Interim Results

RNS Number : 0100H

Mercia Asset Management PLC

01 December 2020

 

RNS	01 December 2020

Mercia Asset Management PLC

("Mercia" or "the Group" or the "Company")

Interim Results

Maiden dividend declared, underpinned by profitable trading

Mercia Asset Management PLC (AIM: MERC),  the proactive, regionally focused, specialist asset manager is pleased to announce its interim results for the six months ended 30 September 2020.

Financial results

· Total assets under management ("AuM") (which includes the Group's consolidated net assets) increased by 78.0% compared to 30 September 2019 to c.£872million (H1 2020: c.£490million; FY 2020: c.£800million)

· Revenue increased 51.0% to £8.4million (H1 2020: £5.5million)

· Adjusted operating profit* £1.1million (H1 2020: £0.6million loss)

· Net fair value increase of £6.7million (H1 2020: £3.2million)

· Operating profit £8.0million (H1 2020: £2.1million)

· Profit after tax £8.2million (H1 2020: £2.1million)

· Earnings per share 1.87 pence (H1 2020: 0.69 pence)

· Maiden interim dividend of 0.1 pence per share (H1 2020: nil) payable on 30 December 2020 to shareholders on the register at close of business on 11 December 2020

· Unrestricted cash and short-term liquidity investments £24.9million (H1 2020: £17.8million; FY 2020: £30.2million)

· Net assets £149.9million (H1 2020: £128.4million; FY 2020: £141.5million)

* Adjusted operating profit is defined as operating profit before realised gains on disposal of investments, fair value movements in investments, share-based payments charge, depreciation, amortisation of intangible assets and exceptional items. The reconciliation of adjusted operating profit to operating profit is included in the Chief Financial Officer's review.

Managed fund developments

· Third-party funds under management ("FuM") doubled compared to 30 September 2019 to c.£722million (H1 2020: c.£ 361 million; FY 2020: c.£658million) contributing £7.8million in revenue (H1 2020: £4.9million)

· Venture FuM c.£552million (H1 2020: c.£210million; FY 2020: c.£476million)

· Private equity FuM c.£56million (H1 2020: c.£60million; FY 2020: c.£60million)

· Debt FuM c.£114million (H1 2020: £91million; FY 2020: c.£122million)

Direct investment portfolio developments

· £10.9million net invested into 14 portfolio companies during the period (H1 2020: £11.1million net invested into 16 portfolio companies), including one new direct investment into MIP Diagnostics

· Direct investment portfolio fair value £101.6million (H1 2020: £102.0million; FY 2020: £87.5million), up 16.2% in the six month period

· Sale of The Native Antigen Company in July 2020 realised total cash receipts during the period of £4.8million and a realised gain of £1.7million

COVID-19 update and post period end developments

· Priority for the Group has continued to be the safety and wellbeing of all employees, with remote working possible for all staff. Mental wellbeing is being closely monitored and antibody testing has been made available for all staff and close family members

· No Government financial support or delayed payment schemes have been accessed and no staff redundancies made

· Diane Seymour-Williams appointed as an additional Non-executive Director, bringing deep asset management experience

· Continuing commercial progress is being made by the majority of the direct portfolio including each of the top five direct investments by holding value

· As a CBILS accredited lender for the British Business Bank's Northern Powerhouse Investment Fund, with a focus on Yorkshire and the Humber regions, the Group's debt team have been actively supporting qualifying businesses

· Clear Review sold for £1.0million in cash, double Mercia's direct investment

Mark Payton, Chief Executive Officer of Mercia, commented:

"These record results mark the halfway point in our three-year strategic plan to achieve adjusted operating profitability, expand the Group's assets under management ("AuM") to at least £1.0billion and to 'evergreen' Mercia's balance sheet. I am pleased to say that strong progress has been made during the six month period under review.

We have successfully built scale in our third-party fund management business and the fees this is generating are enabling us to deliver a sustainable adjusted operating profit, in turn underpinning our maiden interim dividend and the adoption of a progressive dividend policy.

Our total AuM have now increased to  c.£872million, c.£722million of which is third-party funds under management, and we remain confident in achieving our target of £1.0billion in total AuM within the next 18 months.

I am also pleased with the positive steps we are making towards 'evergreening' our balance sheet. We delivered a profitable cash realisation during the period and another post period end. Furthermore, our direct investment portfolio is well financed and we have considerable remaining liquidity. In addition, it is encouraging that we have reported a strong net fair value increase, reversing some of the COVID-19 impact we reported in our full year 2020 results. We are increasingly optimistic about the potential of the companies within our direct investment portfolio, many of which are in sectors such as Life Sciences, Software and Digital Entertainment which are experiencing strong tailwinds.

Whilst this continuing period of uncertainty during the COVID-19 pandemic has adversely affected many UK businesses, the resilience of Mercia's hybrid investment model, which connects third-party managed funds and direct investment activity via our proprietary capital, positions us favourably as we move into the next half year and thereafter. "

-Ends-

For further information, please contact:

Mercia Asset Management PLC Mark Payton, Chief Executive Officer Martin Glanfield, Chief Financial Officer www.mercia.co.uk	[phone]
Canaccord Genuity Limited (NOMAD and Joint Broker)	[phone]
Simon Bridges, Emma Gabriel, Richard Andrews
N+1 Singer (Joint Broker)
Harry Gooden, James Moat	[phone]
FTI Consulting	[phone]
Tom Blackwell, Louisa Feltes, Shiv Talwar
[e-mail]

About Mercia Asset Management PLC:

Mercia is a proactive, specialist asset manager focused on supporting regional SMEs to achieve their growth aspirations. Mercia provides capital across its four asset classes of balance sheet, venture, private equity and debt capital: the Group's 'Complete Connected Capital'. The Group initially nurtures businesses via its third-party funds under management, then over time Mercia can provide further funding to the most promising companies, by deploying direct investment follow-on capital from its own balance sheet.

The Group has a strong UK footprint through its regional offices, 19 university partnerships and extensive personal networks, providing it with access to high-quality deal flow. Mercia currently has c.£872million of assets under management and, since its IPO in December 2014, has invested c.£106million gross into its direct investment portfolio.

Mercia Asset Management PLC is quoted on AIM with the EPIC "MERC".

Chief Executive Officer's review

Introduction

Mercia Asset Management PLC is a proactive, specialist asset manager backing promising businesses with a focus on the UK regions. We invest from a range of differentiated, but overlapping pools of capital comprising venture, private equity and debt via our third-party funds under management ("FuM"), complemented by our own proprietary capital. Our proprietary capital is used both to scale businesses emerging from our FuM and selectively seed new third-party funds as a minority limited partner. We refer to the combination of Mercia's FuM and its consolidated net assets as Mercia's total assets under management ("AuM").

The asset classes that we manage provide synergies on a distribution and origination basis, appealing to a broad range of investors (private, family offices and institutional) seeking exposure to venture, private equity and debt investment returns. In addition, our 'Complete Connected Capital', which brings together pools of capital, people and systems, provides a competitive edge both in the origination of new investment opportunities and in our ability to proactively support the companies we invest in over time, as they scale and grow.

Our portfolios are showing positive signs of improved performance, with recoveries in valuations and, importantly, profitable exits. We have also experienced continuing investment activity, which is in part a reflection of our existing deal origination capability, available capital to invest and strong regional presence. During the period under review Mercia, across all of our AuM, invested into 81 companies, all in businesses located outside of London. This bodes well for further organic growth in FuM and we are continuing to invest in our deal origination capability. Mercia is a resilient business, with long-term contracted fund management derived fees, diversified portfolios and material liquidity across the Group. We are managing Mercia through the pandemic from a position of strength and, as these interim results show, are well placed for further growth and value creation going forward.

As a #OneMercia team of c.100 staff, we have significant internal capability aligned to what we consider are the four key drivers of value creation; source well, buy well, add value and exit well. In addition, we believe in acting as a responsible investor and employer embracing both measurably, and morally, environmental, social and governance ("ESG") factors, which we also recognise as component drivers of future value creation.

Financial performance

We are now halfway through our three-year strategic plan, focused on three specific, measurable targets:

(i)  achieve operating profitability before fair value movements, realised gains and all non-cash charges ;

(ii)  expand the Group's AuM to at least £1.0billion; and

(iii)  'evergreen' Mercia's balance sheet so that the Group's direct investment activities are fully funded by periodic cash realisations from the existing direct investment portfolio .

During the six months to 30 September 2020, compared to the same period end last year, AuM have grown by 78.0% to c.£872million largely as a result of the acquired VCT fund management business in December 2019, revenue has grown by 51.0%, adjusted operating profit has increased from a loss of £0.6million to a profit of £1.1million and profit after tax (including realised gains and fair value movements) has increased almost fourfold to £8.2million.

In respect of our direct investment portfolio, we generated £4.8million in returned cash to the balance sheet from the exit of The Native Antigen Company Limited ("NAC"), compared to no realisations in the same period last year and a further £1.0million post period end from the sale of Clear Review Limited ("Clear Review"). These two material cash realisations, both generating strong returns on our original investments, support our belief in being able to 'evergreen' the Group's balance sheet.

The achievement of a sustainable adjusted operating profit, driven by the fees generated in our fund management business, means we have achieved one of our three strategic goals, and as a result enables us to announce our maiden interim dividend of 0.1 pence per share and the commencement of a progressive dividend policy. We remain confident of achieving the remaining two goals over the next 18 months.

We are focused on growing both elements of Mercia's investment model: our third-party FuM operations and our proprietary investment activity; the former predominantly driving AuM growth and dividend yield potential, the latter driving growth in net asset value.

Our markets

The COVID-19 pandemic has accelerated structural changes in our industry and in the sectors in which we invest. We have seen significant changes in deal origination, employee engagement and stakeholder communications, to which we are adapting well. In our key areas, being Life Sciences, Software and Digital Entertainment, which represent c.82% by value of our direct investment portfolio, there has been a marked acceleration in growth trends, positioning us well for the future.

There continues to be new evidence supporting our focus on the regions. A recent report published by Beauhurst ('Exits in the UK, Acquisitions and IPOs') states that between 2011 and 2019, c.70% of exits occurred from businesses located outside of London. Of these, c.98% were through acquisitions and c.87% were sold for £200million or less. This supports our investment strategy of concentrating on regional businesses with enterprise values at exit of between c.£20million and c.£200million, as evidenced by the recent exits of NAC and Clear Review.

Assets under management

Total AuM grew organically by 9.0% in the period under review to c.£872million (H1 2020: c.£490million; FY 2020: c.£800million). At the period end the Group had total uninvested cash across both its third-party managed funds and balance sheet of c.£255million (H1 2020: c.£165million; FY 2020: c.£320million).

Asset class	AuM 1 April 2020 £'m	Net fund flows £'m	Performance £'m	AuM 30 September 2020 £'m	AuM 30 September 2019 £'m	AuM 31 March 2020 £'m
Venture	476	4	72	552	210	476
Private equity	60	(4)	-	56	60	60
Debt	122	(8)	-	114	91	122
Proprietary capital	142	-	8	150	129	142
Total	800	(8)	80	872	490	800

The largest movement during the period was the overall recovery in the venture portfolios' fair values, the largest component of which was the three Northern VCTs.

Notwithstanding the inevitable limitations of working from home, our deal origination capability means we have been able to continue sourcing attractive investment opportunities for all of our asset classes, thereby maintaining a sustainable and attractive pipeline of investments for our proprietary capital. In the six months to 30 September 2020 the Group invested £42.1million into 81 companies across its four asset classes of venture, private equity, debt and proprietary capital.

It is important to note that Mercia manages third-party FuM that are not subject to redemption calls and c.83% of our AuM is in FuM (H1 2020: c.74%). There is unrestricted cash on hand of c.£230million (H1 2020: c.£242million; FY 2020: c.£290million) within Mercia's third-party FuM. The remaining component of AuM is our consolidated balance sheet, which also remains well-funded with unrestricted cash of £24.9million as at 30 September 2020 (H1 2020: £17.8million; FY 2020: £30.2million).

We are seeing a promising recovery in asset prices and thus fund and balance sheet net asset value increases, across our venture and proprietary capital asset classes in particular. Notwithstanding the second national lockdown, we are optimistic that this recovery in valuations will continue, which will in turn underpin further organic growth in FuM and the continued strengthening of Mercia's direct investment portfolio.

Outlook

The period under review has been dominated by the social, economic and geographic impact of COVID-19, which has inevitably restricted our ability to deploy even greater levels of capital than we were able to during the period. Despite these challenges, and in addition, the re-emergence of Brexit uncertainty, Mercia has achieved a strong first half year performance. Our results reflect sector-specific recoveries in asset prices, a buoyant trade sale market in Mercia's leading areas of investment focus and continued support from our valued FuM investors. We believe that our 'funds first' hybrid investment model combined with a focus on regional businesses is bearing fruit in a sustainable manner. This is also as a result of the significant combined efforts of the excellent team at Mercia, who live and breathe our core values of 'growth focused', 'responsive', 'knowledgeable' and 'trusted'. The work undertaken by all investment team members during this six month period, in assessing and helping to stabilise the portfolios will, I believe, enable us to refocus on accelerating our deal origination and investment activities, once the current movement restrictions are fully eased.

I am confident that the second half of this year will see continued adjusted operating profitability and portfolio value recovery, bringing with it further organic AuM growth. The Group now has a synergistic operation, with increasing deal origination capability supported by continuing strong liquidity with c.£255million in cash across all asset classes. We have a firm belief in Mercia's ability to make a valued difference, particularly within the UK regions, to the benefit of fund investors and shareholders alike.

At the heart of any ambitious company, in particular during this period of turbulence and change, is the strength of its team and its networks. I should like to sincerely thank all our employees, those of our portfolio companies and our many other valued stakeholders, including the boards of the three Northern VCTs, for their commitment to Mercia and the UK regions in particular, during these challenging times.

Dr Mark Payton

Chief Executive Officer

Chief Investment Officer's review

Introduction

I am pleased with the investment activity and the performance of our portfolios during the six months to 30 September 2020. Despite the challenges posed by the pandemic, we continued to make new investments, support our existing portfolio companies with capital and know-how and, importantly, crystallise returns for our fund investors and shareholders through successful exits. Our balance sheet portfolio reported a 16.2% increase in fair value in the six month period, reflecting direct investment activity, operational progress and/or fundraisings by our portfolio companies resulting in valuation uplifts, net of the successful exit of The Native Antigen Company Limited ("NAC") from the portfolio.

Our portfolio concentration in those sectors with growth drivers accelerated by the pandemic, positions us strongly for the future. The Life Sciences and Software sectors in particular represent 32.1% and 24.9% of our balance sheet direct investment portfolio respectively. Some of our companies in these sectors are making excellent progress commercially and attracting a broader pool of investors to support their scale-up. Across both our funds and balance sheet portfolios examples include OXGENE, Abingdon Health and Sense Biodetection in Life Sciences, and companies such as Intechnica, Voxpopme, SHE Software and Clarilis in Software. In addition, e-commerce companies such as Oddbox Delivery and CurrentBody.com, from the Northern Venture Capital Trusts' ("VCT") portfolios, have seen strong trading over the past six months. This not only validates Mercia's capabilities in attracting, selecting and nurturing early-stage promising businesses, but also helps in de-risking and underpinning future returns for investors across our funds.

Continued investment activity

In the six months to 30 September 2020 we invested in 81 businesses, including 26 new companies in the third-party managed funds' portfolios. The total amount invested was £42.1million including £10.9million net direct investment into 13 existing and one new balance sheet portfolio company (MIP Diagnostics Limited ("MIP")). At the end of the period, we had c.£230million of liquidity across all our funds to support our future investment activity, plus a further £24.9million unrestricted cash on our balance sheet.

The pandemic has had an impact on the origination activities of all participants in our sector. Reliance on remote interaction and the impact of uncertainty on companies' readiness to embark on an investment process has influenced both deal flow and lead times. We have responded by developing a comprehensive digital engagement platform, including webinars and opportunities for one-on-one sessions between company founders and senior members of our investment teams. These will be a permanent feature of our business going forward and a positive example of the applied learnings and structural changes arising from the pandemic.

In addition, Mercia's extended networks from our c.60 strong investment team and our close and expanding group of portfolio non-executive directors give us a competitive advantage in our origination and investment efforts, extending our reach, increasing our conversion rate and de-risking our investments. An example of this was an investment in April 2020 by our North East Venture Fund into WhoCanFixMyCar.com, a comparison website focusing on the UK automotive servicing and mechanical repair market, which was sourced through the personal network of the Fund Principal.

Balance sheet portfolio

As at 30 September 2020, our balance sheet portfolio was valued at £101.6million (H1 2020: £102.0million; FY 2020: £87.5million) and had 22 active companies (H1 2020: 22; FY 2020: 25).

During the period, we announced the sale of NAC achieving an 8.4x return on original direct investment cost and a c.65% IRR. NAC is a leading producer of infectious disease reagents that include antigens for COVID-19 antibody test kits and was sold to global life sciences tools company LGC in July 2020, for a total cash consideration of up to 18.0million. NAC was originally a divestiture from Hybrid Systems, a University of Birmingham spinout in which Mercia was a founding investor via its managed funds. The sale generated a 12.1x return and a c.31% funds IRR on a blended third-party managed funds investment cost. We also exited Crowd Reactive Limited at the holding value of £150,000 having taken the view that the company was unlikely to remain viable as a direct consequence of the pandemic. Post the period end we announced the profitable sale of Clear Review Limited ("Clear Review"), more details of which are below.

We invested £10.9million net into the balance sheet portfolio in the first six months of the year ( H1 2020: £11.1million ) and alongside our own investment raised £11.5million from the Future Fund and £10.5million from other investors, including £3.6million from Mercia-managed funds.

The new company added to our portfolio, MIP Diagnostics Limited ("MIP") , received an initial investment of £0.3million as part of a £5.1million syndicated commitment. Following our initial investment, Mercia holds a 3.3% fully diluted direct investment plus a c.30% fully diluted stake through our managed funds. Located in Bedford, MIP is a spinout from the University of Leicester. The company has developed a proprietary process to provide molecular imprinted polymers to the vitro diagnostic, bioprocessing and oil and gas industries. MIP develops and manufactures synthetic affinity reagents - polymers that are designed to bind to specific target molecules for detection, purification or extraction purposes. The company recently announced a partnership with Stream Bio to develop a rapid COVID-19 viral infection detection assay.

Our three-year strategy defined in 2019 sets, as one of its three objectives, an ambition to 'evergreen' our balance sheet. This means that our future direct investments will be made from our existing liquidity and the proceeds received from realisations. This year, despite the challenges in the market, we are making substantial progress, delivering profitable cash exits, focusing our attention and resources on our leading investments and selectively continuing to invest. This gives me confidence in our ability to meet our goal.

Portfolio highlights

Our top ten direct holdings represent c.80% of the value of our portfolio at 30 September 2020. Progress across our largest investments is good and summarised below:

nDreams Limited ("nDreams") - 36.4% fully diluted direct investment stake with a further 4.1% fully diluted stake held by Mercia's managed funds

nDreams is now recognised as being at the forefront of global virtual reality ("VR") game development with the launch of its title 'Phantom; Covert Ops' in July 2020 generating c.$1million in gross revenues during the first few weeks after release. Mercia has supported the business since 2014 and today the team has grown to over 110 people with significant investment continuing into R&D, as it explores new mechanics and VR gameplay whilst creating VR content for some of the world's leading entertainment companies.

Oxford Genetics Limited ("OXGENE") - 30.2% fully diluted direct investment stake with a further 10.2% fully diluted stake held by Mercia's managed funds

OXGENE, based in Oxford, is a biotechnology company specialising in gene therapy, gene editing and antibody discovery that has delivered a third consecutive year of 100%+ revenue growth. This continued growth has been fuelled by a combination of strategic licensing agreements and service delivery projects, including a strategic partnership with Fujifilm Diosynth Biotechnologies. The company's continued growth has been recognised recently by being included in The Sunday Times' Fastest Growing Tech 100, at position 19.

Intechnica Group Limited ("Intechnica") - 27.5% fully diluted direct investment stake with a further 20.7% fully diluted stake held by Mercia's managed funds

Manchester-based Intechnica is an established business, which through its Netacea subsidiary has developed a bot management product solution for organisations with high volumes of website traffic. This is alongside its traditional professional services business that provides technology specialists to help organisations transform and grow through consulting services, software engineering and the practical applications of machine learning and artificial intelligence .  Netacea currently has annual recurring revenue ("ARR") of £1.7million and Intechnica has annual sales of c.£8million. In July 2020, Intechnica secured syndicated funding of £5.0million, comprising £1.3million each from Mercia's proprietary capital and the Northern Powerhouse Investment Fund ("NPIF") YHTV Equity Fund, together with a £2.5million match from the Future Fund.

Medherant Limited ("Medherant") - 30.1% fully diluted direct investment stake with a further 15.3% fully diluted stake held by Mercia's managed funds

Warwickshire-based Medherant, which was spun out of the University of Warwick, is a developer of transdermal drug-in-adhesive patches using a novel adhesive. In May 2020 the company announced that it had signed an agreement to develop and commercialise multiple products using its TEPI Patch®technology for the global commercial-stage pharmaceutical company Cycle Pharmaceuticals Limited ("Cycle"). Cycle focuses on rare diseases and intends to utilise Medherant's technology to develop formulations that will address the unmet needs of patients with conditions such as dysphagia and dyskinesia. As interest continues in Medherant's platform technology, the company has recently secured an additional large pharma evaluation contract. In parallel, Medherant is developing an internal candidate patch which is expected to go into clinical trials in 2021, addressing a market estimated at c.$1billion per annum. In June 2020, the company completed a syndicated investment round of 2.8million in which Mercia made a further direct investment of 1.4million.

Voxpopme Limited ("Voxpopme") - 17.1% fully diluted direct investment stake with a further 14.1% fully diluted stake held by Mercia's managed funds

Birmingham-founded, but US-based, Voxpopme is a video insights platform that provides innovative video analytics for internationally renowned clients such as Microsoft, Shell, Coca-Cola, Verizon and Expedia. The business has demonstrated continued growth in ARR over the last six months to 30 September 2020 against the backdrop of COVID-19. Post period end in November 2020, Voxpopme secured a syndicated investment of £3.1million in which Mercia contributed a direct investment of £0.8million.

Post period end developments

Exit - Clear Review Limited ("Clear Review") - total cash consideration of up to £26.0million

In October 2020 Mercia announced the sale of Clear Review for a total cash consideration of up to 26.0million. This was another profitable realisation, with Mercia receiving cash proceeds of 1.0million representing a c.2x return on its investment and a c.72% IRR. The sale also resulted in a c.8x return on Mercia's EIS managed fund investment cost and a c.122% fund IRR.

The company, which was first backed by Mercia's managed funds in 2018 before becoming a direct investment in June 2019, was sold to Advanced Business Software and Solutions Limited, the third largest software and services company in the UK.

Direct investment - Sense Biodetection Limited ("Sense") - 1.2% fully diluted direct investment stake with a further 9.1% fully diluted stake held by Mercia's managed funds

With operations in both the UK and the US, Sense is focused on the development of instrument-free molecular diagnostics delivering true point-of-care molecular testing.   Just under 12 months ago Sense raised 10.5million in Series A investments and concurrently secured a grant of 1.8million from Innovate UK. In March 2020, Sense announced an accelerated programme to launch the world's first instrument-free, point-of-care molecular diagnostic test for COVID-19, partnering with Phillips-Medisize (a leading global medical device innovator, developer and manufacturer, owned by Molex) to scale up production of its testing to meet the growing demand for rapid diagnostics.

Managed funds' portfolios

As at 30 September 2020 we were managing c.£722million of third-party funds (H1 2020: c.£361million; FY 2020: c.£658million) across c.40 separate funds in venture, private equity and debt. Across those funds we have c.£230million of liquidity (H1 2020: c.£242million; FY 2020: c.£290million), which will enable us to both fully support our portfolios whilst taking advantage of the strongest new deal opportunities we will see during the months to come.

During the six month period, we invested £27.7million across the funds and made cash realisations totalling £8.0million. Our third-party managed funds valuations are beginning to recover and we have seen positive movements in the net asset values of the three Northern VCTs in particular.

A summary of our managed funds as at 30 September 2020 is as follows:

Asset class	FuM 30 September 2020 £'m	Companies in portfolio No.	Amount invested £'m
EIS	62	57	5
VCT	313	60	9
Regional venture	177	126	11
Private equity	56	9	-
Debt	114	124	3
Totals	722	376	28

Venture

In April 2020 Mercia announced that its NPIF Equity Fund had received a new allocation of £23.7million. Since the Future Fund opened for applications in May 2020, 15 third-party managed fund portfolio companies have received support totalling £6.1million of Future Fund investment, matched to £5.5million of Mercia funds.

As mentioned earlier, our third-party managed funds across all asset classes have significant exposure to sectors which will benefit from accelerating trends, including Life Sciences, Software, E-Commerce and Digital Entertainment. Examples of this include:

CurrentBody.com LTD ("CurrentBody") - Mercia's managed funds hold fully diluted stakes totalling c.26%

This Cheshire-based online retail specialist for home-use beauty devices has secured total growth capital funding of c.£10million following five years of rapid growth. The business has successfully launched its own-brand product range and complementary skincare range and is present in 12 international territories. The company has also relocated its headquarters to the North West digital and tech hub, SciTech, at Alderley Park to house its expanding team.

Oddbox Delivery Limited ("Oddbox") - Mercia's managed funds hold fully diluted stakes totalling c.23%

Oddbox is behind the UK's first sustainable fruit and vegetable box delivery service. Mercia's Northern VCTs participated in a £3.6million investment round together with angel investors and Seedrs in March 2020, following significant growth in the preceding 12 months, fuelled by increasing demand for sustainable shopping options. The business has since expanded outside London, across South East England, and continues to rescue tonnes of produce from going to waste. Its growth has accelerated during the past six months.

Abingdon Health Limited ("Abingdon")  - Mercia's managed funds hold fully diluted stakes totalling c.23%

This York-based medical device manufacturer that is leading the UK-RTC has recently received its European CE mark for the SARS-CoV-2 virus ("COVID-19") rapid antibody tests which it developed. The AbC-19™ Rapid Test for detection of IgG antibodies to COVID-19 is now available for professional use distribution. The UK Government ordered one million COVID-19 antibody tests from Abingdon in October 2020 and the company has also announced that it has been notified by the US Food and Drug Administration ("FDA") that it has completed the Section IV.D notification process, that enables Abingdon to distribute its UK-RTC AbC-19™ Rapid Test in the USA to laboratories certified under CLIA and to healthcare workers, for point of care testing covered by a laboratory's CLIA certification for high-complexity testing.

Medovate Limited ("Medovate")   - Mercia's managed funds hold fully diluted stakes totalling c.20%

Based in Cambridge, Medovate is a medical device company focused on the development, manufacture and commercialisation of innovative medical technologies created within the National Health Service ("NHS"). The company, which received 4.5million of investment from Mercia's Northern VCTs in 2017, is making considerable commercial progress. Since April 2020, it has concluded agreements with five US-based companies to act as the exclusive distributors for its FDA-approved SAFer Injection for Regional Anaesthesia ("SAFIRA") innovation across the US. In September 2020, the company secured European CE mark approval for SAFIRA and a further agreement was concluded with Brisbane-based LTR Medial, which will provide exclusivity in Australia and New Zealand. It has also been n amed as one of 2020's 'Leading Innovators in Medical Device Development' in Global Health & Pharma's 2020 Global Excellence Awards.

SHE Software Limited ("SHE") - Mercia's managed funds hold fully diluted stakes totalling c.32%

SHE, which is based in Glasgow, provides market-leading health and safety software solutions with operations in the UK and North America.  The company was quick to respond to COVID-19 with the launch of new functionality addressing customer needs during lockdown and providing practical operational support for companies' returning to work.  Momentum remains strong, with 38 new customers in the past six months, maintaining the business's six-year 40%+ compound annual growth rate ("CAGR"). In February 2020 the company received £7.0million of investment, with Mercia's Northern VCTs contributing £1.0million.

Clarilis Limited ("Clarilis") - Mercia's managed funds hold fully diluted stakes totalling c.33%

Birmingham-based Clarilis is a drafting automation platform working with leading law firms, in-house counsel and content providers worldwide to bring efficiency to their drafting process in all legal practice areas. Mercia's Northern VCTs participated in a new £6.0million investment round together with Gresham House in August 2020. This followed major new client wins including Gowling WLG, Slaughter and May (UK), Arthur Cox (Ireland) and Oon and Bazul (Singapore), and the opening of the company's first international office in Singapore in February 2020.

Gecko Labs Limited t/a GeckoEngage ("GeckoEngage") - Mercia's managed funds hold fully diluted stakes totalling c.7%

GeckoEngage, which is headquartered in Edinburgh, is an educational technology business that works with leading universities across the world to improve the way they recruit students and drive efficiencies in enquiry acquisition and conversion rates. Its software-as-a-service ("SaaS") tools include an event management solution platform that allows institutions to run customised event playbooks and a bot-enabled conversational messaging platform that helps schools communicate with students one-to-one, across multiple channels.

In July 2019 GeckoEngage raised £3.0million in a syndicated investment round that included Mercia's managed funds . Since this initial investment, the company has grown its ARR to £2.5million and is now profitable.

Private equity

During the period under review we have concentrated our efforts within our private equity ("PE") funds on our existing portfolio, which is stable. An example is traffic management business Total Resources Limited which has traded well over the period. Since the latter part of the summer, we have started to see some interesting new opportunities for our funds to invest in, and with our liquidity, are looking forward to adding to our portfolio over the coming six months.

Debt

In April 2020, the Group announced an extension of Mercia's Northern Powerhouse Investment Fund ("NPIF") debt mandate, which was increased by a further £30.6million, taking the fund to over £80million to support profitable SMEs and building on our successful partnership with the British Business Bank ("BBB").

We subsequently announced the Group's accreditation by BBB to lend under the Coronavirus Business Interruption Loan Scheme ("CBILS") in July 2020. This accreditation has enabled Mercia to support smaller businesses that are losing revenue and seeing their cash flow disrupted as a result of the COVID-19 outbreak. At a time when many of the high street banks have been unwilling to support small businesses, or indeed unable to react quickly enough, Mercia has been able to resolve these short-term needs through CBILS.

As our business model shows, the Group's investment output is not solely reliant on publicly-funded initiatives. In September 2020 we announced our continuing support of UK SMEs with a new commitment to our debt funds in partnership with our longstanding investment partner, the Greater Manchester Pension Fund. Mercia SME Loans is providing a much-needed source of finance to ambitious, regional businesses that are seeking debt finance to grow, as they move beyond the cash flow constraints caused by the COVID-19 pandemic.

Summary

Our overall positive performance was driven by factors that represent the fundamental strengths of our business model; our market-leading position and regional presence, the experience and capability of our investment team, the agility and flexibility of our investment model and the strong liquidity across our funds. I cannot overstate the commitment and dedication of our investment and support teams throughout this period and I would like to thank them all.

We see continued interest in our fund and balance sheet assets from potential syndicate partners and acquirers. We expect an outcome of the pandemic to be increased entrepreneurial activity with new business creation that addresses the structural changes occurring across a number of sectors and we believe we are well positioned to bring capital and entrepreneurship together, driving future value creation for all stakeholders.

Julian Viggars

Chief Investment Officer

Chief Financial Officer's review

From a macro-economic perspective, the six month period under review has been dominated by the seismic challenges which COVID-19 has presented to many established business models and sectors. In Mercia's Stock Exchange announcement on 25 March 2020 the Group signalled that where its contracted revenues were directly linked to asset price decreases, those revenues would inevitably be lower than previously anticipated for a period of time. It is therefore pleasing to report that Mercia's business model has proven to be more pandemic resilient than anticipated and as a result, the Group's overall financial performance has been better than previously expected. Furthermore, this performance has been achieved without the Group having to apply for any Government-backed financial support, nor has it had to make any of its valued staff redundant.

The profitable and operating cash generative first half performance, together with its future prospects, now enables Mercia to declare its maiden interim dividend of 0.1 pence per share; a landmark moment in the Group's evolution as a proactive, regionally focused, specialist asset manager.

Revenue increased 51.0% to £8.4million (H1 2020: £5.5million). The increase was due to the contribution derived from the Northern Venture Capital Trust ("VCT") fund management business, which was acquired in December 2019.

Staff and administrative expenses increased by 16.5% to £7.3million (H1 2020: £6.3million). The increase was mainly due to the incremental operating costs of the acquired VCT fund management business. The increase was lower than originally expected due to the pandemic's impact on the time taken to recruit additional budgeted staff across the Group's activities and the travel-related cost savings arising from the prolonged working from home requirements.

As Mercia's assets under management continue to grow and the financial benefits of operational leverage are realised, the Group will ensure that an appropriate balance is kept between its investment expertise and its support function capacity and capability, to maintain its control environment and corporate governance culture.

As defined below, adjusted operating profit increased by £1.7million to £1.1million (H1 2020: £0.6million loss) largely, although not exclusively, as a result of the overall contribution of the acquired VCT fund management business.

On 9 July 2020 Mercia announced the profitable sale of The Native Antigen Company Limited ("NAC") and post period end on 19 October 2020, the profitable sale of Clear Review Limited ("Clear Review"). The Group has recognised a realised gain of £1.7million on the sale of NAC in these results and a fair value uplift of £0.5million on its direct holding in Clear Review as at 30 September 2020.

During the six months ended 30 September 2020 the Group invested £10.9million net (H1 2020: £11.1million) into 13 existing and one new direct investment (H1 2020: 15 and one respectively). The quantum of direct investment activity seen in the first half of the financial year is expected to be lower in the second half, as the majority of the portfolio are sufficiently well funded through to at least the remainder of this financial year.

Net fair value increases during the six month period (including Clear Review's) totalled £6.7million (H1 2020: £3.2million) and as at 30 September 2020 the fair value of the Group's direct investment portfolio was £101.6million (H1 2020: £102.0million; FY 2020: £87.5million). Net assets at the period end were £149.9million (H1 2020: £128.4million; FY 2020: £141.5million), resulting in net assets per share of 34.1 pence (being net assets of £149.9million divided by 440,109,707 shares in issue) (H1 2020: 42.3 pence, being net assets of £128.4million divided by 303,309,707 shares in issue; FY 2020: 32.1 pence, being net assets of £141.5million divided by 440,109,707 shares in issue).

Within net assets, unrestricted cash and short-term liquidity investments (excluding £0.3million of cash held on behalf of third-party EIS investors (H1 2020: £0.4million; FY 2020: £0.5million)) totalled £24.9million (H1 2020: £17.8million; FY 2020: £30.2million).

The adjusted operating profit, realised gain on the sale of NAC and the net fair value increase all contributed favourably to result in a consolidated total comprehensive profit for the period of £8.2million (H1 2020: £2.1million), which has resulted in earnings per Ordinary share of 1.87 pence (H1 2020: 0.69 pence).

Dividend

It has always been part of the Group's long-term shareholder value creation strategy that dividends would form part of total shareholder return. Given Mercia's profitable trading, continuing strong liquidity and future prospects, the Board has determined that it is now appropriate to adopt a progressive dividend policy. It is therefore declaring a maiden interim dividend of 0.1 pence per share (H1 2020: nil) to shareholders on the register as at close of business on 11 December 2020. The dividend will be paid on 30 December 2020. The total dividend payable is £0.4million (H1 2020: nil).

Alternative performance measures

The Group has historically believed that the measurement and reporting of 'net revenues/(expenses)' was an important alternative performance measures of interest to investors.

From 1 April 2020 however, the Group has substituted 'adjusted operating profit' (defined as operating profit before realised gains on disposal of investments, fair value movements in investments, share-based payments charge, depreciation, amortisation of intangible assets and exceptional items) for net revenues/(expenses), as it is a more generally recognised alternative performance measure for specialist asset managers. The Directors believe that adjusted operating profit assists in providing a consistent measure of operating performance excluding distortions caused by the reconciling items set out in the table below.

From Mercia's perspective and for comparison purposes, the difference between the measurement of net revenues/(expenses) and adjusted operating profit is that adjusted operating profit includes net finance income and excludes depreciation.

The table below provides a bridge between the two alternative performance measures for the six months ended 30 September 2020 and comparative periods.

	Six months ended 30 September 2020 £'000	Six months ended 30 September 2019 £'000	Year ended 31 March 2020 £'000
Revenue	8,362	5,537	12,747
Other administrative expenses	(7,323)	(6,288)	(12,449)
Depreciation	(106)	(113)	(212)
Net revenues/(expenses)	933	(864)	86
Depreciation	106	113	212
Net finance income	9	122	220
Adjusted operating profit/(loss)	1,048	(629)	518

The following table provides a reconciliation from adjusted operating profit/(loss) to operating profit/(loss) for the period ended 30 September 2020 and comparative periods.

	Six months ended 30 September 2020 £'000	Six months ended 30 September 2019 £'000	Year ended 31 March 2020 £'000
Adjusted operating profit/(loss)	1,048	(629)	518
Depreciation	(106)	(113)	(212)
Realised gains on disposal of investments	1,704	-	-
Fair value movements in investments	6,730	3,237	(15,844)
Share-based payments charge	(182)	(281)	(528)
Amortisation of intangible assets	(1,167)	(150)	(852)
Operating profit/(loss) before exceptional items	8,027	2,064	(16,918)
Exceptional items	-	-	(695)
Operating profit/(loss)	8,027	2,064	(17,613)

Revenue

Total revenue increased to £8,362,000 (H1 2020: £5,537,000) and comprised fund management related fees, initial management fees from investment rounds, investment director monitoring fees and sundry business services income.

Other administrative expenses

Total other administrative expenses increased to £7,323,000 (H1 2020: £6,288,000) and comprised predominantly staff-related, office, marketing and professional adviser costs.

Realised gains on disposal of investments

During the six month period a realised gain of £1,704,000 (H1 2020: nil) arose on the disposal of NAC. Also during the period, the Group disposed of its investment in Crowd Reactive, at its £150,000 holding value.

Fair value movements in investments

	Six months ended 30 September 2020 £'000	Six months ended 30 September 2019 £'000	Year ended 31 March 2020 £'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments	7,076	4,758	3,351
Unrealised losses on the revaluation of investments	(346)	(1,521)	(19,195)
Net fair value movement	6,730	3,237	(15,844)

For the six months ended 30 September 2020, unrealised fair value gains arose in eight (H1 2020: five) out of the Group's 25 (H1 2020: 25) direct investments. The largest fair value gain was in respect of OXGENE, which accounted for £3.4million of the total. There were eight (H1 2020: three) fair value decreases, the largest being for £203,000, which arose in respect of Intelligent Positioning.

Share-based payments charge

The £182,000 non-cash charge (H1 2020: £281,000) arises from the net increase in the total number of issued share options held by employees throughout the Group, ranging from 15 December 2017 to 30 September 2020.

Amortisation of intangible assets

The amortisation charge for the period of £1,167,000 (H1 2020: £150,000) represents the amortisation of the acquired intangible assets of both Enterprise Ventures Group Limited ('Enterprise Ventures') and the VCT fund management business.

Net finance income

Finance income of £18,000 (H1 2020: £136,000) comprised interest receivable earned on the Group's cash and short-term liquidity investments. Finance costs of £9,000 (H1 2020: £14,000) comprised interest payable on leases, arising from the application of IFRS 16, 'Leases'.

Balance sheet and cash flows

Net assets at the period end of £149,899,000 (H1 2020: £128,437,000; FY 2020: £141,460,000) were predominantly made up of the Group's direct investment portfolio, cash and short-term liquidity investments and the acquired intangible assets of Enterprise Ventures and the VCT fund management business. The Group continues to have limited working capital needs due to the nature of its business and during the period generated net operating cash inflow of £2.0million (H1 2020: £1.1million outflow).

Direct investment portfolio

During the six month period under review, Mercia's direct investment portfolio grew from £87,471,000 as at 1 April 2020 (H1 2020: £87,659,000) to £101,618,000 (H1 2020: £102,021,000) as at 30 September 2020, a 16.2% increase. The table below lists the Group's top 20 direct investments by fair value as at 30 September 2020, including a breakdown of the net cash invested during the period, investment realisations, net fair value movements and the fully diluted equity percentage of each company invested in at the period end. The Group's top 20 direct investments represent 98.6% of the total direct investment portfolio value (H1 2020: 97.5%; FY 2020: 98.3%).

	Net investment value As at 1 April 2020 £'000	Net cash invested Six months to 30 September 2020 £'000	Investment realisations Six months to 30 September 2020 £'000	Fair value movement Six months to 30 September 2020 £'000	Net investment value As at 30 September 2020 £'000	Percentage held As at 30 September 2020 %
nDreams Ltd	16,120	1,000	-	606	17,726	36.4
Oxford Genetics Ltd t/a OXGENE	11,743	1,000	-	3,351	16,094	30.2
Intechnica Group Ltd	7,177	1,250	-	1,568	9,995	27.5
Medherant Ltd	6,705	1,400	-	-	8,105	30.1
Voxpopme Ltd	6,030	-	-	1,012	7,042	17.1
Impression Technologies Ltd	4,294	1,750	-	-	6,044	25.9
Ton UK Ltd t/a Intelligent Positioning	4,354	750	-	(203)	4,901	29.9
Faradion Ltd	4,025	500	-	(2)	4,523	15.6
Warwick Acoustics Ltd	3,656	500	-	-	4,156	48.3
Locate Bio Ltd	2,250	750	-	6	3,006	16.7
VirtTrade Ltd t/a Avid Games	2,200	615	-	(3)	2,812	20.3
Soccer Manager Ltd	2,534	-	-	-	2,534	34.8
Edge Case Games Ltd	2,300	-	-	-	2,300	21.2
W2 Global Data Solutions Ltd	2,000	300	-	-	2,300	16.3
Eyoto Group Ltd	1,752	500	-	-	2,252	15.7
PsiOxus Therapeutics Ltd	2,193	-	-	(4)	2,189	1.4
sureCore Ltd	2,167	-	-	-	2,167	22.0
Clear Review Ltd	500	-	-	530	1,030	4.0
Concepta PLC	475	200	-	-	675	14.6
MIP Diagnostics Ltd	-	300	-	2	302	3.3
The Native Antigen Company Ltd	3,493	-	(3,493)	-	-	0.0
Other direct investments	1,503	95	-	(133)	1,465	n/a
Total	87,471	10,910	(3,493)	6,730	101,618	n/a

Cash and short-term liquidity investments

At the period end, Mercia had total cash and short-term liquidity investments of £25,171,000 (H1 2020: £18,186,000; FY 2020: £30,653,000) comprising cash of £24,937,000 (H1 2020: £17,979,000; FY 2020: £24,438,000), including £305,000 (H1 2020: £437,000; FY 2020: £467,000) held on behalf of third-party EIS investors, and short-term liquidity investments of £234,000 (H1 2020: £207,000; FY 2020: £6,215,000). The overriding emphasis of the Group's treasury policy remains the preservation of its shareholders' cash for investment and working capital purposes, not yield. At the period end the Group's cash and short-term liquidity investments (which is cash on deposit with maturities between three and six months) were spread across four leading United Kingdom banks.

The summarised movement in the Group's cash position during the six months ended 30 September 2020 is shown below.

	Six months ended 30 September 2020 £'000	Six months ended 30 September 2019 £'000	Year ended 31 March 2020 £'000
Opening cash and short-term liquidity investments	30,653	30,398	30,398
Net cash generated from/(used in) operating activities	2,002	(1,121)	136
Net cash used in direct and other investing activities	(7,424)	(11,010)	(15,456)
Purchase of management contracts	-	-	(12,400)
Issue of new Ordinary share capital for cash	-	-	30,000
Ordinary share capital issue costs	-	-	(1,879)
Net cash used in financing activities	(60)	(81)	(146)
Period end cash and short-term liquidity investments	25,171	18,186	30,653

Outlook

Despite the ongoing challenging economic backdrop and second national lockdown, Mercia has continued to trade profitably since 30 September 2020.

It is now almost six years since Mercia's admission to trading on AIM. Venture investing takes time to produce positive results, but the recent NAC and Clear Review profitable cash exits demonstrate the potential for continuing incremental shareholder value creation, which also now includes a dividend yield.

With the asset values of Mercia's funds under management and its direct portfolio both recovering, growing net operating cash inflow, continuing strong liquidity with no debt obligations and a well-funded direct investment portfolio, the Group believes that it has sufficient cash resources to continue executing its organic growth strategy for the foreseeable future.

Martin Glanfield

Chief Financial Officer

Condensed consolidated statement of comprehensive income

For the six months ended 30 September 2020

	Note	Unaudited Six months ended 30 September 2020 £'000	Unaudited Six months ended 30 September 2019 £'000	Audited Year ended 31 March 2020 £'000
Revenue	2	8,362	5,537	12,747
Other administrative expenses		(7,323)	(6,288)	(12,449)
Net finance income		9	122	220
Adjusted operating profit/(loss)		1,048	(629)	518
Realised gains on disposal of investments		1,704	-	-
Fair value movements in investments	3	6,730	3,237	(15,844)
Share-based payments charge		(182)	(281)	(528)
Depreciation		(106)	(113)	(212)
Amortisation of intangible assets		(1,167)	(150)	(852)
Operating profit/(loss) before exceptional items		8,027	2,064	(16,918)
Exceptional items		-	-	(695)
Profit/(loss) before taxation		8,027	2,064	(17,613)
Taxation		220	27	159
Profit/(loss) and total comprehensive income/(loss) for the financial period		8,247	2,091	(17,454)
Basic and diluted earnings/(loss) per Ordinary share (pence)	4	1.87	0.69	(5.11)

All results derive from continuing operations.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Condensed consolidated balance sheet

As at 30 September 2020

	Note	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March 2020 £'000
Assets
Non-current assets
Goodwill	5	16,642	10,328	16,642
Intangible assets	6	18,896	434	20,063
Property, plant and equipment		115	141	125
Right-of-use assets		527	660	598
Investments	7	101,618	102,021	87,471
Total non-current assets		137,798	113,584	124,899
Current assets
Trade and other receivables		1,451	707	1,298
Short-term liquidity investments	8	234	207	6,215
Cash and cash equivalents	8	24,937	17,979	24,438
Total current assets		26,622	18,893	31,951
Total assets		164,420	132,477	156,850
Current liabilities
Trade and other payables	9	(4,226)	(3,303)	(4,805)
Lease liabilities		(122)	-	(118)
Deferred consideration	10	(1,736)	-	(1,736)
Total current liabilities		(6,084)	(3,303)	(6,659)
Non-current liabilities
Lease liabilities		(409)	(656)	(473)
Deferred consideration	10	(4,446)	-	(4,446)
Deferred taxation	11	(3,592)	(81)	(3,812)
Total non-current liabilities		(8,447)	(737)	(8,731)
Total liabilities		(14,531)	(4,040)	(15,390)
Net assets		149,899	128,437	141,460
Equity
Issued share capital		4	3	4
Share premium		81,644	49,324	81,644
Other distributable reserve		70,000	70,000	70,000
Retained earnings		(3,806)	7,492	(12,053)
Share-based payments reserve		2,047	1,618	1,865
Total equity		149,899	128,437	141,460

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

The condensed consolidated interim financial statements of Mercia Asset Management PLC were approved by the Board of Directors on 30 November 2020 and authorised for issue. They were signed on its behalf by:

Dr Mark Payton  Martin Glanfield

Chief Executive Officer  Chief Financial Officer

Condensed consolidated cash flow statement

For the six months ended 30 September 2020

	Note	Unaudited Six months ended 30 September 2020 £'000	Unaudited Six months ended 30 September 2019 £'000	Audited Year ended 31 March 2020 £'000
Cash flows from operating activities:
Profit/(loss) before taxation		8,027	2,064	(17,613)
Adjustments to reconcile profit/(loss) before taxation to net cash flows generated from/(used in) operating activities:
Depreciation of property, plant and equipment		35	36	73
Depreciation of right-of-use assets		71	77	139
Fair value movements in investments		(6,730)	(3,237)	15,844
Share-based payments charge		182	281	528
Amortisation of intangible assets		1,167	150	852
Net finance income		(9)	(122)	(220)
Working capital adjustments:
(Increase)/decrease in trade and other receivables		(161)	70	(514)
(Decrease)/increase in trade and other payables		(580)	(440)	1,047
Net cash generated from/(used in) operating activities		2,002	(1,121)	136
Cash flows from direct investment activities:
Purchase of direct investments		(11,160)	(11,461)	(17,449)
Proceeds from the sale of direct investments		3,493	-	1,793
Investee company loan repayments		250	336	-
Net cash flows from direct investment activities		(7,417)	(11,125)	(15,656)
Cash flows from other investing activities:
Purchase of property, plant and equipment		(25)	(24)	(45)
Investee company loan redemption premiums and interest received		18	139	245
Purchase of fund management contracts		-	-	(12,400)
Decrease/(increase) in short-term liquidity investments		5,981	4,981	(1,027)
Net cash generated from/(used in) other investing activities		5,974	5,096	(13,227)
Net cash used in total investing activities		(1,443)	(6,029)	(28,883)
Cash flows from financing activities:
Proceeds from the issue of Ordinary shares		-	-	30,000
Transaction costs relating to the issue of Ordinary shares		-	-	(1,879)
Payment of lease liabilities		(51)	(81)	(120)
Interest paid		(9)	-	(26)
Net cash (used in)/generated from financing activities		(60)	(81)	27,975
Net increase/(decrease) in cash and cash equivalents		499	(7,231)	(772)
Cash and cash equivalents at the beginning of the period		24,438	25,210	25,210
Cash and cash equivalents at the end of the period	8	24,937	17,979	24,438

Condensed consolidated statement of changes in equity

For the six months ended 30 September 2020

	Issued share capital £'000	Share premium £'000	Other distributable reserve £'000	Retained earnings £'000	Share-based payments reserve   £'000	Total £'000
As at 31 March 2019 (audited)	3	49,324	70,000	5,401	1,337	126,065
Profit and total comprehensive income for the period	-	-	-	2,091	-	2,091
Share-based payments charge	-	-	-	-	281	281
As at 30 September 2019 (unaudited)	3	49,324	70,000	7,492	1,618	128,437
Loss and total comprehensive loss for the period	-	-	-	(19,545)	-	(19,545)
Issue of share capital	1	34,199	-	-	-	34,200
Cost of share capital issued	-	(1,879)	-	-	-	(1,879)
Share-based payments charge	-	-	-	-	247	247
As at 31 March 2020 (audited)	4	81,644	70,000	(12,053)	1,865	141,460
Profit and total comprehensive income for the period	-	-	-	8,247	-	8,247
Share-based payments charge	-	-	-	-	182	182
As at 30 September 2020 (unaudited)	4	81,644	70,000	(3,806)	2,047	149,889

Notes to the interim financial statements  

For the six months ended 30 September   2020

1. Accounting policies

The principal accounting policies applied in the presentation of the condensed consolidated interim financial statements of Mercia Asset Management PLC ('the Group', 'Mercia' or 'the Company') are consistent with those followed in the preparation of the Group's Annual Report and consolidated financial statements for the year ended 31 March 2020 and have been consistently applied throughout the period ended 30 September   2020 .

General information

Mercia Asset Management PLC is a public limited company incorporated and domiciled in England, United Kingdom and registered in England and Wales with registered number 09223445. Its Ordinary shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange. The registered office address is Mercia Asset Management PLC, Forward House, 17 High Street, Henley-in-Arden B95 5AA. Mercia Asset Management PLC's Ordinary shares were admitted to trading on AIM on 18 December 2014.

Basis of preparation

The financial information presented in these condensed consolidated interim financial statements constitutes the condensed consolidated financial statements of Mercia Asset Management PLC and its subsidiaries for the six months ended 30 September 2020. These condensed consolidated interim financial statements should be read in conjunction with the Group's Annual Report and consolidated financial statements for the year ended 31 March 2020, which have been prepared in accordance with European Union ("EU") endorsed International Financial Reporting Standards ("IFRSs"), the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee ("IFRIC")) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

These condensed consolidated interim financial statements and the comparative financial information presented in these condensed consolidated interim financial statements for the period ended 30 September 2020 do not constitute full statutory accounts within the meaning of Section 434 of the Companies Act 2006. The Group's Annual Report and consolidated financial statements for the year ended 31 March 2020 were approved by the Board on 13 July 2020 and have been delivered to the Registrar of Companies. The Group's independent auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard ("IAS") 34 'Interim Financial Reporting', as adopted by the EU and the AIM Rules of the London Stock Exchange, on the going concern basis and in accordance with the recognition and measurement principles of IFRSs as endorsed by the EU.

No new or revised standards or interpretations that have become effective during the period ended 30 September 2020 have had a material effect on the financial statements of the Group.

The financial information contained in these condensed consolidated interim financial statements, which were approved by the Board on 30 November 2020 and authorised for issue, has been reviewed by the Group's independent auditor.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

In preparing these condensed consolidated interim financial statements, the critical accounting judgements made by the Directors in applying the Group's accounting policies and the key sources of estimation were the same as those that applied in the preparation of the Group's Annual Report and consolidated financial statements for the year ended 31 March 2020 .

Going concern

Based on the overall strength of the Group's balance sheet, including its significant liquidity position at the period end, together with its forecast future operating and investment activities, and having considered the impact of COVID-19 on the Group's operations and portfolio, the Directors have a reasonable expectation that the Group is well placed to manage business risks in the current economic environment and has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing these condensed consolidated interim financial statements.

2. Segmental reporting

For the six months ended 30 September 2020, the Group's revenue and profit were derived from its principal activity within the United Kingdom.

IFRS 8 'Operating Segments' defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the chief operating decision maker to assess performance and determine the allocation of resources. The chief operating decision maker has been identified as the Board of Directors. The Directors are of the opinion that under IFRS 8 the Group has only one operating segment, being active specialist asset management, because the results of the Group are monitored on a Group-wide basis. The Board of Directors assesses the performance of the operating segment using financial information which is measured and presented in a consistent manner.

An analysis of the Group's revenue is as follows:

	Unaudited Six months ended 30 September 2020 £'000	Unaudited Six months ended 30 September 2019 £'000	Audited Year ended 31 March 2020 £'000
Fund management fees	6,210	3,534	8,861
Initial management fees	658	797	1,286
Portfolio directors' fees	1,386	1,054	2,380
Otherrevenue	108	152	220
Total revenue	8,362	5,537	12,747

3. Fair value movements in investments

	Unaudited Six months ended 30 September 2020 £'000	Unaudited Six months ended 30 September 2019 £'000	Audited Year ended 31 March 2020 £'000
Net fair value movements in investments	6,730	3,237	(15,844)

No other gains or losses have been recognised in respect of financial assets held at amortised cost. No gains or losses been recognised on financial liabilities held at amortised cost.

4. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial period by the weighted average number of Ordinary shares in issue during the period. Diluted earnings per share is calculated by dividing the profit for the financial period by the weighted average number of Ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options on an as-if-converted basis. The potentially dilutive option shares are included in diluted earnings per share calculations on a weighted average basis for the period. The profit and weighted average number of shares used in the calculations are set out below.

	Unaudited Six months ended 30 September 2020	Unaudited Six months ended 30 September 2019	Audited Year ended 31 March 2020
Profit for the financial period(£'000)	8,247	2,091	(17,454)
Weighted average number of Ordinary shares (basic)('000)	440,110	303,310	341,401
Weighted average number of Ordinary shares (diluted)('000)	440,110	303,628	341,627
Earnings per Ordinary share basic and diluted(pence)	1.87	0.69	(5.11)

The calculation of diluted earnings per share is based on the following data:

	Unaudited Six months ended	Unaudited Six months ended	Audited Year  ended
	30 September	30 September	31 March
	2020	2019	2020
	'000	'000	'000
Weighted average number of shares
Basic	440,110	303,310	341,401
Dilutive impact of share options	-	318	226
Diluted	440,110	303,628	341,627

5. Goodwill

	Mercia Fund Management £'000	Enterprise Ventures £'000	VCT fund management contracts £'000	Total £'000
As at 1 April 2019 (audited)	2,455	7,873	-	10,328
As at 30 September 2019 (unaudited)	2,455	7,873	-	10,328
Additions	-	-	6,314	6,314
As at 31 March 2020 (audited)	2,455	7,873	6,314	16,642
As at 30 September 2020 (unaudited)	2,455	7,873	6,314	16,642

Included in additions to goodwill is £6,314,000 which arose on the acquisition of the Northern Venture Capital Trust ("VCT") fund management business in December 2019. Details of the consideration paid and assets acquired as part of this transaction are set out in the Group's consolidated financial statements for the year ended 31 March 2020 . There have been no accumulated impairment losses in the six month period to 30 September 2020.

6. Intangible assets

Intangible assets represent contractual arrangements in respect of the acquisition of the VCT fund management business and the acquisition of Enterprise Ventures, where it is probable that the future economic benefits that are attributable to the assets will flow to the Group and the fair value of the assets can be reliably measured.

	£'000
Cost
As at 1 April 2019	1,504
As at 30 September 2019 (unaudited)	1,504
Additions	20,331
As at 31 March 2020 (audited)	21,835
As at 30 September 2020 (unaudited)	21,835
Accumulated amortisation
As at 1 April 2019 (audited)	920
Charge for the period	150
As at 30 September 2019 (unaudited)	1,070
Charge for the period	702
As at 31 March 2020 (audited)	1,772
Charge for the period	1,167
As at 30 September 2020 (unaudited)	2,939
Net book value
As at 31 March 2019 (audited)	584
As at 30 September 2019 (unaudited)	434
As at 31 March 2020 (audited)	20,063
As at 30 September 2020 (unaudited)	18,896

7. Investments

The net change in the value of investments for the six month period is £14,147,000 (H1 2020: £14,362,000).

The Group's valuation policies are set out in detail in its consolidated financial statements for the year ended 31 March 2020. The table below sets out the movement in the balance sheet value of investments from the start to the end of the period, showing investments made, investee company loans repaid and the direct investment fair value movements.

£'000
As at 1 April 2019 (audited)	87,659
Investments made during the period	11,461
Investee company loan repayments	(336)
Unrealised gains on the revaluation of investments	4,758
Unrealised losses on the revaluation of investments	(1,521)
As at 30 September 2019 (unaudited)	102,021
Investments made during the period	5,988
Investee company loan repayments	(1,457)
Unrealised gains on the revaluation of investments	-
Unrealised losses on the revaluation of investments	(19,081)
As at 31 March 2020 (audited)	87,471
Investments made during the period	11,160
Disposals made during the period	(3,493)
Investee company loan repayments	(250)
Unrealised gains on the revaluation of investments	7,076
Unrealised losses on the revaluation of investments	(346)
As at 30 September2020 (unaudited)	101,618

8. Cash, cash equivalents and short-term liquidity investments

	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March  2020 £'000
Cash at bank and inhand	24,937	17,979	24,438
Total cash and cashequivalents	24,937	17,979	24,438
Total short-term liquidityinvestments	234	207	6,215

Included within cash and cash equivalents is £305,000 (H1 2020: £437,000; FY 2020: £467,000) of cash held on behalf of third-party EIS investors which is not available for use by the Group.

9. Trade and other payables

Trade and other payables includes £305,000 (H1 2020: £437,000; FY 2020: £467,000) representing the liability in respect of the cash held on behalf of third-party EIS investors.

10. Deferred consideration

	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March  2020 £'000
Payable within one year	1,736	-	1,736
Payable within two to five years	4,446	-	4,446

Details of the deferred consideration which arose on the acquisition of the VCT fund management business in December 2019, are set out in the Group's consolidated financial statements for the year ended 31 March 2020 .

11. Deferred taxation

	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March  2020 £'000
Recognition of deferred tax liability	3,592	81	3,812

Under IAS 12, 'Income Taxes', provision is made for the deferred tax liability associated with the recognition of the intangible assets arising on the acquisition of the VCT fund management business and the acquisition of Enterprise Ventures. This has been recognised at 19% of the fair value of the fund management contracts at acquisition and is reassessed at each period end, with the movement being recognised in the consolidated statement of comprehensive income.

As at 30 September 2020, a deferred tax liability of £3,592,000 (H1 2020: £81,000; FY 2020: £3,812,000) has been recognised. Of this total £3,565,000 is in respect of the intangible asset arising on the acquisition of the VCT fund management business and £27,000 is in respect of the remaining intangible asset arising on the acquisition of Enterprise Ventures.

12. 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 condensed consolidated balance sheet. Subsequent to their initial recognition at fair value, measurements of movements in fair values of financial instruments are grouped into Levels 1 to 3, based on the degree to which the fair value is observable.

The following table and accompanying narrative provides information about how the fair values of these financial assets and financial liabilities are determined and presents the Group's assets that are measured at fair value as at 30 September 2020. The table in note 7 of these condensed consolidated financial statements sets out the movement in the balance sheet value of direct investments from the start to the end of the six month period.

	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March  2020 £'000
Assets:
Financial assets at fair value through profit or loss ("FVTPL") Level 1 Level 2 Level 3
Level 1	675	890	475
Level 2	-	-	-
Level 3	100,943	101,131	86,996
	101,618	102,021	87,471
	Unaudited As at 30 September 2020 £'000	Unaudited As at 30 September 2019 £'000	Audited As at 31 March  2020 £'000
Liabilities:
Financial liabilities at amortised cost - deferred consideration
Level 1	-	-	-
Level 2	-	-	-
Level 3	6,182	-	6,182
	6,182	-	6,182

The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values.

Financial instruments in Level 1

As at 30 September 2020, the Group had one direct investment listed on AIM (Concepta PLC); this has been classified in Level 1 and valued at its bid price as at 30 September 2020.

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 in the fair value hierarchy and the individual valuations for each of the companies have been arrived at using appropriate valuation techniques.

Note 2 of the Group's consolidated financial statements for the year ended 31 March 2020 provides further information on the Group's valuation methodology, including a detailed explanation of the valuation techniques used for Level 3 financial instruments.

13. Related party transactions

There has been no material change in the type of related party transactions described in the Group's consolidated financial statements for the year ended 31 March 2020.

Independent review report to Mercia Asset Management PLC

We have been engaged by Mercia Asset Management PLC ('the Company', 'the Group') to review the condensed consolidated set of financial statements in the interim financial report for the six months ended 30 September 2020 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement of changes in equity and related notes 1 to 13. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.

Directors' responsibilities

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated set of financial statements included in this interim financial report have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the interim financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the interim financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the AIM Rules of the London Stock Exchange.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Deloitte LLP

Statutory Auditor

Birmingham, United Kingdom

30 November 2020

Directors, secretary and   advisers

Directors

Ian Roland Metcalfe	(Non-executiveChair)
Dr Mark AndrewPayton	(Chief ExecutiveOfficer)
Martin JamesGlanfield	(Chief FinancialOfficer)
Julian George Viggars	(Chief InvestmentOfficer)
Raymond Kenneth Chamberlain	(Non-executive Director)
Dr Jonathan David Pell	(Non-executive Director)
Caroline Bayantai Plumb OBE	(Non-executive Director)
Diane Seymour-Williams	(Non-executive Director)

Companysecretary	Company registrationnumber
Sarah-Louise Anne Thawley	09223445
Companywebsite	Solicitors
www.mercia.co.uk	Gowling WLG (UK) LLP 4 More LondonRiverside London SE1 2AU
Registered office
ForwardHouse
17 HighStreet	Nominated adviser and joint broker
Henley-in-Arden	Canaccord Genuity Ltd
Warwickshire B955AA	88 Wood Street
	London EC2V 7QR
Independentauditor
DeloitteLLP	Joint broker
Statutory Auditor	Nplus1 Singer Advisory LLP
FourBrindleyplace	1 Bartholomew Lane
FourBrindleyplace	London EC2N 2AX
Principalbankers	Investor relations adviser
Barclays BankPLC	FTI Consulting Ltd
OneSnowhill	200 Aldersgate
Snow HillQueensway	London EC2A 4HD
Birmingham B4 6GN
	Company registrar
Lloyds Bank plc	SLC Registrars
125 Colmore Row	Elder House
Birmingham B33SD	St Georges Business Park
	207 Brooklands Road Weybridge Surrey KT13 0TS

 

END

 

 

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