TIDMMERC
RNS Number : 4874Y
Mercia Technologies PLC
06 December 2017
For immediate release 6 December 2017
Mercia Technologies PLC
Half Year Results
Continued growth throughout the Group
Mercia Technologies PLC (AIM: MERC, "Mercia" or "the Group"),
the national investment group focused on scaling innovative
technology businesses with high growth potential from the UK
regions, today announces its half year results for the six months
ended 30 September 2017.
Direct portfolio developments
-- GBP9.7million net invested in nine portfolio companies during
the period (H1 2016: GBP5.7million invested in nine portfolio
companies), including the following syndicated investments:
o GBP2.0million as part of an overall GBP7.5million investment
into Oxford Genetics
o GBP2.0million as part of an overall GBP2.7million investment
into nDreams
o GBP1.9million as part of an overall GBP3.1million investment
into Warwick Audio Technologies
o GBP1.5million as part of an overall GBP3.0million investment
into Impression Technologies
-- Balanced portfolio with over 98.8% of the portfolio value
spread across 18 companies in four technology sectors
Managed funds' developments
-- Funds under management in the period were GBP336.5million (H1 2016: GBP220.0million)
o 318 portfolio companies within the managed funds
o Invested GBP8.1million via the managed funds during the
period
o GBP34.5million managed fund cash part-realisation achieved
from investment in Blue Prism Group plc, representing a 55x return
for Mercia's RisingStars Growth Fund I
Group financial highlights
-- Investment portfolio fair value up by GBP12.7million or 24.4% to GBP64.7million, comprising GBP9.7million of net new capital invested and GBP3.0million of net upward fair value movements
-- Net assets of GBP123.6million (H1 2016: GBP81.3million)
-- Cash and short-term liquidity investments of GBP55.2million* (H1 2016: GBP24.0million)
-- Revenue from investing activities increased 65.5% to GBP4.8million (H1 2016: GBP2.9million)
-- Net expenses** decreased 40.0% to GBP0.9million (H1 2016: GBP1.5million)
-- Pre-exceptional operating profit of GBP1.8million (H1 2016: GBP1.0million)
-- Post-tax profit of GBP1.4million (H1 2016: GBP1.1million)
* Including GBP6.6million of cash held on behalf of third-party fund investors
** Total revenue less cost of sales and other administrative
expenses
Post period end developments
-- Non-exclusive partnership agreement signed with the
University of Edinburgh, Mercia's sixth university partnership in
Scotland
-- GBP1.8million invested into Aston EyeTech, a new 'Emerging Star'
-- First closing of a new 10-year growth fund, with initial
commitments totalling GBP45.1milllion
Mark Payton, Chief Executive of Mercia Technologies PLC,
said:
"Growth is the central theme throughout these interim results.
We are pleased with the progress that our direct investments are
making and the fair value increase has, in part, occurred as a
result of successful syndicated investment rounds.
"We are also encouraged by the increase in the quantum of funds
under management as this enables Mercia to continue to build a
sustainable pipeline of potential future direct investments, with
the aim of becoming the leading provider of Complete Capital in the
key regions of the Midlands, the North of England and Scotland to
deliver value for our shareholders.
"Set in the context that Mercia operates a long-term investment
philosophy, by combining third-party managed funds with selective
scale-up capital directly from its balance sheet, all parts of the
Group are in a growth phase and so it is pleasing to see an
increase in post-tax profits to GBP1.4million and Net Asset Value
("NAV") per share increase to 41.1pence. Mercia is well
capitalised, with a highly liquid balance sheet and circa five
years of investment capital within its managed funds. The Group is
therefore capable of supporting both its existing direct
investments and its future 'Emerging Stars'.
"We look forward to maintaining this momentum in the second half
of the year as we continue to build a sustainable and ultimately
self-sufficient investment model."
Enquiries:
Mercia Technologies PLC
Mark Payton, Chief Executive Officer
Martin Glanfield, Chief Financial
Officer +44 (0)330 223
www.merciatech.co.uk 1430
+44 (0)20 7397
Cenkos Securities plc 8900
Stephen Keys, Camilla Hume (NOMAD
and Joint Broker)
+44 (0)20 7523
Canaccord Genuity Limited 8000
Simon Bridges, Emma Gabriel (Joint
Broker)
+44 (0)20 7466
Buchanan 5000
Bobby Morse, Victoria Hayns, Chris
Lane, Stephanie Watson
www.buchanan.uk.com
Note to editors
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 eight 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 GBP350.0million under
management) and then over time Mercia can provide further funding
to its 'Emerging Stars' by deploying direct investment scale-up
capital from its own balance sheet. Since its IPO in December 2014,
the Group has invested over GBP46.0million directly across its
portfolio of 'Emerging Stars'.
Chief Executive's Review
Mercia is a national investment group with a strong regional
presence to access and support deal flow whilst providing long-term
capital. Mercia's managed funds comprise venture, growth and debt
funding which ensures extensive reach to all sources of deal flow,
including from its recently increased 19 university partners. Over
time, Mercia is able to scale 'Emerging Stars' from the funds'
portfolios using its balance sheet capital. It is this end-to-end
financial provision that we refer to as Mercia's Complete Capital
Solution.
Mercia Fund Managers (the collective name for Mercia's FCA
regulated fund management subsidiaries) is an important
differentiator to Mercia's peer group. It provides both a strong
pipeline of opportunities for the Group's balance sheet as well as
ensuring that the majority of the Group's operating costs are
offset by the revenues derived from this activity. Mercia's
investment model relies on both fund clients and shareholders being
satisfied with performance. Results to date demonstrate that both
the assets within the funds are continuing to perform, with the
notable recent further sale of Blue Prism Group plc shares, and
that the direct investments (and thus NAV per share) are also
continuing to grow in both number and value.
The direct investment strategy focuses on businesses emerging
from our managed funds and is centred on four key technology
sectors which we consider to be fast-growth segments of the global
economy:
-- Software & the Internet - artificial intelligence,
cybersecurity, software-as-a service, analytical tools and
adtech
-- Digital & Digital Entertainment - virtual reality,
augmented reality, mixed reality and serious games
-- Electronics, Materials & Manufacturing/Engineering -
energy, communications, high-value electronics and manufacturing
applications
-- Life Sciences & Biosciences - diagnostics, digital health and medical devices
University Partners
Our partnerships with some of the most forward-thinking
universities across the Midlands, the North of England and Scotland
provide a strong pipeline of innovative research and spinout
opportunities for our Investment Team to consider. The network was
increased to 19 universities following the recently announced
partnership agreement with the University of Edinburgh. The
University of Edinburgh continues to climb in all rankings and is
regarded as one of the best universities in Europe, placed in
seventh position by the Times Higher Education Ranking, and has the
fifth highest university research budget in the UK. This latest
partnership is expected to provide a significant number of
investment opportunities from which we will grow our Scottish
portfolio over the medium term.
Investment Team and Infrastructure
Mercia benefits from a talented and highly-experienced
Investment Team across both equity and debt deployment. The Group
has built a robust infrastructure of over 65 investment
professionals and support staff across eight regional offices. The
Group employs a blend of industry veterans, successful
entrepreneurs and venture capitalists, all of whom provide the
necessary insight to scale and exit investments focused on
providing above-average industry returns over the long-term for our
shareholders and managed funds clients. Our regional offices,
university partnerships and the extensive personal networks of our
Investment Team provide a comprehensive reach into deal flow and
portfolio support, often resulting in Mercia being regarded as a
preferred investment partner.
Direct Investments
The direct investment portfolio has made solid commercial
progress during the period across each of the four sectors.
Syndicated rounds, such as that with Invesco Asset Management which
invested alongside Mercia in a GBP7.5million round into Oxford
Genetics, demonstrate the value creation potential within our
portfolio. A number of the portfolio companies are also
experiencing strong revenue growth, including nDreams and Oxford
Genetics, and four are profitable, including Science Warehouse and
The Native Antigen Company. This continued progress is a strong
endorsement of the Investment Team's aptitude to source and scale
innovative investment opportunities with high growth potential.
Managed Funds
To ensure that Mercia has continued access to high quality
regional deal flow, it is important that we have funds that operate
across venture, growth and debt deployment. Mercia is therefore in
a dynamic position of regularly raising new fund mandates to build
on the investment return successes of our existing funds. Our goal
with these managed funds is to unearth, support and accelerate a
selection of the portfolio towards the balance sheet over the
medium to long-term. As examples of newly raised fund capital,
Mercia Growth Fund 7 (one of two professional client funds raised
each year) recently closed a GBP6.3million fund raise which will be
fully deployed by the end of the current tax year. Post period end,
the Group has completed the first closing of a new 10-year growth
fund, Enterprise Ventures Growth II LP, with initial commitments
totalling GBP45.1million.
Financial Performance
Financial performance has demonstrated further progress during
the six-month period with higher Group revenues of GBP4.8million
(H1 2016: GBP2.9million), generated from both its fund management
and direct investment activities. Valued in accordance with
International Private Equity and Venture Capital Valuation
Guidelines, the direct investment portfolio increased 24.4% to
GBP64.7million. This included new direct investment totalling
GBP9.7million and net unrealised fair value gains of GBP3.0million.
NAV per share grew 7.9% to 41.1 pence (H1 2016: 38.1 pence).
Outlook
Key measures of progress for Mercia include growth in the value
of the direct investment portfolio and Mercia Fund Managers'
ability to raise and manage new third-party funds. The Group
continues to develop well on both fronts. The leading benchmark of
generating long-term shareholder returns is growth in NAV per share
and, as a contributor to that goal, we continue to maintain tight
control over administrative expenses to ensure that balance sheet
capital is predominantly used for direct investment portfolio
purposes. Growth in revenues from our managed fund activities
therefore remains an important contributing factor in ensuring that
Mercia's NAV erosion is minimised. This approach is enabling the
Group to build a sustainable and ultimately self-sufficient
investment model.
The potential impact of changes, both positive and negative,
within what is a highly-regulated industry can be significant. It
was encouraging to hear the recent and supportive announcements
made in the Government's Autumn Budget including enhancements to
the Enterprise Investment Scheme, an important source of early
stage finance for Mercia, and the acknowledgement of the domestic
importance of patient capital, with significant new near-term
financial support coming from the Government. We believe that this
will be a fillip for the sector and of benefit to Mercia. However,
there is also some uncertainty given the slowing global economy and
Brexit. Mercia has built internal capabilities and broadened its
network of advisers, including the recent appointment of Canaccord
Genuity as joint broker, to ensure that the Group is well placed
for whatever macro-economic challenges arise. With a highly liquid
balance sheet and circa five years of managed fund investment
capital, the Group remains in a strong financial position.
Mercia has now been listed on AIM for almost three years and
notwithstanding the fact that the cash invested in the direct
portfolio thus far averages only 18 months, it is encouraging to
see positive progress during this period, as measured by the net
upward fair value movements. In addition, the Group has expanded
its capacity to unearth potentially valuable businesses from the UK
regions through significant growth in its funds under management,
including three substantial new fund mandate wins during 2017.
Together, the Board and senior management team remain significant
shareholders in Mercia and strongly believe that its investment
model is more relevant than ever in today's entrepreneurial
environment and that the Group continues to be well placed to
deliver long-term incremental shareholder value.
Dr Mark Payton
Chief Executive Officer
Portfolio Review
In the six months to 30 September 2017 we have invested a total
of GBP9.7million in nine companies, building Mercia's position in a
number of our core assets as well as introducing new syndicate
partners into the financing rounds of several assets. As at 30
September 2017 the direct investment portfolio was held at a
combined value of GBP64.7million which is up 24.4% from
GBP52.0million as at 31 March 2017. This increase in value is
driven by GBP9.7million of new capital invested and GBP3.0million
of net upward fair value movements.
Since the period end we have invested a further GBP3.3million
including a GBP1.8million investment into Aston EyeTech, a new
'Emerging Star'.
11 of the top 18 direct investments are discussed in more detail
below and account for GBP52.4million (80.8%) of the carrying value
of the entire direct investment portfolio.
We have continued to build a balanced portfolio during the
period under review with GBP0.3million (3.1%) being invested in the
Software & the Internet sector, GBP3.5million (36.1%) in
Digital & Digital Entertainment, GBP3.4million (35.0%) in
Electronics, Materials & Manufacturing/Engineering and
GBP2.5million (25.8%) in Life Sciences & Biosciences.
In the last six months we have raised further rounds of capital
with co-investors in some of our key assets including Oxford
Genetics (GBP7.5million raised alongside Invesco Asset Management),
Impression Technologies (GBP3.0million raised alongside Touchstone
Innovations) and with angel investor syndicates at Warwick Audio
Technologies (GBP3.1million) and nDreams (GBP2.7million). As our
direct assets mature and require further scale-up capital, we will
increasingly but selectively look to work with other investors.
Many of our assets across each of Mercia's four investment
sectors have made excellent progress in the six months to 30
September 2017, resulting in net upward fair value movements of
GBP3.0million, comprising GBP4.7million of fair value uplifts and
GBP1.7million of fair value impairments. The uplifts were primarily
driven by the syndicated third-party rounds at Oxford Genetics and
Warwick Audio Technologies, together with an uplift on an
enterprise value basis of The Native Antigen Company which is a
growing, profitable business.
The principal downward value movement in the period resulted
from a fall in the share price of AIM listed Concepta plc, despite
continuing commercial progress. On 13 November 2017 Concepta raised
a further GBP2.0million of capital via an oversubscribed equity
fundraising, which we supported with a GBP365,000 investment and we
remain confident in the prospect of building a successful business
at Concepta. In addition to the mark-to-market fair value
impairment of GBP1.3million for Concepta, we made further
provisions amounting to GBP0.4million against four of the
portfolio's smaller assets, which are outside the Group's top 18
holdings.
It has also been a successful period for our managed funds, with
a good level of completions across both the regional and EIS/SEIS
venture-focused funds, where we now have considerable capacity to
support great technology projects in the UK regions. These
additional managed funds are enabling us to build a strong pipeline
of potential future 'Emerging Stars'. In the six months to 30
September 2017 we have added one new direct investment, Intechnica,
and since the period end have added Aston EyeTech. We are
continuing to use the managed funds capacity to help us shape
investee companies' strategies, business models, management teams
and boards before making direct balance sheet investments.
I remain pleased with how our Investment Team is performing
across our core sectors and geographies. Our unique blend of
experienced entrepreneurs who have deep insight into their chosen
technology sectors, combined with investment professionals holding
broad venture capital skills has, I believe, created a
highly-skilled team with access to a strong pipeline throughout the
UK regions.
Software & the Internet
The IT services and software market is a major growth sector of
the UK and is expected to have grown to an estimated EUR59.0billion
by the end of 2017, according to Statista.com. The UK regions have
long established strengths in key areas such as artificial
intelligence and cybersecurity, both of which are major drivers of
growth in the sector. Our recently announced partnership with the
University of Edinburgh will build upon the already strong access
that we have to businesses in these sectors. Mercia has recently
appointed a new head of its Software & the Internet sector, Dr
Alistair Forbes. Alistair brings considerable technical and
business leadership experience to the team. He has created, built
and sold software businesses and taken general management roles in
larger corporates. In recent years Alistair has built a portfolio
of early stage investments and taken active board roles to help
nurture these businesses. The core investment focus of the team
remains in artificial intelligence, cybersecurity,
software-as-a-service ("SaaS"), analytical tools and adtech.
During the six months ended 30 September 2017 key portfolio
developments in this sector included:
Science Warehouse
As at 30 September 2017, Mercia held a 62.6% interest in Science
Warehouse at a fair value of GBP9.9million (H1 2016:
GBP9.9million). The company joined the portfolio on Mercia's
admission to AIM in December 2014. No new investment was made
during the period and the valuation at the period end remains
unchanged.
Science Warehouse provides a SaaS spend management, cataloguing
and procurement analysis platform which gives its users control of
the purchasing cycle from requisition to payment. The platform is
used by buyers who include higher education establishments such as
the University of Cambridge and UCL, public sector research bodies
such as the Francis Crick Institute and Public Health England, and
the health sector including 33 NHS Trusts. It operates in the UK
and has been building its operations in Australia. The company has
an online catalogue of over 28.0million products and services with
a core focus on scientific supplies. Over GBP650.0million of annual
spend is transacted through its proprietary platform.
In the last six months the business has secured new contract
wins in its core sectors and has seen rapid growth in its
Australian user base. In the period to 30 September 2017 net
revenues grew by circa 6.0% and as a result the company has moved
back into consistent quarterly profitability, after a period of
investment in both the core platform and extended product
functionality. The company expects continued growth in the second
half of its year with further profitability and cash
generation.
Intelligent Positioning
As at 30 September 2017, Mercia held a 26.7% interest in
Intelligent Positioning at a fair value of GBP2.5million (H1 2016:
GBP1.8million), the investment being held at cost. Mercia made its
first balance sheet investment in November 2015. No new investment
was made during the period.
Intelligent Positioning's SaaS analytics platform provides real
time analysis of a brand's search performance and market
intelligence about competitors' market presence and industry wide
trends through its Pi Datametrics product suite. The company has
blue chip customers across all sectors but it has particularly
strong momentum in retail (Harrods, SuperDry, Tesco, Debenhams,
Clarks and Waterstones), online media (Condé Nast, Time Inc),
gaming, financial services, telecoms and travel. Mercia first
invested in the business through its managed funds in March 2015,
which pivoted the company from a consulting to a product-led
business.
In the last six months the company has continued to grow its
monthly recurring revenues, adding a number of new customers
including Dyson (intelligence for new platform rollout), GoCompare
(market intelligence for strategic development) and the gaming
business LeoVegas (intelligence for strategic market development).
Its new overseas offices have seen some early success. In the USA,
Intelligent Positioning has secured a strategic relationship with
Publicis Groupe headed by MSL Group in New York, with scope to
expand across the Publicis group of agencies, and has already won a
major newsgroup as a customer. It has also enjoyed success in the
Nordic region securing the highly regarded publisher Aftonbladet as
a new customer.
During the period the company has extended its product
functionality to include The Vault and Pi Market Intelligence,
helping to position the brand as a supplier of software and data
solutions that engages organisation wide digital decision-makers.
Pi Market Intelligence leverages the continued development of Pi
Datametrics proprietary commercial value scoring system OVS, which
turns organic search performance data into business metrics.
Looking forward, the company will build on its success
internationally by investing further into its sales and marketing
initiatives.
Digital & Digital Entertainment
PwC predicts that the UK's digital and media sector alone will
grow over the next five years to be worth GBP72.0billion by 2021.
Virtual reality ("VR"), which is cited as one of the fastest
growing sectors within this market, is estimated to be worth
GBP801.0million by 2021(i) . The creative industries are a key area
of the UK economy with NESTA having identified 47 creative clusters
in the UK, many of which are focused away from London and in
Mercia's target regions of the Midlands, the North of England and
Scotland.
Mike Hayes heads this sector on behalf of Mercia and oversees
the investment activity of the Group by both its balance sheet and
managed funds in VR, augmented reality, mixed reality and serious
gaming.
During the six months ended 30 September 2017 key portfolio
developments in this sector included:
nDreams
As at 30 September 2017, Mercia held a 45.6% interest in nDreams
at a fair value of GBP13.0million (H1 2016: GBP7.7million). During
the period Mercia invested a further GBP2.0million as part of a
syndicated round of GBP2.7million. Mercia first invested in the
business in March 2014 through its managed funds before making its
first direct balance sheet investment in December 2014. The
investment is held at the price of the last equity investment
round.
nDreams provides creative content for the interactive VR
entertainment market, developing and publishing games and
experiences on high end smartphone and arcade VR devices. To date
it has generated early sales revenue of over GBP2.0million,
becoming one of Europe's largest developers of VR content. Its
Perfect intellectual property ("IP") is rapidly becoming
established as a leader in VR experiences. The company was
originally founded to provide content for the PlayStation Home
platform but pivoted in 2014 to take advantage of the significant
investment in VR headsets from leading companies such as Oculus,
Samsung, HTC, PlayStation and others.
The company is led by industry expert Patrick O'Luanaigh,
supported by a strong management team and board, with Paul
Fitzsimons, formerly a partner at Apax Partners, joining in the
summer as chairman and Martin Prendergast of Concorde Solutions
joining in September 2017 as COO.
Revenues are expected to increase significantly, driven via a
combination of consumer sales of its own IP based games and highly
strategic work for hire service deals with major headset providers
and owners of original IP that want to move into VR. Its highly
anticipated next title 'Shooty Fruity' is to be launched on 19
December 2017, following quickly on from 'Bloody Zombies' which was
launched in September 2017.
Edge Case Games
As at 30 September 2017, Mercia held a 21.2% interest in Edge
Case Games at a fair value of GBP3.1million (H1 2016:
GBP2.3million). Mercia first invested in the business in September
2014 through its managed funds before making its first balance
sheet investment in July 2015. During the period Mercia invested
GBP0.8million and the investment is held at the price of the last
syndicated investment round.
Edge Case Games has created and launched a free-to-play PC game,
Fractured Space, which is a multi-arena battle game in the science
fiction genre. The title has been released exclusively on the Steam
platform and was originally part of Steam's early access programme.
The title has so far generated over GBP1.5million in revenues via
in-game purchases and has been quality rated in excess of
80.0%.
The company is led by industry experts James Brooksby and Chris
Mehers. It employs one of the best development teams in this field
and will be creating further free to play titles over the next one
to two years. The team is evaluating third-party publishing
opportunities to enable Fractured Space to receive the additional
marketing support and free to play expertise required to scale the
business and accelerate the title to become a market-leading
brand.
Revenue for the year is expected to be GBP900,000 representing a
50.0% increase on the previous financial year; future revenues
based on full marketing support are forecast to be significantly
greater.
VirtTrade
As at 30 September 2017, Mercia held a 28.4% interest in
VirtTrade at a fair value of GBP2.3million (H1 2016:
GBP2.8million). During the period Mercia invested GBP0.8million.
The investment is held at the price of the last equity investment
round against which a 50.0% provision was made as at 31 March 2017,
given slower sales revenues than were originally anticipated.
Mercia first invested in the business in March 2014 through its
managed funds before making its first balance sheet investment in
January 2015.
VirtTrade is a developer of gamified collecting and trading
apps. The company's proprietary technology enables users to collect
and trade digital assets (such as virtual cards) with anyone in the
world at any time. This capability is amplified by games and
features that enhance the collector journey to create a more
engaging user experience, moving beyond the restrictions of
physical collecting.
Discovery Global Enterprises, the licensing arm of Discovery
Communications, a $6.0billion NASDAQ-listed mass media corporation,
has partnered with VirtTrade to develop and publish multiple apps
over the next three years. Of the first two apps, Discovery Card
Quest was launched in October 2017 and Animal Planet will be
launched during the first half of 2018, both of which will be
available on iOS and Android.
The company is led by managing director Paul Mayze who joined in
March 2017 and was instrumental in securing the partnership with
Discovery Communications, and he is now leading on future
partnership opportunities. Paul has over 17 years' experience in
digital technology and interactive entertainment. He has held
leadership positions at disruptive mobile identity provider Yoti,
Sunday Times Fast Track winner Monumental Games and third sector
digital consultancy, UP. VirtTrade is focused on expanding its
operations to become the world's leading publisher of tradable
digital collectibles, providing IP owners with a one-stop route to
market.
Electronics, Materials & Manufacturing/Engineering
According to the Employers' Engineering Federation the UK
employs 2.6million people in manufacturing and it accounts for
10.0% of economic output, placing Britain in eighth position out of
the largest manufacturing nations in the world(ii) . It is a
vibrant sector and one which Mercia believes holds significant
opportunities to unearth value creating deal flow.
Mark Volanthen heads this sector and Mercia has a particular
interest in energy, communications, high value electronics and
manufacturing applications; areas in which the Investment Team has
specialist knowledge and extensive personal networks.
During the six months ended 30 September 2017 key portfolio
developments in this sector included:
Warwick Audio Technologies
As at 30 September 2017, Mercia held a 64.0% interest in Warwick
Audio Technologies at a fair value of GBP6.2million (H1 2016:
GBP2.4million). During the period Mercia invested GBP1.9million
gross as part of a GBP3.1million syndicated investment round
alongside GuoGuang Electric Co ("GGEC") and a number of
sophisticated private investors, and as a result has recognised a
fair value uplift of GBP1.6million following this investment round.
Mercia first invested in Warwick Audio Technologies through its
managed funds in 2007 and made its first balance sheet investment
in December 2014. The investment is held at the price of the last
investment round.
Originally a spinout from the University of Warwick, Warwick
Audio Technologies, which is based in the Midlands, has developed
and patented a new style of electrostatic speaker. The speaker is
extremely lightweight, thin and flexible and produces very
high-quality audio at a low manufactured cost. Additionally, the
novel manufacturing process pioneered with this design enables the
speakers to be produced at scale to a very high standard, with
consistent performance. This combination of attributes makes the
speakers extremely attractive to both the high-end headphone market
and the $3.0billion automotive audio market.
In the last six months the company has continued to build on
headphone product sales and has now established an international
network of 11 distributors covering 16 countries, which will
provide further growth during 2018. It has also seen the strong
performance of its High-Precision Electrostatic Laminate ("HEPL")
transducers independently validated through public reviews and the
Sonoma Model One has received positive reviews from both audiophile
reviewers and leading figures in the professional recording
industry. Following the launch of Sonoma Model One, the company is
now actively following up on interest from audio suppliers to the
automotive market.
Impression Technologies
As at 30 September 2017, Mercia held a 26.4% interest in
Impression Technologies at a fair value of GBP3.1million (H1 2016:
GBP1.5million). During the period Mercia invested GBP1.5million as
part of a syndicated round of GBP3.0million alongside Touchstone
Innovations and the investment is held at the price of that
investment round. A further tranche of capital is expected to be
invested into the business in 2018. Mercia first invested in
Impression Technologies through its managed funds in 2014 and made
its first balance sheet investment in July 2015.
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(R))
technology for developing complex, high strength and lightweight
aluminium components for the automotive, aerospace and industrial
sectors.
The business is making significant progress following the
opening of its HFQ(R) facility in Coventry a year ago. It has
generated high levels of interest from a number of leading
automotive original equipment manufacturers ("OEMs") and their Tier
1 suppliers. The company already has parts in production on Aston
Martin and Lotus cars and is now in commercial discussions with a
number of leading brands and electric vehicle manufacturers. During
the period, it has formed relationships with Tier 1 suppliers in
the USA and in the UK and is also now in discussions with a number
of aerospace OEMs and their Tier 1 suppliers. Its success in
securing a significant APC7 grant award with a world class
consortium including Gestamp Washington UK (a wholly-owned
subsidiary of Gestamp Automoción, one of the world's largest
suppliers of automotive body and chassis components) is further
evidence of the growing interest in HFQ(R) technology and creates
pathways into high volume automotive markets globally. The
company's capability in simulation, design and delivering low
volume production parts supports its strategy to develop HFQ(R) as
the industry standard, ultimately licensing the technology for high
volume global markets.
In the last six months the team has been further strengthened by
the addition of Rex Vevers as CFO and Bruce Girvan as director of
IP & licensing, both formerly of Ceres Power plc. Simon
Griffiths, formerly a senior manager at Jaguar Land Rover has also
joined as director of operations & project management.
Faradion
As at 30 September 2017, Mercia held a 13.6% interest in
Faradion at a fair value of GBP1.3million (H1 2016: GBPnil). The
investment is held at cost. Funds managed by the Group first
invested in Faradion in February 2010 and Mercia made its first
direct investment in January 2017. No new investment was made
during the period.
Faradion is a leading developer of low cost sodium-ion battery
technology. The technology is suitable for a wide range of
applications such as industrial and residential storage, power for
telecom base stations and bus transport. It is targeting a global
rechargeable battery market estimated to be worth in excess of
$65.0billion(iii) . The cost of materials needed for a sodium-ion
battery is at least 30.0% less than the equivalent cost for
lithium-ion, offers a higher level of safety and is less
susceptible to rare metal price movements.
Faradion was co-founded in 2010 by CTO Dr Jerry Barker, a
world-renowned battery scientist who had previously set up and
managed battery research facilities in both the USA and the UK.
Co-founder and chair Dr Chris Wright is a highly experienced
entrepreneur and was formerly group operations director of AEA
Technology PLC.
Faradion's patent portfolio continues to build and now includes
22 patents filed with 11 granted across Europe, China, Japan and
the USA.
Life Sciences & Biosciences
This is one of the largest economic sectors in the UK driven in
part by an aging population and the economic impact of chronic
diseases. The life sciences sector generates GBP64.0billion of
turnover in the UK and employs more than 233,000 scientists and
staff; the global market is expected to reach more than
GBP2.0trillion by 2023 from its current value of GBP1.6trillion(iv)
. The UK regions play a significant role in contributing to sector
UK Gross Domestic Product ("GDP") with organisations such as the
Northern Health Science Alliance and BioCity Group helping to drive
innovation outside of London and the South East.
Peter Dines heads this sector on behalf of Mercia and the
Investment Team has a particular interest in diagnostics, digital
health and medical devices.
During the six months ended 30 September 2017 key portfolio
developments in this sector included:
Oxford Genetics
As at 30 September 2017, Mercia held a 40.6% interest in Oxford
Genetics at a fair value of GBP7.0million (H1 2016: GBP1.2million).
Mercia has recognised a fair value uplift of GBP2.3million
following a syndicated investment round of GBP7.5million during the
period, in which Mercia contributed GBP2.0million and Invesco Asset
Management GBP5.5million. In addition, and ahead of this round, the
Group invested GBP0.5million in June 2017 to support its
commercialisation strategy. Mercia first invested in the business
through its managed funds in July 2013 before making its first
direct balance sheet investment in December 2015.
Oxford Genetics is a specialist designer and developer of
biological molecules such as proteins, viruses and cells within the
growing synthetic biology market (estimated to be worth circa
$38.8billion by 2020(v) ), with cell line development services
alone having an estimated value of $1.9billion. The company
continues to rapidly expand as it successfully executes its
strategy of exploiting its market leading approach in DNA and
bioproduction optimisation, with cell line development and
technology licensing.
The new syndicated round of capital will help further scale the
business. In addition to this investment, the company has also
secured GBP1.9million of grant funding to accelerate growth in the
bioproduction and complex antibody discovery system product lines.
The company benefits from exceptional talent at all levels in the
organisation. Post period end Martin Hall, previously finance
director of Allinea Software (which Mercia sold to ARM for circa
21x its original fund investment cost), has joined the board as
chief financial officer to support its future growth.
The company has opened a sales office in the USA and revenues
continue to double year-on-year. Six licence agreements were signed
with pharma technology and biotech companies during the period and
these are expected to contribute to continuing strong revenue
growth.
The Native Antigen Company
As at 30 September 2017 Mercia held a 32.7% interest in The
Native Antigen Company at a fair value of GBP1.9million (H1 2016:
GBP1.1million). Mercia first invested in the business through its
managed funds in November 2010. GBP22,000 was invested in the
company during the period. The investment is held at an enterprise
value, on a trading multiple basis plus cash.
The business, which was originally a spinout from the University
of Birmingham and formed in 2010, specialises in the research,
development and scale-up manufacturing of highly pure viral and
bacterial native antigens. It trades with over 50 organisations
worldwide across pharma, diagnostics and research markets, with a
particular focus on supplying antigens to assist in combatting
infectious diseases such as Zika virus and Dengue fever. Exports
account for 90.0% of its sales, much of which is annual repeat
business. The company has been focused on growing its top line
revenue and continuing to reinvest in its own product ranges.
The Native Antigen Company's revenues have increased in the last
twelve months from GBP1.0million to GBP1.7million and the business
is highly profitable.
Concepta
As at 30 September 2017 Mercia held an 18.2% interest in
Concepta at a fair value of GBP2.1million (H1 2016: GBP3.9million).
Mercia's first direct investment in Concepta was made in May 2016
and the first investment via the Group's managed funds was in
November 2013. No new investment was made during the period
although post period end, on 13 November 2017, Concepta announced
an oversubscribed equity fundraising of GBP2.0million of which
Mercia invested GBP365,000. The investment is held at its closing
bid price on 30 September 2017.
Concepta was founded in 2013 and has developed a proprietary
platform and suite of products targeting the personalised mobile
health market, with a primary focus on unexplained women's
infertility. The company has a defined route to market for its new
'myLotus' product with regulatory approvals for launch in China now
in place and CE-Marking for UK and Europe in process. The revenue
potential is significant with the Chinese and EU infertility
markets estimated by Concepta's board to be worth approximately
GBP600.0million per annum.
Progress during the period has been positive with the company
completing its first sales order for GBP0.2million, received from
HuanZhong Biotech Co Ltd. The certification of the Doncaster
production facility is expected to be complete by the end of 2017
and this will support the planned manufacturing growth. Post period
end, the company has also signed two three-year exclusive
distribution agreements which will expand Concepta's product
offering in China, targeting a total population of 147.0million
people. In addition, Concepta announced on 13 November 2017 that it
had received an order for GBP0.6million, with revenues from this
order expected to be realised in the near term.
Concepta plans to launch in Europe over the medium term and
continues to add high calibre individuals at both non-executive and
executive level. The board has been strengthened with the
appointment of Neil Mesher, CEO of Philips UK & Ireland, as a
non-executive director. Neil has more than 25 years of global
experience within the healthcare and consumer electronics
industries. Post period end David Darrock, who has significant
experience in industry specific manufacturing processes, joined as
COO.
Financial Review
Further positive progress has been achieved during the period
under review, with both direct portfolio fair value net gains and a
reduction in net expenses (being total revenue less cost of sales
and other administrative expenses), compared with the corresponding
period last year.
Revenue increased 65.5% to GBP4.8million (H1 2016:
GBP2.9million) whilst cost of sales and administrative expenses
combined increased by 32.6% to GBP5.7million (H1 2016:
GBP4.3million). The higher revenue growth relative to the Group's
increased cost base resulted in a reduction in the Group's net
expenses to GBP0.9million (H1 2016: GBP1.5million). The Group's
revenue increase was largely derived from the growing quantum of
funds under management and the generally positive performance of
those funds, whilst the cost base increase arose mainly from the
recruitment of additional investment staff to manage and deploy the
2017 new fund mandate wins.
During the six months ended 30 September 2017 the Group invested
GBP9.7million net (H1 2016: GBP5.7million) in eight existing and
one new direct investment (H1 2016: six and three respectively).
Since the period end the Group has invested a further GBP3.3million
(H1 2016: GBP1.7million) in four (H1 2016: four) existing and one
new 'Emerging Star'. The increased investment momentum seen in the
first half of the financial year is expected to continue in the
second half.
Net fair value gains during the period totalled GBP3.0million
(H1 2016: GBP2.8million) and as at 30 September 2017 the fair value
of the Group's direct investment portfolio was GBP64.7million (H1
2016: GBP46.6million). Net assets at the period end were
GBP123.6million (H1 2016: GBP81.3million), including cash and
short-term deposits totalling GBP55.2million (H1 2016:
GBP24.0million), which included GBP6.6million of cash held on
behalf of third-party fund investors (H1 2016: GBPnil).
Notwithstanding an exceptional charge of GBP0.6million (H1 2016:
GBPnil), being additional accrued deferred consideration in respect
of the acquisition of Enterprise Ventures Group Limited ("EV"), the
net fair value gains combined with the reduction in net expenses
contributed favourably to result in a consolidated total
comprehensive profit for the period of GBP1.4million (H1 2016:
GBP1.1million). This in turn has resulted in an increase in net
assets per share to 41.1 pence (H1 2016: 38.1 pence).
Summarised consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
==================================== ============= ============= =========
Revenue 4,849 2,887 6,660
Cost of sales (55) (49) (92)
Administrative expenses (5,642) (4,292) (9,051)
------------------------------------ ------------- ------------- ---------
Net expenses (848) (1,454) (2,483)
Fair value movements in investments 3,033 2,807 4,268
Realised gains on disposal of
investments - - 839
Share-based payments charge (234) (166) (395)
Amortisation of intangible assets (150) (150) (301)
------------------------------------ ------------- ------------- ---------
Operating profit before exceptional
item 1,801 1,037 1,928
Exceptional item (562) - (1,125)
Finance income 165 97 186
Taxation 27 - 54
Profit and total comprehensive
income for the financial period 1,431 1,134 1,043
==================================== ============= ============= =========
Basic and diluted earnings per
Ordinary share (pence) 0.48 0.53 0.47
==================================== ============= ============= =========
Revenue and cost of sales
Total revenues of GBP4,849,000 (H1 2016: GBP2,887,000) comprise
fund management fees, initial management fees from new investments,
investment director monitoring fees and sundry business services
income. Cost of sales represents third-party fees incurred for
administering the funds under management by Mercia Fund Management
Limited ("MFM").
Administrative expenses
Total administrative expenses of GBP5,642,000 (H1 2016:
GBP4,292,000) consisted predominantly of staff related costs, the
majority of whom are investment professionals managing both the
funds' and the balance sheet investment portfolios.
Fair value movements in investments
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- ---------
Investment movements excluding
cash invested:
Unrealised gains on the revaluation
of investments 4,719 6,052 8,800
Unrealised losses on the revaluation
of investments (1,686) (3,245) (4,532)
===================================== ============= ============= =========
Net fair value gain 3,033 2,807 4,268
===================================== ============= ============= =========
For the six months ended 30 September 2017, unrealised fair
value gains arose in five (H1 2016: five) out of the Group's 25 (H1
2016: 26) direct investments. The largest fair value gain was
Oxford Genetics, which accounted for GBP2,315,000 of the total,
following a successful syndicated funding round. There were five
(H1 2016: five) fair value impairments, the largest being
GBP1,275,000 for Concepta, which arose from a fall in its share
price during the period, despite continuing commercial
progress.
Share-based payments charge
The GBP234,000 (H1 2016: GBP166,000) non-cash charge arises from
the issue of share options to Executive Directors and other
employees of the Group for the period from IPO to 30 September
2017.
Amortisation of intangible assets
The amortisation charge of GBP150,000 (H1 2016: GBP150,000)
represents amortisation of the acquired intangible assets of EV for
the six-month period under review.
Exceptional item
The exceptional item of GBP562,000 (H1 2016: GBPnil) represents
a further 25.0% of the total anticipated deferred consideration
payable in respect of the acquisition of EV, as the deferred
consideration period is now approximately 75.0% complete. Payment
of the deferred consideration in new Mercia shares is contingent
upon EV raising at least GBP80,000,000 of net new third-party funds
during the two-year period following its acquisition, plus each of
the vendors still being employed by the Group on the second
anniversary of completion, being 9 March 2018.
Finance income
Finance income of GBP165,000 (H1 2016: GBP97,000) was
predominantly interest receivable earned on the Group's cash
balances and short-term liquidity investments. The increase from H1
2016 is attributable to the Group's successful placing of new
Ordinary shares in February 2017 which raised GBP38,750,000 net of
share issue costs.
Balance sheet and cash flows
Net assets at the period end of GBP123,581,000 (H1 2016:
GBP81,341,000) 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 six months under review, Mercia's direct investment
portfolio grew from GBP52,028,000 (H1 2016: GBP38,143,000) to
GBP64,740,000 (H1 2016: GBP46,616,000). The table below lists the
Group's direct investments by value as at 30 September 2017,
including a breakdown of the net cash invested during the period,
fair value movements at the period end and the equity percentage of
each company owned. At the period end, the leading 18 direct
investments represented 98.8% of the total portfolio value (H1
2016: 98.1%).
Net Net
investment Net cash Fair value investment Percentage
value invested movement value held
As at Six months Six months As at As at
to to
1 April 30 September 30 September 30 September 30 September
2017 2017 2017 2017 2017
GBP'000 GBP'000 GBP'000 GBP'000 %
========================= ============== ================= ================= ================ =================
nDreams Ltd 10,979 2,000 - 12,979 45.6
Science Warehouse
Ltd 9,913 - - 9,913 62.6
Oxford Genetics
Ltd 2,196 2,500 2,315 7,011 40.6
Warwick Audio
Technologies Ltd 2,791 1,800 1,560 6,151 64.0
Impression Technologies
Ltd 1,500 1,500 80 3,080 26.4
Edge Case Games
Ltd 2,310 750 - 3,060 21.2
Ton UK Ltd t/a
Intelligent Positioning 2,500 - - 2,500 26.7
PsiOxus Therapeutics
Ltd 2,377 - - 2,377 1.5
VirtTrade Ltd 1,538 750 - 2,288 28.4
Smart Antenna
Technologies Ltd 2,259 - - 2,259 28.2
Concepta plc 3,400 - (1,275) 2,125 18.2
The Native Antigen
Company Ltd 1,141 22 731 1,894 32.7
LM Technologies
Ltd 1,770 - 1,770 41.4
Soccer Manager
Ltd 1,599 - - 1,599 31.6
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
Medherant Ltd 650 - - 650 11.3
Other investments 806 357 (378) 785 n/a
Totals 52,028 9,679 3,033 64,740 n/a
========================= ============== ================= ================= ================ =================
Cash and short-term liquidity investments
At the period end, Mercia had total cash and short-term
liquidity investments of GBP55,167,000 (H1 2016: GBP24,011,000)
comprising cash of GBP30,167,000 (H1 2016: GBP24,011,000) and
short-term liquidity investments of GBP25,000,000 (H1 2016:
GBPnil). Included in period end cash is GBP6,640,000 (H1 2016:
GBPnil) in respect of Mercia Growth Funds' cash balances held by
MFM on their third-party fund investors' behalf, pending
investment. The overriding emphasis of the Group's treasury policy
remains the preservation of its shareholders' cash for investment
and working capital purposes, not yield. At the period end the
Group's cash and short-term liquidity investments (which is cash on
deposit with maturities between three and six months) were spread
across five leading United Kingdom banks.
The summarised movement in the Group's cash position during the
six months ended 30 September 2017 is shown below.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
===================================== ============== ============== ==========
Opening cash and short-term
liquidity investments 63,829 30,932 30,932
Net cash generated from/(used
in) operating activities 921 (1,295) 3,681
Net cash used in investing
activities (including capital
expenditure and interest received) (9,583) (5,626) (9,534)
Issued share capital - - 40,000
Share issue costs charged
to share premium account - - (1,250)
===================================== ============== ============== ==========
Period end cash and short-term
liquidity investments 55,167 24,011 63,829
------------------------------------- -------------- -------------- ----------
Martin Glanfield
Chief Financial Officer
Consolidated statement of comprehensive income
For the six months ended 30 September 2017
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Note 2017 2016 2017
GBP'000 GBP'000 GBP'000
==================================== ====== ============= ============= =========
Revenue 2 4,849 2,887 6,660
Cost of sales (55) (49) (92)
==================================== ====== ============= ============= =========
Gross profit 4,794 2,838 6,568
Fair value movements in investments 3 3,033 2,807 4,268
Realised gains on disposal of
investments - - 839
Administrative expenses:
Share-based payments charge (234) (166) (395)
Amortisation of intangible assets (150) (150) (301)
Other administrative expenses (5,642) (4,292) (9,051)
Operating profit before exceptional
item 1,801 1,037 1,928
Exceptional item 4 (562) - (1,125)
==================================== ====== ============= ============= =========
Operating profit 1,239 1,037 803
Finance income 165 97 186
==================================== ====== ============= ============= =========
Profit before taxation 1,404 1,134 989
Taxation 27 - 54
==================================== ====== ============= ============= =========
Profit and total comprehensive
income for the financial period 1,431 1,134 1,043
==================================== ====== ============= ============= =========
Basic and diluted earnings per
Ordinary share (pence) 5 0.48 0.53 0.47
==================================== ====== ============= ============= ---------
All results derive from continuing operations.
The accompanying notes are an integral part of these interim
financial statements.
Consolidated balance sheet
As at 30 September 2017
Unaudited Unaudited Audited
Note As at As at As at
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
--------------------------------- ------ ============= ============= =========
Assets
Non-current assets
Goodwill 6 10,328 10,328 10,328
Intangible assets 7 1,036 1,337 1,186
Property, plant and equipment 145 180 151
Investments 8 64,740 46,616 52,028
================================= ====== ============= ============= =========
Total non-current assets 76,249 58,461 63,693
================================= ====== ============= ============= =========
Current assets
Trade and other receivables 1,512 693 747
Short-term liquidity investments 9 25,000 - 35,000
Cash and cash equivalents 9 30,167 24,011 28,829
================================= ====== ============= ============= =========
Total current assets 56,679 24,704 64,576
================================= ====== ============= ============= =========
Total assets 132,928 83,165 128,269
--------------------------------- ------ ------------- ------------- ---------
Current liabilities
Trade and other payables 10 (9,157) (1,553) (6,698)
Non-current liabilities
Deferred taxation (190) (271) (217)
================================= ====== ============= ============= =========
Total liabilities (9,347) (1,824) (6,915)
================================= ====== ============= ============= =========
Net assets 123,581 81,341 121,354
================================= ====== ============= ============= =========
Equity
Issued share capital 3 2 3
Share premium 48,243 9,494 48,243
Other distributable reserve 70,000 70,000 70,000
Retained earnings 2,745 1,405 1,314
Share-based payments reserve 903 440 669
Other reserve 1,687 - 1,125
================================= ====== ============= ============= =========
Total equity 123,581 81,341 121,354
================================= ====== ============= ============= =========
The accompanying notes are an integral part of these interim
financial statements.
The consolidated interim financial statements of Mercia
Technologies PLC were approved by the Board of Directors and
authorised for issue on 6 December 2017. They were signed on its
behalf by:
Dr Mark Payton Martin Glanfield
Chief Executive Officer Chief Financial Officer
Consolidated cash flow statement
For the six months ended 30 September 2017
Unaudited Unaudited Audited
Six months Six months Year
Note ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
==================================== ====== ============= ============= =========
Cash flows from operating activities:
Operating profit 1,239 1,037 803
Adjustments to reconcile
operating profit to net cash
flows generated from/(used
in) operating activities:
Depreciation of property,
plant and equipment 40 37 76
Fair value movements in investments (3,033) (2,807) (4,268)
Realised gains on disposal
of investments - - (839)
Share-based payments charge 234 166 395
Amortisation of intangible
assets 150 150 301
Exceptional item - deferred
consideration payable 562 - 1,125
Working capital adjustments:
(Increase)/decrease in trade
and other receivables (730) 90 73
Increase in trade and other
payables 2,459 32 5,177
==================================== ====== ============= ============= =========
Net cash generated from/(used
in) operating activities 921 (1,295) 2,843
Cash flows from investing activities:
Purchase of direct investments (9,729) (5,757) (11,828)
Proceeds from the sale of
direct investments - - 2,909
Investee company loan repayments 50 91 140
Net cash flows from direct
investment activities (9,679) (5,666) (8,779)
Cash flows from other investing activities:
Purchase of property, plant
and equipment (34) (72) (82)
Interest received 130 112 165
Decrease/(increase) in short-term
liquidity investments 10,000 10,000 (25,000)
==================================== ====== ============= ============= =========
Net cash generated from/(used
in) other investing activities 10,096 10,040 (24,917)
Net cash generated from/(used
in) total investing activities 417 4,374 (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 1,338 3,079 7,897
Cash and cash equivalents
at the beginning of the period 28,829 20,932 20,932
==================================== ====== ============= ============= =========
Cash and cash equivalents
at the end of the period 9 30,167 24,011 28,829
==================================== ====== ============= ============= =========
Consolidated statement of changes in equity
For the six months ended 30 September 2017
Issued Other distributable Share-based
share Share reserve Retained payments Other
capital premium GBP'000 earnings reserve reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 1 April 2016
(audited) 2 9,494 70,000 271 274 - 80,041
Profit and total
comprehensive
income for the period - - - 1,134 - - 1,134
Share-based payments
charge - - - - 166 - 166
======================== ======== ========= ======================== ========== =========== ========= =========
As at 30 September 2016
(unaudited) 2 9,494 70,000 1,405 440 - 81,341
Loss and total
comprehensive
loss for the period - - - (91) - - (91)
Issue of share capital 1 39,999 - - - - 40,000
Costs of share capital
issued - (1,250) - - - - (1,250)
Share-based payments
charge - - - - 229 - 229
Deferred consideration
payable - - - - - 1,125 1,125
======================== ======== ========= ======================== ========== =========== ========= =========
As at 31 March 2017
(audited) 3 48,243 70,000 1,314 669 1,125 121,354
Profit and total
comprehensive
income for the period - - - 1,431 - - 1,431
Share-based payments
charge - - - - 234 - 234
Deferred consideration
payable - - - - - 562 562
------------------------ -------- --------- ------------------------ ---------- ----------- --------- ---------
As at 30 September 2017
(unaudited) 3 48,243 70,000 2,745 903 1,687 123,581
------------------------ -------- --------- ------------------------ ---------- ----------- --------- ---------
Notes to the interim financial statements
For the six months ended 30 September 2017
1. Accounting policies
The principal accounting policies applied in the presentation of
the condensed consolidated interim financial statements of Mercia
Technologies PLC ('the Group', 'Mercia', 'the Company') are
consistent with those followed in the preparation of the Group's
Annual Report and financial statements for the year ended 31 March
2017. These policies have been consistently applied throughout the
period ended 30 September 2017 unless otherwise stated.
General information
Mercia Technologies PLC 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.
Basis of preparation
The financial information presented in these condensed
consolidated interim financial statements constitutes the condensed
consolidated financial statements of Mercia Technologies PLC and
its subsidiaries for the six months ended 30 September 2017. These
condensed consolidated interim financial statements should be read
in conjunction with the Group's Annual Report and financial
statements for the year ended 31 March 2017, which have been
prepared in accordance with European Union ("EU") endorsed
International Financial Reporting Standards ("IFRSs"), the IFRS
Interpretations Committee (formerly the International Financial
Reporting Interpretations Committee ("IFRIC")) interpretations and
the Companies Act 2006 applicable to companies reporting under
IFRS.
These condensed consolidated interim financial statements and
the comparative financial information presented in these condensed
consolidated interim financial statements for the period ended 30
September 2017 do not constitute full statutory accounts within the
meaning of Section 434 of the Companies Act 2006. The Group's
Annual Report and financial statements for the year ended 31 March
2017 were approved by the Board on 30 June 2017 and have been
delivered to the Registrar of Companies. The Group's independent
auditor's report on those accounts was unqualified, did not contain
an emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
The condensed consolidated interim financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 Interim Financial Reporting as adopted by the European
Union and the AIM Rules of the London Stock Exchange, on the going
concern basis and 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
IAS 39 'Financial Instruments: Recognition and Measurement'.
No new or revised standards or interpretations that have become
effective during the period ended 30 September 2017 have had a
material effect on the financial statements of the Group.
The financial information in these condensed consolidated
interim financial statements, which were approved by the Board and
authorised for issue on 6 December 2017, has been reviewed by the
Group's independent auditor.
Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, the
Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods if the revision
affects both current and future periods. In preparing these
condensed consolidated interim financial statements, the
significant judgements made by the Directors in applying the
Group's accounting policies and the key sources of estimation
uncertainty are the same as those applied to the consolidated
financial statements for the year ended 31 March 2017.
Principal risks and uncertainties
The risks and uncertainties that the Board considered to be key
to achieving the Group's strategic objectives were detailed in the
Annual Report and financial statements for the year ended 31 March
2017. A further assessment was made at the half year and the
significant risks identified were unchanged from those presented in
the Annual Report.
Going concern
Based on the overall strength of the Group's balance sheet,
including its significant liquidity position at the period end,
together with its forecast future operating and investment
activities, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, the Directors have adopted
the going concern basis in preparing these condensed consolidated
interim financial statements.
2. Segmental reporting
For the six months ended 30 September 2017, the Group's revenue
and profit were derived from its principal activity within the
United Kingdom.
The Group has only one operating segment, being Investment,
because the results of the Group are monitored on a Group-wide
basis. The Group's Chief Operating Decision Maker, the Board of
Directors, assesses the performance of the operating segment using
financial information which is measured and presented in a
consistent manner.
An analysis of the Group's revenue is as follows:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
========================== ============= ============= =========
Fund management fees 3,564 1,654 4,068
Initial management fees 374 329 748
Portfolio directors' fees 879 865 1,747
Other revenue 32 39 97
Total revenue 4,849 2,887 6,660
========================== ============= ============= =========
3. Fair value movements in investments
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
======================================== ============= ============= =========
Net fair value movements in investments 3,033 2,807 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.
4. Exceptional item
The exceptional item for the period represents a further 25.0%
of the total anticipated deferred consideration payable in respect
of the acquisition of Enterprise Ventures Group Limited ("EV"), as
the deferred consideration period is now approximately 75.0%
complete. The deferred consideration is contingent upon EV raising
at least GBP80,000,000 of net new third-party funds during the
two-year period following its acquisition and each of the vendors
still being employed by the Group on the second anniversary of
completion, being 9 March 2018. The exceptional item for the year
ended 31 March 2017 represents 50.0% of the total anticipated
deferred consideration payable in respect of the acquisition of
EV.
5. Earnings per share
Basic earnings per share is calculated by dividing the profit
for the financial period by the weighted average number of Ordinary
shares in issue during the period. Diluted earnings per share is
computed by dividing the profit for the financial period by the
weighted-average number of Ordinary shares outstanding and, when
dilutive, adjusted for the effect of all potentially dilutive
shares, including share options on an as-if-converted basis. The
potential dilutive shares are included in diluted earnings per
share computations on a weighted average basis for the period. The
profit and weighted average number of shares used in the
calculations are set out below.
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2017 2016 2017
==================================== ============= ============= =========
Profit for the financial period
(GBP'000) 1,431 1,134 1,043
==================================== ============= ============= =========
Weighted average number of Ordinary
shares (basic and diluted) ('000) 300,602 213,646 223,890
==================================== ============= ============= =========
Earnings per Ordinary share basic
and diluted (pence) 0.48 0.53 0.47
==================================== ============= ============= =========
6. Goodwill
GBP'000
------------------------------------ -------
Cost
As at 1 April 2016 (audited) 10,328
------------------------------------ -------
As at 30 September 2016 (unaudited) 10,328
As at 31 March 2017 (audited) 10,328
------------------------------------ -------
As at 30 September 2017 (unaudited) 10,328
------------------------------------ -------
Included in goodwill is GBP7,873,000 which arose on the
acquisition of the entire issued share capital of EV 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.
7. Intangible assets
GBP'000
------------------------------------ -------
Cost
As at 1 April 2016 (audited) 1,504
------------------------------------ -------
As at 30 September 2016 (unaudited) 1,504
As at 31 March 2017 (audited) 1,504
------------------------------------ -------
As at 30 September 2017 (unaudited) 1,504
------------------------------------ -------
Accumulated amortisation
As at 1 April 2016 (audited) 17
Charge for the period 150
------------------------------------ -------
As at 30 September 2016 (unaudited) 167
Charge for the period 151
------------------------------------ -------
As at 31 March 2017 (audited) 318
Charge for the period 150
------------------------------------ -------
As at 30 September 2017 (unaudited) 468
------------------------------------ -------
Net book value
As at 31 March 2016 (audited) 1,487
------------------------------------ -------
As at 30 September 2016 (unaudited) 1,337
------------------------------------ -------
As at 31 March 2017 (audited) 1,186
------------------------------------ -------
As at 30 September 2017 (unaudited) 1,036
------------------------------------ -------
Intangible assets represent contractual arrangements in respect
of funds under management acquired through the acquisition of EV,
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.
8. Investments
The net change in the value of investments for the period is
GBP12,712,000 (H1 2016: GBP8,473,000).
The Group's valuation policies are set out in detail in its
consolidated financial statements for the year ended 31 March
2017.
The table below sets out the movement in the balance sheet value
of investments from the start to the end of the period, showing
investments made, investee company loans repaid and the direct
investment fair value movements.
GBP'000
==============================================
As at 1 April 2016 (audited) 38,143
Investments made during the period 5,757
Investee company loan repayments (91)
Unrealised gains on the revaluation
of investments 6,052
Unrealised losses on the revaluation
of investments (3,245)
------------------------------------- -------
As at 30 September 2016 (unaudited) 46,616
Investments made during the period 6,071
Disposals made during the period (2,071)
Investee company loan repayments (49)
Unrealised gains on the revaluation
of investments 2,748
Unrealised losses on the revaluation
of investments (1,287)
------------------------------------- -------
As at 31 March 2017 (audited) 52,028
Investments made during the period 9,729
Investee company loan repayments (50)
Unrealised gains on the revaluation
of investments 4,719
Unrealised losses on the revaluation
of investments (1,686)
===================================== =======
As at 30 September 2017 (unaudited) 64,740
===================================== =======
9. Cash, cash equivalents and short-term liquidity
investments
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2017 2016 2017
GBP'000 GBP'000 GBP'000
======================================= ============= ============= =========
Cash at bank and in hand 30,167 24,011 28,829
======================================= ============= ============= =========
Total cash and cash equivalents 30,167 24,011 28,829
======================================= ============= ============= =========
Total short-term liquidity investments 25,000 - 35,000
======================================= ============= ============= =========
10. Trade and other payables
Trade and other payables includes GBP6,640,000 (H1 2016: GBPnil)
in respect of Mercia Growth Funds' cash balances held by MFM on
their third-party fund investors' behalf, pending investment.
11. Fair value measurements
The fair values of the Group's financial assets and liabilities
are considered a reasonable approximation to the carrying values
shown in the 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 30 September 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") 2,125 - 62,615 64,740
--------------------------------------------------------------- ------------ --------- ------------- -------------
As at 30 September 2017 2,125 - 62,615 64,740
--------------------------------------------------------------- ------------ --------- ------------- -------------
The Directors consider that the carrying amounts of financial
assets and financial liabilities recorded at amortised cost in the
financial statements approximate to their fair values.
Financial instruments in Level 1
As at 30 September 2017, the Group had one (H1 2016: two) direct
investment listed on AIM (Concepta plc) and this has been
classified as Level 1 and valued at its bid price at the period
end.
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.
A detailed explanation of the valuation techniques used for
Level 3 financial instruments is given in note 2 of the Group's
consolidated financial statements for the year ended 31 March
2017.
The table below summarises the fair value measurements.
Fair value
as at
30 September
2017
Valuation technique Level GBP'000
------------------------------------ -------- --------------
Listed investment 1 2,125
Price of recent funding round 3 46,537
Cost 3 9,405
Enterprise value 3 4,271
Price of recent funding round/cost
adjusted for impairment 3 2,402
------------------------------------ -------- --------------
64,740
------------------------------------ -------- --------------
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 period end, including assessment of any
impairment indicators, which result in unobservable inputs into the
valuation methodology. Two direct investments are valued at an
enterprise value given their stage of development and
profitability.
12. Related party transactions
There has been no material change in the type of related party
transactions described in the consolidated financial statements for
the year ended 31 March 2017.
Independent review report to Mercia Technologies PLC
We have been engaged by Mercia Technologies PLC to review the
condensed set of financial statements in the interim financial
report for the six months ended 30 September 2017 which comprise
the consolidated statement of comprehensive income, the
consolidated balance sheet, the consolidated cash flow statement,
the consolidated statement of changes in equity and related notes 1
to 12. We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The interim financial report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the interim financial report in accordance with the AIM
Rules of the London Stock Exchange.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this interim financial report have been prepared in accordance
with International Accounting Standard 34 'Interim Financial
Reporting', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the six months ended 30
September 2017 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the AIM Rules of the London Stock
Exchange.
Deloitte LLP
Statutory Auditor
Birmingham, United Kingdom
6 December 2017
Directors, secretary and advisers
Directors
Susan Jane Searle (Non-executive Chair)
Dr Mark Andrew (Chief Executive Officer)
Payton
Martin James Glanfield (Chief Financial Officer)
Matthew Sidney (Chief Investment Officer)
Mead
Jonathan Brett (Executive Director, Funds)
Diggines
Ian Roland Metcalfe (Senior Independent Director)
Raymond Kenneth (Non-executive Director)
Chamberlain
Company secretary Company registration
Martin James Glanfield number
09223445
Company website Solicitors
www.merciatech.co.uk Gowling WLG (UK) LLP
4 More London Riverside
Registered office London SE1 2AU
Forward House
17 High Street Mills & Reeve LLP
Henley-in-Arden Botanic House
Warwickshire B95 5AA 100 Hills Road
Cambridge CB2 1PH
Independent auditor
Deloitte LLP Nominated adviser and
Statutory Auditor joint broker
Four Brindleyplace Cenkos Securities plc
Birmingham B1 2HZ 6.7.8 Tokenhouse Yard
London EC2R 7AS
Principal bankers
Barclays Bank PLC Joint broker
One Snowhill Canaccord Genuity Ltd
Snow Hill Queensway 88 Wood Street
Birmingham B3 2WN London EC2V 7QR
Lloyds Bank plc Public relations adviser
125 Colmore Row Buchanan Communications
Birmingham B3 3SD Ltd
107 Cheapside
Company registrar London EC2V 6DN
SLC Registrars
42-50 Hersham Road
Walton-on-Thames
Surrey KT12 1RZ
(i)
https://www.pwc.co.uk/industries/entertainment-media/insights/entertainment-media-outlook.html
(ii)
https://www.eef.org.uk/campaigning/campaigns-and-issues/manufacturing-facts-and-figures
(iii) Source - Avicenne Energy
(iv)
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/650447/LifeSciencesIndustrialStrategy_acc2.pdf
(v)
http://www.bio-itworld.com/Press-Release/Synthetic-Biology-Market-is-Expected-to-Reach-$38-7-Billion,
-Globally,-by-2020---Allied-Market-Research/
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BIBDDIDGBGRU
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