund management contracts would reduce by
£101,000, with goodwill increasing by a corresponding amount.
The expected useful life of five years is derived from the weighted average remaining life of FDC’s fund management contracts on
5 December 2022. Should it be increased by one year, the value of the fund management contracts would increase by £520,000 with
goodwill decreasing by a corresponding amount. Should the cash flows associated with these contracts increase by 5.0%, the value
of the fund management contracts would increase by £44,000 with goodwill decreasing by a corresponding amount.
Goodwill has been recognised as the difference between the fair value of consideration paid and the intangible asset recognised
upon acquisition. Further details are included in note 14 to these consolidated financial statements.
Valuation of contingent consideration
The fair value of the deferred consideration payable in respect of the acquisition of FDC is conditional upon certain conditions
being met.
The fair value has been derived from the assessed probability of each contingent consideration condition occurring being 90.0%,
discounted at an annual rate of 15.0%. Should the probability be reduced by 10.0% across all three conditions, the discounted value
of contingent consideration as at 31 March 2023 would reduce by £319,000.
The discount rate used to fair value the contingent consideration liability is reflective of the risk surrounding the conditions being
met. Should the discount rate be increased by 1.0%, the discounted value of the contingent consideration as at 31 March 2023 would
reduce by £39,000.
Further detail on the contingent consideration conditions is included in note 24 to these consolidated financial statements.
Annual Report & Accounts 2023
Mercia Asset Management PLC
75
3. Segmental reporting
The Group’s revenue and profits are derived from its principal activity within the United Kingdom.
IFRS 8 Operating Segments defines operating segments as those activities of an entity about which separate financial information
is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation
of resources. The Chief Operating Decision Maker has been identified as the Board of Directors. The Directors are of the opinion
that under IFRS 8 Operating Segments the Group has only one operating segment, being proactive specialist asset management,
because the results of the Group are monitored on a Groupwide basis. The Board of Directors assesses the performance of the
operating segment using financial information which is measured and presented in a consistent manner.
An analysis of the Group’s revenue is as follows:
Fund management fees
Initial management fees
Portfolio directors’ fees
Other revenue
VCT share offer fees
Exceptional performance fees
4. Fair value movements in direct investments
Fair value movements in direct investments (note 19)
Year ended
31 March
2023
£’000
17,593
3,680
2,934
343
1,331
–
25,881
Year ended
31 March
2023
£’000
1,201
Year ended
31 March
2022
£’000
14,957
2,456
2,969
194
–
2,607
23,183
Year ended
31 March
2022
£’000
11,385
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
2023
Number
89
27
116
Year ended
31 March
2022
Number
82
26
108
Central functions comprise senior management (including Executive and Non-executive Directors), finance, compliance, legal, IS/IT,
administration, people & 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 29)
Year ended
31 March
2023
£’000
11,804
1,706
856
14,366
Year ended
31 March
2022
£’000
10,972
1,243
746
12,961
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 51, which forms part of these consolidated financial statements.
Financial statements 76
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
6. Share-based payments charge
The Group operates a share option scheme for all employees of the Group and Executive Directors. Further details are set out on
pages 52 to 54 of the Remuneration Report.
Total options existing over Ordinary shares as at 31 March 2023 are summarised below:
Scheme
Date of grant
Date of expiry
Number of share options
Exercise price
Approved share option scheme
Unapproved share option scheme
28 January 2020
21 August 2020
9 July 2021
25 July 2022
28 January 2020
21 August 2020
9 July 2021
9 July 2021
25 July 2022
27 January 2030
20 August 2030
8 July 2031
24 July 2032
27 January 2030
20 August 2021
8 July 2031
9 July 2024
24 July 2032
1,271,113
1,021,878
860,779
2,117,562
3,281,027
8,015,122
689,221
8,800,000
543,438
24.30p
21.50p
38.50p
29.50p
24.30p
21.50p
38.50p
0.00p
29.50p
Approved SAYE scheme
9 September 2022
8 September 2025
1,998,439
24.20p
28,598,579
Details of the share options outstanding as at 31 March are as follows:
Share options outstanding as at 1 April
Granted during the year
Forfeited during the year
Lapsed during the year
Share options outstanding as at 31 March
Exercisable at the year end
Not exercisable at the year end
Share options outstanding as at 31 March
Year ended 31 March 2023
Year ended 31 March 2022
Weighted
average
exercise price
17.57p
27.53p
31.58p
33.50p
16.80p
Number of
share options
27,507,139
5,459,191
(1,899,751)
(2,468,000)
28,598,579
1,540,714
27,057,865
28,598,579
Number of
share options
20,784,140
11,020,000
(690,001)
(3,607,000)
27,507,139
–
27,507,139
27,507,139
Weighted
average
exercise price
25.37p
7.76p
27.11p
30.80p
17.57p
The options outstanding at 31 March 2023 had a weighted average remaining contractual life of two years (2022: two years). No share
options were exercised during the years ended 31 March 2023 or 31 March 2022.
Fair value charge
The fair value charge for the share options in issue is based on the following models and key assumptions:
Date of grant
28 January 2020
21 August 2020
9 July 2021
9 July 2021
25 July 2022
9 September 2022
Exercise
price
24.300p
21.500p
38.500p
0.001p
29.500p
24.200p
Share price
at date of
grant
24.300p
21.500p
38.500p
0.001p
29.500p
27.150p
Risk-free
rate
Dividend
yield
Assumed time
to exercise
Assumed
volatility
Fair value
per option
1.0%
0.5%
0.5%
0.5%
1.8%
3.0%
–
–
–
–
3.0%
3.0%
10 years
10 years
10 years
3 years
10 years
3 years
30%
40%
40%
40%
34%
33%
9.64p
10.45p
10.83p
18.85p
6.32p
6.14p
On the 25 July 2022, share options were granted with a total estimated fair value of £217,000.
On 9 September 2022, share options were granted as part of an employee SAYE scheme. Total options granted as part of the SAYE
scheme had a total estimated fair value of £125,000.
In the year ended 31 March 2022, share options were granted on the 9 July 2021 with an estimated fair value of £2,069,000.
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 over the preceding
three-year period to the date of grant.
Annual Report & Accounts 2023
Mercia Asset Management PLC
77
The Group did not enter into any share-based payment transactions with parties other than employees and Executive Directors
during the year.
The total charge for the year recognised in the consolidated statement of comprehensive income for share options granted to
employees and Executive Directors was £1,049,000 (2022: £1,109,000).
7. Operating profit
Operating profit is stated after charging:
Administrative expenses:
Staff costs (note 5)
Marketing, professional adviser, travel and entertainment and other administration costs
Depreciation of property, plant and equipment (note 17)
Depreciation of right-of-use assets (note 18)
Expenses relating to short-term leases and leases of low-value assets (note 23)
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:
– Review of the interim accounts of the Company
– The audit of accounts of subsidiaries of the Company
– Corporate finance services*
– CASS-related assurance services
*
Fees incurred in relation to the acquisition of Frontier Development Capital Limited.
Year ended
31 March
2023
£’000
14,366
5,634
68
239
427
153
22
77
120
15
Year ended
31 March
2022
£’000
12,961
4,150
70
154
327
115
20
46
–
14
8. Exceptional item
The exceptional item for the year ended 31 March 2023 relates to professional fees incurred in respect of the acquisition of Frontier
Development Capital Limited in December 2022.
9. Finance income
Finance income is derived from:
Cash deposits
Short-term liquidity investments
Investee company loans (interest and redemption premium)
Total interest income
10. Finance expense
Interest on lease liabilities
Total interest expense
Year ended
31 March
2023
£’000
404
45
1,979
2,428
Year ended
31 March
2023
£’000
31
31
Year ended
31 March
2022
£’000
12
2
4,438
4,452
Year ended
31 March
2022
£’000
15
15
Financial statements 78
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
11. Taxation
Current tax
UK corporation tax
Deferred tax
Origination and reversal of temporary timing differences
Effects of changes in tax rates
Total tax credit/(charge)
Year ended
31 March
2023
£’000
Year ended
31 March
2022
£’000
(157)
(706)
584
–
427
508
(1,064)
(1,262)
The UK standard rate of corporation tax is 19% (2022: 19%). The deferred tax credit of £584,000 (2022: £508,000) represents the
unwinding of the deferred tax liabilities recognised in respect of the intangible assets arising on the acquisition of the VCT fund
management business and Frontier Development Capital Limited.
A reconciliation from the reported profit to the total tax charge is shown below:
Profit before taxation
Tax at the standard rate of corporation tax in the UK of 19% (2022: 19%)
Effects of:
Income not subject to tax
Expenses not deductible for tax purposes
Share of partnership profits
Capital losses
Remeasurement of deferred tax for changes in tax rates
Other timing differences not recognised
Total tax credit/(charge)
Year ended
31 March
2023
£’000
2,409
(458)
589
(318)
(509)
234
140
749
427
Year ended
31 March
2022
£’000
27,362
(5,199)
4,039
(314)
(513)
–
252
473
(1,262)
An increase in the UK corporation tax rate from 19% to 25%, with effect from 1 April 2023, was substantively enacted on 24 May 2022.
The Group’s deferred tax liability has been calculated at a rate of 25% as at 31 March 2023 (2022: 25%).
A total deferred tax liability of £4,540,000 (2022: £3,928,000) as at 31 March 2023 relates to the intangible assets recognised on the
acquisition of FDC in December 2022, and the continued recognition of the intangible asset arising on the acquisition of the VCT
fund management business in 2019.
A potential deferred tax asset of £3,436,000 (2022: £4,442,000) for cumulative unrelieved management expenses and other tax losses
has not been recognised in these consolidated financial statements as their future use is uncertain.
12. 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:
Profit for the financial year (£’000)
Basic weighted average number of Ordinary shares (’000)
Basic earnings per Ordinary share (pence)
Diluted weighted average number of Ordinary shares (’000)
Diluted earnings per Ordinary share (pence)
Year ended
31 March
2023
2,836
441,156
0.64
449,348
0.63
Year ended
31 March
2022
26,100
440,110
5.93
448,466
5.82
Annual Report & Accounts 2023
Mercia Asset Management PLC
79
The calculation of basic and diluted earnings per share is based on the following data:
Weighted average number of shares
Basic
Dilutive impact of employee share options
Diluted weighted average number of Ordinary shares
13. Dividends
Dividends declared/proposed in respect of the year
Interim dividend declared in relation to year ended 31 March 2022
Final dividend declared in relation to year ended 31 March 2022
Interim dividend declared in relation to year ended 31 March 2023
Final dividend proposed in relation to year ended 31 March 2023
Total
Dividends paid during the year
Final dividend paid in relation to year ended 31 March 2021
Interim dividend paid in relation to year ended 31 March 2022
Final dividend paid in relation to year ended 31 March 2022
Interim dividend paid in relation to year ended 31 March 2023
Total
Year ended
31 March
2023
£’000
441,156
8,192
449,348
Year ended
31 March
2022
£’000
440,110
8,356
448,466
Year ended 31 March 2023
Year ended 31 March 2022
Pence
per share
–
–
0.33
0.53
0.86
£’000
–
–
1,452
2,367
3,819
Pence
per share
0.30
0.50
–
–
0.80
£’000
1,320
2,201
–
–
3,521
Year ended 31 March 2023
Year ended 31 March 2022
Pence
per share
–
–
0.50
0.33
0.83
£’000
–
–
2,201
1,452
3,653
Pence
per share
0.30
0.30
–
–
0.60
£’000
1,320
1,321
–
–
2,641
The final dividend for the year ended 31 March 2023 proposed by the Board of 0.53 pence per share, totalling £2,367,000, is subject
to shareholder approval at the AGM on 21 September 2023, and as such has not been included as a liability in these financial
statements in accordance with IAS 10.
14. Business combination
On 5 December 2022 the Group acquired the entire issued share capital of Frontier Development Capital Limited, including its
wholly owned subsidiaries FDC General Partner Limited and FDC SPV Limited, all of which are registered in England. The fair value
of the identifiable net assets acquired and the consideration paid under IFRS 3 are as follows:
Intangible asset
Tangible fixed assets
Right-of-use asset
Investments
Cash
Trade and other receivables
Trade and other payables
Lease liability
Deferred tax liability
Total identifiable net assets
Provisional policy
alignment and
fair value
adjustments
£’000
Pre-acquisition
carrying value
£’000
–
20
–
–
2,882
428
(1,341)
–
–
1,989
4,783
–
566
42
–
(42)
–
(566)
(1,196)
3,587
Total
£’000
4,783
20
566
42
2,882
386
(1,341)
(566)
(1,196)
5,576
Financial statements 80
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
14. Business combination continued
Under the terms of the acquisition agreement, the fair value of consideration paid to the vendors was:
Cash – initial consideration
Cash – net cash position
Cash consideration as shown in the consolidated statement of cash flows
Fair value of contingent consideration (note 24)
Less identifiable net assets
Goodwill
£’000
5,500
1,451
6,951
2,875
(5,576)
4,250
Revenue and profits
The Group has recognised the following results in respect of the post-acquisition period from 6 December 2022 to 31 March 2023.
Revenue
Operating profit
£’000
1,698
401
Prior to acquisition by the Group, FDC had a 30 November year end. The disclosure of the Group’s revenue and profit, had the
acquisition occurred on 1 April 2022, has not been presented as the determination of these amounts is impracticable.
Fair value
The fair value of fund management contracts held by FDC has been estimated using a discounted cash flow model. The estimated
cash flows have been valued at a discount of 15.0%, with the recognised intangible asset amortised over five years.
15. Goodwill
Goodwill arising on the businesses acquired to date is set out in the table below:
Cost
As at 1 April 2021 and 31 March 2022
Addition
As at 31 March 2023
Mercia Fund
Management
£’000
Enterprise
Ventures
Group
£’000
VCT fund
management
business
£’000
Frontier
Development
Capital
£’000
2,455
–
2,455
7,873
–
7,873
6,314
–
6,314
–
4,250
4,250
Total
£’000
16,642
4,250
20,892
Goodwill for each business acquired has been assessed for impairment as at 31 March 2023. Recoverable amounts for each cash
generating unit (“CGU”) are based on the higher of value in use and fair value, less costs of disposal (“FVLCD”).
The value in use calculations are based on future expected cash flows generated by each CGU, as derived from the approved budget
for the year ended 31 March 2024. Key assumptions are a discount rate of 12.0% and the growth rates used in forecasting future
operating results. Where the fund management contracts are ‘evergreen’, a value into perpetuity has been used based on a zero
growth rate beyond a five-year forecast period.
The review concluded that the value in use of each CGU exceeds its carrying value. The Directors do not consider that a reasonably
possible change in a key assumption would reduce the recoverable amount of the CGUs to below their carrying value.
Annual Report & Accounts 2023
Mercia Asset Management PLC
81
16. Intangible assets
Intangible assets represent contractual arrangements in respect of the acquisition of Enterprise Ventures Group in 2016,
the acquired VCT fund management business in 2019 and the acquisition of FDC in December 2022, where it is probable that
the future economic benefits that are attributable to those assets will flow to the Group and the fair value of the assets can
be measured reliably.
Cost
As at 1 April 2021 and 31 March 2022
Acquisition of a subsidiary
As at 31 March 2023
Accumulated amortisation
As at 1 April 2021
Charge for the year
As at 31 March 2022
Charge for the year
As at 31 March 2023
Net book value
As at 1 April 2021
As at 31 March 2022
As at 31 March 2023
17. Property, plant and equipment
Cost
As at 1 April 2021
Additions
As at 31 March 2022
Acquisition of a subsidiary
Additions
As at 31 March 2023
Accumulated depreciation
As at 1 April 2021
Charge for the year
As at 31 March 2022
Charge for the year
As at 31 March 2023
Net book value
As at 1 April 2021
As at 31 March 2022
As at 31 March 2023
£’000
21,835
4,783
26,618
4,089
2,033
6,122
2,337
8,459
17,746
15,713
18,159
Total
£’000
660
76
736
20
57
813
553
70
623
68
691
107
113
122
Leasehold
improvements
£’000
Furniture and
fixtures
£’000
Office
equipment
£’000
42
–
42
–
–
42
25
5
30
5
35
17
12
7
78
–
78
–
–
78
68
2
70
2
72
10
8
6
540
76
616
20
57
693
460
63
523
61
584
80
93
109
Financial statements 82
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
18. Right-of-use assets
Cost
As at 1 April 2021
Additions
As at 31 March 2022
Acquisition of a subsidiary
Additions
As at 31 March 2023
Accumulated depreciation
As at 1 April 2021
Charge for the year
As at 31 March 2022
Charge for the year
As at 31 March 2023
Net book value
As at 1 April 2021
As at 31 March 2022
As at 31 March 2023
Motor vehicles
£’000
Properties
£’000
Total
£’000
737
115
852
566
98
737
–
737
566
–
1,303
1,516
281
141
422
190
612
456
315
691
281
154
435
239
674
456
417
842
–
115
115
–
98
213
–
13
13
49
62
–
102
151
19. Investments
The net change in the value of investments for the year is an increase of £16,992,000 (2022: increase of £23,338,000). The table below
reconciles the opening to closing value of investments for both the current and prior years.
As at 1 April 2021
Investments made during the year
Investee company loan repayments
Disposals
Unrealised fair value gains on investments
Unrealised fair value losses on investments
As at 1 April 2022
Investments made during the year
Investments acquired during the year
Investee company loan repayment
Disposal
Unrealised fair value gains on investments
Unrealised fair value losses on investments
As at 31 March 2023
Level 1
financial
assets
£’000
4,488
–
–
–
–
(2,856)
1,632
–
–
–
–
–
(663)
969
Level 3
financial
assets
£’000
91,732
19,884
(1,500)
(6,431)
15,122
(881)
117,926
20,736
42
(125)
(4,862)
20,017
(18,153)
135,581
Total
financial
assets
£’000
96,220
19,884
(1,500)
(6,431)
15,122
(3,737)
119,558
20,736
42
(125)
(4,862)
20,017
(18,816)
136,550
On 4 January 2022, the Group completed the sale of its investment in Faradion Limited, generating a realised gain of £9,878,000.
Total cash proceeds of £19,402,000 were received upon completion, comprising £16,309,000 from the sale of the Group’s equity
holding, a loan repayment of £1,500,000, a loan redemption premium of £1,500,000 and loan interest of £93,000. Additional loan
redemption premiums and interest, totalling £738,000, converted into equity immediately prior to disposal of the Group’s total
equity holding.
On 18 January 2023, the Group sold its entire equity holding in Intechnica Holdings Limited, generating a realised gain of £1,793,000.
Proceeds of £3,731,000 were received on completion, with a further £269,000 received in May 2023.
On 28 January 2023, the Group sold its entire equity holding in Sense Biodetection Limited resulting in a realised loss of £2,644,000.
Proceeds received were in the form of an equity shareholding in Sherlock Biosciences Inc.
During the year ended 31 March 2023, the Group sold its equity holding in two other portfolio companies with total proceeds of
£13,000, resulting in a £2,000 realised gain.
Annual Report & Accounts 2023
Mercia Asset Management PLC
83
Investments held as part of the Group’s direct investment portfolio are carried at fair value in accordance with the IFRS 10
Investment Entity exemption. The measurement basis for determining the fair value of investments held at 31 March is as follows:
Listed investment
Price of recent investment round
Enterprise value
Cost
Impaired value1
As at
31 March
2023
£’000
969
79,522
52,912
3,147
–
As at
31 March
2022
£’000
1,632
62,233
37,772
5,625
12,296
136,550
119,558
1
Valued using valuation methodologies consistent with the Group’s accounting policy.
As at 31 March 2023, the Group held direct investments with an economic interest of 20% or more as follows:
Eyoto Group Limited
Impression Technologies Limited
Medherant Limited
Netacea Group Limited
nDreams Limited
Invincibles Studio Limited
sureCore Limited
Ton UK Limited t/a Intelligent Positioning
VirtTrade Limited t/a Avid Games
Warwick Acoustics Limited
Interest held
%
24.7
65.1
38.4
24.1
33.2
35.5
22.0
29.9
40.6
40.3
Net assets/
(liabilities)
£’000
(5,643)
6,322
185
(14,720)
23,286
(1,372)
(1,269)
3,128
(4,640)
9,233
Profit/(loss)
£’000
Date of
financial statements
(941)
(2,491)
(1,640)
(6,048)
(3,281)
349
(726)
(368)
(1,010)
(1,512)
31 December 2021
31 December 2022
31 March 2022
31 March 2022
31 March 2022
31 October 2021
30 June 2022
31 December 2021
31 August 2022
30 September 2022
As at 31 March 2022, the Group held direct investments with an economic interest of 20% or more as follows:
Impression Technologies Limited
Intechnica Group Limited
LM Technologies
Medherant Limited
nDreams Limited
Invincibles Studio Limited1
sureCore Limited
Ton UK Limited t/a Intelligent Positioning
VirtTrade Limited t/a Avid Games
Warwick Acoustics Limited
Interest held
%
Net assets/
(liabilities)
£’000
Profit/(loss)
£’000
67.3
24.1
48.3
33.1
33.2
39.0
22.0
29.9
40.6
40.0
(251)
(2,630)
(248)
(2,180)
(1,210)
(2,552)
(544)
3,497
(5,469)
4,301
(1,893)
(2,221)
(261)
(2,337)
(1,969)
137
(707)
(582)
(1,293)
(531)
Date of
financial statements
31 December 2020
31 March 2021
31 December 2021
31 March 2021
31 March 2021
31 October 2020
30 June 2021
31 December 2020
31 August 2021
30 September 2021
1
Formerly Soccer Manager Limited, prior to a change in registered name to Invincibles Studio Limited in March 2022.
20. Trade and other receivables
Current:
Trade and other receivables
Less: expected credit loss allowance
Net trade receivables
Corporation tax
Other receivables
Prepayments and accrued income
As at
31 March
2023
£’000
2,202
(550)
1,652
890
268
977
3,787
As at
31 March
2022
£’000
666
(318)
348
–
193
533
1,074
Financial statements 84
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
20. Trade and other receivables continued
The expected credit losses on trade receivables are estimated 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 Group has defined a default as the failure of a counterparty, including debtors, to discharge a contractual obligation
or commitment into which it has entered with the Group.
As at 31 March 2023, an amount of £550,000 (2022: £318,000) has been estimated as an expected credit loss allowance in accordance
with IFRS 9, in respect of trade receivables primarily from portfolio companies and private investors, and recorded against revenue
in the consolidated statement of comprehensive income. The Directors believe that the credit quality of trade receivables which are
within the Group’s typical payment terms is good.
The ageing of trade receivables is as follows:
Not past due
Past due 0-30 days
Past due 31-60 days
Past due more than 61 days
Year ended 31 March 2023
Year ended 31 March 2022
Gross
£’000
900
550
199
553
2,202
Expected credit
loss allowance
£’000
(14)
(3)
(112)
(421)
(550)
Gross
£’000
178
63
90
335
666
Expected credit
loss allowance
£’000
(11)
(6)
(39)
(262)
(318)
A reconciliation from the opening balance to the closing balance of the expected credit loss allowance in respect of trade receivables
is set out below:
As at 1 April
Increase in loss allowance
Amounts recovered
Amounts written off
As at 31 March
Year ended
31 March
2023
£’000
Year ended
31 March
2022
£’000
318
548
(144)
(172)
550
285
180
(147)
–
318
The net increase in the expected credit loss allowance of £232,000 (2022: £33,000) 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 disclosed.
21. Cash, cash equivalents and short-term liquidity investments
Total cash and cash equivalents
Total short-term liquidity investments
22. Trade and other payables
Trade payables
Corporation tax
Other taxation and social security
Other payables
Accruals and deferred income
As at
31 March
2023
£’000
37,555
279
As at
31 March
2023
£’000
279
–
388
1,490
4,656
6,813
As at
31 March
2022
£’000
56,049
5,235
As at
31 March
2022
£’000
412
706
854
733
4,258
6,963
Annual Report & Accounts 2023
Mercia Asset Management PLC
85
23. Lease liabilities
The Group holds leases for use of office premises and electric vehicles. In calculating the present value of the obligation to make
lease payments, the Group’s incremental borrowing rate has been used as the discount rate as the rates implicit in the leases are
not evident. The weighted average incremental borrowing rate applied to property lease liabilities recognised as at 31 March 2023
is 4.3% (2022: 3.3%). The average incremental borrowing rate applied to vehicle lease liabilities recognised as at 31 March 2023
is 4.0% (2022: 4.0%). As at 31 March 2023, the Group had no lease liabilities in respect of non-cancellable leases committed to
but not yet commenced (2022: none). The table below summarises the annual lease costs.
Depreciation expense
Interest expense
Low-value lease expense
Short-term lease expense
The maturity profile of the Group’s leases accounted for under IFRS 16 are set out in the table below:
Due within one year
Due between one and five years
24. Deferred consideration
Payable within one year
Payable within two to five years
Year ended
31 March
2023
£’000
239
31
370
57
Year ended
31 March
2022
£’000
154
15
316
11
As at
31 March
2023
£’000
333
574
907
As at
31 March
2023
£’000
1,227
1,778
3,005
As at
31 March
2022
£’000
157
295
452
As at
31 March
2022
£’000
2,869
–
2,869
In the year to 31 March 2023, the two final deferred consideration conditions included as part of the acquisition of the VCT fund
management business in 2019 were met. In settlement of the deferred consideration therefore due, a cash payment of £2,100,000
was made to the vendors in December 2022, in addition to the issue of Mercia Asset Management PLC Ordinary shares in January
2023 also with a value of £2,100,000. Settlement of both of these final deferred consideration amounts resulted in a fair value charge
to the income statement of £1,331,000.
On 5 December 2022, Mercia completed the acquisition of FDC for a total maximum cash consideration of £9,500,000, comprising
an initial cash consideration of £5,500,000, plus up to a maximum of £4,000,000 contingent consideration payable upon certain
post-acquisition conditions being met.
The deferred consideration has a fair value of £3,005,000 as at 31 March 2023, and is payable upon satisfaction of the following
conditions:
• The first condition is met if revenue for the 12-month period to 30 November 2023 exceeds a year-one revenue target. The value
of contingent consideration payable is up to a maximum of £1,500,000.
• The second condition is satisfied if revenue for the 12-month period to 30 November 2024 exceeds a year-two revenue target.
The value of contingent consideration payable is up to a maximum of £1,000,000.
• The final condition is met if a net new institutional third-party fundraising target, over a two-year period to 30 November 2024,
is achieved. Satisfaction of this target triggers £1,500,000 contingent consideration payable to the vendors.
The undiscounted value of contingent consideration payments that the Group could be required to make is up to £4,000,000.
Movement in the fair value of the FDC deferred consideration from 5 December 2022 to 31 March 2023 has resulted in a charge
to the income statement of £131,000.
Financial statements 86
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
25. Deferred taxation
Deferred tax liability
As at
31 March
2023
£’000
4,540
As at
31 March
2022
£’000
3,928
Under IAS 12 Income Taxes, provision is made for the deferred tax liability associated with the recognition of intangible assets
arising as part of the acquisitions of the VCT fund management contracts and FDC.
As at 31 March 2023, the deferred tax liability has been calculated using the substantively enacted tax rate of 25% – see note 11
for further detail.
26. 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
31 March 2023
31 March 2022
Number
£’000
Number
£’000
440,109,707
6,471,495
446,581,202
4
–
4
440,109,707
–
440,109,707
4
–
4
On 26 January 2023, 6,471,495 new Ordinary shares were issued at a price of 32.45 pence per share to satisfy the final deferred
consideration element due in respect of the acquisition of the VCT fund management business in 2019. These new shares were
admitted to trading on the AIM market of the London Stock Exchange on 31 January 2023.
Each Ordinary share is entitled to one vote and has equal rights as to dividends. The Ordinary shares are not redeemable.
27. 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
2023
£’000
81,644
2,100
83,744
As at
31 March
2022
£’000
81,644
–
81,644
The premium on the issue of Ordinary shares arises from 6,471,495 new Ordinary shares of £0.00001 each issued at a price of 32.45 pence
per share on 26 January 2023.
28. Other distributable reserve
As at the beginning of the year
Dividends paid (note 13)
As at the end of the year
As at
31 March
2023
£’000
66,919
(3,653)
63,266
As at
31 March
2022
£’000
69,560
(2,641)
66,919
29. Retirement benefit schemes
The Group contributes into the personal pension plans of all qualifying employees. The amount charged in the year to 31 March 2023
was £856,000 (2022: £746,000). As at 31 March 2023, contributions amounting to £11,000 (2022: £13,000) had not yet been paid over
to the plans and are recorded in other payables – see note 22.
30. 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 1 to 39 of this Annual Report.
Annual Report & Accounts 2023
Mercia Asset Management PLC
87
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.
In accordance with IFRS 9, the financial assets and liabilities are classified as FVTPL or at amortised cost. The carrying amounts
of financial assets and financial liabilities in each category are as follows:
As at 31 March 2023
Long-term financial assets
Trade and other receivables
Short-term liquidity investments
Cash and cash equivalents
Short-term financial assets
Total financial assets
Trade and other payables
Accruals
Lease liabilities
Deferred consideration
Total financial liabilities
As at 31 March 2022
Long-term financial assets
Trade and other receivables
Short-term liquidity investments
Cash and cash equivalents
Short-term financial assets
Total financial assets
Trade and other payables
Accruals
Lease liabilities
Deferred consideration
Total financial liabilities
FVTPL
£’000
Amortised cost
£’000
Total
£’000
136,550
–
136,550
–
–
–
–
136,550
–
–
–
(3,005)
(3,005)
1,920
279
37,555
39,754
39,754
(1,769)
(3,390)
(907)
–
(6,066)
1,920
279
37,555
39,754
176,304
(1,769)
(3,390)
(907)
(3,005)
(9,071)
FVTPL
£’000
Amortised cost
£’000
Total
£’000
119,558
–
119,558
–
–
–
–
119,558
–
–
–
(2,869)
(2,869)
541
5,235
56,049
61,825
61,825
(1,145)
(3,428)
(452)
–
(5,025)
541
5,235
56,049
61,825
181,383
(1,145)
(3,428)
(452)
(2,869)
(7,894)
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 FVTPL. The Group seeks to manage this risk exposure, while optimising the return on risk, by routinely monitoring the
performance of these investments and employing stringent investment appraisal processes. Unquoted equity investments are
valued in line with the Group’s accounting policy as outlined in note 1 to these consolidated financial statements. Regular reviews
of the financial results, combined with close contact with the management of these investments, provide sufficient information
to support these valuations and 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 cash on 95-day deposit with a UK bank.
Financial statements 88
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the consolidated financial statements continued
30. Financial risk management continued
Market risk continued
Liquidity risk continued
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. The maturity profile of the Group’s
financial liabilities based on contractual undiscounted payments is as follows:
As at 31 March 2023
Trade payables
Other payables
Deferred consideration (note 24)
Lease liabilities
As at 31 March 2023
Trade payables
Other payables
Deferred consideration (note 24)
Lease liabilities
On demand
£’000
–
–
–
–
–
On demand
£’000
–
–
–
–
–
Less than 3
months
£’000
279
6,534
–
95
6,908
Less than 3
months
£’000
412
4,991
–
43
5,446
3 to 12
months
£’000
–
–
1,500
286
1,786
3 to 12
months
£’000
–
–
2,100
129
2,229
1 to 5
years
£’000
–
–
2,500
615
3,115
1 to 5
years
£’000
–
–
–
307
307
Total
£’000
279
6,534
4,000
996
11,809
Total
£’000
412
4,991
2,100
479
7,982
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
A default is defined as the failure to discharge a contractual obligation or commitment into which a counterparty has entered with
the Group. The Group is exposed to this risk for various financial instruments, for example, by granting receivables to customers and
from placing cash with banks. The Group’s trade receivables are amounts due from the investment of assets under management,
private investors, 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
Other receivables
Cash at bank and in hand
Short-term liquidity investments
As at
31 March
2023
£’000
1,652
268
37,555
279
39,754
As at
31 March
2022
£’000
348
193
56,049
5,235
61,825
The Directors consider that all of 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 respect
of these, the Group has control of the remittance as part of its fund management responsibilities. As at 31 March 2023, an amount
of £550,000 (2022: £318,000) has been estimated as a loss allowance in accordance with IFRS 9.
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 at least an ‘A’ long-term deposit rating as at the year ended 31 March 2023.
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. The Board reviews the capital structure of all constituent elements of the Group on a regular basis to ensure
that they comply with all regulatory capital requirements. 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. In order to maintain or adjust
the capital structure, the Group may return capital to shareholders, issue new shares, sell assets to manage cash or adjust the
amount of dividends paid to shareholders.
Annual Report & Accounts 2023
Mercia Asset Management PLC
89
Fair value measurements
The fair values of the Group’s financial assets and liabilities are considered a reasonable approximation to the carrying values
shown in the consolidated statement of financial position. Subsequent to their initial recognition at fair value, measurements
of movements in fair values of financial instruments are grouped into Levels 1 to 3, based on the degree to which the fair value
is observable. The fair value hierarchy used is outlined in more detail in note 2 to these consolidated financial statements.
The following table gives information about how the fair values of these financial assets and financial liabilities are determined
and presents the Group’s assets measured at fair value as at 31 March 2023. There have been no movements in financial assets or
financial liabilities between levels during the current or prior years. The table in note 19 of these consolidated financial statements
sets out the movement in the Level 1 and 3 financial assets from the start to the end of the year.
Assets:
Financial assets at fair value through profit or loss – direct investment portfolio
Level 1
Level 2
Level 3
Liabilities:
Financial liabilities at fair value through profit or loss – deferred consideration
Level 1
Level 2
Level 3
As at
31 March
2023
£’000
969
–
135,581
136,550
As at
31 March
2023
£’000
–
–
3,005
3,005
As at
31 March
2022
£’000
1,632
–
117,926
119,558
As at
31 March
2022
£’000
–
–
2,869
2,869
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
The Group had one direct investment listed on the AIM market of the London Stock Exchange, MyHealthChecked PLC, which is
valued using the closing bid price as at 31 March 2023.
Financial instruments in Level 3
If one or more of the significant inputs required to fair value an instrument is not based on observable market data, the instrument
is included in Level 3. Apart from the one investment classified in Level 1, all other investments held in the Group’s direct investment
portfolio have been classified in Level 3 of the fair value hierarchy and the individual valuations for each of the companies have
been arrived at using appropriate valuation techniques. The Group has adopted the IPEVCVG for determining its valuation
techniques, which specify that the price of a recent investment represents one of a number of inputs used to arrive at fair value,
and uses a single classification for all Level 3 investments. Note 2 to these consolidated financial statements provides further
information on the Group’s valuation methodology, including a detailed explanation of the valuation techniques used for Level 3
financial instruments.
A reconciliation of the movement in Level 1 and 3 financial assets from 1 April to 31 March is disclosed in note 19 of these
consolidated financial statements, and on an individual direct investment basis on page 19.
31. Related party transactions
The Group considers all members of the Board to be key management and their remuneration is disclosed in the Remuneration
Report on page 51. Directors’ shareholdings in the Group are disclosed on page 55 of the Remuneration Report.
32. Ultimate controlling party
The Group has no single ultimate controlling party.
33. Post balance sheet events
There have been no material events since 31 March 2023.
Financial statements 90
Mercia Asset Management PLC
Annual Report & Accounts 2023
Company balance sheet
As at 31 March 2023
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
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
Lease liabilities
Deferred consideration
Total current liabilities
Non-current liabilities
Lease liabilities
Deferred consideration
Total non-current liabilities
Total liabilities
Net assets
Equity
Issued share capital
Share premium
Other distributable reserve
Retained earnings
Share-based payments reserve
Total equity
Note
38
39
40
41
41
42
43
43
44
44
45
As at
31 March
2023
£’000
98
176
58,958
49,500
As at
31 March
2022
£’000
106
315
49,133
50,500
108,732
100,054
36,234
279
10,229
46,742
24,977
5,235
24,552
54,764
155,474
154,818
(690)
(131)
(1,227)
(2,048)
(90)
(1,778)
(1,868)
(3,916)
151,558
4
83,744
63,266
(22)
4,566
(1,148)
(127)
–
(1,275)
(222)
–
(222)
(1,497)
153,321
4
81,644
66,919
1,237
3,517
151,558
153,321
The Company’s loss for the year was £1,259,000 (2022: loss of £740,000).
The notes on pages 92 to 96 are an integral part of these financial statements.
The Company financial statements of Mercia Asset Management PLC, registered number 09223445, on pages 90 to 96 were approved
by the Board of Directors and authorised for issue on 3 July 2023. They were signed on its behalf by:
Dr Mark Payton
Chief Executive Officer
Martin Glanfield
Chief Financial Officer
Company statement of changes in equity
For the year ended 31 March 2023
Annual Report & Accounts 2023
Mercia Asset Management PLC
91
As at 1 April 2021
Total comprehensive expense for the year
Dividends paid
Share-based payments charge
As at 31 March 2022
Issue of share capital
Total comprehensive expense for the year
Dividends paid
Share-based payments charge
As at 31 March 2023
Issued
share capital
(note 44)
£’000
4
–
–
–
4
–
–
–
–
4
Share
premium
(note 44)
£’000
81,644
–
–
–
81,644
2,100
–
–
–
83,744
Other
distributable
reserve
(note 45)
£’000
69,560
–
(2,641)
–
66,919
–
–
(3,653)
–
63,266
Retained
earnings
£’000
1,977
(740)
–
–
1,237
–
(1,259)
–
–
(22)
Share-based
payments
reserve
£’000
2,408
–
–
1,109
3,517
–
–
–
1,049
4,566
Total
£’000
155,593
(740)
(2,641)
1,109
153,321
2,100
(1,259)
(3,653)
1,049
151,558
Financial statements 92
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the Company financial statements
For the year ended 31 March 2023
34. Accounting policies
The principal accounting policies applied in the presentation of the Company financial statements are set out below. These policies
have been consistently applied throughout the year unless otherwise stated.
General information
The general information relating to Mercia Asset Management PLC (“the Company”) is set out in note 1 to the consolidated
financial statements.
Basis of preparation
The financial statements of 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.
Going concern
Based on the continued strength of the Company’s balance sheet, including its significant liquidity position at the year end, and
its forecast future operating and investment activities, the Directors have a reasonable expectation that the Group has adequate
financial resources to manage business risks in the current economic environment and continue in operational existence for
a period of at least 12 months from the date of this report. Accordingly, the Directors continue to adopt the going concern basis
in preparing these financial statements.
These financial statements are prepared under the historical cost convention. A summary of the Company’s accounting policies,
which have been consistently applied except where noted, is set out below.
New standards, interpretations and amendments effective in the current financial year
No new standards, interpretations and amendments effective in the year have had a material effect on the Company’s
financial statements.
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
3 years
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 the income statement, such that the cumulative expense reflects the revised
estimate, with a corresponding adjustment to equity. Details regarding the determination of the fair value of equity-settled
share-based transactions are set out in note 6 to the consolidated financial statements.
Cash, cash equivalents and short-term liquidity investments
Cash and cash equivalents include cash in hand and deposits held with banks 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’.
35. Critical accounting judgements and key sources of estimation uncertainty
Details of critical accounting judgements, estimates and associated assumptions are disclosed in note 2 to the consolidated
financial statements.
Annual Report & Accounts 2023
Mercia Asset Management PLC
93
36. 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;
IAS 24 Related Party Disclosures; requirement to disclose related party transactions entered into between 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).
37. 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.
38. Property, plant and equipment
Cost
As at 1 April 2021
Additions
As at 31 March 2022
Additions
As at 31 March 2023
Accumulated depreciation
As at 1 April 2021
Charge for the year
As at 31 March 2022
Charge for the year
As at 31 March 2023
Net book value
As at 1 April 2021
As at 31 March 2022
As at 31 March 2023
39. Right-of-use assets
Cost
As at 1 April 2021, 31 March 2022 and 31 March 2023
Accumulated depreciation
As at 1 April 2021
Charge for the year
As at 31 March 2022
Charge for the year
As at 31 March 2023
Net book value
As at 1 April 2021
As at 31 March 2022
As at 31 March 2023
Leasehold
improvements
£’000
Furniture
and fixtures
£’000
Office
equipment
£’000
42
–
42
–
42
25
5
30
5
35
17
12
7
39
–
39
–
39
38
–
38
1
39
1
1
–
369
76
445
54
499
289
63
352
56
408
80
93
91
Total
£’000
450
76
526
54
580
352
68
420
62
482
98
106
98
Property
£’000
702
246
141
387
139
526
456
315
176
Financial statements 94
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the Company financial statements continued
40. Investments in subsidiary undertakings
Carrying amount
As at 1 April 2021 and 31 March 2022
Acquisition of a subsidiary
As at 31 March 2023
£’000
49,133
9,825
58,958
On 5 December 2022, the Company acquired the entire issued share capital of Frontier Development Capital Limited, including its
wholly owned subsidiaries FDC General Partner Limited and FDC SPV Limited, all of which are registered in England. Please see note
14 of the consolidated financial statements for more detail.
The Directors consider that the carrying values of the subsidiary undertakings are supported by their value in use.
Details of the Company’s subsidiary undertakings as at 31 March 2023 are as detailed below:
Name
Mercia Investments Limited
Mercia Fund Management Limited1
Mercia Fund 1 General Partner Limited
Mercia (General Partner) Limited
Mercia Investment Plan LP2
Mercia VCT Nominee Limited
Mercia Fund Management (Nominees) Limited
Mercia Company Secretarial Services 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
Mercia Investment Management Limited
Mercia Technologies Limited
UGF Nominees Limited
Enterprise Ventures Group Limited
Enterprise Ventures Limited
EV Business Loans Group Limited
EV Business Loans Limited
WM AHSN SME General Partner Limited
Frontier Development Capital Limited
FDC SPV Limited
FDC General Partner Limited
Place of incorporation
and operation
Proportion of Ordinary
shares owned
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
England
100%
100%
98%
100%
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Nature of business
Investment company
Fund management company
General partner
General partner
Limited partnership
Investment company
Dormant
Nominee company
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Intermediate holding company
Fund management company
Intermediate holding company
Fund management company
General partner
Fund management company
Intermediate holding company
General partner
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.
The companies listed above have their registered offices at Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA
with the exception of Enterprise Ventures Group Limited and its subsidiaries which are registered at Unit F26, Preston Technology
Management Centre, Marsh Lane, Preston, Lancashire PR1 8UQ, and Frontier Development Capital Limited and its subsidiaries
which are registered at 45 Church Street, Birmingham, B3 2RT.
Annual Report & Accounts 2023
Mercia Asset Management PLC
95
41. Trade and other receivables
Amounts falling due within one year:
Amounts due from subsidiary undertakings
Other debtors
Prepayments and accrued income
Current assets
Amounts falling due after more than one year:
Amounts due from subsidiary undertakings
Non-current assets
As at
31 March
2023
£’000
36,007
37
190
36,234
49,500
49,500
As at
31 March
2022
£’000
24,656
61
260
24,977
50,500
50,500
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.
42. Trade and other payables
Trade payables
Amounts due to subsidiary undertakings
Accruals and deferred income
Other payables
As at
31 March
2023
£’000
86
–
598
6
690
43. Lease liabilities
The Company has no lease liabilities in respect of leases committed to but not yet commenced.
The table below summarises the lease costs charged to the income statement during the current and prior years:
Depreciation expense
Interest expense
Short-term lease expense
Low-value lease expense
The maturity profile of the Company’s leases accounted for under IFRS 16 are set out in the table below:
Due within one year
Due between one and five years
Year ended
31 March
2023
£’000
139
10
65
45
As at
31 March
2023
£’000
131
90
221
As at
31 March
2022
£’000
160
251
715
22
1,148
Year ended
31 March
2022
£’000
141
14
71
7
As at
31 March
2022
£’000
127
222
349
The undiscounted lease liability due within one year is £137,000 (2022: £135,000), and £91,000 (2022: £231,000) between one and
five years.
44. Issued share capital and share premium
The movements in issued share capital and share premium are disclosed in notes 26 and 27 to the consolidated
financial statements.
Financial statements 96
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notes to the Company financial statements continued
45. Other distributable reserve
The movements in other distributable reserve are disclosed in note 28 to the consolidated financial statements.
46. 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
2023
£’000
10
Year ended
31 March
2022
£’000
10
Central functions comprise senior management (including Executive and Non-executive Directors), finance, compliance, legal, IS/IT,
administration, people & 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 47)
Year ended
31 March
2023
£’000
895
133
49
1,077
Year ended
31 March
2022
£’000
1,060
119
50
1,229
Information in respect of Directors’ emoluments, share options and pensions is given in the Remuneration Report on pages 51 to 55
of this Annual Report.
47. Retirement benefit schemes
The Company contributes into the personal pension plans of all qualifying employees. The amount charged in the year to 31 March 2023
was £49,000 (2022: £50,000). As at 31 March 2023, no contribution payments were outstanding (2022: £nil).
48. 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 31 of the consolidated financial statements details the Group’s related party transactions.
49. Ultimate controlling party
The Company has no single ultimate controlling party.
50. Post balance sheet events
There have been no material events since 31 March 2023.
Directors, secretary and advisers
Annual Report & Accounts 2023
Mercia Asset Management PLC
97
Directors
Ian Roland Metcalfe OBE
Dr Mark Andrew Payton
Martin James Glanfield
Julian George Viggars
Diane Seymour-Williams
Raymond Kenneth Chamberlain
Dr Jonathan David Pell
Caroline Bayantai Plumb OBE
Company Secretary
Sarah-Louise Anne Williams
Company website
www.mercia.co.uk
Registered office
Forward House
17 High Street
Henley-in-Arden
Warwickshire B95 5AA
Independent auditor
BDO LLP
55 Baker Street
Marylebone
London W1U 7EU
Principal bankers
Barclays Bank PLC
One Snowhill
Snow Hill Queensway
Birmingham B4 6GN
Lloyds Bank plc
125 Colmore Row
Birmingham B3 3SD
(Non-executive Chair)
(Chief Executive Officer)
(Chief Financial Officer)
(Chief Investment Officer)
(Senior Independent Director)
(Non-executive Director)
(Non-executive Director)
(Non-executive Director)
Company registration number
09223445
Company registrar
SLC Registrars
Highdown House
Yeoman Way
Worthing
West Sussex BN99 3HH
Solicitors
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
Nominated adviser and joint broker
Canaccord Genuity Ltd
88 Wood Street
London EC2V 7QR
Joint broker
Singer Capital Markets Advisory LLP
1 Bartholomew Lane
London EC2N 2AX
Investor relations adviser
FTI Consulting Ltd
200 Aldersgate Street
London EC1A 4HD
Other information
98
Mercia Asset Management PLC
Annual Report & Accounts 2023
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 the offices of Reed Smith LLP at The Broadgate Tower,
20 Primrose Street, London, EC2A 2RS on 21 September 2023
at 10:00 am for the purpose of considering and, if thought fit,
passing the following resolutions (which will be proposed in the
case of resolutions 1 to 9 as ordinary resolutions and resolutions
10 and 11 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 2023 together
with the Directors’ Report and Auditor’s Report thereon.
2. To approve the Directors’ Remuneration Report for the
financial year ended 31 March 2023.
3. That Dr Mark Payton, who retires as a Director in accordance
with Article 88.5 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 Raymond Chamberlain, who retires as a Director
in accordance with Article 88.5 of the Articles and being
eligible to do so, offers himself for re-election as a Director,
be re-elected as a Director of the Company.
5. That Julian Viggars, who retires as a Director in accordance
with Article 88.1 of the Articles and being eligible to do so,
offers himself for re-election as a Director, be re-elected
as a Director of the Company.
6. That Dr Jonathan Pell, who retires as a Director in accordance
with Article 88.1 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.
9. That a final dividend of 0.53 pence per Ordinary share for
the year ended 31 March 2023 be declared.
Special resolutions
10. That, subject to the passing of resolution 8, 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 8 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 £446.58, provided
that this authority shall expire (unless renewed, varied
or revoked by the Company in a general meeting) on the
earlier of the conclusion of the next AGM of the Company
and 30 September 2024 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.
11. 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
7. To reappoint BDO LLP as auditor of the Company to
be purchased is 44,658,120
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.
8. 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 £446.58, provided that this authority shall expire (unless
renewed, varied or revoked by the Company in a general
meeting) on the earlier of the conclusion of the next AGM
of the Company and 30 September 2024 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.
b. the minimum price which may be paid for an Ordinary
share is 0.001 pence
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 2024 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
Sarah-Louise Williams
Company Secretary
28 July 2023
Registered Office: Forward House, 17 High Street,
Henley-in-Arden, Warwickshire B95 5AA
Annual Report & Accounts 2023
Mercia Asset Management PLC
99
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 am on 19 September 2023 (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, P.O. Box 5222, Lancing, BN99 9FG, 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 their discretion. Your proxy will vote (or abstain
from voting) as they think 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 the votes cast 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 themselves 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 they are 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 6:30 pm on 19 September
2023 (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 their name at
that time. Changes to entries on the Register of Members
of the Company after 6:30 pm on 19 September 2023 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 28 July 2023, being the latest practicable date before
the publication of this notice of AGM, the Company’s issued
share capital consisted of 446,581,202 Ordinary shares each
carrying one vote. Therefore, the total voting rights in the
Company as at 28 July 2023 is 446,581,202.
Other information 100
Mercia Asset Management PLC
Annual Report & Accounts 2023
Notice of Annual General Meeting continued
Mercia Asset Management PLC
(incorporated and registered in England and Wales with registered number 09223445)
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
28 July 2023 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.
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 2023.
2. Resolution 2 – the shareholders are requested to approve
the Remuneration Report for the year ended 31 March 2023.
3. Resolutions 3 and 4 – retirement of Directors – pursuant to
Article 88.5 of the Articles, at each AGM, any Director with a
tenure of nine years or more shall retire annually and submit
themselves for re-election by shareholders.
4. Resolutions 5 and 6 – retirement of Directors by rotation
– pursuant to Article 88.1 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.
7. Resolution 9 – declaration of final dividend – pursuant to
Article 138.1 of the Articles, the Company may by ordinary
resolution declare dividends to be paid to members
according to their respective rights and interests in the
profits of the Company. This final dividend shall be paid
on 27 October 2023 to the holders of Ordinary shares
on the Register of Members at the close of business
on 29 September 2023.
8. Resolution 10 – statutory pre-emption rights – the Act
requires that if the Directors decide to allot unissued shares
in the Company or transfer them out of treasury, the shares
proposed to be issued or transferred must be first offered to
existing shareholders in proportion to their existing holdings.
This is known as shareholders’ pre-emption rights. However,
to act in the best interests of the Company, the Directors may
require flexibility to allot and/or transfer shares out of
treasury for cash without regard to the provisions of section
561(1) of the Act. Therefore this resolution, to be proposed as
a special resolution, seeks authority to enable the Directors
to allot and/or transfer equity securities out of treasury up
to a maximum nominal amount of £446.58 (representing
10% of the issued Ordinary share capital of the Company
as at 28 July 2023 (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 2024
and 30 September 2024 (being six months after the financial
year end of the Company), unless the authority is renewed
or revoked prior to such time.
5. Resolution 7 – auditor re-appointment and remuneration –
9. Resolution 11 – market purchases – the Directors are
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.
6. Resolution 8 – 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
2024 and 30 September 2024 (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 nominal amount of £446.58
(representing 10% of the issued Ordinary share capital
of the Company as at 28 July 2023 (the latest practicable
date prior to the publication of this document)).
requesting authority for the Company to make market
purchases of up to 44,658,120 Ordinary shares (representing
10% of the issued Ordinary share capital of the Company
as at 28 July 2023 (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.
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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