Interim Results
|
RNS |
7 December 2021 |
Mercia Asset Management PLC
("Mercia" or the "Group" or the "Company")
Interim Results
Interim dividend trebled, underpinned by strong growth in profits and net assets per share
Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused specialist asset manager with c.£948million of assets under management ("AuM"), is pleased to announce its interim results for the six months ended 30 September 2021.
Financial results
· Revenue1 increased 20.7% to £10.1million (H1 2021: £8.4million)
· Adjusted operating profit2 more than doubled to £2.4million (H1 2021: £1.1million)
· Net fair value increase in direct investments of £8.7million (H1 2021: £6.7million)
· Operating profit increased 33.8% to £10.7million (H1 2021: £8.0million)
· Profit after tax increased 35.2% to £11.2million (H1 2021: £8.2million)
· Basic earnings per share increased 35.2% to 2.53 pence (H1 2021: 1.87 pence)
· Interim dividend of 0.3 pence per share3 (H1 2021: 0.1 pence)
· Cash and short-term liquidity investments of £52.1million (H1 2021: £24.9million; FY 2021: £54.7million)
· Net assets of £186.4million ( H1 2021 : £149.9million; FY 2021 : £176.0million)
· Net assets per share of 42.4 pence (H1 2021: 34.1 pence; FY 2021: 40.0 pence)
· AuM4 of c.£948million (H1 2021: c.£872million; FY 2021: c.£940million)
1 Excluding performance fees of £2.6million (H1 2021: £nil).
2 Adjusted operating profit is defined as operating profit before performance fees net of variable compensation, realised gains on disposal of investments, fair value movements in investments, share-based payments charge, depreciation, amortisation of intangible assets, movement in fair value of deferred consideration and exceptional items. It includes net finance income. The reconciliation of adjusted operating profit to operating profit is included in the Chief Financial Officer's review.
3 Interim dividend payable on 31 December 2021 to shareholders on the register at close of business on 17 December 2021.
4 Including the Group's consolidated net assets.
Managed funds' developments
· Total third-party funds under management ("FuM") of c.£762million ( H1 2021 : c.£722million; FY 2021 : c.£764million) net of c.£38million of distributions to investors during the six-month period
· Third-party FuM contributed £9.6million in revenue (H1 2021: £7.8million)
· Venture FuM of c.£601million ( H1 2021 : c.£552million; FY 2021 : c.£600million)
o Performance fees totalling £2.6million receivable (H1 2021: £nil) following a significant net asset value ("NAV") increase in the Mercia-advised Northern Venture Trust PLC
· Private equity FuM of c.£53million ( H1 2021 : c.£56million; FY 2021 : c.£54million)
· Debt FuM of c.£108million ( H1 2021: £114million; FY 2021 : c.£110million)
Direct investment portfolio developments
· Direct investment portfolio fair value of £110.3million ( H1 2021 : £101.6million; FY 2021 : £96.2million), an increase of 14.6% during the six-month period
· £5.4million net invested into five portfolio companies during the period (H1 2021: £10.9million net invested into 14 portfolio companies)
Post period end developments
· In October 2021 Mercia completed a £1.8million direct investment into a new portfolio company, Forensic Analytics Limited, alongside a £2.7million investment by the Northern VCTs
· In November 2021 Mercia's third-party managed fund portfolio company, Pimberly Limited, completed a £4.3million funding round to expand into the US market and accelerate its growth in the UK. Mercia invested £1.4million of capital from its own balance sheet, alongside a further £2.9million investment by the Northern VCTs
· Commercial progress continues to be made by the majority of the direct investment portfolio, including each of the top five direct investments by holding value
· Commencing on 1 November 2021, the Group received a further c.£26million allocation from British Business Bank across both Equity (c.£15million) and Debt (c.£11million) Northern Powerhouse Investment Funds
Mark Payton, Chief Executive Officer of Mercia, commented:
"I am pleased with this strong performance and the continued growth and value creation that we have delivered across our portfolio in the six-month period under review. I believe that against a backdrop of economic recovery, this positive momentum is set to continue, reinforcing our position as one of the most active UK investors in our chosen areas across venture, private equity and debt.
Our total AuM has now increased to c.£948million, c.£762million of which is third-party funds under management, and we remain confident in achieving our three-year objectives of growing AuM on average by 20% per annum while also delivering a cumulative £60million in profit before tax.
The success of our 'Complete Connected Capital' approach and ability to provide such a breadth of flexible financing solutions is evidenced by the variety of regional investments we have originated, and notably 38 of our 74 investments made, represented new opportunities. Complementing this is our growing reputation for achieving strong exits for our investors and investee management teams, with nine exits successfully realised across our third-party managed funds and direct investment portfolios during the period.
I'm delighted that this year we've been able to deliver a trebling of the Group's interim dividend indicating our confidence in the sustainability and resilience of Mercia's hybrid investment model. It's also been wonderful to gradually welcome our talented colleagues back together in person and show the results of what we can achieve as #OneMercia."
This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. Upon publication of this announcement, this inside information is now considered to be in the public domain.
Mercia is also pleased to share a number of short interviews with the CEOs of its portfolio companies updating on recent progress and the outlook for their businesses.
These interviews can be accessed here: https://www.mercia.co.uk/interim-results-2022/ .
-Ends-
For further information, please contact:
|
Mercia Asset Management PLC Mark Payton, Chief Executive Officer Martin Glanfield, Chief Financial Officer
|
+44 (0)330 223 1430
|
|
Canaccord Genuity Limited (NOMAD and Joint Broker) |
+44 (0)20 7523 8000 |
|
Simon Bridges, Andrew Potts |
|
|
|
|
|
Singer Capital Markets |
+44 (0)20 7496 3000 |
|
Harry Gooden, James Moat
|
|
|
|
|
|
FTI Consulting |
+44 (0)20 3727 1051 |
|
Tom Blackwell, Louisa Feltes |
|
|
mercia@fticonsulting.com |
|
About Mercia Asset Management PLC:
Mercia is a proactive, specialist asset manager focused on supporting regional SMEs to achieve their growth aspirations. Mercia provides capital across its four asset classes of venture, private equity, debt and proprietary capital: the Group's 'Complete Connected Capital'. The Group initially nurtures businesses via its third-party funds under management, then over time Mercia can provide further funding to the most promising companies, by deploying direct investment follow-on capital from its own balance sheet.
The Group has a strong UK footprint through its regional offices, 19 university partnerships and extensive personal networks, providing it with access to high-quality deal flow. Mercia currently has c.£948million of assets under management and, since its IPO in December 2014, has invested c.£116million 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 focused exclusively on the UK at a regional level, often but not always, where we have a physical presence. Our regional footprint is continuing to grow with the recent opening of an office in Bristol, to serve the Southwest. Our vision is simple: to become the first choice for investees, investors and employees. Alongside this, we have publicly stated that our twin strategic objectives over the next three years, from 1 April 2021, is to achieve £60.0million in cumulative pre-tax profits and c.£600million cumulative growth in assets under management ("AuM").
To achieve our first objective, the £20.0million average pre-tax profits per annum will be generated from a combination of profits generated by our fund management operations, plus the performance of Mercia's direct investment portfolio. At the end of the first interim period of our three-year strategic plan I am pleased to report that Mercia has made an encouraging start, with adjusted operating profit of £2.4million, net upward fair value movements of £8.7million and profit before tax of £11.0million.
As at 30 September 2021, Mercia's total AuM was c.£948million and comprises c.£762million of third-party funds under management ("FuM") plus the Group's consolidated net assets of c.£186million, the two largest components of which are our c.£110million direct investment portfolio and our c.£52million of cash.
Further growth in Mercia's AuM will be achieved by our three discrete investment activities; (i) selective investment into new and existing direct portfolio companies alongside our managed funds, as we seek direct investment stakes of at least 10% into a diversified portfolio (both in terms of sector vertical and stage of development) of up to 30 companies at any one time, with 23 today delivering a portfolio IRR of c.14%, (ii) expand on an organic basis our FuM, including seeding new fund initiatives, and (iii) continuing to scale the Group through selective acquisitions, where the enlarged Group can leverage the skills of its #OneMercia talented staff, enhanced distribution capabilities and core competences.
We focus on where you are heading, not where you are from
We seek to support regional businesses and entrepreneurs from across the UK, with diversity being a key investment theme for Mercia, with this initiative being led by our Responsible Investment Team. Our private equity and debt asset classes focus on profitable businesses, whilst our regional venture and Enterprise Investment Scheme ("EIS") capital provides seed to Series A funding as a generalist technology investor. Our Venture Capital Trust ("VCT") and proprietary capital predominantly focus on the enabling technology verticals of Life Sciences/Biosciences, Deep Tech, Digital Entertainment and Software, from Series A onwards. This asset class breadth and investment capacity enables the targeting of an annual addressable market, excluding London, of c.£1.8billion.
Deal origination has remained strong during the period under review, emerging increasingly through our digital engagement channels, our proprietary networks and through the gradual return of face-to-face meetings, as our operating environment establishes a new level of normality. In the six months to 30 September 2021, the Group invested £55.1million into 74 companies (38 of which were new to Mercia), drawing in syndicated investment of £31.3million across our four asset classes of venture, private equity, debt and proprietary capital.
With 1,110 enquiries during this six-month period, we estimate that we had sight of c.40% of all deals done in our target market and have taken c.5% market share overall. As the early adverse impact of the pandemic on investment activity further subsides, we have regained good investment momentum. There is much more for us to build on in our target markets.
Our vision
First choice for investees
We are typically the lead in originating opportunities, supporting investee companies' subsequent growth and then proactively driving exits at the right time for Mercia and the investee companies' founders. To this end we have developed an in-house value centre, Mercia's Portfolio Resource, specifically to provide proactive support to our portfolio companies without additional cost to them. Our proactive services include access to our network of offices, in-house training and mentoring support e.g. digital marketing and lead generation strategies, focused networking events, plus NED and C-suite searches. This wide-ranging value-accretive support is made possible by both our scale and our passion for supporting our domestic portfolio of over 400 companies in whatever way we can to help them succeed. In addition, our flexible capital solutions, which we term Mercia's 'Complete Connected Capital', enable us to provide capital from seed all the way through to IPO and/or trade sale. Our 'capital light' investment strategy means that we are typically investing in businesses that seek no more than £20.0million in total funding, with Mercia typically investing up to £10.0million along the journey, although there is no specific limit.
First choice for investors
Total AuM grew sequentially by 0.9% in the period under review to c.£948million (FY 2021: c.£940million) or 8.7% when compared to this period end last year - all driven by organic growth. At the period end the Group had total uninvested cash, including Mercia's third-party managed funds, of c.£284million (FY 2021: c.£314million).
Mercia's asset class movements during this reporting period were as follows:
|
Asset class |
AuM 1 April 2021 £'m |
Net fund flows £'m |
Distributions £'m |
Performance £'m |
AuM 30 September 2021 £'m |
AuM 30 September 2020 £'m |
AuM 31 March 2021 £'m |
|
Venture |
600 |
11 |
(36) |
26 |
601 |
552 |
600 |
|
Private equity |
54 |
- |
- |
(1) |
53 |
56 |
54 |
|
Debt |
110 |
- |
(2) |
- |
108 |
114 |
110 |
|
Proprietary capital |
176 |
- |
(1) |
11 |
186 |
150 |
176 |
|
Total |
940 |
11 |
(39) |
36 |
948 |
872 |
940 |
As more fully described in Julian Viggar's Chief Investment Officer review, the relatively small net AuM increase during this six-month period is as a result of the number of successful exits, resulting in elevated returns to investors, which are categorised in the above table as distributions. This successful investment performance will underpin our ability to raise new funds in the future.
Mercia benefits from a broad and overlapping distribution platform comprising retail (in respect of EIS and VCT investors), institutional (in respect of private equity and certain debt funds), pseudo public sector (in respect of Mercia's managed regional venture and debt funds) and the public markets (in respect of our shareholders).
Our primary focus remains on growing all elements of AuM on an organic basis, leveraging our increasingly strong investment track record and interconnected distribution channels as follows:
· Retail: Growing EIS capital under management and VCT net asset values year on year.
· Institutional capital: Raising a follow-on private equity fund targeting to go live within the next 18 months.
· Pseudo public sector: Targeting top-up capital to our existing regional FuM (c.£30m within this financial year) and then the next generation of follow-on regional venture and debt funds.
· New funds and fund areas: We are actively considering an Environmental, Social, and Governance ("ESG") fund for retail investors alongside an Enabling Technology scale-up fund for institutional investors, whilst looking to leverage our capabilities into small and micro-cap public market investing.
· Public markets: Access to capital to part-fund selective future acquisitions.
First choice for employees
Mercia has grown by c.17% in staff numbers to 106 people since the first lockdown was announced in March 2020 and c.41% of our staff are women. Throughout this period our number one priority has remained the physical and mental health of our team, and our #OneMercia culture is at the heart of this philosophy. Following a detailed assessment of remuneration in our industry and being cognisant of the current tight market for exceptional people such as Mercia's employees, we continue to ensure that Mercia's working environment is one which ensures that individuals can do their best work and that success is rewarded across the group. We have adopted a hybrid 'working from anywhere' operating model, all employees are invited to become share option holders, participate in a groupwide bonus scheme and are entitled to a comprehensive benefits package, which now includes an electric car salary sacrifice scheme.
Financial performance
It is pleasing to see Mercia's collective efforts being reflected in our continued growth in adjusted operating profit, which is primarily, although not exclusively, driven by our fund management operations. Revenues1 grew 20.7% to £10.1million (H1 2021: £8.4million) whilst the Group's cost base1 increased 8.7% to £8.0million (H1 2021: £7.3million), resulting in adjusted operating profit growth of 125.0% to £2.4million (H1 2021: £1.1million). Furthermore, the Group has become entitled to £2.6million in gross performance fees derived from a legacy regional venture fund and one of our three Northern VCT fund management contracts (H1 2021: £nil). Net fair value movements totalling £8.7million (H1 2021: £6.7million) reflect the continuing maturity and value-creating potential of our direct investment portfolio. Overall, the Group's profit after tax increased 35.2% to £11.2million (H1 2021: £8.2million). These strong results support the trebling of Mercia's interim dividend to 0.3 pence per share (H1 2021: 0.1 pence per share).
1 On an alternative performance measure basis.
Outlook
As the 'COVID tide' starts to gradually recede, it leaves behind a new way of working for every UK business.
The pandemic has resulted in accelerated change and the turbulence created across the globe has overwhelmed the resilience of many organisations. On the domestic front, we are finding that entrepreneurs in the UK regions have adapted quickly and coped well in many respects during the past 18 months. It is fair to say that prior to the pandemic few would have predicted this emerging new dynamic with changes to working environments, business models and the way we now live. These structural and largely permanent changes present significant challenges for some whilst great opportunities for others. Mercia's ambitious resilience has enabled us to respond swiftly to these changes, guided by our vision of being the first choice for investees, investors and employees.
As the Group's positive momentum continues, we have a firm belief in Mercia's ability to make a valued difference across the UK, for the benefit of all our stakeholders.
I continue to be sincerely grateful to all our employees, portfolio companies, managed fund investors and our many other valued stakeholders, including the boards of the three Northern VCTs and of course our shareholders, for their continued commitment to Mercia. This collective and aligned community is ensuring the continuation of Mercia's resilient ambition.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Investment activity
Investment momentum continues at Mercia. In the six months to 30 September 2021, we invested £55.1million into 74 businesses. This included 38 companies new to Mercia via our third-party managed funds' portfolios and £5.4million net direct investment into five existing direct investment portfolio companies. At the end of the period, we had c.£232million of liquidity across all our funds to support our future investment activity, plus a further c.£52million of cash on our balance sheet. Overall, assets under management ("AuM") increased 0.9% to c.£948million, including direct investment fair value movements ("FVM") of £8.7million in the first half of the financial year. This small net overall increase in AuM masks the fact that distributions to fund investors and shareholders totalled c.£39million - the acid test of successful investment performance and the catalyst to future third-party funds under management ("FuM") growth.
Differentiated not only through our strong physical presence across the UK regions and complementary suite of overlapping pools of finance (our 'Complete Connected Capital'), Mercia also benefits from an excellent team of 65 investment professionals across our asset classes.
Value-add
Through talent . Our non-executive director ("NED"), venture partner and operating partner networks continue to grow. This is a key focus area for us in helping to drive value. Our Portfolio Resourcing team led by Lisa Ward has grown to include Victoria Robson who joined us from BGF. Lisa and Victoria manage this valuable network to offer experienced board members alongside specific operating partner input, relevant to a particular situation, for any investee company. This is a resource cost borne by Mercia for our portfolio companies' benefit. Games businesses VirtTrade Limited t/a Avid Games ("Avid Games"), Soccer Manager Limited ("Soccer Manager") and software business Ton UK Limited t/a Intelligent Positioning ("Intelligent Positioning") are all benefitting from the addition of this approach. As an example, we have helped Intelligent Positioning appoint a new CFO and a sector specific NED, helping it recover from the customer churn it experienced during the depths of the pandemic. Intechnica Limited ("Intechnica") and nDreams Limited ("nDreams") have both appointed excellent new chairs during the period, with Frank Sagnier joining nDreams after his exit as chief executive officer ("CEO") from Codemasters, and Rupert Cook appointed as the new chair of Intechnica, bringing successful sector and commercial experience, particularly in the US cybersecurity market.
Through syndication . As our direct investment portfolio matures, we help our companies with syndicated fundraising. Life Science business Locate Bio Limited ("Locate Bio") raised a new £10.0million Series A round in September 2021 to continue its clinical development. In this raise, we were joined by BGF and Consensus Business Group, as well as investment from our own VCTs and EIS funds. Other Life Science businesses, PsiOxus Therapeutics Limited ("PsiOxus") and Sense Biodetection Limited ("Sense"), also raised significant new funds in syndicated deals post the period end, totalling over £30million.
Investment realisations
During the six-month period ended 30 September 2021, we benefitted from nine full and partial exits compared with 10 during the whole financial year ended 31 March 2021, generating a combined return on investment capital of 2.4x. Managed funds performance, which can generate carried interest or performance fees payable to the fund manager, is a demonstration of not just individual investment realisations but also of overall investment management performance above and beyond investors' expectations. It is pleasing to note that a growing number of our venture (national EIS, VCT and regional funds) and private equity funds are delivering in this respect. During the period Mercia became entitled to receive performance fees from one of our legacy venture funds and from one of our Northern VCTs, together totalling £2.6million.
Proprietary capital
As at 30 September 2021, our direct investment portfolio was valued at £110.3million (H1 2021: £101.6million; FY 2021: £96.2million) with 20 active companies (H1 2021: 22; FY 2021: 20).
We invested £5.4million net into the direct investment portfolio in the first six months of the current financial year ( H1 2021: £10.9million; FY 2021: £15.4million ) and alongside our own investment, raised more than £7.0million from syndicate investors, including c.£5million from Mercia's managed funds. The amount invested in the period does not show the whole picture however, as a number of additional follow-on investments completed shortly post period end, alongside two new additions to our direct investment portfolio, taking the active number to 22. The latest fast-growing companies added to the portfolio were Forensic Analytics Limited ("Forensic Analytics"), a provider of innovative software solutions to government and law enforcement agencies, and Pimberly Limited, a Manchester-based software-as-a-service company, with both businesses being at a later stage to those historically invested in by our proprietary capital. As demonstrated with Forensic Analytics, our ability to provide secondary capital via our balance sheet alongside our managed funds is a significant differentiator and provides Mercia with a competitive advantage when originating later-stage venture investments.
One of our two new strategic objectives over the next three years is to generate average pre-tax profits of £20.0million per annum, from a combination of the profits from our fund management operations plus the performance of Mercia's direct investment portfolio. Although I do not expect the contributions from fair value movements and realised gains to be delivered uniformly, I am confident that our assets have significant intrinsic value and we will see this unlock over the three-year period, as technical and commercial progress accelerate.
Direct investments portfolio highlights
The period under review saw net upward fair value movements of £8.7million, driven by significant commercial progress at Faradion Limited ("Faradion") and Intechnica in particular. Soccer Manager and Avid Games have also progressed well, and other fair value uplifts arose on the conversion of loans into equity at Medherant Limited ("Medherant") and progress against milestones at Sense. This was balanced against MyHealthChecked PLC's ("MyHealthChecked") share price fall from 4.4p to 2.0p.
Our top 10 direct investment holdings represent c.80% of the value of our portfolio as at 30 September 2021. There has been tangible positive progress across a number of our largest investments. Below we summarise the top two investee companies by value per sector and in addition, several 'ones to watch'.
Software and Digital Entertainment
By sector combined, c.52% by value of the portfolio.
1. nDreams: 35.4% fully diluted direct investment stake with a further 4.0% fully diluted stake held by Mercia's managed funds
Farnborough-based nDreams achieved revenues of £5.2million for the year to 31 March 2021. Alongside its two Oculus titles, Shooty Fruity and the award-winning Phantom: Covert Ops, which continue to see solid sales growth, it also released Fracked on the Sony platform in August 2021, to critical acclaim. nDreams has signed its first third-party publishing deal for a game (Little Cities), built around the Far Cry IP, which will be launched on Oculus in early 2022 and released to Zero Latency, the fast-growing free-roam virtual reality ("VR") experience company. Mercia first supported nDreams in 2014 via its managed funds. The company is increasingly recognised for its intricate technical capability in VR, as well as its quality content and publishing knowhow, creating VR content for some of the world's leading entertainment companies.
2. 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 ecommerce security and efficiency focussed group, which, through its Netacea subsidiary, has developed a new layer of security dedicated to malicious bot detection and mitigation. Netacea provides deep, actionable analysis of all internet traffic, web reconnaissance, automated bots and legitimate website visitors, then manages those journeys accordingly in real time. This is alongside Intechnica's consultancy services that offer digital transformation programmes for businesses looking to modernise their technical capability or introduce modern data science capabilities into their businesses. Netacea currently has annual recurring revenue ("ARR") of c.£4million and Intechnica has annual sales of c.£10million.
Deep Technology ("Deep Tech")
By sector, c.26% by value of the portfolio.
3. Faradion: 15.0% fully diluted direct investment stake with a further 33.7% fully diluted stake held by Mercia's managed funds
Sheffield-based Faradion is one of the world's leaders in non-aqueous sodium-ion battery cell technology. Faradion's technology offers the same performance as lithium-ion but, crucially, with sodium being the sixth most abundant element, there is no scarcity - which also allows countries to develop their own supply chains, thus avoiding Chinese dependency. The company started to commercialise its technology in 2019 and has subsequently received orders from its Australian JV partner ICM, a licensing deal with listed energy company AMTE Power and a technical collaboration on the development of new anode materials with Texan company Phillips 66. Accelerating progress has driven a material uplift in our holding value.
4. Impression Technologies: 67.3% fully diluted direct investment stake with a further 3.9% fully diluted stake held by Mercia's managed funds
As the planet enters a new era of electrification and low energy consumption, Impression Technologies, based on intellectual property originally developed at the University of Birmingham, has a multitude of rapidly developing opportunities in the automotive and aerospace markets. It has developed a proprietary aluminium light weighting technology, HFQ ™ , with its own pressing plant in Coventry. As commercial engagement continues at pace, this year saw the company move to the production of 25 different parts and five different OEM programs.
Life Sciences
By sector, c.21% by value of the portfolio.
5. Medherant: 33.1% fully diluted direct investment stake with a further 13.1% fully diluted stake held by Mercia's managed funds
Midlands-based Medherant is a University of Warwick spinout commercialising a platform of proprietary patch adhesive for medical applications. It benefits from a number of external partnerships and its own internal development program. In respect of its external partnerships, one in particular, albeit at an early stage, would, if successful, address a multi-billion-dollar market opportunity.
6. Locate Bio: 18.1% fully diluted direct investment stake with a further 24.6% fully diluted stake held by Mercia's managed funds
Nottingham-based Locate Bio, which is developing a range of orthobiologics, raised £10.0million in a syndicated Series A round in which Mercia made a direct investment of £1.6million alongside £4.0million from its third-party managed funds, together with £3.0million from BGF and £1.4million from other investment partners.
Locate Bio's products will be used by orthopaedic surgeons to accelerate the natural repair of bone and cartilage. Addressing a multi-billion-pound global market, Locate Bio currently has four products going through trials, the first targeting formal market approval in 2022. The £10.0million round will support the next stages of these trials including the company's lead bone graft solution ("LDGraft") as part of the FDA approval process, as well as the development of additional products acquired last year.
Ones to watch
7. Sense Biodetection: 1.2% fully diluted direct investment stake with a further 8.8% fully diluted stake held by Mercia's managed funds
With operations in the UK and the US, Sense is focused on the development of instrument-free molecular diagnostics for infectious diseases, delivering true point-of-care molecular testing in just 10 minutes. Able to address the unique challenges of remote testing at scale, Sense's Veros™ platform has the potential to transform the way medical providers and patients approach healthcare, making it possible to take monitoring outside of the traditional clinical frameworks of hospitals and GP surgeries and into any context where it is required. Sense raised a $50.0million Series B round in April 2021 led by Koch Disruptive Technologies ("KDT"), with the funding round increased to $65.0million in November 2021.
8. Warwick Acoustics: 35.8% fully diluted direct investment stake with a further 0.5% fully diluted stake held by Mercia's managed funds
Midlands-based Warwick Acoustics creates highly innovative audio products for both the automotive and the high-end personal and studio headphone market. Having recently raised £3.3million from existing shareholders to fund its next stage of development, Warwick Acoustics has gained significant commercial traction. In the last 12 months, the company has achieved several significant milestones for its ElectroAcoustics Panel technology, with the successful completion of three customer-funded proof-of-concept projects and the passing of key automotive environmental tests with a significant partner.
9. Soccer Manager: 39.0% fully diluted direct investment stake with a further 7.6% fully diluted stake held by Mercia's managed funds
North West-based mobile soccer management game developer Soccer Manager continues to make good progress and has signed several high-profile licences, giving it access to rich content for its mobile games. These include top European football clubs Inter Milan and Bayer Leverkusen, Premier League team Wolverhampton Wanderers and teams from the Scottish Premiership. In addition to these, the company has also been granted the rights of player likenesses from Federation Internationale des Associations de Footballeurs Professionnel ("FIFPro") the global representative of professional football players. Soccer Manager's latest release in the Soccer Manager series, Soccer Manager 2022 has performed even better than last year's edition, increasing revenues significantly.
Third-party managed funds
As at 30 September 2021 we were managing c.£762million of third-party funds (H1 2021: c.£722million; FY 2021: c.£764million). Across those funds we had c.£232million of liquidity (H1 2021: c.£230million; FY 2021: c.£259million), which will enable us to fully support our portfolio companies, whilst taking advantage of the strongest new deal opportunities during the months to come.
In June 2021, we received a further allocation from British Business Bank ("BBB") of £5.0million for our Midlands Engine early-stage proof of concept fund ("MEIF POC"). Furthermore, post period end we have received a further £25.9million allocation from BBB in relation to our Northern Powerhouse activities (comprising NPIF Equity £15.0million and NPIF Debt £10.9million), alongside an extension of the fund's investment period to 31 December 2023.
During the six-month period ended 30 September 2021, we invested £49.7million across the funds and made significant cash realisations.
|
Asset class |
FuM 30 September 2021 £'m |
Companies in portfolio No. |
Amount invested £'m |
Company exits No. |
|
EIS |
71 |
72 |
5 |
2 |
|
VCT |
349 |
56 |
19 |
5 |
|
Regional venture |
181 |
125 |
14 |
2 |
|
Private equity |
53 |
9 |
5 |
- |
|
Debt |
108 |
164 |
7 |
- |
|
Totals |
762 |
426 |
50 |
9 |
Managed funds' portfolios
Venture
We have followed the c.£103million returned via 10 exits in FY 2021 with nine further exits from our venture funds, realising £55.2million in cash, in the six months to 30 September 2021 at an average multiple of 2.4x cost. The biggest was the listing of musicMagpie PLC by our Northern VCTs in April 2021 which valued the business at c.£208million. The Northern VCTs sold down half of their stake returning £27.0million, 12x cost. Our Northern VCTs also sold half of their position in food delivery business Oddbox Limited, returning £9.8million on a £1.0million investment.
Our third-party managed funds across all asset classes also have good exposure to Life Sciences, Deep Tech and Software.
Private equity
The valuations of our PE funds have largely stabilised and portfolio companies Shoppertainment Limited and ParkVia Limited, both heavily affected by COVID-19 lockdowns, are now trading back at close to their pre-COVID-19 levels. Post period end, two new investments totalling £8.7million were completed in October 2021, reflecting the PE team's significant efforts over the summer months.
Debt
The Coronavirus Business Interruption Loan Scheme ("CBILS") ended at the end of March 2021 with Mercia having completed £21.0million of loans under the scheme. The Group was then accredited by BBB to deliver its NPIF Debt mandate under the Recovery Loan Scheme ("RLS") at the start of the new financial year. Launched on 6 April 2021, the RLS continues to provide financial support to businesses across the UK as they recover and grow following the coronavirus pandemic. Mercia also continues to support thriving regional businesses through our Mercia SME Loans fund in partnership with our longstanding investment partner, the Greater Manchester Pension Fund.
Summary
The first half of the financial year has yielded continued progress across our portfolio companies as businesses adapt to 'the new normal'. This ongoing flexibility will be critical as we go into winter against the backdrop of uncertain macroeconomic and pandemic related circumstances.
Mercia's business model continues to be very resilient in the current environment: our regional presence coupled with our leading position in those markets and flexible approach that can deliver investment rounds of up to £10.0million of primary and secondary capital from various funds in a single round as #OneMercia. This is all possible given our significant liquidity together with the skills, expertise, commitment and dedication of our investment and support teams.
Julian Viggars
Chief Investment Officer
Chief Financial Officer's review
Mercia Asset Management PLC has made further profitable progress during the six months to 30 September 2021. This strong financial performance, coupled with the Board's optimism for the future, has merited the trebling of the Group's interim dividend, compared with last year.
Overall trading performance
It is sobering to recall the pandemic-induced economic backdrop to last year's interim results. The twin important focuses during that period were the safety and wellbeing of our staff, all of whom had switched to working remotely, and assessing the continuing viability and cash flow needs of each of our c.400 investee companies. The general drop in asset prices as at 31 March 2020 following the first lockdown announcement impacted not just portfolio carrying values, but in certain instances, the fund management revenues derived from those carrying values.
It is therefore pleasing to report not just a strong financial performance compared with the same period last year, but also that the positive momentum seen in the second half of the previous financial year has continued into this new financial year. The ongoing recovery in asset prices is resulting in higher fund management revenues as well as higher valuations for our direct investments, whilst Groupwide investment activity is continuing to increase.
Interim dividend
The Board adopted a progressive dividend policy this time last year and with it announced Mercia's maiden interim dividend of 0.1 pence per share. The Group's profitable first-half performance, strong liquidity and positive future prospects has enabled the Board to declare a threefold increase in this year's interim dividend to 0.3 pence per share (H1 2021: 0.1 pence), payable to shareholders on the register as at close of business on 17 December 2021. The interim dividend will be paid on 31 December 2021. The total dividend payable is £1,320,000 (H1 2021: £440,000).
Adjusted operating profit - alternative performance measure ("APM")
The Directors believe that adjusted operating profit assists in providing a consistent measure of operating performance and is an important APM of interest to shareholders.
Adjusted operating profit is defined as operating profit before performance fees net of variable compensation, realised gains on disposal of investments, fair value movements in investments, share-based payments charge, depreciation, amortisation of intangible assets, movement in fair value of contingent consideration and exceptional items. It includes net finance income.
Results reported on an APM basis are denoted by ¹ throughout this review.
|
|
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Revenue1 |
10,089 |
8,362 |
19,186 |
|
Administrative expenses1 |
(7,957) |
(7,323) |
(15,897) |
|
Net finance income |
230 |
9 |
48 |
|
Adjusted operating profit |
2,362 |
1,048 |
3,337 |
|
Performance fees |
2,607 |
- |
4,224 |
|
Variable compensation attributable to performance fees |
(1,015) |
- |
(445) |
|
Net performance fees |
1,592 |
- |
3,779 |
|
Adjusted operating profit including performance fees net of costs |
3,954 |
1,048 |
7,116 |
|
Depreciation |
(110) |
(106) |
(212) |
|
Net finance income |
(230) |
(9) |
(48) |
|
Realised gains on disposal of investments |
- |
1,704 |
20,251 |
|
Fair value movements in investments |
8,708 |
6,730 |
10,088 |
|
Share-based payments charge |
(573) |
(182) |
(543) |
|
Amortisation of intangible assets |
(1,017) |
(1,167) |
(2,317) |
|
Movement in fair value of contingent consideration |
- |
- |
(365) |
|
Operating profit |
10,732 |
8,018 |
33,970 |
A reconciliation of results reported on an APM basis to International Financial Reporting Standards ("IFRS") is as follows:
|
|
Six-month period ended 30 September 2021 |
|
Six-month period ended 30 September 2020 |
|||||||||||
|
|
APM basis1 |
Performance fees |
Depreciation |
IFRS as reported |
|
APM basis1 |
Performance fees |
Depreciation |
IFRS as reported |
|||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
£'000 |
£'000 |
£'000 |
£'000 |
|||||
|
Revenue |
10,089 |
2,607 |
- |
12,696 |
|
8,362 |
- |
- |
8,362 |
|||||
|
Administrative expenses |
(7,957) |
(1,015) |
(110) |
(9,082) |
|
(7,323) |
- |
(106) |
(7,429) |
|||||
|
Depreciation |
(110) |
- |
110 |
- |
|
(106) |
- |
106 |
- |
|||||
|
|
|
|
|
|
|
|||||||||
|
|
Year ended 31 March 2021 |
|
|
|||||||||||
|
|
APM basis1 |
Performance fees |
Depreciation |
IFRS as reported |
|
|
||||||||
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
||||||||
|
Revenue |
19,186 |
4,224 |
- |
23,410 |
|
|
||||||||
|
Administrative expenses |
(15,897) |
(445) |
(212) |
(16,554) |
|
|
||||||||
|
Depreciation |
(212) |
- |
212 |
- |
|
|
||||||||
Revenue
Revenue1 increased 20.7% to £10,089,000 (H1 2021: £8,362,000) and comprised fund management related fees, initial management fees from investment rounds, investment director monitoring fees and sundry business services income. The majority of the increase was attributable to an increase in the fair values of the Group's venture funds under management, plus an increase in investment activity across the Group as a whole.
Administrative expenses
Administrative expenses1 increased 8.7% to £7,957,000 (H1 2021: £7,323,000). The increase was predominantly staff related (both higher earnings and higher headcount), plus the beginnings of a recovery in external face-to-face meetings, resulting in higher business travel and associated expenses.
Net finance income
Finance income of £238,000 (H1 2021: £18,000) comprised interest received on loans to direct portfolio companies, plus interest earned on the Group's cash and short-term liquidity investments. Finance costs of £8,000 (H1 2021: £9,000) comprised interest payable on office leases.
Performance fees and attributable variable compensation
At the period end a performance fee totallin g £2,538,000 (H1 2021: £nil) became receivable from Northern Venture Trust PLC, based upon the growth in its net asset value per share above a hurdle for the year ended 30 September 2021. Attributable VCT investment team bonuses (including employer's National Insurance) totalling £1,015,000 have been accrued (H1 2021: £nil). The gross performance fee was received post period end. A further performance fee of £69,000 was also received from a managed legacy fund, triggered by realisations.
Realised gains on disposal of investments
There were no direct investment realisations (H1 2021: £1,704,000) during the six-month period.
Fair value movements in investments
|
|
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Investment movements excluding cash invested and realisations: |
|||
|
Unrealised gains on the revaluation of investments |
11,417 |
7,076 |
10,773 |
|
Unrealised losses on the revaluation of investments |
(2,709) |
(346) |
(685) |
|
Net fair value movement |
8,708 |
6,730 |
10,088 |
For the six months ended 30 September 2021, unrealised fair value gains arose in eight (H1 2021: eight) of the Group's 23 (H1 2021: 25) direct investments. The largest fair value gain was in respect of Faradion, which accounted for £5,756,000 of the total. There were two (H1 2021: eight) fair value decreases, the largest of which was £2,448,000 in respect of MyHealthChecked PLC.
Share-based payments charge
The £573,000 non-cash charge (H1 2021: £182,000) arises from the net increase in the total number of issued share options held by employees throughout the Group.
Amortisation of intangible assets
The amortisation charge for the period of £1,017,000 (H1 2021: £1,167,000) represents amortisation of the acquired intangible assets of the VCT fund management business.
Taxation
The Group continues to utilise historic and current trading losses, which are available to set off against current taxable profits. The Group also continues to believe that the majority of its direct investment portfolio will qualify for the Substantial Shareholder Exemption when those investments are realised, thereby also resulting in no tax liability.
The overall tax credit comprises the unwinding of the deferred tax liability in respect of the VCT fund management acquisition.
Profit after taxation for the period
The adjusted operating profit and net performance fees, together with the net fair value increase for the period contributed to a profit after taxation of £11,154,000 (H1 2021: £8,247,000), resulting in basic earnings per Ordinary share of 2.53 pence (H1 2021: 1.87 pence per share).
Dividends
The increasingly profitable and operating cash generative performance enables Mercia to announce an interim dividend of 0.3 pence per share (H1 2021: 0.1 pence per share), treble the maiden interim dividend declared in December 2020.
Balance sheet and cash flows
Net assets as at 30 September 2021 of £186,428,000 (H1 2021: £149,889,000; FY 2021: £176,021,000) 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 Group and the VCT fund management business. Mercia continues to have limited working capital needs due to the nature of its business and during the period generated net cash inflow from operating activities of £2,625,000 (H1 2021: £2,164,000).
Direct investment portfolio
During the six-month period under review, Mercia's direct investment portfolio grew 14.6% in value from £96,220,000 as at 1 April 2021 (1 April 2020: £87,471,000) to £110,298,000 as at 30 September 2021 (30 September 2020: £101,618,000). The table below lists the Group's top 20 direct investments by fair value as at 30 September 2021, including the year of first direct investment, net cash invested during the period, fair value movements and the fully diluted equity percentage held in each company at the period end. The Group's top 20 direct investments represent 98.5% of the total direct investment portfolio value (H1 2021: 98.6%; FY 2021: 98.5%).
|
|
Year of first direct investment |
Net investment value as at 1 April 2021 £'000 |
Net cash invested six months to 30 September 2021 £'000 |
Fair value movement six months to 30 September 2021 £'000 |
Net investment value as at 30 September 2021 £'000 |
Percentage held as at 30 September 2021 % |
|
nDreams Ltd |
2014 |
17,726 |
- |
- |
17,726 |
35.4% |
|
Faradion Ltd |
2017 |
5,693 |
1,500 |
5,756 |
12,949 |
15.0% |
|
Intechnica Group Ltd |
2017 |
9,996 |
- |
2,824 |
12,820 |
27.5% |
|
Medherant Ltd |
2016 |
8,105 |
534 |
349 |
8,988 |
33.1% |
|
Voxpopme Ltd |
2018 |
8,845 |
- |
- |
8,845 |
17.6% |
|
Impression Technologies Ltd |
2015 |
8,622 |
- |
- |
8,622 |
67.3% |
|
Ton UK Ltd t/a Intelligent Positioning |
2015 |
4,913 |
- |
- |
4,913 |
29.9% |
|
Locate Bio Ltd |
2018 |
3,006 |
1,664 |
188 |
4,858 |
18.1% |
|
Warwick Acoustics Ltd |
2014 |
4,255 |
- |
407 |
4,662 |
35.8% |
|
Soccer Manager Ltd |
2015 |
3,553 |
- |
1,047 |
4,600 |
39.0% |
|
VirtTrade Ltd t/a Avid Games |
2015 |
2,812 |
796 |
148 |
3,756 |
40.0% |
|
Eyoto Group Ltd |
2017 |
1,813 |
750 |
- |
2,563 |
15.7% |
|
sureCore Ltd |
2016 |
2,417 |
- |
- |
2,417 |
22.0% |
|
PsiOxus Therapeutics Ltd |
2015 |
2,407 |
- |
- |
2,407 |
1.4% |
|
Edge Case Games Ltd |
2015 |
2,300 |
- |
- |
2,300 |
18.7% |
|
W2 Global Data Solutions Ltd |
2018 |
2,300 |
- |
- |
2,300 |
16.3% |
|
MyHealthChecked PLC |
2016 |
4,488 |
- |
(2,448) |
2,040 |
13.5% |
|
Sense Biodetection Ltd |
2020 |
945 |
- |
625 |
1,570 |
1.2% |
|
MIP Diagnostics Ltd |
2020 |
302 |
- |
- |
302 |
3.3% |
|
LM Technologies Ltd |
2015 |
250 |
- |
( 250 ) |
- |
48.3% |
|
Other direct investments |
n/a |
1,472 |
126 |
62 |
1,660 |
n/a |
|
Total |
n/a |
96,220 |
5,370 |
8,708 |
110,298 |
n/a |
Cash and short-term liquidity investments
At the period end, Mercia had cash and short-term liquidity investments of £52,114,000 (H1 2021: £24,866,000; FY 2021: £54,725,000) comprising cash of £51,880,000 (H1 2021: £24,632,000; FY 2021: £54,491,000) and short-term liquidity investments of £234,000 (H1 2021: £234,000; FY 2021: £234,000). The Group no longer holds funds on behalf of its third-party EIS investors (H1 2021: £305,000; FY 2021: £2,484,000).
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 2021 is shown below.
|
|
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Opening cash and short-term liquidity investments |
54,725 |
30,186 |
30,186 |
|
Net cash generated from operating activities |
2,625 |
2,164 |
5,611 |
|
Net cash (used in)/generated from total investing activities |
(5,166) |
(7,424) |
21,606 |
|
Purchase of VCT management contracts |
- |
- |
(2,100) |
|
Dividend paid |
- |
- |
(440) |
|
Net cash used in financing activities |
(70) |
(60) |
(138) |
|
Period end cash and short-term liquidity investments |
52,114 |
24,866 |
54,725 |
Net assets per share
Net assets at the period end were £186,428,000 (H1 2021: £149,889,000; FY 2021: £176,021,000), resulting in net assets per share of 42.4 pence (being net assets of £186,428,000 divided by 440,109,707 shares in issue); (H1 2021: 34.1 pence, being net assets of £149,889,000 divided by 440,109,707 shares in issue); (FY 2021: 40.0 pence, being net assets of £176,021,000 divided by 440,109,707 shares in issue). Net assets per share as at 30 September 2019, the last reporting date prior to the Group's December 2019 placing, was 42.3 pence per share.
Outlook
The Group has made a strong start to its new three-year 'Mercia 20:20' shareholder value creation strategy. The Board is optimistic that Mercia's first-half momentum will continue for the remainder of this financial year and the foreseeable future.
Martin Glanfield
Chief Financial Officer
Condensed consolidated statement of comprehensive income
For the six months ended 30 September 2021
|
|
Note |
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Revenue |
2 |
12,696 |
8,362 |
23,410 |
|
Administrative expenses |
|
(9,082) |
(7,429) |
(16,554) |
|
Realised gains on disposal of investments |
|
- |
1,704 |
20,251 |
|
Fair value movements in investments |
3 |
8,708 |
6,730 |
10,088 |
|
Share-based payments charge |
|
(573) |
(182) |
(543) |
|
Amortisation of intangible assets |
|
(1,017) |
(1,167) |
(2,317) |
|
Movement in fair value of deferred consideration |
|
- |
- |
(365) |
|
Operating profit |
|
10,732 |
8,018 |
33,970 |
|
Finance income |
|
238 |
18 |
68 |
|
Finance expense |
|
(8) |
(9) |
(20) |
|
Profit before taxation |
|
10,962 |
8,027 |
34,018 |
|
Taxation |
|
192 |
220 |
440 |
|
Profit and total comprehensive income for the period |
|
11,154 |
8,247 |
34, 458 |
|
Basic earnings per Ordinary share (pence) |
4 |
2.53 |
1.87 |
7.83 |
|
Diluted earnings per Ordinary share (pence) |
4 |
2.50 |
1.87 |
7.83 |
All results derive from continuing operations.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Condensed consolidated statement of financial position
As at 30 September 2021
|
|
Note |
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
|
Assets |
|
||||
|
Non-current assets |
|
||||
|
Goodwill |
|
16,642 |
16,642 |
16,642 |
|
|
Intangible assets |
6 |
16,729 |
18,896 |
17,746 |
|
|
Property, plant and equipment |
|
105 |
115 |
107 |
|
|
Right-of-use assets |
|
421 |
527 |
456 |
|
|
Investments |
7 |
110,298 |
101,618 |
96,220 |
|
|
Total non-current assets |
|
144,195 |
137,798 |
131,171 |
|
|
Current assets |
|
||||
|
Trade and other receivables |
|
4,551 |
1,451 |
4,060 |
|
|
Restricted cash |
8 |
- |
305 |
2,484 |
|
|
Short-term liquidity investments |
8 |
234 |
234 |
234 |
|
|
Cash and cash equivalents |
8 |
51,880 |
24,632 |
54,491 |
|
|
Total current assets |
|
56,665 |
26,622 |
61,269 |
|
|
Total assets |
|
200,860 |
164,420 |
192,440 |
|
|
Current liabilities |
|
||||
|
Trade and other payables |
|
(6,355) |
(4,226) |
(8,127) |
|
|
Lease liabilities |
|
(131) |
(122) |
(122) |
|
|
Deferred consideration |
9 |
(1,578) |
(1,736) |
(1,578) |
|
|
Total current liabilities |
|
(8,064) |
(6,084) |
(9,827) |
|
|
Non-current liabilities |
|
|
|
|
|
|
Lease liabilities |
|
(319) |
(409) |
(351) |
|
|
Deferred consideration |
9 |
(2,869) |
(4,446) |
(2,869) |
|
|
Deferred taxation |
10 |
(3,180) |
(3,592) |
(3,372) |
|
|
Total non-current liabilities |
|
(6,368) |
(8,447) |
(6,592) |
|
|
Total liabilities |
|
(14,432) |
(14,531) |
(16,419) |
|
|
Net assets |
|
186,428 |
149,889 |
176,021 |
|
|
Equity |
|
|
|
|
|
|
Issued share capital |
|
4 |
4 |
4 |
|
|
Share premium |
|
81,644 |
81,644 |
81,644 |
|
|
Other distributable reserve |
|
68,240 |
70,000 |
69,560 |
|
|
Retained earnings |
|
33,559 |
(3,806) |
22,405 |
|
|
Share-based payments reserve |
|
2,981 |
2,047 |
2,408 |
|
|
Total equity |
|
186,428 |
149,889 |
176,021 |
|
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 6 December 2021 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 2021
|
|
Note |
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Cash flows from operating activities: |
||||
|
Operating profit |
|
10,732 |
8,018 |
33,970 |
|
Adjustments to reconcile operating profit to net cash flows generated from operating activities: |
|
|
|
|
|
Depreciation of property, plant and equipment |
|
36 |
35 |
70 |
|
Depreciation of right-of-use assets |
|
74 |
71 |
142 |
|
Gain on sale of direct investments |
|
- |
- |
(20,251) |
|
Fair value movements in investments |
7 |
(8,708) |
(6,730) |
(10,088) |
|
Share-based payments charge |
|
573 |
182 |
543 |
|
Amortisation of intangible assets |
6 |
1,017 |
1,167 |
2,317 |
|
Movement in fair value of contingent consideration |
|
- |
- |
365 |
|
Working capital adjustments: |
||||
|
Increase in trade and other receivables |
|
(491) |
(161) |
(2,762) |
|
(Decrease)/increase in trade and other payables |
|
(608) |
(418) |
1,305 |
|
Net cash generated from operating activities |
|
2,625 |
2,164 |
5,611 |
|
Cash flows from direct investment activities: |
||||
|
Sale of direct investments |
|
- |
3,493 |
36,987 |
|
Purchase of direct investments |
7 |
(5,370) |
(11,160) |
(15,647) |
|
Investee company loan repayments |
7 |
- |
250 |
250 |
|
Investee company interest received |
|
238 |
18 |
68 |
|
Net cash flows (used in)/from direct investment activities |
|
(5,132) |
(7,399) |
21,658 |
|
Cash flows from other investing activities: |
||||
|
Purchase of property, plant and equipment |
|
(34) |
(25) |
(52) |
|
Purchase of fund management contracts |
|
- |
- |
(2,100) |
|
Decrease in short-term liquidity investments |
|
- |
5,981 |
5,981 |
|
Net cash (used in)/generated from other investing activities |
|
(34) |
5,956 |
3,829 |
|
Net cash (used in)/generated from total investing activities |
|
(5,166) |
(1,443) |
25,487 |
|
Cash flows from financing activities: |
|
|
|
|
|
Dividend paid |
5 |
- |
- |
(440) |
|
Interest paid |
|
(8) |
(9) |
(20) |
|
Payment of lease liabilities |
|
(62) |
(51) |
(118) |
|
Net cash used in financing activities |
|
(70) |
(60) |
(578) |
|
Net (decrease)/increase in cash and cash equivalents |
|
(2,611) |
661 |
30,520 |
|
Cash and cash equivalents at the beginning of the period |
|
54,491 |
23,971 |
23,971 |
|
Cash and cash equivalents at the end of the period |
8 |
51,880 |
24,632 |
54,491 |
Condensed consolidated statement of changes in equity
For the six months ended 30 September 2021
|
|
Issued share capital £'000 |
Share premium £'000 |
Other distributable reserve £'000 |
Retained earnings £'000 |
Share-based payments reserve £'000 |
Total £'000 |
|
As at 1 April 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 |
|
Profit and total comprehensive income for the period |
- |
- |
- |
26,211 |
- |
26,211 |
|
Dividend (note 5) |
- |
- |
(440) |
- |
- |
(440) |
|
Share-based payments charge |
- |
- |
- |
- |
361 |
361 |
|
As at 31 March 2021 (audited) |
4 |
81,644 |
69,560 |
22,405 |
2,408 |
176,021 |
|
Profit and total comprehensive income for the period |
- |
- |
- |
11,154 |
- |
11,154 |
|
Dividend (note 5) |
- |
- |
(1,320) |
- |
- |
(1,320) |
|
Share-based payments charge |
- |
- |
- |
- |
573 |
573 |
|
As at 30 September 2021 (unaudited) |
4 |
81,644 |
68,240 |
33,559 |
2,981 |
186,428 |
Notes to the interim financial statements
For the six months ended 30 September 2021
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 2021, and have been consistently applied throughout the period ended 30 September 2021.
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.
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 2021. 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 2021, which have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006, International Financial Reporting Standards ("IFRS"), and the applicable legal requirements of the Companies Act 2006.
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 2021 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 2021 were approved by the Board on 5 July 2021 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 for use in the UK.
No new or revised standards or interpretations that have become effective during the period ended 30 September 2021 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 6 December 2021 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 2021.
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 ongoing 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 2021, the Group's revenue and profit were derived from its principal activity within the United Kingdom.
Operating segments are defined 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:
|
|
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Fund management fees |
7,385 |
6,210 |
13,143 |
|
Initial management fees |
1,113 |
658 |
1,447 |
|
Portfolio directors' fees |
1,500 |
1,386 |
3,086 |
|
VCTs share offer fees |
- |
- |
1,318 |
|
Performance fees |
2,607 |
- |
4,224 |
|
Otherrevenue |
91 |
108 |
192 |
|
Total revenue |
12,696 |
8,362 |
23,410 |
3. Fair value movements in investments
|
|
Unaudited Six months ended 30 September 2021 £'000 |
Unaudited Six months ended 30 September 2020 £'000 |
Audited Year ended 31 March 2021 £'000 |
|
Net fair value movements in investments (note 7) |
8,708 |
6,730 |
10,088 |
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 2021 |
Unaudited Six months ended 30 September 2020 |
Audited Year ended 31 March 2021 |
|
Profit and total comprehensive income for the period (£'000) |
11,154 |
8,247 |
34, 458 |
|
Weighted average number of Ordinary shares (basic)('000) |
440,110 |
440,110 |
440,110 |
|
Basic earnings per Ordinary share (pence) |
2.53 |
1.87 |
7.83 |
|
Weighted average number of Ordinary shares (diluted)('000) |
447,028 |
440,110 |
440,110 |
|
Diluted earnings per Ordinary share (pence) |
2.50 |
1.87 |
7.83 |
The calculation of diluted earnings per share is based on the following weighted average number of Ordinary shares:
|
|
Unaudited Six months ended |
Unaudited Six months ended |
Audited Year ended |
|
|
30 September |
30 September |
31 March |
|
|
2021 |
2020 |
2021 |
|
|
'000 |
'000 |
'000 |
|
Weighted average number of shares |
|
|
|
|
Basic |
440,110 |
440,110 |
440,110 |
|
Dilutive impact of share options |
6,918 |
- |
- |
|
Diluted |
447,028 |
440,110 |
440,110 |
5. Dividends
In December 2020, the Company paid £440,000 in respect of its maiden interim dividend for the year ended 31 March 2021 of 0.1 pence per share.
The final dividend for the year ended 31 March 2021 of 0.3 pence per share, totalling £1,320,000, was approved by shareholders at the Annual General Meeting on 14 September 2021 and was paid after the period end on 12 October 2021.
An interim dividend for the year ended 31 March 2022 of 0.3 pence, totalling £1,320,000, has been declared after the reporting period end and as such has not been included as a liability in these condensed consolidated financial statements in accordance with IAS 10.
6. Intangible assets
Intangible assets represent contractual arrangements in respect of the acquired 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 2020 (audited) |
21,835 |
|
As at 30 September 2020 (unaudited) |
21,835 |
|
As at 31 March 2021 (audited) |
21,835 |
|
As at 30 September 2021 (unaudited) |
21,835 |
|
Accumulated amortisation |
|
|
As at 1 April 2020 (audited) |
1,772 |
|
Charge for the period |
1,167 |
|
As at 30 September 2020 (unaudited) |
2,939 |
|
Charge for the period |
1,150 |
|
As at 31 March 2021 (audited) |
4,089 |
|
Charge for the period |
1,017 |
|
As at 30 September 2021 (unaudited) |
5,106 |
|
Net book value |
|
|
As at 31 March 2020 (audited) |
20,063 |
|
As at 30 September 2020 (unaudited) |
18,896 |
|
As at 31 March 2021 (audited) |
17,746 |
|
As at 30 September 2021 (unaudited) |
16,729 |
The intangible asset recognised on the acquisition of Enterprise Ventures became fully amortised in March 2021.
7. Investments
The net increase in the value of investments for the six-month period is £14,078,000 (H1 2021: £14,147,000).
The Group's valuation policies are set out in detail in its consolidated financial statements for the year ended 31 March 2021. The table below sets out the movement in the value of investments from the start to the end of the period, showing investments made and the direct investment fair value movements.
|
|
Level 1 Financial assets £'000 |
Level 3 Financial assets £'000 |
Total £'000 |
|
As at 1 April 2020 (audited) |
475 |
86,996 |
87,471 |
|
Investments made during the period |
200 |
10,960 |
11,160 |
|
Investee company loan repayments |
- |
(250) |
(250) |
|
Disposals made during the period |
- |
(3,493) |
(3,493) |
|
Unrealised gains on the revaluation of investments |
- |
7,076 |
7,076 |
|
Unrealised losses on the revaluation of investments |
- |
(346) |
(346) |
|
As at 30 September 2020 (unaudited) |
675 |
100,943 |
101,618 |
|
Investments made during the period |
304 |
4,183 |
4,487 |
|
Disposals made during the period |
- |
(13,243) |
(13,243) |
|
Unrealised gains on the revaluation of investments |
3,509 |
188 |
3,697 |
|
Unrealised losses on the revaluation of investments |
- |
(339) |
(339) |
|
As at 31 March 2021 (audited) |
4,488 |
91,732 |
96,220 |
|
Investments made during the period |
- |
5,370 |
5,370 |
|
Unrealised gains on the revaluation of investments |
- |
11,417 |
11,417 |
|
Unrealised losses on the revaluation of investments |
(2,448) |
(261) |
(2,709) |
|
As at 30 September2021 (unaudited) |
2,040 |
108,258 |
110,298 |
The measurement basis for determining the fair value of investments held is as follows.
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
||
|
Listed investment |
2,040 |
675 |
4,488 |
||
|
Enterprise value |
47,212 |
36,542 |
26,717 |
||
|
Price of recent investment round |
43,554 |
42,770 |
48,210 |
||
|
Impaired value |
15,192 |
19,029 |
13,560 |
||
|
Cost |
2,300 |
2,602 |
3,245 |
||
|
|
110,298 |
101,618 |
96,220 |
||
8. Cash, cash equivalents and short-term liquidity investments
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
Cash at bank and inhand |
51,880 |
24,632 |
54,491 |
|
Total cash and cashequivalents |
51,880 |
24,632 |
54,491 |
|
Total short-term liquidityinvestments |
234 |
234 |
234 |
|
Total restricted cash |
- |
305 |
2,484 |
At the period end the Group held no cash on behalf of its third-party EIS investors (H1 2021: £305,000; FY 2021: £2,484,000).
9. Deferred consideration
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
Payable within one year |
1,578 |
1,736 |
1,578 |
|
Payable within two to five years |
2,869 |
4,446 |
2,869 |
|
|
4,447 |
6,182 |
4,447 |
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 2021 .
10. Deferred taxation
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
Deferred tax liability |
3,180 |
3,592 |
3,372 |
As at 30 September 2021, a deferred tax liability of £3,180,000 (H1 2021: £3,592,000; FY 2021: £3,372,000) has been recognised in respect of the intangible asset arising on the acquisition of the VCT fund management business.
11. 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 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 inputs are 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 2021. The table in note 7 of these condensed consolidated financial statements sets out the movement in the value of investments from the start to the end of the six-month period.
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
Assets: |
|
|
|
|
Financial assets at fair value through profit or loss ("FVTPL") Level 1 Level 2 Level 3 |
|
|
|
|
Level 1 |
2,040 |
675 |
4,488 |
|
Level 2 |
- |
- |
- |
|
Level 3 |
108,258 |
100,943 |
91,732 |
|
|
110,298 |
101,618 |
96,220 |
|
|
|
|
|
|
|
Unaudited As at 30 September 2021 £'000 |
Unaudited As at 30 September 2020 £'000 |
Audited As at 31 March 2021 £'000 |
|
Liabilities: |
|
|
|
|
Financial liabilities at amortised cost - deferred consideration |
|
|
|
|
Level 1 |
- |
- |
- |
|
Level 2 |
- |
- |
- |
|
Level 3 |
4,447 |
6,182 |
4,447 |
|
|
4,447 |
6,182 |
4,447 |
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 2021, 30 September 2020 and 31 March 2021, the Group had one direct investment listed on AIM, MyHealthChecked PLC. This has been classified in Level 1 and valued at its closing bid price as at 30 September 2021, 30 September 2020 and 31 March 2021 respectively.
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 2021 provides further information on the Group's valuation methodology, including a detailed explanation of the valuation techniques used for Level 3 financial instruments.
12. Related party transactions
There has been no change in the type of related party transactions described in the Group's consolidated financial statements for the year ended 31 March 2021.
INDEPENDENT REVIEW REPORT TO MERCIA ASSET MANAGEMENT PLC
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated cash flow statement, condensed consolidated statement of changes in equity and notes to the interim financial statements.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly 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 set of financial statements in the half-yearly financial report for the six months ended 30 September 2021 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, UK
6 December 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Directors, secretary and advisers
Directors
Ian Roland Metcalfe (Non-executive Chair)
Dr Mark Andrew Payton (Chief Executive Officer)
Martin James Glanfield (Chief Financial Officer)
Julian George Viggars (Chief Investment Officer)
Diane Seymour-Williams (Senior Independent Director)
Raymond Kenneth Chamberlain (Non-executive Director)
Dr Jonathan David Pell (Non-executive Director)
Caroline Bayantai Plumb OBE (Non-executive Director)
Company secretary Company registration number
Sarah-Louise Anne Williams 09223445
Company website Solicitors
www.mercia.co.uk Gowling WLG (UK) LLP
4 More London Riverside
Registered office London SE1 2AU
Forward House
17 High Street Nominated adviser and joint broker
Henley-in-Arden Canaccord Genuity Ltd
Warwickshire B95 5AA 88 Wood Street
London EC2V 7QR
Independent auditor
BDO LLP Joint broker
Statutory Auditor Singer Capital Markets Advisory LLP
55 Baker Street, Marylebone 1 Bartholomew Lane
London W1U 7EU London EC2N 2AX
Principal bankers Investor relations adviser
Barclays Bank PLC FTI Consulting Ltd
One Snowhill 200 Aldersgate
Snow Hill Queensway London EC2A 4HD
Birmingham B4 6GN
Company registrar
Lloyds Bank plc SLC Registrars
125 Colmore Row Highdown House
Birmingham B3 3SD Yeoman Way
Worthing
West Sussex
BN99 3HH
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
Latest directors dealings
- 6 hours ago Urban Logistics Reit
- 6 hours ago Ocado Group
- 6 hours ago AJ Bell
- 6 hours ago Foresight Enterprise VCT
- 6 hours ago Mitie Group