Preliminary Results

RNS Number : 1623T

Mercia Technologies PLC

02 July 2018

RNS	2 July 2018

Mercia Technologies PLC

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

Preliminary results for the year ended 31 March 2018

Another year of positive progress

Mercia Technologies PLC (AIM: MERC), the national investment group focused on the creation, identification, funding and scaling of innovative technology businesses with high growth potential from the UK regions, is pleased to announce its preliminary results for the year ended 31 March 2018.

Group and portfolio highlights

· £21.1million net invested in 17 portfolio companies during the year, including three new Emerging Stars

· Science Warehouse sold to Advanced Business Software and Solutions Limited generating cash proceeds of £10.5million and a realised gain of £0.6million for Mercia

· Assets under management have grown to c.£0.5billion, comprising c.£400.0million of funds under management, direct assets of £66.1million and unrestricted cash of £49.4million

· Julian Viggars promoted to Chief Investment Officer, bringing a demonstrable exit track record of delivering cash realisations and IPOs

· Dr Jonathan Pell appointed as a Non-executive Director, bringing to the Board a strong financial and venture background, plus first-hand experience of successfully scaling businesses and delivering exits

· 19 university partnerships, including a new partnership with the University of Edinburgh

· Growing pipeline of future potential Emerging Stars in the expanded funds under management

Financial highlights

· Direct investment portfolio value increased to £66.1million (2017: £52.0million)

· Net fair value gains £2.8million (2017: £4.3million)

· Realised gains £0.9million (2017: £0.8million)

· Net assets £123.5million (2017: £121.4million)

· Unrestricted cash and short-term liquidity investments £49.4million (2017: £59.6million)

· Net assets per share 40.7 pence (2017: 40.4 pence)[1]

· Revenue increased 53.1% to £10.2million (2017: £6.7million)

· Net expenses reduced 82.4% to £0.4million (2017: £2.5million)

· Pre-exceptional operating profit £2.5million (2017: £1.9million)

· Profit for the financial year £1.7million (2017: £1.0million)

Post year end

· Caroline Plumb OBE appointed as an additional Non-executive Director, bringing first-hand experience as an entrepreneur with considerable technology strategy experience to Mercia's Board

Mark Payton, Chief Executive Officer of Mercia, commented:

"Mercia has made further positive progress, finishing the year with c.£0.5billion of assets under management. With the sale of Science Warehouse, Mercia has once again demonstrated its ability to realise full cash returns above carrying value.

With nearly £50.0million of investable cash we have considerable firepower to make additional direct investments to drive future shareholder returns, whilst also benefiting from the growing fees derived from our profitable fund management activities. In addition, the number of future potential Emerging Stars in the funds' pipeline is accelerating, as the significant new fund mandate wins of the past 12 months are deployed.

As the Group continues to mature and expand we believe that Mercia is far more than the sum of its parts. We have the right team in place to drive the ongoing evolution of Mercia and are confident that we will deliver significant shareholder and stakeholder returns over time from a materially larger operation, as the Group and its balance sheet portfolio continues to grow in value."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For further information, please contact

Mercia Technologies PLC	+44 (0)330 223 1430
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer
www.merciatech.co.uk

Cenkos Securities plc	+44 (0)20 7397 8900
Stephen Keys, Camilla Hume (NOMAD and Joint Broker)

Canaccord Genuity Limited	+44 (0)20 7523 8000
Simon Bridges, Emma Gabriel (Joint Broker)

Buchanan	+44 (0)20 7466 5000
Bobby Morse, Chris Lane, Stephanie Watson
www.buchanan.uk.com

A meeting for analysts will be held at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN on 2 July 2018 commencing at 9.30 a.m.. Mercia's 2018 preliminary results will also be available today on the Group's website at www.merciatech.co.uk.

About Mercia Technologies PLC

Mercia is a national investment group focused on the funding and scaling of innovative technology businesses with high growth potential from the UK regions. Mercia benefits from 19 university partnerships and nine offices across the Midlands, the North of England and Scotland providing it with access to high quality, regional deal flow. Mercia Technologies PLC is quoted on AIM with the epic "MERC".

Mercia's 'Complete Capital Solution' initially nurtures businesses via its third-party funds (now with c.£400.0million funds under management following recent mandate wins) and then over time Mercia can provide further funding to its 'Emerging Stars' by deploying direct investment follow-on capital from its own balance sheet. Since its IPO in December 2014, Mercia has invested over £63.0million directly across its portfolio of Emerging Stars.

Non-executive Chair's statement

The year ended 31 March 2018 has seen further positive development of Mercia's business model. This has involved building and ensuring that we have the right team, whilst developing and adding value to the balance sheet investments and the investee companies held in the third-party funds under management, which is Mercia Technologies' deal flow pipeline.

Progress against plan

The progress made by the balance sheet direct investments has yet to deliver the fair value uplifts that the Board would like to see and, in so doing, increase the Group's net asset value, but that reflects the time it takes to build these businesses and reach material points of value inflexion. However, the Mercia team is doing the right things with these young companies in helping them to build uncompromisingly high-quality boards and management teams, focusing on ensuring that the companies gain early validation with industry partners, challenging and participating in the development of the strategy and targeting the right co-investors, to ensure that the companies can be funded and supported to deliver incremental shareholder returns over time.

During the year Science Warehouse was sold to Advanced Business Software and Solutions Limited for a total cash consideration of £16.9million. The transaction generated cash proceeds of £10.5million for Mercia and a realised gain of £0.6million. When Mercia listed in December 2014 we had hoped that Science Warehouse would deliver a greater return. However, once e-marketplace comparator multiples softened and we recognised that the growth and opportunity for the business was not going to deliver the exit multiple that we expect from the Mercia portfolio, we took the opportunity to exit the business for a reasonable cash return. Taking this kind of decision whilst still engineering a positive outcome enables the Group to focus its investment expertise on those Emerging Stars that we think will deliver much greater multiples of return. This has been Mercia's third cash exit and all three have been above their carrying value. This demonstrates that the Executive Team can deliver cash value back to the balance sheet. Mercia believes that cash returns do matter to our shareholders.

Three new Emerging Stars were added to the direct investment portfolio this year and the Board was particularly impressed with the quality of the companies' management teams, their commercial opportunities and the clarity of focus in respect of the future milestones that need to be achieved. There is clear evidence that Mercia's growing investment team is continuing to raise the bar in terms of the businesses being invested in and the support being given in helping them to scale. All three businesses are very different but are each in disruptive markets, namely robotic website attack prevention, ocular health management and digital, video-based real-time consumer research.

Building the scale of the business and the right model

During the year we added a further c.£100.0million to the third-party managed funds. Mercia closed the year with c.£400.0million funds under management of which c.£230.0million is available cash to invest in building a high-quality pipeline for the future. This is the pipeline that the Mercia balance sheet will be able to harvest for many years to come.

On the balance sheet Mercia ended the year with unrestricted cash of just under £50.0million and direct assets valued at £66.1million. The direct assets grew in value by 27.0% during the year. This was a good result overall given the negative contribution to portfolio performance by both Concepta, as it experienced developmental and commercial headwinds which impacted its share price, and Edge Case Games, where the business has currently fallen materially behind plan. We intend however to continue supporting and working closely with both businesses to improve their outlook. Conversely, Oxford Genetics was a significant, positive contributor to the portfolio's overall increase in fair value. This business is at the forefront of its field and successfully completed a £7.5million funding round during the year, which included Invesco Asset Management.

From a cash burn perspective, Mercia grew its revenue to £10.2million (2017: £6.7million) and net expenses reduced to £0.4million (2017: £2.5million). Thus, the business model continues to be optimised, with shareholders' funds being predominantly put to work in the Group's direct investment portfolio, rather than net asset value being eroded by having to fund substantial operating costs.

Group Board

As the Group develops, the Board too needs to evolve. We were sorry to lose Martin Lamb this year as he stepped down from Mercia's Board to run Rotork plc as full time interim CEO. Martin had been instrumental in helping us think through the strategy and development of the business model. We set out to replace him with someone with a strong financial and venture background plus first-hand experience of successfully scaling businesses and delivering exits. We were therefore pleased to appoint Dr Jonathan Pell to the role. Jonathan is very familiar with this journey and has a wealth of experience in our sector. Post year end we were equally pleased to appoint Caroline Plumb OBE as an additional Non-executive Director. Caroline is an entrepreneur who has successfully built Freshminds, a business that focuses on innovation, strategy and development of new technologies working with corporate partners, as well as utilising the talents of young graduates. She is now on her second venture as a CEO. Caroline has a diverse network in the technology sector and currently serves as one of the UK government's c.50 Business Ambassadors, representing the UK's Professional and Business Services sectors. She will bring a new perspective, first-hand experience as an entrepreneur and considerable technology strategy experience to Mercia's Board.

At Executive Director level we saw both Jonathan Diggines and Matt Mead step down. Jonathan joined the Board with the acquisition of Enterprise Ventures and helped to ensure that the business was fully integrated. His valued experience remains within the Group as he continues to chair a number of the growth, venture and debt fund investment committees. Matt Mead helped take Mercia through its first investment cycle and his experience also remains available to the Group as a venture partner. I would like to thank them both for their positive contribution. Julian Viggars was the obvious choice to step up and take on the Chief Investment Officer role given his huge amount of experience within the portfolio, including sitting on the boards of a number of portfolio companies. He has a demonstrable exit track record of delivering returns, for example with Blue Prism Group plc. Mercia is now led by a team of four; the three Executive Directors plus our Head of Life Sciences & Biosciences Peter Dines, who has also assumed the role of Chief Operating Officer. We believe that this is the right team to deliver the next phase of Mercia's growth.

People and culture

During the year the Executive Directors led the development of a 'One Mercia' culture. The Board has seen the enthusiasm, focus and alignment that is being developed across Mercia's now 80-strong employee base. The range of investment and business building skills is impressive and the professionalism of the organisation stands out in all that it does.

Outlook

We look forward to the current year. The Board is focused on the top direct investments and is looking to see the Mercia team make a real difference to the pace and scale at which these are developed. The third-party managed funds activity is well established and at an appropriate scale - we believe it will continue to develop a high quality pipeline and future Emerging Stars for the Group.

Mercia's presence in the UK regions is now second to none. We value our relationships with the Group's 19 partner universities very highly and will continue to fund and develop university spinouts via our third-party funds, selectively backing and scaling a small number with Mercia's balance sheet capital. We were particularly pleased to welcome the University of Edinburgh as our 19^th partner during the year. Complementing these are the entrepreneur-led businesses also sourced largely from the regions.

Mercia's current net asset value ("NAV") per share, excluding its profitable fund management business and other drivers of future value, is 40.7 pence. As the direct investment portfolio makes progress, the Board expects to see that value reflected in increasing NAV per share.

I would like to thank our shareholders for their continuing support and all the team at Mercia for their tireless hard work on the journey that we are on, of building and when appropriate, exiting valuable businesses in order to maximise shareholder returns.

Susan Searle

Non-executive Chair

Chief Executive Officer's review

The growth of the Group to date has been considerable, notwithstanding the fact that this has yet to be fully recognised in terms of superior net asset value ("NAV") growth. Ahead of Mercia's admission to AIM in December 2014 it had approximately £22.0million in third-party funds under management ("FuM") and £9.0million in direct investments amounting to £31.0million of assets under management ("AuM"). Fast forward just over three years and it is pleasing to see that AuM have grown to c.£0.5billion, comprising c.£400.0million of FuM, direct assets of £66.1million and unrestricted cash of £49.4million. Today, Mercia benefits from approximately £230.0million in new cash to invest over the next five years from its FuM and a strong balance sheet, to continue supporting both its existing direct investments whilst selectively expanding the direct investment portfolio with new Emerging Stars.

With the recent sale of Science Warehouse bringing £10.5million of cash back to the balance sheet, Mercia has already demonstrated full cash returns above carrying value from each of the three portfolio businesses exited so far. NAV per share at 40.7p excludes the value of Mercia's substantial and profitable fund management businesses, Mercia Fund Managers, which is an integral part of our hybrid investment model. Mercia Fund Managers serves two purposes; to nurture the next generation of Emerging Stars for the balance sheet and to contribute towards minimising the Group's net expenses (being total revenue less all staff and administrative expenses). Since April 2017 Mercia Fund Managers has secured over £100.0million in new FuM, adding to a similar figure secured in the previous financial year. Largely as a consequence of this increasing FuM, total revenue for the year to 31 March 2018 grew from £6.7million to £10.2million and net expenses decreased from £2.5million to £0.4million. In addition, three new Emerging Stars joined the balance sheet with the top 20 investments now accounting for over 99% of the portfolio value. The fund management business is therefore delivering on its two key value drivers.

We believe that the UK sets the global benchmark for innovation and discovery. Mercia mobilises capital located predominantly in the South of England and invests it selectively into the UK regions where there is limited competition due to a poor supply of finance but a notable hotbed of scalable businesses with global aspirations. Mercia has established a meaningful presence in the Midlands, the North of England and Scotland and now has more than 80 employees located across nine offices in these regions, together with 19 university partnerships. The University of Edinburgh became our 19^th partner during the financial year under review. Our university partnerships remain an important element of our business model, accounting for approximately 25% of our FuM investment activity by number of deals. Our partner universities have combined research income comparable to that of the Universities of Oxford, Cambridge and Imperial College. The funds managed by Mercia Fund Managers comprise not only tax efficient Enterprise Investment Scheme ("EIS") and venture funds but also private equity and debt funds, enabling Mercia to genuinely offer a Complete Capital Solution to many of the most promising businesses in the UK.

Early signs of delivery

During the financial year under review Mercia invested c.£52.4 million across the Group, of which £21.1million was from the balance sheet into direct investments and the remaining c.£31.3million from Mercia's managed funds. Against the Group's total cash deployment of £52.4million, an additional c.£160.0million was raised by portfolio companies through syndicated investment. We anticipate that this level of third-party syndication will increase in the new financial year with a growing emphasis on our balance sheet investments, as they start to mature. We therefore anticipate that the Group will invest approximately £60.0million across both its funds and its direct investment portfolios in 2018/19, predominantly driven by increased activity from our FuM. We are already seeing a materially expanded stable of future potential Emerging Stars and we expect this number to increase further during the next two years.

Mercia focuses on achieving cash exits in a three to seven-year period once a new Emerging Star is added to the balance sheet. To date we have realised three profitable cash returns from Allinea Software (2016), Abzena (2017) and Science Warehouse (2018). Mercia's FuM are also performing well with one of the Group's oldest venture funds, the RisingStars Growth Fund (2004 vintage year), proving to be a leading European venture fund based on cash returned (c.4x to date) and an internal rate of return of c.15.0%. This fund was a seed investor in Blue Prism Group plc, a business from the North of England, turning an investment from the fund of £0.9million into a £70.0million cash return to date, with the fund still owning approximately 2.5% of this successful AIM quoted technology company. As with the majority of Mercia's FuM, when the funds deliver cash returns to their fund investors, the Group may also benefit financially from performance fees and/or 'house' carried interest. Mercia has benefitted directly from two fund distributions during the year.

Mercia plays an active role in helping to build boards and management teams, business model optimisation, investment syndication and commercial engagement across both fund and balance sheet investments. We anticipate that this proactive stance of resource allocation will deliver strong fair value uplifts in the medium term as these portfolio companies mature. The following list is just a small selection of investee companies from Mercia's promising and growing direct investment portfolio, all of which have come through the Group's FuM:

· nDreams - a leading European player for virtual reality content for gaming and experiences working with Sony, Oculus, Google, Starbreeze, OSVR, Dell, HTC and Microsoft

· Oxford Genetics - has attracted Invesco Asset Management as a new shareholder as it looks to accelerate its position in the growing global synthetic biology market

· Intechnica - a rapidly scaling retailer of an innovative cloud-based software as a service platform product, Traffic Defender, working with clients including Evans Cycles, Hobbs, Ted Baker and AO.com

· Medherant - developing a proprietary patch technology focused on pain relief and central nervous system diseases, benefiting from third-party co-investment in the year and the development of its own prototype manufacturing facility

· Impression Technologies - from its own production facility it produces large complex aluminium pressed units that are stronger and lighter than those of its peers, without the need for welding, for automotive marques such as Aston Martin

· Voxpopme - a new Emerging Star, this rapidly scaling disruptive video analytics business has clients including Microsoft, Visa and Tesco

As these direct investments demonstrate, we are seeing early signs of success and a breadth of portfolio with tremendous promise in the medium term. More detail on these and other investments can be found in the Chief Investment Officer's review. The true nature of risk capital and active portfolio management means that there are also inevitable setbacks along the way. Within our early-stage third-party venture funds, failure rates have historically run at 40-50% and we do not expect this to change. Although Mercia's model ensures that much of the greatest risk of failure is absorbed through the FuM, there have been a small number of downward fair value movements within our direct investment portfolio during the year. Concepta PLC's fall in its share price has resulted in a 'mark-to-market' downward fair value movement. The investment in Smart Antenna Technologies is now held at cost and Soccer Manager's valuation has been reduced by 25% to reflect slippage against its path to profitability. In the case of Edge Case Games, Mercia's eleventh largest holding by value, we have elected to fully provide against the equity element of our total investment (with the remaining investment value held as convertible loans) due to a marked slowdown in progress, largely as a result of protracted partnership discussions with a major games developer and aborted trade sale negotiations. Mercia is actively engaged in the restructuring of this business to refocus on delivering value from its lead gaming platform, Fractured Space, which has demonstrated early signs of positive customer engagement. The strategy that we have adopted for Edge Case Games demonstrates our active hands-on approach to portfolio management together with prudent adherence to our valuation policy.

Mercia's next chapter; built to deliver growth

Given the scale of Mercia's recent growth, the Group is now set for its next phase, our 'Chapter 2', of delivering both shareholder and stakeholder value from a materially larger operation. The opening of this new chapter is reflected in the recently restructured Executive Team and new additions to the Board. The internal promotions of Julian Viggars to Chief Investment Officer and Executive Director, whose track record in 'picking winners', such as Blue Prism Group plc and Xeros Technology Group plc, speaks for itself, and that of successful entrepreneur Peter Dines as Chief Operating Officer (as well as continuing his role as Head of Life Sciences & Biosciences) are indications of the depth of proven investment and management talent within Mercia. In addition, Dr Jonathan Pell and Caroline Plumb OBE have joined Mercia's Board as Non-executive Directors, adding their successful business building wisdom to our already well-established Board.

Today, Mercia is far more than just the sum of its parts. It has built a significant platform throughout the UK regions capable of unearthing some of the most potentially valuable businesses of the future, and in so doing, generate superior returns for its fund investors and shareholders alike. That path to shareholder value creation will not always be linear. However, the overall progress of the balance sheet portfolio is tangible, the number of exciting young businesses being shaped in the funds' portfolios is accelerating, the 'dry powder' available for future fund investing is significant and our net expenses are reducing, thus maximising the capital available on our balance sheet. We remain focused on the day-to-day needs of the portfolio and on delivering against our strategic plan and are increasingly enthusiastic about the potential of our direct investments.

Ultimately Mercia is a people business and to this end, I would like to acknowledge and thank all of the Group's employees for their tremendous hard work and the Non-executive Directors for their wisdom and guidance. Mercia is increasingly recognised as a leading player in the financial ecosystem of the UK regions and I am extremely grateful to all its valued stakeholders in supporting the Group to this juncture. There is far more to come from Mercia Technologies.

Dr Mark Payton

Chief Executive Officer

Chief Investment Officer's review

We have had another year of good progress across the direct investment portfolio, resulting in net upward fair value movements of £2.8million and an investment realisation above our carrying value of £9.9million for Science Warehouse. We have also added significantly to our managed funds and can already see the benefits of a growing pipeline of exciting technology businesses.

Portfolio overview

In the last twelve months we have seen the continued maturing of the direct investment portfolio where over 99% of the total portfolio value is represented by the top 20 investments, out of a total of 26. A number of our investee companies have raised significant sums of capital during the year to fund their growth and we have continued to build out the management teams and boards at our key assets. £21.1million has been invested over the past year in total. As at 31 March 2018 the value of the Group's direct investment portfolio has increased to £66.1million from £52.0million, reflecting the new investments of £21.1million, investment realisations of £9.9million and net fair value gains of £2.8million. This represents good overall progress and we are particularly pleased with the full cash disposal of Science Warehouse, the £7.5million funding round at Oxford Genetics which resulted in a significant uplift in our carrying value, and a number of other syndicated rounds at key portfolio assets.

Investment activity

In the last 12 months we have invested £14.4million in 14 of our existing portfolio companies as many now look to scale their growth. Our aim remains to build and/or maintain our equity stake at c.25% and above in these assets, whilst increasingly looking to bring in new third-party capital.

During the financial year we also invested £6.5million in three new Emerging Stars, all of which originated from the managed funds pipeline, and also contributed £0.2million of capital to three of our new managed funds:

· Intechnica is a Manchester based services and software product business with c.£6.0million annual revenues. Its focus is on the critical operations of ecommerce businesses, including website resilience and efficiency, high volume ordering systems, online ticketing and mobile customer relationship management applications. It is developing a suite of products to help manage inbound web traffic. In the last 12 months the business has raised £4.7million to fund product development. The company was held in Mercia's managed funds for circa four years.

· Aston EyeTech t/a Eyoto was a spinout from Aston University in 2013 when Mercia first invested through its managed funds. The company has a range of hardware and software products focused on ocular care. The business raised £5.0million in November 2017, including £1.8million from Mercia, to fund the next stage of its growth. The company was held in Mercia's managed funds for circa four years.

· Voxpopme is a Birmingham-based video insights platform that provides innovative video analytics for marketing purposes with internationally renowned clients such as Microsoft, Tesco, Verizon and Accenture. The business has successfully entered the US market and Mercia's capital will help scale its growth. The Group made its first direct investment into the company in March 2018. The company was held in Mercia's managed funds for circa one year.

We have seen strong growth in the pipeline for direct investments across all four sectors in the last 12 months through the increasing scale of our managed funds which have deployed £18.7million from our venture funds in 53 deals. We will continue our aim of building excellent management teams within these businesses that can scale them before we commit our balance sheet capital. As a result, and as shown above, we therefore expect in the future that larger, and increasingly syndicated, investment rounds will be a growing feature of our new direct investments.

Fair value movements

The total net fair value gain in the year amounted to £2.8million compared to £4.3million in the prior year. We have recognised notable fair value uplifts at Oxford Genetics (£4.4million), Warwick Audio Technologies (£1.6million) and Intelligent Positioning (£1.2million), all based on the price of third-party investment into the businesses. We have however, also recognised a negative fair value movement of £2.5million at Concepta PLC, an investment that we mark-to-market as it is admitted to trading on AIM. Furthermore, and in line with our valuations policy, we have also made downward adjustments to the carrying values of three other assets in our core portfolio. Edge Case Games and Soccer Manager are currently performing below expectations and we have therefore made 100% and 25% provisions respectively against our equity carrying values, and whilst Smart Antenna Technologies is continuing to make good technological progress, we have reversed a previous fair value uplift, taking our holding value back to cost.

In March 2018 we were delighted to complete the sale of Science Warehouse to Advanced Business Software and Solutions Limited. The sale generated cash proceeds of £10.5million and a realised gain against our carrying value of £0.6million. This is further validation of both our investment model and our prudent valuation policy. The cash realisation provides additional funds to help scale the exciting high growth businesses in our direct investment portfolio.

Portfolio composition

The year ended with a portfolio of 26 companies valued at £66.1million. The Board's aim remains to build a balanced portfolio across the four technology sectors on which we focus. Further details on each of our four key sectors and a number of our leading investee companies are provided below.

Software & the Internet

The Software & the Internet sector remains one of the most active for Mercia across both the managed funds and direct investments.

Spending on information technology is projected to continue to grow across enterprise, small and medium-sized business sectors, driving growth opportunities for software companies in multiple sectors. Mercia continues to pursue a focused strategy within this sector, targeting those areas with the highest growth rates and strong exit valuation multiples.

Cybersecurity has been and continues to be a focus area for Mercia - it is one of the most active sectors in the market, reflecting the ever-increasing scale and complexity of the cyber threat landscape. The market is expected to grow from $84.0billion in 2015 to $130.0billion by 2021 (Source: Orbis Research, Global Cyber Security Market Report 2017). The Group's direct investment in Intechnica targets this sector and there are a number of investments through the managed funds that offer future potential in this area.

Business to business ("B2B") software as a service ("SaaS") companies have been one of the most active categories in the software industry over the last few years and many companies in this sector have been able to deliver rapid revenue growth and achieve exits with strong returns to investors. Publicly quoted cloud software businesses in the US have outperformed the NASDAQ and Standard & Poor's indices by a factor of four to five times in the last seven years (Source: Bessemer Venture Partners, Cloud Computing). Mercia has a range of investments in this space, including Voxpopme, its second new direct investment in the sector this financial year, and deal flow remains strong in this sector.

Data analytics and the application of artificial intelligence and machine learning have attracted large amounts of investment in recent years and market size estimates suggest that in the artificial intelligence area alone, the market will grow from $4.0billion in 2018 to $34.0billion in 2023 (Source: Statista, Artificial Intelligence Market Revenue Worldwide 2016-2025). Mercia has investments in this segment through its managed funds and is actively engaged with some of the leading research groups in this area through its extensive network of university partnerships. While this market is still in the relatively early stages of development, we expect to see excellent future opportunities for value creation.

Some emerging technologies, such as blockchain and quantum computing, are likely to be growth areas in the future but there are very few commercial applications for these at present. We continue to monitor these and other disruptive technologies and expect that investable propositions will emerge in the next two to three years from Mercia's proprietary funds funnel.

For the year to 31 March 2018, Mercia invested £5.4million in this sector with new Emerging Stars, Intechnica and Voxpopme, receiving direct investment. As at 31 March 2018 the Group had a total of £11.0million of asset value in this sector, representing 16.7% of the total portfolio value, having achieved the £10.5million cash sale of its investment in Science Warehouse during the year.

Intechnica

As at 31 March 2018, the Group held a 27.9% interest in Intechnica at a fair value of £4.0million. Mercia invested £3.8million during the year of which £3.5million was part of a £5.0million syndicated round alongside existing private investors. The investment is held at the price of the most recent syndicated investment round.

Mercia had previously supported Intechnica through its managed fund, the North West Fund for Venture Capital for four years, before it became a new Emerging Star in April 2017 through an initial investment of £250,000.

Intechnica's origin in 2006 was as a specialist web performance assurance consulting firm, delivering a combination of project and managed service solutions to a growing blue-chip client base.

The company has continued to grow its consultancy business since Mercia's investment and has extended its range of service offerings to include technical due diligence for mid-market private equity firms, generating project revenues and ongoing opportunities for both consulting and product sales. The consulting business provides a strong underlying revenue stream but the greater value generation is projected to come from the growth of its Traffic Defender product. The market for botnet detection products is a new and rapidly-developing segment that is expected to grow from $203.2million in 2018 to $1.2billion by 2022, a compound annual growth rate ("CAGR") of 42.4% (Source: Research and Markets, Global Botnet Detection Market Forecasts to 2023). Intechnica has been cited as a notable player in this market in a recent independent market report (Source: Wise Guy Reports, Global Botnet Detection Market Size Study).

The company has continued to grow its product business and has recruited additional experienced staff, including a general manager for the product division. There is a developing pipeline of high value opportunities for Traffic Defender in the media, retail and entertainment sectors and the company expects to see strong growth in revenues from these in the near term.

Voxpopme

As at 31 March 2018, the Group held a 12.3% stake in Voxpopme at a fair value of £1.0million. Mercia invested £1.0million during the year and the investment is held at cost. The company was held in the managed funds for approximately one year before becoming an Emerging Star in March 2018.

Voxpopme is a Birmingham-based SaaS business that provides video analytics software to firms in the market research and customer experience sectors. The company's key products comprise a suite of video analytic tools enabling market research companies to gain better quantitative and qualitative feedback and data from surveys than was previously possible from a standard marketing questionnaire.

The software service was initially priced on a per use basis, with customers buying credits that could be used flexibly over time. This is being transitioned to a recurring subscription model, generating revenue on a more consistent basis resulting in a potentially higher revenue multiple for valuation purposes. In 2017, subscriptions represented 35% of total revenues but this is projected to increase to 50% in 2018 and over 70% by 2020. Since 2015, the business has more than doubled its revenue each year and the budget for 2018 shows revenue growth of 140%.

While the company remains UK based, it has been very successful in growing its business in the USA, with 60% of 2017 revenues being derived from this region. This has been driven by the decision of the CEO to move to the USA in order to spearhead the expansion there. A number of senior hires have been made in the USA since the original Mercia Fund Managers' managed fund investment, including commercial staff with deep industry knowledge and connections. The company has been proactive in recruiting experienced staff and this positions it well to continue its strong growth trajectory.

In April 2018 the company launched its new VideoCX offering, a video-first customer experience ("CX") platform designed to bring the voice of the customer to life. The CX market is growing rapidly, with a projected CAGR of over 20% to 2022 (Source: Gartner), and this new product will help the company to sustain its strong revenue growth.

Voxpopme has secured a range of blue chip customers including Microsoft, Aviva, GM and Verizon. A significant number of these provide substantial upsell opportunities that should enable the company to achieve consistently high revenue retention rates. The company is also actively pursuing a partnership strategy as part of its go to market approach. It has engaged with a number of key players in the market research sector and has signed partnerships with several including an agreement with Kantar, one of the world's leading audience measurement companies, to white-label the Voxpopme technology and sell it as part of its own product suite to customers including Accenture, Camelot, Clorox, Microsoft, Qualtrics and Verizon.

Digital & Digital Entertainment

The global games market is continuing to grow year on year and it is predicted that consumer spending on games will reach $180.1billion by 2021, a CAGR of 10.3% between 2017 and 2021. It is expected that 2.3billion gamers across the globe will spend $137.9billion on games in 2018. This represents a year on year increase of 13%, or $16.2billion. Digital games revenues will account for 91% of the global games market with $125.3billion (Source: Newzoo, Global Games Market Report 2018).

The UK games market hit a record high of £5.1billion in 2017 (Source: Ukie, UK Games Industry 2017 Market Valuation), with a 12% growth on the previous year. Consumer revenues for the UK video games market is steadily increasing and it was the fifth largest global market in 2017, after China, USA, Japan and Germany.

There was also strong growth across the global games software and hardware markets with gaming fans spending more than £100.0million (Source: SuperData Research, Games and Interactive Media Intelligence) on virtual reality ("VR") headsets for the first time, a 24% increase on the previous year. The consumer release of the first VR headsets and the increasing affordability of VR hardware provides a strong indication that the popularity of VR games and experiences will continue to grow.

For the year to 31 March 2018, Mercia invested £4.5million in this sector taking the total investment holding value at the year end to £18.7million, representing 28.3% of the total portfolio value.

nDreams

As at 31 March 2018, the Group held a 45.6% interest in nDreams at a fair value of £13.0million. Mercia invested £2.0million as part of a £2.7million syndicated funding round alongside sophisticated private investors and nDreams' chair Paul Fitzsimons in July 2017. The investment is held at the price of the most recent syndicated investment round.

nDreams is a developer and publisher of content for VR platforms. It creates and publishes its own experiences and games, and develops for strategic third parties.

Mercia first invested in nDreams in March 2014 through its managed funds and it was held in the managed funds portfolio for approximately one year. The company is now known as one of the UK's leading developers and publishers of VR content and was one of the first to enter the VR games market.

nDreams launched two major titles in the year, the award-winning brawler, Bloody Zombies, which released on five different platforms (both VR and non-VR) and Shooty Fruity, the highest rated VR shooter ever launched on console and which has received a positive reaction from both critics and consumers.

Alongside its own games, nDreams has developed projects for several third parties, including Google, Microsoft, a large VR arcade company, and a major entertainment company. These high-profile partnerships demonstrate the industry's confidence in the design and production quality of nDreams' experiences and games, and the company has continued to build stronger relationships with all the leading VR headset manufacturers. There are an increasing number of potential partner discussions occurring as nDreams builds its high end B2B pipeline alongside its consumer titles.

As well as creating VR games for consumers, nDreams has expanded into the fast-growing VR location-based entertainment ("LBE") market and completed a major title for VR arcades during the financial year. This title has not yet been announced but it is expected to be revealed in summer 2018.

nDreams has now sold more than 320,000 VR experiences and games, and has generated over £3.0million in VR revenue to date. Total revenue for the 2017/18 financial year grew by over 50% on the previous year.

The VR consumer market continues to expand, although not as fast as many had predicted. Sales of high end VR headsets picked up in the last quarter of 2017 as prices dropped to more affordable levels. The VR market is set to expand faster in the 2018/19 financial year with the launch of several new 'standalone' headsets that require no PC, console or phone, such as the Oculus Go, Vive Focus and Oculus Santa Cruz. Having established close relationships with some of the biggest names in the digital world, nDreams is at the forefront of the expanding VR market and has the potential to be a highly valuable business.

VirtTrade

As at 31 March 2018, the Group held a 28.4% interest in VirtTrade at a fair value of £2.5million. Mercia invested £1.0million during the year and the investment is held at the price of the most recent investment round, impaired by a 50% provision in 2016/17 against Mercia's then equity value, reflecting lower than forecast commercial traction.

VirtTrade is a developer and publisher of digital trading cards, working with licensors to create high engagement apps for fans. VirtTrade targets the £2.4billion trading cards market. The company received its first investment from Mercia's managed funds in early 2014 and it was held in the managed funds portfolio for approximately one year before becoming an Emerging Star at the end of 2014.

Collectors use in-app currency to purchase packs of cards that can be traded with anyone, anywhere. Cards can carry live data, vibrant imagery, interactive areas, video footage, game statistics and more. The habit-forming nature of trading card collecting transfers well to the digital space, with VirtTrade's monthly revenue per paying user reaching over $30.0.

VirtTrade's trading card innovations include matchmaking for trades, the ability to fuse duplicates to create rare new cards, collection achievements and instant challenge multiplayer games. Following Mercia's initial investment in 2015, VirtTrade developed apps for Panini's flagship properties, the NFL and NBA, and over 100.0million cards were distributed on the platform to over a million users.

VirtTrade is now viewed as a leading publisher in this growing segment, having secured rights to Discovery Networks, Valiant Entertainment and Formula 1. Thanks to a streamlined content creation platform and white label apps, VirtTrade was able to go from concept to beta for Formula 1 in just three months, with 250 cards ready for the June 2018 launch and a dedicated 'head-to-head' race mode where players can put their card collections to the test on Grand Prix circuits. The Formula 1 Trading Card Game 2018 was launched on the App Store (iPhone) and Play Store (Android) in June 2018.

Electronics, Materials, Manufacturing / Engineering

The portfolio has continued to make positive progress with several assets accelerating commercial traction through global partnerships with leading industry players. Our university partnerships continue to play a particularly important role with this sector as many of our investments in the portfolio have originated from these key relationships. Investment from Mercia has continued to support rapid expansion in this sector, with five of our direct investments receiving follow-on funding during the year. There have also been several follow-on investments and a number of exciting new investments in the managed funds portfolio, strengthening the pipeline of future direct investments over the next two years.

Proprietary intellectual property within each investment underpins the disruptive technologies being commercialised and a number of new patents have been applied for across the sector this year. This sector comprises a diversified portfolio of eight technology companies, targeting large global markets including automotive, consumer electronics, semiconductors, energy storage and mobile communications.

The global market for consumer electronics is continuing to grow rapidly and it is expected to reach around €18.0billion in 2018 (Source: Statista, Consumer electronics market value in the United Kingdom 2013-2018). The semiconductor market is forecast to grow by 7.5% from $419.0billion in 2017 to $451.0billion in 2018 (Source: Gartner, Forecast Analysis: Electronics and Semiconductors, Worldwide, 4Q17 Update) and the automotive market is forecast to grow by 2.5% in the same period (Source: Euler Hermes, Global Automotive Report).

The UK is continuing to climb up the rankings of global producers, having moved from being the ninth largest manufacturer in the world to the eighth in 2017/18. The UK manufacturing industry employs 2.6million people and the EU is still the dominant market for exports, accounting for 48.0% of manufactured exports in 2017 (Source: EEF, UK Manufacturing 2017/2018).

For the year to 31 March 2018, Mercia invested £3.9million in this sector taking the total investment holding value at the year end to £16.2million, representing 24.5% of the total portfolio value. Below is further information on two of the direct investments from this sector.

Warwick Audio Technologies

As at 31 March 2018, the Group held a 64.0% interest in Warwick Audio Technologies at a fair value of £6.2million. Mercia invested £1.8million net during the year as part of a £3.1million syndicated round alongside GuoGuang Electric Co ("GGEC") and a number of sophisticated private investors. The investment is held at the price of the most recent syndicated investment round.

Warwick Audio Technologies, a University of Warwick spinout, is a creator of personal listening experiences based on its patented electrostatic audio transducer modules. The company is focused on delivering disruptive listening solutions to two markets, the high-end headphone market and the $8.0billion in-car audio market where its product's thin, lightweight form factor and power efficient characteristics deliver significant value.

During the year, the company released its first product, the Sonoma Model One headphone system, a premium electrostatic wired headphone system aimed at the professional use audiophile community. Since its launch, the product has won seven awards, including Product of the Year from the American magazine, Tone Audio, and the UK's Hi-Fi+ magazine. The company is now expanding its headphone product portfolio and developing its first products for the automotive market.

The company was founded in 2002 and supported through the managed funds for seven years before becoming an Emerging Star in 2014 and it has developed a new generation of patented electrostatic planar transducers, the High Precision Electrostatic Laminate ("HPEL"). The company's patents enable it to deliver ultra-high-quality audio in an easy to manufacture package that is thinner, lighter and significantly more reliable than its competitors' products. A key part of that package is the proprietary drive electronics that also deliver significant power efficiency benefits over existing products.

During the year Warwick Audio Technologies moved to new offices at the MIRA Technology Park in Nuneaton, the largest automotive technology park in Europe. The move reflects continuing positive momentum for the business and its growing engagement with the automotive sector. The new office is located in the heart of the UK's automotive manufacturing industry, close to major players such as Jaguar Land Rover and Aston Martin, together with numerous smaller automotive original equipment manufacturers ("OEMs").

Impression Technologies

As at 31 March 2018, the Group held a 26.6% interest in Impression Technologies at a fair value of £3.1million. Mercia invested £1.5million during the year as part of a £3.0million syndicated round alongside IP Group plc. The investment is held at the price of the most recent syndicated investment round.

Impression Technologies is the leading developer of advanced lightweighting Hot Form Quench (HFQ®) technology based on intellectual property from the University of Birmingham and Imperial College. It first received investment from Mercia's managed funds in 2014 before becoming an Emerging Star thirteen months later in 2015. Impression Technologies' patented HFQ® technology is used for the mass production of complex, deep drawn, high-strength aluminium structures. Multiple applications exist within the automotive, aerospace, rail, industrial and consumer electronics sectors.

HFQ® technology offers significant savings in weight, cost and system complexity over alternative processes with the ability to transform the use of aluminium for volume applications. The automotive industry sees considerable benefit in HFQ® as it looks to reduce vehicle weight to assist in carbon emission reduction and electric vehicle battery life.

Impression Technologies opened the world's first HFQ® facility in Coventry in 2016 and is currently manufacturing over 25,000 parts per year with the technology in use on four production vehicles, including the Aston Martin DB11. The business is actively engaged with the majority of global automotive OEMs and is working with Gestamp, the world's second largest automotive tier 1 supplier of pressed parts, through the £9.6million Raceform grant programme that Impression Technologies and others secured in November 2017.

Impression Technologies' intent is to establish HFQ® technology as a global lightweighting standard for all OEMs and tier 1 suppliers, and to drive revenues through licensing fees and royalties with a secondary revenue stream from engineering services, support services and other fees.

Life Sciences & Biosciences

The government's Life Sciences Industrial Strategy published last year by Sir John Bell, former President of the Academy of Medical Sciences, highlights the significant position of strength the UK has in the life sciences sector. A combination of a strong science base, a vibrant commercial sector in health and a comprehensive, engaged, data-rich healthcare system could provide an ideal environment for the UK to lead in many of these emerging areas of life sciences and to create successful new industries globally.

The life sciences industry represents one of the dominant economic sectors in the UK. 'Health life sciences' refers to the application of biology and technology, leading to health improvement, including biopharmaceuticals, medical technology, genomics, diagnostics and digital health. It has the advantage of very high productivity compared to other sectors and generates a wide range of products including drugs, medical technology, diagnostics and digital tools, as well as products for consumer health. It is also widely distributed across the whole of the UK and brings significant employment and economic growth to virtually every region.

In the coming decades, healthcare spending will surpass the economic growth in OECD countries by 3.3% versus 2.0% CAGR, creating a sustainability challenge for healthcare systems and new opportunities for life sciences industry growth. This is driven by macroeconomic factors such as an ageing population, a growing middle class and the increasing burden of chronic diseases that will accompany the significant change in demography. The global life sciences industry is expected to reach over $2.0trillion in gross value by 2023 (compared to approximately $1.6trillion today) (Source: OECD, Public Spending on Health and Long-term Care).

The UK is well positioned to lead in the discovery and evaluation of new technologies, including everything from patient records, X-rays, pathology, images, genomics, healthcare management tools, diagnostics, synthetic biology, digital monitoring and digital healthcare delivery that will fundamentally change the way we think about human illness and how best to manage it.

For the year to 31 March 2018, Mercia invested £7.1million in this sector with new Emerging Star, Eyoto (previously known as Aston EyeTech) receiving direct investment. As at 31 March 2018 the Group had £19.9million of asset value in this sector, representing 30.1% of the total portfolio value, with our university partners continuing to play a key role in helping to provide new investment opportunities. Below is further information on two of the direct investments from this sector.

Oxford Genetics

As at 31 March 2018, the Group held a 40.6% interest in Oxford Genetics at a fair value of £9.1million. Mercia invested £2.5million during the year of which £2.0million was part of a £7.5million syndicated round alongside Invesco Asset Management. The investment is held at the price of an anticipated syndicated investment round.

Oxford Genetics, which was held in the managed funds for two and a half years before becoming an Emerging Star in 2015, is a specialist designer and developer of biological molecules such as proteins, viruses and cells operating within the rapidly growing synthetic biology market, which is estimated to reach c.$26.0billion by 2025 (Source: Crystal Market Research, Synthetic Biology Market). It provides design, development and production services for biological therapeutics.

The company has four main technology areas focused on improving the discovery, design, development and deployment of biological molecules. These technology areas are supported by the company's patent-protected SnapFast DNA engineering technology, which makes genetic engineering more efficient, combined with its selective use of in-licensed CRISPR technology.

The team has been building a best-in-class synthetic-biology based tool set, supplemented by online sales of its DNA designs and plasmid development services, towards a model of technology licensing and high value-add service provision. Oxford Genetics has continued to develop its IP portfolio estate and now has nine patent families. The company employs 52 people and sales continue to grow by over 100% year on year. With the opening of a US office in this period, sales in the US account for over 30% of total revenue and currently form its largest growth market.

Medherant

As at 31 March 2018, the Group held a 31.9% interest in Medherant at a fair value of £3.5million. Mercia invested £2.5million during the year as part of a £3.8million syndicated round alongside both private investors and other existing shareholders. The investment is held at the price of the most recent syndicated investment round.

Medherant, which was held in Mercia's managed funds portfolio for eighteen months before becoming an Emerging Star in 2017, is a University of Warwick spinout that benefits from an extensive patent estate and an exclusive worldwide licence from Bostik SA for medical use of a novel adhesive. The company is developing products for pain and central nervous system diseases using its innovative platform technology for the delivery of drugs via patches. The global transdermal drug delivery market was valued at $32.5billion in 2016, and is expected to grow at 9.5% CAGR during 2017-2023 (Source: Allied Market Research, Transdermal Drug Delivery Systems Market).

Medherant's TEPI Patch® is a thin, flexible, easy to apply and remove patch that has excellent adhesion and is water-resistant. It is capable of delivering high doses of drugs directly to the areas where they are needed or systemically, at a controlled rate and over extended delivery times.

The company has its own in-house pilot production facility and during the year has entered into a partnership for clinical and commercial production with an established third-party contract manufacturer of drug delivery patches. Unlike some other patch production processes, no solvents are required to manufacture TEPI Patches thus facilitating scale-up and reduced production costs.

Medherant's lead product is a patch for the delivery of ibuprofen for the treatment of local pain due to injury. The company is initially focusing on the European market and expects to seek market authorisation in 2020. The global market for an ibuprofen transdermal patch was valued at $379.6million in 2017 and it is expected to grow at a CAGR of 6.5% between 2017 and 2022 (Source: Biopharma Vantage).

The company has also formulated TEPI Patches containing lidocaine, diclofenac and other drugs used to treat pain, as well as seeking partnerships, through evaluation agreements, to out-license the technology for applications outside of its core focus. Progress to market for these latter patches will be typically funded by partners on commercial terms beneficial to Medherant.

Julian Viggars

Chief Investment Officer

Chief Financial Officer's review

In the year to 31 March 2018 Mercia Technologies PLC continued to make tangible progress across all of its strategic priorities, including a further cash realisation and lower net expenses.

Revenue increased 53.1% to £10.2million (2017: £6.7million) whilst administrative expenses increased by 16.3% to £10.6million (2017: £9.1million). Faster revenue growth relative to the Group's increased cost base resulted in an 82.4% reduction in the Group's net expenses (being total revenue less all staff and administrative expenses) to £0.4million (2017: £2.5million). The Group's revenue increase was largely derived from the growing quantum of funds under management and the accelerating deployment of those funds, together with one-off revenues generated from both existing fund performance fees and new fund closing fees. Revenue derived from the balance sheet portfolio also increased. The cost base increase arose mainly from the recruitment of additional investment and support staff, to manage and deploy the substantial new fund mandate wins in both 2017 and 2018. The resultant overall reduction in net expenses is enabling more of the Group's cash to remain available for direct investment purposes, as well as minimising the negative impact of such net expenses on NAV per share.

During the year the Group invested £21.1million (2017: £11.7million) into 14 existing (2017: 11) and three new (2017: four) direct investments. Cash proceeds from the disposal of the Group's investment in Science Warehouse Limited totalled £10.5million (2017: £2.9million).

As at 31 March 2018 the fair value of the Group's direct investment portfolio was £66.1million (2017: £52.0million). Net fair value gains during the year were £2.8million (2017: £4.3million). Net assets at the year end were £123.5million (2017: £121.4million). Within net assets, cash and short-term liquidity investments totalled £52.9million (2017: £63.8million), including £3.5million (2017: £4.2million) of cash held on behalf of third-party EIS investors.

Notwithstanding an exceptional charge of £1.1million (2017: £1.1million), being the final accrued deferred consideration in respect of the acquisition of Enterprise Ventures Group Limited ('Enterprise Ventures'), the net fair value gains combined with the reduction in net expenses contributed favourably to result in a consolidated total comprehensive profit for the year of £1.7million (2017: £1.0million). After taking account of the new Mercia shares issued just before the year end to satisfy the Enterprise Ventures' deferred consideration, net assets per share increased marginally to 40.7 pence (2017: 40.4 pence).

Acquisition of Enterprise Ventures - full payment of deferred, contingent consideration

On 9 March 2016 Mercia Technologies acquired Enterprise Ventures' entire issued share capital for up to £11.0million and an amount equal to Enterprise Ventures' net cash position at completion which was £2.0million. The initial consideration was £9.0million, comprising £8.3million satisfied in cash on completion and £0.7million satisfied by the issue of 1,645,711 initial consideration shares at a price of 42.0 pence per share.

Deferred consideration of up to £2.0million would also be payable, contingent upon Enterprise Ventures securing at least £80.0million of net new third-party fund mandates during the two-year period post completion. Payment of the deferred consideration to each vendor was also conditional upon their continuing employment with Enterprise Ventures on the second anniversary of completion, being 9 March 2018. To the extent payable, the deferred consideration would be satisfied by the issue of new Mercia Ordinary shares.

Enterprise Ventures significantly outperformed this target, having been awarded £178.0million in net new fund mandates during the two-year period, which has been a very positive outcome for the Group. Mercia subsequently deducted, and has settled, the vendors' income tax and employees' national insurance liabilities arising from their entitlement to the deferred consideration. The net deferred consideration was settled by the issue of 2,707,475 Ordinary shares at a price of 39.9 pence per share and the new shares were admitted to trading on AIM on 29 March 2018.

Goodwill and acquired intangible assets

The year end consolidated balance sheet includes goodwill of £10.3million (2017: £10.3million) and acquired intangible assets of £0.9million (2017: £1.2million). £7.9million (2016: £7.9million) of the goodwill and all of the intangible assets' value arose as a result of the Group's acquisition of Enterprise Ventures. The intangible assets are separately identifiable assets arising from Enterprise Ventures' fund management contracts with third-party limited partners and other similar investors. The fair value of the intangible assets is being amortised on a straight-line basis over the average duration of the remaining fund management contracts. The amortisation charge of £301,000 (2017: £301,000) in the consolidated statement of comprehensive income represents the amortisation for the year ended 31 March 2018.

Summarised consolidated statement of comprehensive income

	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Revenue	10,197	6,660
Other administrative expenses	(10,633)	(9,143)
Net expenses	(436)	(2,483)
Realised gains on disposal of investments	871	839
Fair value movements in investments	2,823	4,268
Share-based payments charge	(497)	(395)
Amortisation of intangible assets	(301)	(301)
Operating profit before exceptional item	2,460	1,928
Exceptional item	(1,125)	(1,125)
Finance income	274	186
Taxation	54	54
Profit and total comprehensive income for the financial year	1,663	1,043
Basic and diluted earnings per Ordinary share (pence)	0.55	0.47

Revenue

Total revenue of £10,197,000 (2017: £6,660,000) comprises fund management fees, initial management fees from new investments, investment director monitoring fees and sundry business services income. The Group also benefitted from both one-off existing fund performance fees and new fund closing fees totalling £1,233,000 (2017: £541,000).

Other administrative expenses

Total other administrative expenses of £10,633,000 (2017: £9,143,000) consisted predominantly of all staff related and office, marketing and professional adviser costs.

Net expenses

Net expenses of £436,000 (2017: £2,483,000) represents total revenue less all staff and administrative expenses. The small difference between net expenses and net operating cash outflow of £442,000 (2017: cash inflow of £2,843,000) demonstrates that negligible cash is being tied up in working capital.

Realised gains on disposal of investments

During the year, realised gains of £871,000 (2017: £839,000) arose on the disposal of one (2017: two) of the Group's direct investments, being Science Warehouse, plus the recognition of the final proceeds due from the sale of Allinea Software, which had been sold in December 2016.

Fair value movements in investments

	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Investment movements excluding cash invested and realisations:
Unrealised gains on the revaluation of investments	8,699	8,800
Unrealised losses on the revaluation of investments	(5,876)	(4,532)
Net fair value gain	2,823	4,268

For the year as a whole, unrealised fair value gains arose in nine (2017: seven) of the Group's 26 (2017: 24) direct investments. The largest fair value gain was Oxford Genetics which accounted for £4,394,000 of the total. There were nine (2017: six) fair value decreases, the largest being £2,459,000 for Concepta.

Share-based payments charge

The £497,000 (2017: £395,000) non-cash charge arises from the issue of share options to Executive Directors and other employees of the Group, ranging from the date of the IPO to 31 March 2018.

Amortisation of intangible assets

The amortisation charge of £301,000 (2017: £301,000) represents the amortisation of the acquired intangible assets of Enterprise Ventures for the year ended 31 March 2018.

Exceptional item

Deferred consideration of £1,125,000 in respect of the acquisition of Enterprise Ventures has been accounted for in the consolidated statement of comprehensive income as an exceptional item. This represents the final 50% of the total deferred consideration and associated employer's national insurance, the other 50% having already been recognised as an exceptional charge in the financial year ended 31 March 2017.

Finance income

Finance income of £274,000 (2017: £186,000) was predominantly interest receivable earned on the Group's cash and short-term liquidity investments.

Taxation

The tax credit of £54,000 (2017: £54,000) represents the unwinding of the deferred tax liability recognised in respect of the intangible asset which arose on the acquisition of Enterprise Ventures.

Balance sheet and cash flows

Net assets at the year end of £123,470,000 (2017: £121,354,000) were predominantly made up of the Group's direct investment portfolio, together with cash and short-term liquidity investments. The Group has limited working capital needs due to the nature of its business.

Direct investment portfolio

During the year Mercia's direct investment portfolio grew to £66,070,000 (2017: £52,028,000). The table below lists the Group's investments by value as at 31 March 2018, including a breakdown of the net cash invested during the year, investment realisation, fair value movements for the year and the equity percentage of each company owned.

Investment	Net investment value As at 1 April 2017 £'000	Net cash invested Year to 31 March 2018 £'000	Investment realisation Year to 31 March 2018 £'000	Fair value movements Year to 31 March 2018 £'000	Net investment value As at 31 March 2018 £'000	Percentage held As at 31 March 2018 %
nDreams Ltd	10,979	2,000	-	-	12,979	45.6
Oxford Genetics Ltd	2,196	2,500	-	4,394	9,090	40.6
Warwick Audio Technologies Ltd	2,791	1,800	-	1,561	6,152	64.0
Ton UK Ltd t/a Intelligent Positioning	2,500	500	-	1,216	4,216	28.8
Intechnica Ltd	-	3,750	-	271	4,021	27.9
Medherant Ltd	650	2,500	-	303	3,453	31.9
Impression Technologies Ltd	1,500	1,520	-	87	3,107	26.6
VirtTrade Ltd	1,538	1,000	-	-	2,538	28.4
PsiOxus Therapeutics Ltd	2,377	-	-	-	2,377	1.5
Smart Antenna Technologies Ltd	2,259	450	-	(561)	2,148	28.0
Edge Case Games Ltd	2,310	1,500	-	(1,810)	2,000	21.2
The Native Antigen Company Ltd	1,141	23	-	778	1,942	32.7
LM Technologies Ltd	1,770	100	-	43	1,913	41.4
Aston EyeTech Ltd t/a Eyoto	-	1,750	-	-	1,750	18.7
Crowd Reactive Ltd	1,500	150	-	-	1,650	28.3
sureCore Ltd	1,500	-	-	-	1,500	23.0
Concepta PLC	3,400	365	-	(2,459)	1,306	18.2
Faradion Ltd	1,299	-	-	-	1,299	13.6
Soccer Manager Ltd	1,599	-	-	(400)	1,199	31.6
Voxpopme Ltd	-	1,000	-	-	1,000	12.3
Science Warehouse Ltd	9,913	-	(9,913)	-	-	-
Other direct investments	806	224	-	(600)	430	n/a
Totals	52,028	21,132	(9,913)	2,823	66,070	n/a

Direct investment realisations

Mercia is focused on creating shareholder value through the investment in, development of and at the appropriate time, exit from (predominantly through trade sales) its direct investments. Although the Group's direct investment portfolio is still at a relatively early stage, one successful cash realisation - and Mercia's third to date - was completed during the year under review. In March 2018 Mercia Technologies sold its 62.6% stake in Science Warehouse for a total cash consideration of £10,523,000 (net of transaction expenses), recognising a realised gain of £610,000 compared with the holding value of £9,913,000 at the date of disposal. The sale represents a return to Mercia of 14.8% on its original investment cost of £9,163,000.

Cash and short-term liquidity investments

At the year end, Mercia had total cash and short-term liquidity investments of £52,908,000 (2017: £63,829,000) comprising cash of £42,908,000 (2017: £28,829,000) and short-term liquidity investments of £10,000,000 (2017: £35,000,000), including £3,473,000 (2017: £4,228,000) of cash held on behalf of third-party EIS investors. The overriding emphasis of the Group's treasury policy remains the preservation of its shareholders' cash for investment and working capital purposes, not yield. At the year end the Group's cash and short-term liquidity investments (which is cash on deposit with maturities between three and six months) were spread across five leading United Kingdom banks.

The summarised movement in the Group's cash position during the year is shown below.

	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Opening cash and short-term liquidity investments	63,829	30,932
Net cash (used in)/generated from operating activities	(442)	2,843
Net cash used in direct and other investing activities	(10,479)	(8,696)
Issued share capital	-	40,000
Share issue costs charged to share premium account	-	(1,250)
Cash and short-term liquidity investments at the year end	52,908	63,829

The overall positive progress of the direct investment portfolio together with the Group's significant cash reserves, plus a continued focus on net expense minimisation, provides Mercia Technologies with a strong financial platform from which to continue to drive growth in net assets and with it, NAV per share.

Martin Glanfield

Chief Financial Officer

Summary Financial Information

Consolidated statement of comprehensive income

For the year ended 31 March 2018

	Note	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Revenue	4	10,197	6,660
Other administrative expenses		(10,633)	(9,143)
Net expenses		(436)	(2,483)
Realised gains on disposal of investments		871	839
Fair value movements in investments	5	2,823	4,268
Share-based payments charge		(497)	(395)
Amortisation of intangible assets		(301)	(301)
Operating profit before exceptional item		2,460	1,928
Exceptional item		(1,125)	(1,125)
Operating profit	6	1,335	803
Finance income		274	186
Profit before taxation		1,609	989
Taxation		54	54
Profit and total comprehensive income for the financial year		1,663	1,043
Basic and diluted earnings per Ordinary share (pence)	7	0.55	0.47

Consolidated balance sheet

As at 31 March 2018

	Note	As at 31 March 2018 £'000	As at 31 March 2017 £'000
Assets
Non-current assets
Goodwill	8	10,328	10,328
Intangible assets	9	885	1,186
Property, plant and equipment		145	151
Investments	10	66,070	52,028
Total non-current assets		77,428	63,693
Current assets
Trade and other receivables		1,057	747
Short-term liquidity investments	11	10,000	35,000
Cash and cash equivalents	11	42,908	28,829
Total current assets		53,965	64,576
Total assets		131,393	128,269
Current liabilities
Trade and other payables		(7,760)	(6,698)
Non-current liabilities
Deferred taxation		(163)	(217)
Total liabilities		(7,923)	(6,915)
Net assets		123,470	121,354
Equity
Issued share capital	12	3	3
Share premium	13	49,324	48,243
Other distributable reserve		70,000	70,000
Retained earnings		2,977	1,314
Share-based payments reserve		1,166	669
Other reserve		-	1,125
Total equity		123,470	121,354

Consolidated cash flow statement

For the year ended 31 March 2018

	Note	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Cash flows from operating activities:
Operating profit		1,335	803
Adjustments to reconcile operating profit to net cash flows (used in)/generated from operating activities:
Depreciation of property, plant and equipment		81	76
Realised gains on disposal of investments		(871)	(839)
Fair value movements in investments		(2,823)	(4,268)
Share-based payments charge		497	395
Amortisation of intangible assets		301	301
Exceptional item - deferred consideration payable		1,125	1,125
Working capital adjustments:
Decrease in trade and other receivables		19	73
(Decrease)/increase in trade and other payables		(106)	5,177
Net cash (used in)/generated from operating activities		(442)	2,843
Cash flows from investing activities:
Purchase of direct investments		(21,282)	(11,828)
Proceeds from the sale of direct investments		10,468	2,909
Investee company loan repayments		150	140
Net cash flows from direct investment activities		(10,664)	(8,779)
Cash flows from other investing activities:
Purchase of property, plant and equipment		(75)	(82)
Interest received		260	165
Decrease/(increase) in short-term liquidity investments		25,000	(25,000)
Net cash generated from/(used in) other investing activities		25,185	(24,917)
Net cash generated from/(used in) total investing activities		14,521	(33,696)
Cash flows from financing activities:
Proceeds from the issue of Ordinary shares		-	40,000
Transaction costs relating to the issue of Ordinary shares		-	(1,250)
Net cash generated from financing activities		-	38,750
Net increase in cash and cash equivalents		14,079	7,897
Cash and cash equivalents at the beginning of the year		28,829	20,932
Cash and cash equivalents at the end of the year	11	42,908	28,829

Consolidated statement of changes in equity

For the year ended 31 March 2018

	Issued share capital £'000	Share premium £'000	Other distributable reserve £'000	Retained earnings £'000	Share-based payments reserve £'000	Other reserve £'000	Total £'000
As at 1 April 2016	2	9,494	70,000	271	274	-	80,041
Profit and total comprehensive income for the year	-	-	-	1,043	-	-	1,043
Issue of share capital	1	39,999	-	-	-	-	40,000
Costs of share capital issued	-	(1,250)	-	-	-	-	(1,250)
Share-based payments charge	-	-	-	-	395	-	395
Deferred consideration payable	-	-	-	-	-	1,125	1,125
As at 31 March 2017	3	48,243	70,000	1,314	669	1,125	121,354
Profit and total comprehensive income for the year	-	-	-	1,663	-	-	1,663
Share-based payments charge	-	-	-	-	497	-	497
Deferred consideration payable	-	-	-	-	-	1,125	1,125
Settlement of deferred consideration	-	1,081	-	-	-	(2,250)	(1,169)
As at 31 March 2018	3	49,324	70,000	2,977	1,166	-	123,470

Notes to the consolidated financial statements

For the year ended 31 March 2018

1. General information

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

2. Basis of preparation

The summary financial information included in this announcement has been extracted from the audited financial statements of the Group for the year ended 31 March 2018, which have been approved by the Board of Directors. The content of this announcement has been agreed with the Group's auditor. The summary financial information does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006 (the "Act"). The auditor's report on the financial statements for the year ended 31 March 2018 was unqualified and did not contain any statement under section 498 of the Act. The Group's Annual Report and financial statements will be delivered to the Registrar of Companies in due course.

The consolidated financial statements of Mercia Technologies PLC for the year ended 31 March 2018 have been prepared on the going concern basis, under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities at fair value through profit or loss, as required by International Accounting Standard ("IAS") 39 'Financial Instruments: Recognition and Measurement', and in accordance with European Union endorsed International Financial Reporting Standards ("IFRSs"), the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee ("IFRIC")) interpretations, and the Act applicable to companies reporting under IFRS. The accounting policies presented in the summary financial information are consistent with those set out in the audited financial statements.

3. Significant accounting policies

Basis of consolidation

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The Group accounts for business combinations using the acquisition method from the date that control is transferred to the Group. Both the identifiable net assets and the consideration transferred in the acquisition are measured at fair value at the date of acquisition and transaction costs are expensed as incurred. Goodwill arising on acquisitions is tested annually for impairment.

Critical accounting judgements

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.

The Directors have made the following judgements and estimates, which have had the most significant effect on the carrying amounts of the assets and liabilities in these financial statements.

Fair value measurements and valuation processes

The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is risk of a material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision whether or not to impair or uplift investment valuations. The fair value of unlisted securities is established using the International Private Equity and Venture Capital Valuation Guidelines ("IPEVCVG"). The valuation methodology most commonly used by the Group is 'price of recent investment', which can be either the 'price of recent funding round' or 'cost' in the case of a new direct investment. Given the nature of the Group's investments in early-stage companies, where there are often no current and no short-term future earnings or positive cash flows, it can be difficult to gauge the probability and financial impact of the success or failure of commercial development or research activities and to make reliable cash flow forecasts. Consequently, the most appropriate approach to determine fair value is a methodology that is based on observable market data, being the price of a recent investment. The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than those based on assumptions and accordingly, where there has been any recent investment by third parties, the price of that investment will generally provide a basis for the valuation. Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical or commercial performance of the underlying business.

If there is no readily ascertainable value from following the 'price of recent investment' methodology, the Group considers alternative methodologies, which are referred to in the IPEVCV guidelines, being principally financial measures ('enterprise values'), such as trading and profitability expectations, requiring the Directors to make assumptions over the timing and nature of future revenues when calculating fair value. Where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has since become impaired.

All recorded values of investments are regularly reviewed for any indication of impairment and adjusted accordingly. The length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment and the stability of the external environment. At each reporting date the Group considers whether any changes or events subsequent to the year end would imply that a change in the fair value of the investment may be required. Where the Group considers that there is an indication that the fair value has changed, an estimation is made of the required amount of any adjustment from the last price of recent investment. Wherever possible, this adjustment is based on objective data from the investee company and the experience and judgement of the Group. However, any adjustment is, by its very nature, subjective. Where deterioration in value has occurred, the Group reduces the carrying value of the investment to reflect the estimated decrease. If there is evidence of value creation, the Group may consider increasing the carrying value of the investment. However, in the absence of additional financing rounds or profit generation, it can be difficult to determine the value that a purchaser may place on positive developments, given the potential outcome and the costs and risks to achieving that outcome.

4. Segmental reporting

For the year ended 31 March 2018, the Group's revenue and profit were derived from its principal activity within the United Kingdom.

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

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

	Year ended 31 March 2018 £'000	Year ended 31 March 2017 £'000
Fund management fees	7,187	4,068
Initial management fees	1,074	748
Portfolio directors' fees	1,847	1,747
Other revenue	89	97
	10,197	6,660

5. Fair value movements in investments

Year ended

31 March

2018

£'000

Year ended

31 March

2017

£'000

Net fair value movements in investments

2,823

4,268

No other gains or losses have been recognised in respect of loans and receivables. No gains or losses have been recognised on financial liabilities measured at amortised cost.

6. Operating profit

Operating profit is stated after charging:

Year ended

31 March

2018

£'000

Year ended

31 March

2017

£'000

Staff costs

7,500

6,148

Administrative expenses

3,133

2,995

7. Earnings per share

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

	Year ended 31 March 2018	Year ended 31 March 2017
Earnings per Ordinary share
Profit for the financial year (£'000)	1,663	1,043
Weighted average number of Ordinary shares (basic and diluted) ('000)	300,617	223,890
Earnings per Ordinary share basic and diluted (pence)	0.55	0.47

8. Goodwill

	£'000
Cost
As at 1 April 2017 and 31 March 2018	10,328

Included in goodwill is £7,873,000 which arose on the acquisition of the entire issued share capital of Enterprise Ventures on 9 March 2016. This represents the difference between the fair value of consideration transferred and the fair value of assets acquired and liabilities assumed.

9. Intangible assets

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


	£'000
Cost
As at 1 April 2016	1,504
Additions	-
As at 31 March 2017	1,504
Additions	-
As at 31 March 2018	1,504
Accumulated amortisation
As at 1 April 2016	17
Charge for the year	301
As at 31 March 2017	318
Charge for the year	301
As at 31 March 2018	619
Net book value
As at 31 March 2017	1,186
As at 31 March 2018	885

10. Investments

The net change in the value of investments for the year is £14,042,000 (2017: £13,885,000).

The table below sets out the movement in the balance sheet value of investments from the start to the end of the year, showing investments made, cash receipts from disposals and the direct investment fair value movements.

	£'000
As at 1 April 2017	52,028
Investments made during the year	21,282
Disposals made during the year	(9,913)
Investee company loan repayments	(150)
Unrealised gains on the revaluation of investments	8,699
Unrealised losses on the revaluation of investments	(5,876)
As at 31 March 2018	66,070

In accordance with the Group's accounting policy, investments that are held as part of the Group's direct investment portfolio are carried in the balance sheet at fair value even though the Group may have significant influence over those companies. This treatment is permitted by IAS 28, 'Investments in Associates'.

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

	As at 31 March 2018 £'000		As at 31 March 2017 £'000
Cash at bank and in hand		42,908	28,829
Total cash and cash equivalents		42,908	28,829
Total short-term liquidity investments		10,000	35,000

12. Issued share capital

	As at 31 March 2018			As at 31 March 2017
	Number	£'000	Number		£'000
Allotted and fully paid
As at the beginning of the year	300,602,232	3	213,645,711		2
Issue of share capital during the year	2,707,475	-	86,956,521		1
As at the end of the year	303,309,707	3	300,602,232		3

On 18 December 2014 212,000,000 new Ordinary shares of £0.00001 each were admitted to trading on AIM.

On 9 March 2016 1,645,711 new Ordinary shares of £0.00001 each were issued at a price of 42.0 pence as part of the initial consideration for the acquisition of Enterprise Ventures. These shares were admitted to trading on AIM on 16 March 2016.

On 16 February 2017 the Group issued 86,956,521 new Ordinary shares of £0.00001 each at a price of 46.0 pence per share via a Placing which raised £40,000,000 (before share issue costs).

On 26 March 2018 2,707,475 new Ordinary shares of £0.00001 each were issued at a price of 39.9 pence in settlement of the deferred consideration payable in respect of the acquisition of Enterprise Ventures. These new shares were admitted to trading on AIM on 29 March 2018.

Each Ordinary share is entitled to one vote and has equal rights as to dividends. The Ordinary shares are not redeemable.

13. Share premium

	As at 31 March 2018 £'000	As at 31 March 2017 £'000
As at the beginning of the year	48,243	9,494
Premium arising on the issue of Ordinary shares	1,081	39,999
Cost of share capital issued	-	(1,250)
As at the end of the year	49,324	48,243

The premium on the issue of Ordinary shares in the year arises from the issue of 2,707,475 new Ordinary shares of £0.00001 each issued at a price of 39.9 pence on 26 March 2018, in settlement of the deferred consideration for the acquisition of Enterprise Ventures.

The premium on the issue of Ordinary shares in the prior year arises from the placing of 86,956,521 new Ordinary shares of £0.00001 each issued at a price of 46.0 pence on 16 February 2017.

14. Fair value measurements

The fair values of the Group's financial assets and liabilities are considered a reasonable approximation to the carrying values shown in the balance sheet. Subsequent to their initial recognition at fair value, measurements of movements in fair values of financial instruments are grouped into Levels 1 to 3, based on the degree to which the fair value is observable. The fair value hierarchy used is outlined in more detail in note 3 to these financial statements.

The following table gives information about how the fair values of these financial assets and financial liabilities are determined and presents the Group's assets that are measured at fair value as at 31 March 2018.

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Assets:
Financial assets at fair value through profit or loss ("FVTPL")	1,306	-	64,764	66,070

Financial instruments in Level 1

As at 31 March 2018, the Group had one direct investment listed on AIM (Concepta PLC) and this has been classified as Level 1 and valued at its bid price as at 31 March 2018.

Financial instruments in Level 3

If one or more of the significant inputs required to fair value an instrument is not based on observable market data, the instrument is included in Level 3. Apart from the one investment classified as Level 1, all other investments held in the Group's direct investment portfolio have been classified as Level 3 in the fair value hierarchy and the individual valuations for each of the companies have been arrived at using appropriate valuation techniques.

The table below summarises the fair value measurements.

Valuation technique	Level	Fair value as at 31 March 2018 £'000
Listed investments	1	1,306
Price of recent funding round	3	45,017
Cost	3	9,572
Enterprise value	3	4,318
Price of recent funding round or cost adjusted for impairment	3	5,857
		66,070

The price of recent funding round or cost of investment provide observable inputs into the valuation of an individual investment. However, subsequent to the funding round or initial investment, the Directors are required to reassess the carrying value of investments at each year end, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. Two direct investments are valued on an enterprise value basis given their stage of development and profitability.

15. Availability of Annual Report

The Annual Report of Mercia Technologies PLC will be sent to all shareholders on 27 July 2018. An electronic copy will also be available on Mercia Technologies PLC's website at www.merciatech.co.uk.

16. Annual General Meeting

The Annual General Meeting ("AGM") of Mercia Technologies PLC (the 'Company') will be held at Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA on 21 September 2018 at 10.00 a.m.

[1] after taking account of the new Mercia shares issued just before the year end to satisfy the Enterprise Ventures deferred consideration

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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