TIDMMERC
RNS Number : 8114J
Mercia Technologies PLC
03 July 2017
FOR IMMEDIATE RELEASE 3 July 2017
Mercia Technologies PLC
Preliminary results for the year ended 31 March 2017
A year of positive progress across the Group's investing
activities
Mercia Technologies PLC (AIM: MERC, 'Mercia' or 'the Group'),
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 2017.
Group and portfolio highlights
-- GBP11.7million net invested in 15 portfolio companies during the year, including four new Emerging Stars
-- Concepta was admitted to AIM in July 2016. Its board has recently been strengthened by the appointment of Philips
UK CEO, Neil Mesher, as a non-executive director
-- The fair value of nDreams has increased significantly following a successful syndicated investment round in
November 2016
-- Allinea Software was sold to ARM in December 2016 providing an 88.4% uplift on the Group's direct investment cost
-- The integration of Enterprise Ventures Group Ltd ('Enterprise Ventures') was successfully completed, creating a
critical mass of more than 65 investment professionals and support staff across six locations within the UK
regions
-- A sustainable funnel of new investment opportunities is now built following significant new fund mandate wins
which scale the Group's fund management business from circa GBP220.0million to circa GBP336.5million of funds
under management
-- The successful Placing which raised GBP40.0million in February 2017 has provided additional balance sheet capital
which is predominantly to be used to scale the Group's direct investment portfolio as it continues to develop
Financial highlights
-- Direct investment portfolio value up by GBP13.9million to GBP52.0million (2016: GBP38.1million)
-- Net fair value gains GBP4.3million (2016: GBP0.9million)
-- Realised gains GBP0.8million (2016: GBPnil)
-- Net assets GBP121.4million (2016: GBP80.0million)
-- Net assets per share increased to 40.4 pence (2016: 37.5 pence)
-- Cash and short-term liquidity investments GBP63.8million (2016: GBP30.9million)
-- Revenue increased to GBP6.7million (2016: GBP1.8million)
-- Pre-exceptional operating profit GBP1.9million (2016: GBP1.7million loss)
-- Exceptional item - 50% of the anticipated Enterprise Ventures deferred contingent consideration has been
accounted for as the GBP80.0million net new funds target has already been achieved half way through the deferred
consideration period: GBP1.1million (2016: GBP0.4million Enterprise Ventures acquisition costs)
-- Profit for the financial year GBP1.0million (2016: GBP1.7million loss)
Post year end
-- GBP4.6million invested post year end, including GBP1.5million into Impression Technologies, GBP0.8million into
Edge Case Games, GBP0.8million into Warwick Audio Technologies and GBP0.5million into Oxford Genetics, with the
increased investment momentum expected to continue
Mark Payton, Chief Executive Officer of Mercia, commented:
"Mercia is focused on delivering growth in net assets, by
executing against each of our shareholder value creation
objectives, including the Group's first cash realisations.
We look forward to the years ahead with a well-funded balance
sheet and a materially increased level of third party managed
funds. Our confidence in delivering shareholder value is supported
by Mercia's hybrid investment model combined with a strong regional
presence, excellent Investment Team and established deal flow
networks.
This has been a positive year for Mercia, having built a
compelling and sustainable model which we believe will deliver
value to our shareholders and stakeholder community in the years
ahead."
For further information, please contact:
Mercia Technologies PLC
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial Officer
www.merciatech.co.uk +44 (0)330 223 1430
Cenkos Securities plc
Ivonne Cantu / Mark Connelly (NOMAD) +44 (0)20 7397 8900
Buchanan
Bobby Morse, Victoria Hayns, Stephanie Watson
www.buchanan.uk.com +44 (0)20 7466 5000
A meeting for analysts will be held at the offices of Buchanan,
107 Cheapside, London, EC2V 6DN on 3 July 2017 commencing at 9.30
a.m. Mercia's 2017 preliminary results will also be available today
on the Group's website at http://www.merciatech.co.uk/.
An audio webcast of the analysts' meeting will be available
later today:
http://vm.buchanan.uk.com/2017/mercia030717/registration.htm
About Mercia Technologies PLC
Mercia is a national investment group focused on the
creation/identification, funding and scaling of innovative
technology businesses with high growth potential from the UK
regions. Mercia benefits from 18 university partnerships and
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 circa
GBP336.5million 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 GBP41.0million directly across its portfolio of
'Emerging Stars'.
Non-executive Chair's summary
The year ended 31 March 2017 was one of tangible progress for
Mercia Technologies PLC, having built the Group's investment model
and regional infrastructure. It included the first full year of
ownership of Enterprise Ventures, the business having been acquired
on 9 March 2016, enabling us to proactively build into the regions
of the Midlands, the North of England and Scotland. Acquiring
Enterprise Ventures has put us in a strong position to win further
early stage third party fund mandates to create a sustainable
engine for growth and has completed the establishment of our
Complete Capital investment model. The integration of Enterprise
Ventures has been successful and the benefits of the acquisition
are already demonstrable.
Progress against plan
Managing a substantial level of third party funds to support
early stage investments ensures that we have the ability to be
highly selective when scaling businesses using the Group's balance
sheet capital. As the direct investment portfolio continues to
develop we expect to make announcements of syndicated investment
rounds, following on from that of nDreams in November 2016 and more
recently Impression Technologies. Oxford Genetics is another
investment which is making good progress towards a syndicated
investment round in the current year.
The Group's value crystallisation strategy will be principally
realised through the trade sale of its direct investments. It is
however worth noting that the combined stock market value of those
companies in which the Group's funds under management have invested
and helped shape prior to their listing is currently approximately
GBP1.0billion. Whilst companies such as Blue Prism listed prior to
Mercia's acquisition of Enterprise Ventures, this does point to the
significant body of investment talent working within Mercia and our
ability to identify and shape early stage opportunities into
valuable businesses. Such companies are to be found not just in
London and the South East, but also within the Midlands, the North
of England and Scotland.
Group Board and staff
Having succeeded Ray Chamberlain as Non-executive Chair in May
2016 my focus has been to ensure that the strategy agreed by the
Board is being executed by the Executive Directors, that the
Group's business model is delivering and in particular, that there
remains a focus on the Group's top balance sheet investments in
terms of development, scaling, the quality of management teams and
their boards. The continuing evolution of good corporate governance
is also important as is Board composition and diversity.
Bringing two businesses together is never straightforward,
particularly when the staff numbers of both businesses are similar,
but on behalf of our Board I should like to thank all colleagues
throughout the enlarged Group for the positive spirit and
professionalism in which they have come together to create 'One
Mercia', a market leading, technology focused investment group.
Outlook
Whilst the ramifications for the UK economy arising from the
current political uncertainty and Brexit negotiations will take
time to become clear, technology is a sector that works without
national barriers and will only increase in importance. All of the
Group's direct investments have global target customer bases that
are not restricted to mainland Europe; our digital businesses for
example often have a strong focus on Asian markets. Mercia has
assessed the possible impact of a negative outcome from the UK/EU
negotiations for each of its direct investments and for the Group
itself. Access to suitably skilled labour is an important growth
driver for all young businesses and Mercia's portfolio companies
are no exception. However, whilst this risk will be closely
monitored and mitigating actions taken where appropriate, the Group
does not currently see the forthcoming Brexit negotiations as a
potential barrier to shareholder value creation.
A number of our comparators in the intellectual property
commercialisation sector have suffered setbacks in recent months
which has for the time being dampened investor appetite by some
market participants in our sector. As these results clearly
demonstrate however, Mercia Technologies is making solid progress
on all fronts and whilst all investing activity in early stage
technology companies carries a degree of risk, the Group's hybrid
investment model goes some distance towards mitigating the risk of
significant net asset value reduction events through investment
failures. In short, we have built a robust platform and we believe
that we have the optimal investment model in the sector.
Mercia Technologies' investment momentum has accelerated at the
start of the new financial year, including completing its first
investment into a new Emerging Star, Intechnica, as well as
completing new funding rounds into Impression Technologies, Edge
Case Games, Warwick Audio Technologies and Oxford Genetics amongst
others.
Mercia has been a listed company for just over two and a half
years and its growing portfolio of direct investments are still, in
almost all cases, relatively young companies in their own right.
Despite this we can already see several material value inflexion
points arising in the coming year and we look forward to updating
shareholders on further positive net asset value progress
throughout the year ahead.
Finally, I would like to thank shareholders for their support of
the recent GBP40.0million Placing and look forward to turning this
additional capital into increasing shareholder value through growth
in the value of and exit from each of the Group's direct
investments, over time.
Susan Searle
Non-executive Chair
Chief Executive Officer's review
The last 12 months have seen momentous changes in the political
landscape, moving away from globalisation towards a more local
agenda. An example of this domestically is the focus by the UK
Government on boosting growth within the UK regions, with
initiatives such as those driven by the British Business Bank using
regional and national venture funds.
This recent period of change plays well to Mercia's own regional
focus and as a result it has been a productive year. In a
relatively short time frame we have built a sustainable and
scalable hybrid investment model, focused on accessing and
supporting young businesses via managed funds and then selectively
scaling a number of these businesses, which operate with a global
outlook, using Mercia's own balance sheet capital.
Mercia also has a greatly strengthened balance sheet following
the recent successful GBP40.0million Placing. Its direct
investments are already showing early signs of promise as
demonstrated by the IPO of Concepta, the trade sale of Allinea
Software and the unwinding of our holding in Abzena. The overall
value of the portfolio rose 36.5% to GBP52.0million from
GBP38.1million (net of GBP2.1million of investment realisations),
with cash invested during the year contributing GBP11.7million of
the growth and fair value gains contributing a further
GBP4.3million, as the model starts to deliver.
We remain focused on what we believe to be our two key strategic
objectives; (i) to accelerate the growth in value of our direct
investment holdings whilst managing down side risk and turning
these investments into cash, and (ii) to minimise net asset value
("NAV") erosion by offsetting operating costs with fee income and
realised gains. These results demonstrate that Mercia is starting
to deliver on both of these important facets of our investment
model.
Built to deliver
At the time of the Group's listing on AIM in December 2014 when
it raised GBP70.0million, Mercia had 11 direct investments (and a
20% stake in The Mercia Fund 2 Limited Partnership) valued in total
at GBP9.0million, nine university partnerships, one office in the
Midlands and approximately GBP20.0million in managed funds.
In March 2016, Mercia acquired Enterprise Ventures in a
transaction driven by a desire to access Enterprise Ventures'
managed funds' portfolio, the expertise and track record of the
team and to build a strong presence in the North of England which
would further scale Mercia.
Today Mercia benefits from:
-- 24 direct investments valued at GBP52.0million
-- A strong balance sheet comprising GBP63.8million of cash with the vast majority available for direct investment
-- A material regional footprint in the Midlands, the North of England, together with a growing presence in Scotland
-- Approximately GBP336.5million of funds under management including circa GBP150.0million of capital available to
invest in early stage businesses
-- 18 university partnerships
I am pleased to report that following the successful integration
of Enterprise Ventures, the Investment Team has completed three
direct investments so far from its managed funds' portfolio namely
Concepta, Faradion and sureCore and post year end, a fourth direct
investment into Intechnica.
Mercia has also been able to leverage the Investment Team's
excellent track record to help secure new fund mandates totalling
GBP108.5million, from the Northern Powerhouse Investment Fund. This
provides significant levels of new capital to invest over the next
five years which, when combined with the GBP8.6million in
Enterprise Investment Scheme ("EIS") and Seed EIS ("SEIS") funds
raised in the last 12 months, will enable the Group to build a
sustainable funnel of potential future direct investments.
The benefits of managed fund capital are fourfold:
-- Underpins a significant investment footprint across the UK regions
-- Early access to compelling prospects in key technology sectors which are then shaped within our managed funds
ahead of the selective allocation of scale-up capital from Mercia's balance sheet
-- Using the managed fund capital for the more high risk early investment phase eliminates a significant potential
drain on Mercia's balance sheet, thus retaining direct investment capital predominantly for the most promising
scale-up opportunities
-- Fee generation from the managed funds materially contributes to offsetting the Group's operating costs thereby
helping to minimise NAV erosion
Looking specifically at Mercia's university partnerships, each
one has been carefully selected to dovetail with Mercia's own
strategic goals, both geographically and by sector focus. Having
successfully scaled the network from nine partners at IPO in
December 2014 to 18 today, the last 12 months have seen the
University Team develop its relationships with the those partners,
which has generated 11 deals during the year for Mercia's managed
funds and one for the direct investment portfolio, Medherant.
Strengthened asset base
The year to 31 March 2017 has started to see early signs of
shareholder value creation with the IPO of Concepta in July 2016
(derived from Enterprise Ventures' managed funds), the material
uplift of nDreams' fair value in November 2016, following a
successful syndicated investment round, the cash sale of Allinea
Software (a University of Warwick spinout) to ARM in December 2016,
and the profitable unwinding of the Group's holding in Abzena (a
joint University of Warwick and Imperial College spinout) in
February 2017. All of these investments have been shaped over time
in the Group's managed funds, from sectors in which we have deep
knowledge and experience, before bringing them across as direct
investments.
The strength of the Group's investment model is defined by the
quality and value creation potential of Mercia's direct
investments. As well as the fair value gains and realisations
already referred to, there are notable developments within the
portfolio in each of our four technology sectors. As an example,
the Life Sciences team, headed by Peter Dines, has created a well
balanced portfolio of seven investments thus far, all of which have
come through our managed funds where Mercia was the early investor.
Highlights include the move into profitability for the specialised
in vitro diagnostic component kit provider The Native Antigen
Company, the material $50.0million upfront deal secured by PsiOxus
Therapeutics with Bristol-Myers Squibb, the strong revenue growth
at Oxford Genetics, the disruptive technology developer Medherant
utilising novel patch delivery technologies ready to move into
clinical trials, and the fertility testing kit developer Concepta
which listed on AIM in July 2016.
In Mercia's Digital & Digital Entertainment sector, headed
by Mike Hayes, notable developments include the revenue growth and
additional new game roll outs by Edge Case Games and Soccer
Manager, and the continuing development of nDreams as one of the
key names globally in virtual reality ("VR") software development
for experiences and games. During the last year nDreams has
expanded its relationships with Google, Facebook and other leading
VR headset vendors and strengthened its management team with the
addition of Tom Gillo (ex-game director at Sony Entertainment),
David Corless (ex-head of marketing at SEGA), Paul Fitzsimons
(non-executive chair, previously at Apax Partners) and Rob Precious
(non-executive director, previously at Geomerics/ARM). Strong teams
go hand-in-hand with successful businesses and at Mercia this
continues to be a key lever for driving accelerated value
creation.
Good progress is also being made by the portfolio companies in
Mercia's other two investment sectors, Software & the Internet
and Electronics, Materials & Manufacturing/Engineering, the
latter being documented in the recent sector update.
Mercia's managed funds historically have experienced a 40-50%
failure rate as is typical with early stage investments, ensuring
that risk is more measured within the direct investment portfolio.
However, and in keeping with Mercia's valuation policy, during the
year we made a 25% provision against our equity holding in Science
Warehouse, in recognition of a decline in peer group valuation
multiples. In addition, a 50% provision has been applied to
VirtTrade's equity valuation in recognition of slower market
progress than anticipated.
Financial progress
Although Mercia Technologies itself is less than three years
old, during the last year the Group generated GBP2.9million (2016:
GBPnil) of cash inflow from direct investment realisations and net
fair value gains of GBP4.3million (2016: GBP0.9million).
The Group also saw revenue (which in Mercia's case excludes fair
value movements) increase to GBP6.7million (2016: GBP1.8million)
and operating profit before exceptional items improve to
GBP1.9million (2016: GBP1.7million loss). These positive metrics
demonstrate the tangible progress which Mercia is making.
We face the years ahead with a well-funded balance sheet and a
materially increased level of third party managed funds. The
Investment Team will continue to be highly selective both in terms
of new fund investments and in respect of what is scaled using
balance sheet capital. We will also continue to proactively seek
timely exit opportunities from the direct investments, as the
portfolio continues to develop.
Future developments and outlook
It is important that we continue to operate a clear and
consistent approach by investing in sectors in which we have
significant expertise. The complexity, scale and geography of
Mercia's hybrid model is now of a size that makes it difficult for
others to replicate, but we are not complacent.
As a listed business, Mercia faces a continual increase in
financial and governance regulation, but we have an experienced
team in place to manage this environment. Mercia's focus on
minimising NAV erosion by increasing revenue generation combined
with tight cost control and cash management will also continue.
With a strong regional presence, an excellent Investment Team
and established deal flow networks, I remain confident that Mercia
will achieve its goal to deliver incremental shareholder value by
becoming the dominant provider of capital to innovative companies
throughout the UK regions.
In summary, this has been a positive year for Mercia, having
built a compelling and sustainable model. I would like to thank all
of the Mercia team for their hard work, ambition and rigour.
Dr Mark Payton
Chief Executive Officer
Chief Investment Officer's review
Portfolio overview
In the second full year since Mercia's listing on AIM the
Investment Teams have continued to focus on the direct investment
portfolio by building out the management and boards of these key
companies, combined with deploying further capital into existing
assets that are making good commercial progress. GBP11.7million has
been invested over the past year with four new Emerging Star
investments totalling GBP4.9million, whilst GBP6.8million has been
invested into 11 existing direct investments. As at 31 March 2017
the value of the Group's portfolio has increased to GBP52.0million
from GBP38.1million reflecting the new investments of
GBP11.7million, investment realisations of GBP2.1million and net
fair value gains of GBP4.3million. The portfolio consists of
holdings in 24 companies of which the top 18 account for 98.5% of
the total portfolio value. I remain pleased with the continued
commercial development of the portfolio and expect this to continue
during the next 12 months.
Investment activity
Of the four new Emerging Stars, the first three came from the
funds managed by Enterprise Ventures with the fourth investment,
Medherant, being sourced from Mercia's EIS/SEIS Growth Funds
portfolio:
-- Concepta - a digital fertility/pregnancy testing business which is now AIM listed
-- sureCore - a low cost, low power embedded memory technology company which is silicon-proven
-- Faradion - a novel battery materials business which focuses on producing sodium-ion batteries with potential
applications in home storage and transport markets
-- Medherant - a University of Warwick spinout with a novel medical patch technology
Post year end one further company has been added to the
portfolio as a result of a small initial investment in Intechnica,
in anticipation of a larger round later in 2017. Sourced from
Enterprise Ventures' managed funds' portfolio, Intechnica is a
services and software product business focused on critical business
operations including ecommerce websites, high volume ordering
systems, online ticketing and mobile CRM applications.
The pipeline of further new direct investments continues to
develop well across each of our sectors. As already referred to,
the managed funds business has grown significantly in the year as a
result of new mandate wins. This increased level of activity will
enable us to grow the investment run rate over the next three to
five years by investing in new and existing managed funds'
portfolio businesses with strong growth prospects sourced across
the UK regions. This will in turn provide a proprietary flow of
future Emerging Stars for our balance sheet of companies where we
already have a board seat and know the asset well.
Fair value movements
The total net fair value gain in the year amounted to
GBP4.3million compared to GBP0.9million for the prior year. We have
recognised notable fair value uplifts at nDreams (GBP4.8million)
based on the price of third party investment into the business,
Concepta (GBP2.0million) as a result of successful share price
progression since reversing the business into an AIM cash shell,
and PsiOxus Therapeutics (GBP1.2million) which saw an increase in
the value of the business following a major commercial deal with
Bristol-Myers Squibb.
In our half year results to 30 September 2016 we recognised a
provision of GBP2.7million against Mercia's equity holding in
Science Warehouse, reflecting downward movement in peer group
valuations. In the second half of the year we have also made a
GBP1.3million provision against our equity holding in VirtTrade, to
reflect slower than anticipated market progress by the
business.
In December 2016, we were delighted to complete the sale of
Allinea Software to ARM. This successful transaction has yielded
cash proceeds of GBP2.7million to date and a realised gain on
investment of GBP825,000. The disposal of Allinea Software is early
validation of our investment model which is based on driving cash
realisations from our assets through trade exits or IPOs. In
February 2017 a second divestment was completed as we exited our
minor residual direct holding in Abzena, generating net cash
proceeds of GBP168,000 and a small realised gain of GBP14,000.
The year ended with a portfolio of 24 companies valued at
GBP52.0million. The Board's aim remains to build a balanced
portfolio across the four technology sectors that we focus on.
Further details on each of our four key sectors and a number of our
leading investee companies are provided below.
Software & the Internet
As an early indicator of what is to come to the balance sheet
over the near to medium term, during the year Mercia has made new
investments through its managed funds into its key areas of focus
including artificial intelligence ("AI"), cybersecurity, software
as a service ("SaaS"), analytical tools and adtech. Each of these
sub-sectors represent significant market opportunities.
Mercia is engaging with a number of companies which are
developing these innovative technologies and are in the process of
establishing themselves as influential leaders in their chosen
field.
For the year to 31 March 2017, Mercia made direct investments of
GBP1.5million in this sector and at the year end had GBP14.2million
of asset value representing 27.3% of the total portfolio value.
Post year end, Mercia also invested in one new Emerging Star from
its managed funds, Intechnica.
Science Warehouse
As at 31 March 2017, the Group held a 62.6% interest in Science
Warehouse at a fair value of GBP9.9million. At Mercia's 30
September 2016 half year, the Group revalued its holding in Science
Warehouse to GBP9.9million (2016: GBP12.7million) as a result of a
review of peer group comparable company valuation multiples and an
increasingly competitive marketplace. This fair value reduction
represented a 25% provision against Mercia's equity value. No new
investment was made during the year and the valuation as at 31
March 2017 remains unchanged.
Established in 2000 as a spinout from the University of Leeds,
Science Warehouse provides a SaaS cloud-based procurement platform
to what it refers to as 'buyers' who include higher education
("HE") (such as the universities of Manchester, Leeds, Bristol and
Cambridge), public sector research ("PSR") (such as the Francis
Crick Institute), NHS (trusts such as Wirral, Humber and
Worcestershire) and a continued push into Housing, Construction and
Government markets. Since the last reporting date, Science
Warehouse has added new customers to its platform and continues to
expand the number of product offerings from its suppliers.
Recent developments include a successful platform migration to
increase scalability and availability for all customers and
providing a dedicated hosting environment in Australia. Significant
progress has been made in building new applications and delivering
new iterations of existing applications to meet customer demands.
One of the key new applications to be brought to market in mid-2017
is Supplier Information Management ("SIM"). SIM will provide a tool
to buying organisations that will enable them to invite suppliers
into the community and to transact business without charge, thus
accelerating the supplier on-boarding process and building the
supplier community.
During the year Gordon Matthew joined as chair to support the
development of the company's strategic plan and offer key industry
insight to help drive the business forward. He has extensive
experience in software and telecommunications and has worked with a
number of technology businesses supporting successful
transformation projects. The business has continued to build out a
broader product offering to provide customers with increased
functionality across the whole procurement cycle.
Notwithstanding the fair value downward movement during the year
referred to above, the company has continued to increase revenues
by 9% in 2016/17, securing new contract wins in the key sectors of
HE, PSR and the NHS, which has improved its overall financial
performance.
Intelligent Positioning
As at 31 March 2017, the Group held a 26.7% interest in
Intelligent Positioning at a fair value of GBP2.5million, the
investment being held at cost. The Group invested GBP1.5million
during the year to help fund the company's growth.
Since the company's formation as a Search Engine Optimisation
("SEO") consultancy in 2004, it has pivoted, initially within
Mercia's managed funds, into a business where the principal
activity is the provision of an innovative, real-time search
intelligence and organic analytics platform. It also provides
technical support, customer education and set up services. The
business has many high profile, blue chip customers including
Harrods, Clarks, Tesco, L'Oreal, Zoopla, Superdry, Invesco, Ricoh,
The Financial Times, Easyjet Holidays and SkyScanner.
During 2016/17 the company also launched two new platforms; the
Vault, marketed at agencies, and Pi Market Intelligence, which
offers global Share of Voice and customer trend analysis. Both new
platforms have already secured new business. As well as opening
offices in Brighton, London, Hyderabad and New York, the company
will also open a new office in Singapore this year.
Digital & Digital Entertainment
Mercia has identified a number of strong investment
opportunities within this sector, initially through its managed
funds, which have now evolved into direct balance sheet
investments. The global games market is expected to grow to an
estimated $128.5billion by 2020, with the UK being a key driver of
this growth (Source: Newzoo Global Games Report).
UK consumers spent a record GBP4.3billion on games in 2016 and
the UK was the sixth largest video games market in terms of
consumer revenues after China, USA, Japan, South Korea and Germany.
Overall, approximately 31.6million people in the UK play games
(Source: Ukie, The Games Industry by numbers) and we are likely to
see this number continue to grow.
As an example of continuing games market growth, Cisco
anticipates that VR headsets will grow from an installed base of
18.0million in 2016 to nearly 100.0million by 2021, a compound
annual growth rate of 40.0% (Source: Cisco Visual Networking
Index). VR and augmented reality ("AR") market developments are
expected to follow a similar trend.
For the year to 31 March 2017, Mercia made direct investments
totalling GBP2.3million in this sector taking the total investment
holding value at the year end to GBP16.4million, which represents
31.6% of the total portfolio value.
nDreams
As at 31 March 2017, the Group held a 47.0% interest in nDreams
at a fair value of GBP11.0million. The company received
GBP2.8million of investment during the year of which Mercia
contributed GBP1.5million. The investment is held at the price of
the last syndicated investment round.
Mercia first invested in nDreams in March 2014 through its
managed funds. 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.
Content development has been good during 2016/17. The business
launched its award-winning game, The Assembly, on Sony's
PlayStation VR in October 2016, following its debut on the Oculus
Rift and HTC Vive earlier in the year. nDreams also published
Danger Goat, its first title for Google on Daydream, Google's new
high-quality mobile VR platform, and released Perfect on both
mobile and console VR.
Google is one of a number of partnerships that nDreams has
secured with leading VR headset manufacturers and content providers
and it also has strong relationships with Sony (PlayStation VR),
Oculus/Facebook (Rift), HTC (Vive) and Samsung (Gear VR). These
high profile partnerships demonstrate the industry's confidence in
the design and production quality of nDreams' experiences and
games. There are an increasing number of potential partner
discussions occurring which reflects the increasing interest in
VR.
The company has sold over 200,000 units of VR games during the
last 12 months and will be releasing several new games and
experience titles by the end of 2017. It is also currently
developing prototypes for AR and mixed reality ("MR") devices.
During the last year nDreams has strengthened its management
team with the addition of Tom Gillo (ex-game director at Sony
Entertainment), David Corless (ex-head of marketing at SEGA), Paul
Fitzsimons (non-executive chair, previously at Apax Partners) and
Rob Precious (non-executive director, previously at Geomerics/ARM).
They join the existing team lead by founder and CEO Patrick
O'Luanaigh, the former Codemasters and Eidos Creative Director
(Tomb Raider: Legend, Hitman: Blood Money, Conflict: Desert Storm,
Micro Machines V3).
Edge Case Games
As at 31 March 2017, the Group held a 21.2% interest in Edge
Case Games at a fair value of GBP2.3million. Mercia invested a
further GBP0.5million during the year and the investment is valued
at the price of the last syndicated investment round.
Formed in 2014, Edge Case Games is a developer and publisher of
PC based games focused on the free-to-play, science fiction genre.
Edge Case Games' first offering is called Fractured Space, which
launched via Steam Early Access in November 2014 and was fully
launched on Steam's PC delivery platform in September 2016. It has
so far generated over $2.0million of revenue since the beta launch
and its key metrics measured during the full launch weekend matched
those of global market leaders in the free-to-play PC games market.
The game is attracting third party publishing interest.
Fractured Space has the potential to become a significant
franchise in the free-to-play market with the right publishing and
marketing support. The company is close to realising this
opportunity and has also started developing a second title. Edge
Case Games is a great example of the value in investing in smart,
original, creative content within the free-to-play PC games
market.
Electronics, Materials & Manufacturing/Engineering
Mercia is focused on identifying and supporting the next
generation of disruptive proprietary technologies in energy and
communications together with high value electronics and
manufacturing applications. The portfolio has continued to progress
product development and commercial engagement, including in some
cases with global brands. In many instances Mercia's target sectors
are undergoing rapid change in response to fundamental
technological and economic drivers, which provide an ideal backdrop
for differentiated, innovative solutions to build value.
There have been a number of industry-leading product
developments across this portfolio in the past year, including
sureCore's ultra-low power six-transistor static memory cell
("SRAM"), Warwick Audio Technologies' portable electrostatic wired
headphone system and LM Technologies' launch of the world's first
dual mode Bluetooth 4.1 serial adapter.
For the year to 31 March 2017, Mercia invested GBP4.8million in
this sector with new Emerging Stars, sureCore and Faradion, both
outlined below, receiving direct investment. As at 31 March 2017
the Group had a total of GBP11.4million of asset value in this
sector representing 21.9% of the total portfolio value.
sureCore
As at 31 March 2017, the Group held a 23.0% interest in sureCore
at a fair value of GBP1.5million. Mercia invested GBP1.5million
during the year and the investment is held at cost.
sureCore, a provider of low power memory solutions for
semiconductor applications, is based in Sheffield. It has developed
a low power memory portfolio with world beating low voltage
operation and is successfully exploiting growing market demand for
more on-chip memory and lower power consumption in leading edge
devices, such as those serving the Internet of Things ("IoT"),
wearables and networking spaces.
Founded in 2011 and led by a team of industry experts each with
over 30 years of experience, sureCore joined the direct investment
portfolio in June 2016 having been sourced from the Group's managed
funds portfolio and having already received GBP2.5million of third
party funding prior to Mercia Technologies' first direct
investment.
Faradion
As at 31 March 2017, the Group held a 13.6% interest in Faradion
at a fair value of GBP1.3million. The investment is held at cost.
The company received GBP3.0million of investment during the year in
a syndicated round.
Faradion, also based in Sheffield, is a leading developer of
low-cost sodium-ion battery technology and joined the direct
investment portfolio in January 2017 from the Group's managed
funds. The business had previously raised circa GBP3.8million from
a number of investors including trade investor Haldor Topsoe.
This new technology is underpinned by 18 patent families and
promises performance comparable to lithium-ion batteries but at
least 30% cheaper for the cost of materials, offers a higher level
of safety and is less susceptible to rare metal price movements.
The sodium salts used to prepare these battery materials are highly
abundant, coming from more sustainable sources than those of
equivalent lithium salts, making them both cheaper and more easily
obtainable.
The technology is suitable for a wide range of applications such
as industrial and residential storage, providing power for telecoms
base stations and in-bus transportation. The company is now working
with potential customers and partners in Europe and China to
demonstrate the scalability of the technology, gain early
commercial traction and validate its supply chain.
Impression Technologies
As at 31 March 2017, the Group held an 18.2% interest in
Impression Technologies at a fair value of GBP1.5million and the
investment is held at cost. Post year end the Group has invested a
further GBP1.5million as part of a GBP3.0milllion syndicated
investment round to fund the company's exciting growth
prospects.
Located in Coventry and based on intellectual property developed
at the University of Birmingham and Imperial College London,
Impression Technologies has a proprietary Hot Form Quench (HFQ(Ã’) )
technology for developing complex, high-strength, lightweight
components for the transportation industry. The business is making
positive progress in bringing its technology to market following
the opening of the world's first HFQ(Ã’) facility in October 2016,
which is located on the former site of the Jaguar factory in Lyons
Park, Coventry.
The company is already supplying global brands including Aston
Martin and Lotus Cars and is now in discussions with a number of
other leading automotive brands, tier one suppliers, press
manufacturers and aluminium suppliers to further scale the
business.
Life Sciences & Biosciences
The key areas of focus in this sector are diagnostics, digital
health and medical devices.
Life Sciences & Biosciences continues to be an attractive
area in which to invest with two new direct investments during the
year; Concepta, a women's health diagnostics company with an
initial focus on unexplained infertility, and Medherant, an IP-rich
University of Warwick spinout developing novel transdermal drug
delivery patches. There have also been a number of new life
sciences investments made through Mercia's third party managed
funds.
For the year to 31 March 2017, Mercia invested GBP3.1million in
this sector with new Emerging Stars, Concepta and Medherant,
receiving direct investment. As at 31 March 2017 the Group had a
total of GBP10.0million of asset value in this sector representing
19.2% of the total portfolio value.
Concepta
As at 31 March 2017, the Group held an 18.2% interest in
Concepta at a fair value of GBP3.4million. GBP1.4million was
invested in the business during the year and the investment is held
at its closing bid price.
Concepta is a women's health diagnostics company with an initial
focus on developing a product to help women with unexplained
infertility to conceive. The company has designed and developed a
proprietary platform, myLotus, for at-home and point-of-care
testing.
Neil Mesher was appointed as a non-executive director in March
2017 and has more than 25 years of global experience within the
healthcare and consumer electronics industries. He is currently CEO
of Philips for the UK and Ireland and is also a member of the
government's Life Science Industrial Strategy Board, representing
the interests of the medical technology sector with other senior
leaders from across healthcare.
In July 2016, Concepta was admitted to AIM via a reverse
takeover of Frontier Resources International. Since admission
Concepta's market capitalisation has risen and the company has
continued to progress commercial partnerships. In September 2016
Concepta signed a manufacturing agreement with leading Chinese
manufacturer Shijiazhuang Huanzhong Biotech Limited and is also
making significant progress in preparing the myLotus fertility
product for commercial launch in China and Europe.
Post year end, Concepta has signed its first distributor
agreement with Beijing ThinkBrio Medical Technology Consulting Co.
Limited. The agreement covers an initial three year period and
relates exclusively to the distribution of the myLotus range of
products within LiaoNing province in China. If successful, Concepta
intends to cover further Chinese territories.
Oxford Genetics
As at 31 March 2017, the Group held a 47.9% interest in Oxford
Genetics at a fair value of GBP2.2million. The company received
GBP1.0million of investment during the year and the investment is
held at cost.
Oxford Genetics is a specialist designer and developer of
biological molecules such as proteins, viruses and cells. Mercia
first invested in Oxford Genetics through its managed funds. In
2015 Mercia Technologies invested GBP150,000 plus a further
GBP2.0million in 2016 to build Mercia's direct equity positon and
help further scale the business.
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
significantly grown its IP portfolio estate and now has six patent
families. The company has also secured GBP1.9million of grant
funding to accelerate growth in the bioproduction and complex
antibody discovery system product lines.
Oxford Genetics benefits from exceptional talent at all levels
in the organisation and with continuing growth has recently
expanded into new premises. The company intends to grow its
research and development team further to meet market demand,
escalate its end-to-end system by capturing greater value
downstream and establish an office in USA to increase its market
reach. Revenues have grown by 100% year on year for the last three
years as the business continues to accelerate its commercial
progress, in what is a very attractive sector.
Medherant
As at 31 March 2017, the Group held an 11.3% interest in
Medherant at a fair value of GBP0.7million and the investment is
held at cost. The company raised GBP1.5million during the year in a
syndicated investment round.
Medherant is a University of Warwick spinout developing an
innovative patch technology for the delivery of a variety of drugs.
Since Mercia's first investment through its managed funds, the
company has secured an exclusive deal with Bostik SA, a leading
adhesive specialist, to use a novel pressure sensitive adhesive
material in the development of the patch. Following this
significant commercial development, Mercia made a direct investment
from its balance sheet. As a reflection of Medherant's continued
growth, it has moved to new laboratories and has validated that its
technology works successfully on drugs that were previously
unsuitable for transdermal delivery.
In keeping with Mercia's desire to build leading teams in its
portfolio companies, Medherant has made some significant
appointments over the last year, including Ken Cunningham as
non-executive chair (medically qualified, ex-CEO of Skypharma plc,
and sits on the boards of Abzena plc and Verona plc) and Sally
Waterman as COO (extensive experience gained at Abzena plc,
Protherics plc and Xenova plc).
The company has identified the final formulation of its
Ibuprofen patch and the product has entered pre-clinical
development. Using known chemical entities such as Ibuprofen, the
company expects relatively rapid progress through clinical trials
and into market with this very versatile technology and innovative
product strategy.
Matthew Mead
Chief Investment Officer
Chief Financial Officer's review
In the year to 31 March 2017 Mercia Technologies PLC has made
further positive progress in executing against each of its
shareholder value creation objectives, including its first cash
realisations.
Having successfully built the 'Mercia Model' during its first
two years on AIM, the Group's key objective now is to focus on
investing its substantial balance sheet capital into new and
existing, predominantly regionally sourced, direct investments via
its significantly expanded deal-flow pipeline of managed funds'
investments.
During the year the Group invested GBP11.7million (2016:
GBP12.6million) into 11 existing (2016: 10) and four new (2016:
six) direct investments. Cash proceeds from the Group's first
investment realisations totalled GBP2.9million (2016: GBPnil). As
at 31 March 2017 the fair value of the Group's direct investment
portfolio was GBP52.0million (2016: GBP38.1million). Net fair value
gains during the year totalled GBP4.3million (2016: GBP0.9million).
Total net assets at the year end were GBP121.4million (2016:
GBP80.0million), including cash and short-term liquidity
investments totalling GBP63.8million (2016: GBP30.9million). Net
assets per share increased 7.7% to 40.4 pence (2016: 37.5 pence).
The net fair value gains referred to above contributed positively
to a consolidated profit and total comprehensive income for the
year of GBP1.0million (2016: GBP1.7million loss). Given the early
stage nature of the majority of the Group's direct investment
portfolio and the relatively short length of time in which the
Group's cash has been invested, these results are very
encouraging.
Placing of 86,956,521 shares raising GBP40.0million gross
proceeds ('Placing')
On 31 January 2017 Mercia announced a conditional placing of, in
aggregate, 86,956,521 Placing shares at 46.0 pence per Placing
share. The Placing price represented a discount of approximately
8.9 per cent. to the closing mid-market price of 50.5 pence per
Ordinary share on 30 January 2017 (being the last practical date
prior to the announcement of the Placing).
The primary purpose of the Placing was to accelerate the
development of the Group's existing portfolio companies and to
capture the opportunity to invest in new direct investment
opportunities across its target sectors nationally and specifically
within the UK regions. The number of investment opportunities has
been significantly enhanced through the acquisition of Enterprise
Ventures in March 2016 and the Group's newly replenished investment
capital will be almost entirely deployed into the growing direct
investment portfolio.
Acquisition of Enterprise Ventures
On 9 March 2016 Mercia acquired Enterprise Ventures' entire
issued share capital for up to GBP11.0million and an amount equal
to Enterprise Ventures' net cash position at completion which was
GBP2.0million. The initial consideration was GBP9.0million,
comprising GBP8.3million satisfied in cash on completion (which was
funded from the Group's existing cash resources) and GBP0.7million
satisfied by the issue of 1,645,711 initial consideration shares at
a price of 42.0 pence (being the average of the daily closing
mid-market price for an Ordinary share of Mercia for the five
trading days immediately preceding completion).
Deferred consideration of up to GBP2.0million will also be
payable, contingent upon Enterprise Ventures securing at least
GBP80.0million of net new third party fund mandates during the two
year period post completion. Payment of the deferred consideration
is also conditional upon each of the vendors of Enterprises
Ventures still being employed by the company on the second
anniversary of completion. To the extent payable, the deferred
consideration will be satisfied by the issue of additional Mercia
Ordinary shares, at a price which will be determined by the average
of the daily closing mid-market price for an Ordinary share for the
five trading days immediately following the end of the two year
deferred consideration period. As at 31 March 2017 over
GBP80.0million of net new fund mandates have been secured and all
bar one of the vendors have remained within the enlarged Group. As
the deferred consideration period is approximately 50% complete,
half of the anticipated deferred consideration payable, being
GBP1.1million (including potential employer's National Insurance),
has been accounted for in these consolidated financial
statements.
Goodwill and acquired intangible assets
The year end consolidated balance sheet includes goodwill of
GBP10.3million (2016: GBP10.3million) and acquired intangible
assets of GBP1.2million (2016: GBP1.5million). GBP7.9million (2016:
GBP7.9million) 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 GBP301,000 (2016:
GBP17,000) in the consolidated statement of comprehensive income
represents the amortisation of the intangible assets for the year
to 31 March 2017.
Summarised consolidated statement of comprehensive income
Year ended Year ended
31 March 31 March
2017 2016
GBP'000 GBP'000
============================================================= ========== ==========
Revenue 6,660 1,755
Cost of sales (92) (79)
Fair value movements in investments 4,268 896
Realised gains on disposal of investments 839 -
Share-based payments charge (395) (230)
Amortisation of intangible assets (301) (17)
Administrative expenses (9,051) (4,011)
Exceptional items (1,125) (372)
Finance income 186 361
Taxation 54 -
============================================================== ========== ==========
Profit/(loss) and total comprehensive income/(loss) for
the financial year 1,043 (1,697)
============================================================== ========== ==========
Basic and diluted earnings/(loss) per Ordinary share (pence) 0.47 (0.80)
============================================================== ========== ==========
Revenue and cost of sales
Total revenues of GBP6,660,000 (2016: GBP1,755,000) comprise
fund management fees, initial management fees from new investments,
investment director monitoring fees and sundry business services
income. The substantial increase in revenue has largely arisen as a
result of the full year effect of the acquisition of Enterprise
Ventures. Cost of sales represents third party fees incurred for
administering the funds under management by Mercia Fund
Management.
Fair value movements in investments
Year ended Year ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Investment movements excluding cash invested:
Unrealised gains on the revaluation of
investments 8,800 1,582
Unrealised losses on the revaluation of
investments (4,532) (686)
======================================== ========== ==========
Net fair value gain 4,268 896
======================================== ========== ==========
For the year as a whole, unrealised fair value gains arose in
seven (2016: five) of the Group's 24 (2016: 22) direct investments.
The largest fair value gain was nDreams which accounted for
GBP4,758,000 of the total. There were six (2016: four) fair value
impairments, the largest being GBP2,737,000 for Science
Warehouse.
Gains on disposal of investments
During the year, realised gains of GBP839,000 (2016: GBPnil)
arose on the disposal of two (2016: nil) of the Group's
direct investments, being Allinea Software and Abzena.
Share-based payments charge
The GBP395,000 (2016: GBP230,000) 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
2017.
Amortisation of intangible assets
The amortisation charge of GBP301,000 (2016: GBP17,000)
represents the amortisation of the acquired intangible assets of
Enterprise Ventures for the year ended 31 March 2017.
Administrative expenses
Total administrative expenses of GBP9,051,000 (2016:
GBP4,011,000) consisted predominantly of staff related costs.
Administrative expenses as a whole have grown largely as a result
of the full year effect of the acquisition of Enterprise
Ventures.
Exceptional items
Deferred consideration of GBP1,125,000 in respect of the
acquisition of Enterprise Ventures has been accounted for in the
consolidated statement of comprehensive income as an exceptional
item. The prior year exceptional charge of GBP372,000 represents
costs incurred in relation to the acquisition of Enterprise
Ventures.
Finance income
Finance income of GBP186,000 (2016: GBP361,000) was
predominantly interest receivable earned on the Group's cash and
short-term liquidity investments.
Taxation
The tax credit of GBP54,000 (2016: GBPnil) represents the
unwinding of the deferred tax liability recognised in respect of
the intangible asset arising on the acquisition of Enterprise
Ventures.
Balance sheet and cash flows
Net assets at the year end of GBP121,354,000 (2016:
GBP80,041,000) 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
GBP52,028,000 (2016: GBP38,143,000). The table below lists the
Group's investments by value as at 31 March 2017, including a
breakdown of the net cash invested during the year, investment
realisations, fair value movements at the year end and the equity
percentage of each company owned.
Net Net
investment Net cash Investment Fair value investment Percentage
realisations
value invested Year to movements value held
As at Year to 31 March Year to As at As at
1 April 31 March 2017 31 March 31 March 31 March
2016 2017 GBP'000 2017 2017 2017
Investment GBP'000 GBP'000 GBP'000 GBP'000 %
--------------------------- ------------ ---------- -------------- ----------- ----------- -----------
nDreams Ltd 4,721 1,500 - 4,758 10,979 47.0
Science Warehouse
Ltd 12,650 - - (2,737) 9,913 62.6
Concepta PLC - 1,400 - 2,000 3,400 18.2
Warwick Audio Technologies
Ltd 1,348 1,351 - 92 2,791 63.6
Ton UK Ltd t/a
Intelligent Positioning 1,000 1,500 - - 2,500 26.7
PsiOxus Therapeutics
Ltd 1,137 - - 1,240 2,377 1.5
Edge Case Games
Ltd 1,810 500 - - 2,310 21.2
Smart Antenna Technologies
Ltd 1,827 250 - 182 2,259 28.2
Oxford Genetics
Ltd 1,150 1,046 - - 2,196 47.9
LM Technologies
Ltd 1,392 378 - - 1,770 41.5
Soccer Manager
Ltd 1,599 - - - 1,599 29.9
VirtTrade Ltd 2,575 250 - (1,287) 1,538 28.4
Impression Technologies
Ltd 1,500 - - - 1,500 18.2
Crowd Reactive
Ltd 1,500 - - - 1,500 28.3
sureCore Ltd - 1,500 - - 1,500 23.0
Faradion Ltd - 1,299 - - 1,299 13.6
The Native Antigen
Company Ltd 646 - - 495 1,141 35.6
Medherant Ltd - 650 - - 650 11.3
Allinea Software
Ltd 1,916 - (1,916) - - -
Other direct investments 1,372 64 (155) (475) 806 n/a
Totals 38,143 11,688 (2,071) 4,268 52,028 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, two successful cash realisations were
completed during the year under review. In December 2016 Mercia
Technologies sold its 16.6% stake in Allinea Software Limited
('Allinea') for an initial cash consideration of GBP2,570,000 (net
of transaction costs). Following agreement of Allinea's closing
working capital position, additional cash consideration of
GBP171,000 was received in March 2017. Further cash consideration
of GBP300,000 is expected to be received once a customary 18 month
warranty lock-in period has expired. The total cash consideration
received to date of GBP2,741,000 represents a 43.1% uplift against
the GBP1,916,000 holding value of Mercia's direct investment in
Allinea at the date of disposal and an 88.4% uplift compared with
Mercia's total investment cost.
In February 2017 Mercia Technologies also disposed of its small
remaining direct investment in AIM listed Abzena plc ('Abzena').
The total cash consideration received was GBP168,000 (net of
transaction costs) and represented a 9.1% uplift against the
GBP154,000 holding value of Mercia's direct investment in Abzena at
the date of disposal.
Although neither of these cash realisations are for substantial
amounts compared with the total value of the direct investment
portfolio, they do nevertheless demonstrate the commercial
attractiveness and realisable potential of the portfolio despite
its early stage nature, as well as the Group's determination to not
just create incremental shareholder value, but also to realise it
in cash.
Cash and short-term liquidity investments
At the year end, Mercia had total cash and short-term liquidity
investments of GBP63,829,000 (2016: GBP30,932,000) comprising cash
of GBP28,829,000 (2016: GBP20,932,000) and short-term liquidity
investments of GBP35,000,000 (2016:GBP10,000,000). The overriding
emphasis of the Group's treasury policy remains the preservation of
its shareholders' cash for investment and working capital purposes,
not yield. At the 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 Year ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- ---------- ----------
Opening cash and short-term liquidity
investments 30,932 53,633
Net cash generated from/(used in) operating
activities 3,681 (2,024)
Net cash used in investing activities
(including capital expenditure and interest
received) (9,534) (12,346)
Purchase of subsidiary undertaking net
of cash acquired - (8,309)
Issued share capital 40,000 -
Share issue costs charged to share premium
account
Share issue costs charged to share premium
account (1,250) (22)
Cash and short-term liquidity investments
at the year end 63,829 30,932
============================================= ========== ==========
The encouraging progress of the existing direct investment
portfolio coupled with the Group's recent, significantly enhanced
available cash resources, provide Mercia with a strong financial
platform from which to drive growth in net asset value in the years
ahead, free from any near-term fundraising distractions.
Martin Glanfield
Chief Financial Officer
Summary Financial Information
Consolidated statement of comprehensive income
For the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
Revenue 4 6,660 1,755
Cost of sales (92) (79)
------------------------------------------- ------ ------------ ------------
Gross profit 6,568 1,676
Fair value movements in investments 5 4,268 896
Realised gains on disposal of investments 839 -
Administrative expenses:
Share-based payments charge (395) (230)
Amortisation of intangible assets (301) (17)
Other administrative expenses (9,051) (4,011)
------------------------------------------- ------ ------------ ------------
Operating profit/(loss) before exceptional
items 1,928 (1,686)
Exceptional items (1,125) (372)
------------------------------------------- ------ ------------ ------------
Operating profit/(loss) 6 803 (2,058)
Finance income 186 361
------------------------------------------- ------ ------------ ------------
Profit/(loss) before taxation 989 (1,697)
Taxation 54 -
------------------------------------------- ------ ------------ ------------
Profit/(loss) and total comprehensive
income/(loss) for the financial year 1,043 (1,697)
------------------------------------------- ------ ------------ ------------
Basic and diluted earnings/(loss)
per Ordinary share (pence) 7 0.47 (0.80)
------------------------------------------- ------ ------------ ------------
Consolidated balance sheet
As at 31 March 2017
As at As at
31 March 31 March
2017 2016
Note GBP'000 GBP'000
Assets
Non-current assets
Goodwill 8 10,328 10,328
Intangible assets 9 1,186 1,487
Property, plant and equipment 151 145
Investments 10 52,028 38,143
--------------------------------- ------ ----------- -----------
Total non-current assets 63,693 50,103
Current assets
Trade and other receivables 747 798
Short-term liquidity investments 11 35,000 10,000
Cash and cash equivalents 11 28,829 20,932
--------------------------------- ------ ----------- -----------
Total current assets 64,576 31,730
--------------------------------- ------ ----------- -----------
Total assets 128,269 81,833
--------------------------------- ------ ----------- -----------
Current liabilities
Trade and other payables (6,698) (1,521)
Non-current liabilities
Deferred taxation (217) (271)
--------------------------------- ------ ----------- -----------
Total liabilities (6,915) (1,792)
--------------------------------- ------ ----------- -----------
Net assets 121,354 80,041
--------------------------------- ------ ----------- -----------
Equity
Issued share capital 12 3 2
Share premium 13 48,243 9,494
Other distributable reserve 70,000 70,000
Retained earnings 1,314 271
Share-based payments reserve 669 274
Other reserve 1,125 -
--------------------------------- ------ ----------- -----------
Total equity 121,354 80,041
--------------------------------- ------ ----------- -----------
Consolidated cash flow statement
For the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Note GBP'000 GBP'000
---------------------------------------- ------ ---------- ----------
Cash flows from operating activities:
Operating profit/(loss) 803 (2,058)
Adjustments to reconcile operating
profit/(loss) to net cash flows
used in operating activities:
Depreciation of property, plant
and equipment 76 33
Fair value movements in investments (4,268) (896)
Realised gains on disposal of
investments (839) -
Share-based payments charge 395 230
Amortisation of intangible assets 301 17
Exceptional items - deferred
consideration payable
Working capital adjustments: 1,125 -
Decrease in trade and other receivables 73 522
Increase in trade and other payables 5,177 128
---------------------------------------- ------ ---------- ----------
Net cash generated from/(used
in) operating activities 2,843 (2,024)
Cash flows from investing activities:
Purchase of direct investments (11,828) (13,108)
Proceeds from the sale of direct
investments 2,909 -
Investee company loan repayment 140 94
Cash received on the dissolution
of Mercia Fund 2 - 384
Purchase of subsidiary undertaking - (10,262)
Cash acquired on purchase of
subsidiary undertaking - 1,953
---------------------------------------- ------ ---------- ----------
Net cash flows from direct investment
activity and the purchase of
subsidiary undertakings (8,779) (20,939)
Cash flows from other investing
activities:
Purchase of property, plant and
equipment (82) (113)
Interest received 165 397
(Increase)/decrease in short-term
liquidity investments (25,000) 20,000
---------------------------------------- ------ ---------- ----------
Net cash (used in)/generated
from other investing activities (24,917) 20,284
Net cash used in total investing
activities (33,696) (655)
Cash flows from financing activities:
Proceeds from the issue of Ordinary 40,000 -
shares
Transaction costs relating to
the issue of Ordinary shares (1,250) (22)
---------------------------------------- ------ ---------- ----------
Net cash generated from/(used
in) financing activities 38,750 (22)
---------------------------------------- ------ ---------- ----------
Net increase/(decrease) in cash
and cash equivalents 7,897 (2,701)
Cash and cash equivalents at
the beginning of the year 20,932 23,633
---------------------------------------- ------ ---------- ----------
Cash and cash equivalents at
the end of the year 11 28,829 20,932
---------------------------------------- ------ ---------- ----------
Transaction costs relating to the issue of Ordinary shares have
been deducted from share premium.
Consolidated statement of changes in equity
For the year ended 31 March 2017
Share
Issued Other based
share distributable Retained payments Other
capital Share premium reserve earnings reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Total GBP'000
----------------------- --------- ------------- -------------- ---------- --------- -------- ---------------
As at 1 April
2015 2 8,825 70,000 1,968 44 - 80,839
Loss and total
comprehensive
loss for the year - - - (1,697) - - (1,697)
Issue of share
capital - 691 - - - - 691
Costs of share
capital issued - (22) - - - - (22)
Share-based payments
charge - - - - 230 - 230
Deferred consideration - - - - - - -
payable
----------------------- ---------
As at 31 March
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
----------------------- --------- ------------- -------------- ---------- --------- -------- ---------------
Notes to the consolidated financial statements
For the year ended 31 March 2017
1. General information
Mercia Technologies PLC ('the Group', 'Mercia') is a public
limited company incorporated and domiciled in the United Kingdom,
with registered number 09223445. Its Ordinary shares are admitted
to trading on the Alternative Investment Market ("AIM") 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 2017, 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 auditor's report on the financial
statements for the year ended 31 March 2017 was unqualified and did
not contain any statement under section 498 of the Companies Act
2006. 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 2017 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 Companies Act 2006 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 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 2017, 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 Year ended
31 March 31 March
2017 2016
GBP'000 GBP'000
Fund management fees 4,068 473
Initial management fees 748 642
Portfolio directors' fees 1,747 536
Other revenue 97 104
--------------------------- ----------- -----------
Total revenue 6,660 1,755
--------------------------- ----------- -----------
5. Fair value movements in investments
Year ended Year
31 March ended
2017 31 March
GBP'000 2016
GBP'000
----------------------------------------- ----------- ----------
Net fair value movements in investments 4,268 896
----------------------------------------- ----------- ----------
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/(loss)
Operating profit/(loss) is stated after charging:
Year ended Year ended
31 March 31 March
2017 2016
GBP'000 GBP'000
Staff costs 6,148 2,503
Other administrative expenses 2,903 1,508
------------------------------- ---------- ----------
7. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the
profit/(loss) for the financial year by the weighted average number
of Ordinary shares in issue during the year. Diluted
earnings/(loss) per share is computed by dividing the profit/(loss)
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/(loss) per share computations on a weighted
average basis for the year. The profit/(loss) and weighted average
number of shares used in the calculations are set out below.
Year ended Year ended
31 March 31 March
2017 2016
-------------------------------------- ----------- -----------
Earnings/(loss) per Ordinary share
Profit/(loss) for the financial year
(GBP'000) 1,043 (1,697)
-------------------------------------- ----------- -----------
Weighted average number of Ordinary
shares (basic and diluted) ('000) 223,890 212,099
-------------------------------------- ----------- -----------
Earnings/(loss) per Ordinary share
basic and diluted (pence) 0.47 (0.80)
-------------------------------------- ----------- -----------
8. Goodwill
GBP'000
------------------------------------- --------------------
Cost
As at 1 April 2016 and 31 March 2017 10,328
------------------------------------- --------------------
Included in goodwill is GBP7,873,000 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 the assets will flow to the Group
and the fair value of the assets can be measured reliably.
GBP'000
------------------------- --------------------
Cost
As at 1 April 2015 -
Additions 1,504
------------------------- --------------------
As at 31 March 2016 1,504
Additions -
As at 31 March 2017 1,504
Accumulated amortisation
As at 1 April 2015 -
Charge for the year 17
------------------------- --------------------
As at 31 March 2016 17
Charge for the year 301
As at 31 March 2017 318
Net book value
As at 31 March 2016 1,487
As at 31 March 2017 1,186
------------------------- --------------------
10. Investments
The net change in the value of investments for the year is
GBP13,885,000 (2016: GBP13,526,000).
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 and the direct investment fair
value movements.
GBP'000
--------------------------------------------------- --------------------
As at 1 April 2016 38,143
Investments made during the year 11,828
Disposals made during the year (2,071)
Investee company loan repayments (140)
Unrealised gains on the revaluation of investments 8,800
Unrealised losses on the revaluation of
investments (4,532)
As at 31 March 2017 52,028
--------------------------------------------------- --------------------
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 As at
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------- ---------- ----------
Cash at bank and in hand 28,829 20,932
---------------------------------------- ---------- ----------
Total cash and cash equivalents 28,829 20,932
---------------------------------------- ---------- ----------
Total short-term liquidity investments 35,000 10,000
---------------------------------------- ---------- ----------
12. Issued share capital
As at 31 March As at 31 March 2016
2017
------------------------- ------------------------
Number GBP'000 Number GBP'000
------------------------------ --------------- -------- --------------- -------
Allotted and fully paid
As at the beginning of the
year 213,645,711 2 212,000,000 2
Issue of share capital during
the year 86,956,521 1 1,645,711 -
------------------------------ --------------- -------- --------------- -------
As at the end of the year 300,602,232 3 213,645,711 2
------------------------------ --------------- -------- --------------- -------
On 18 December 2014 212,000,000 new Ordinary shares of
GBP0.00001 each were admitted to trading on AIM.
On 9 March 2016 1,645,711 new Ordinary shares of GBP0.00001 each
were issued at a price of GBP0.42 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 GBP0.00001 at a price of GBP0.46 per share via a Placing
which raised GBP40,000,000 (before share issue costs).
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 As at
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------ ---------- ----------
As at the beginning of the year 9,494 8,825
Premium arising on the issue of Ordinary
shares 39,999 691
Cost of share capital issued (1,250) (22)
------------------------------------------ ----------
As at the end of the year 48,243 9,494
------------------------------------------ ---------- ----------
The premium on the issue of Ordinary shares in the year arises
from the placing of 86,956,521 new Ordinary shares of GBP0.00001
each issued at a price of GBP0.46 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 2 of the Group's
consolidated financial statements for the year ended 31 March
2017.
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 2017.
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------------------------- --------- --------- --------- ---------
Assets:
Financial assets at fair value through profit or loss ("FVTPL") 3,400 - 48,628 52,028
----------------------------------------------------------------- --------- --------- --------- ---------
3,400 - 48,628 52,028
----------------------------------------------------------------- --------- --------- --------- ---------
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate to their fair values.
Financial instruments in Level 1
As at 31 March 2017, 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 2017.
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.
Fair value
as at
Valuation technique 31 March
Level 2017
GBP'000
------------------------------------ -------- -----------
Listed investments 1 3,400
Price of recent funding round 3 32,841
Cost 3 12,750
Enterprise value 3 1,141
Price of recent funding round/cost
adjusted for impairment 3 1,896
------------------------------------ -------- -----------
52,028
------------------------------------ -------- -----------
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. One direct investment is valued at an
enterprise value, based on a multiple of revenues, given its stage
of development and profitability.
15. Availability of Annual Report
The Annual Report of Mercia Technologies PLC will be sent to all
shareholders on 21 July 2017. An electronic copy will also be
available on Mercia Technologies PLC's website at
www.merciatechnologies.com.
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 18 September 2017 at 10.00
a.m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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