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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Mercia Asset Management Plc | LSE:MERC | London | Ordinary Share | GB00BSL71W47 | ORD 0.001P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 33.70 | 33.00 | 34.40 | 33.70 | 33.70 | 33.70 | 3,254 | 07:36:02 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | 25.88M | 2.84M | - | N/A | 0 |
TIDMMERC
RNS Number : 7972O
Mercia Technologies PLC
10 November 2016
For immediate release 10 November 2016
Mercia Technologies PLC
Half Year Results
Scale and balanced investment portfolio brings revenue and net asset growth
Mercia Technologies PLC (AIM: MERC, "Mercia" or the "Group" or the "Company"), a national investment group focused on the creation, funding and scaling of innovative businesses with high growth potential from the UK regions, has published its half year results for the six months ended 30 September 2016. An electronic copy will also be available today on the Company's website at http://www.merciatech.co.uk/.
Group and portfolio developments
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-- Successful integration of Enterprise Ventures Group Limited ("EV") into the Group
-- GBP5.7million invested in nine portfolio companies of which three are new 'Emerging Stars', taking total invested since IPO to GBP30.0million
o Two of three new Emerging Stars (Concepta plc and sureCore) originated from EV's managed funds, reflecting the benefit of enlarged pipeline of direct investment opportunities post EV acquisition
-- Third party funds: GBP8.6million raised and GBP11.5million invested into 58 companies in the period. Total managed funds of circa GBP228.0million at period end
-- Good progress across the portfolio. Notable highlights:
o Portfolio company Concepta plc admitted to trading on AIM in July 2016
o nDreams appointed by Google to make apps and experiences for Daydream, its virtual reality ("VR") mobile platform, together with the successful launch of nDreams' VR game, The Assembly
Financial highlights
-- Investment portfolio fair value up by GBP8.5million or 22% to GBP46.6million as a result of GBP5.7million of net new capital invested and GBP2.8million of net upward fair value movements
-- Net assets of GBP81.3million (2015: GBP80.2million) -- Cash and short-term liquidity investments of GBP24.0million (2015: GBP48.5million) -- Post-tax profit of GBP1.1million (2015: loss of GBP0.8million)
Post period end
-- Circa GBP1.7million invested post period end, including GBP1.0million into Oxford Genetics and GBP0.5million into nDreams
-- Oxford Genetics secured a GBP1.7million grant to fund further expansion
Mark Payton, Chief Executive of Mercia Technologies, said:
"The output from Mercia's strategy execution to date can be measured in three ways. Firstly, by the balanced and growing portfolio of direct investments, secondly by the significantly expanded pipeline of future potential direct investment prospects and finally, by the strengthened investment team. These tangible developments underpin the Group's objective of building a focused, sustainable and valuable investment business.
During the period, revenue in respect of trading activity grew to GBP2.9million compared with GBP0.7million in the same period last year. Mercia invested GBP5.7million net into three new and six existing direct investment portfolio companies (2015: GBP4.4million). At the period end the value of the Group's direct investment portfolio was GBP46.6million (2015: GBP29.2million), an increase of GBP37.6million since the Group's IPO in December 2014. Overall, Mercia reported a post-tax profit of GBP1.1million (2015: GBP0.8million loss).
In addition, the Group invested GBP11.5million into 58 companies through its managed funds (this includes transactions completed by Enterprise Ventures' managed funds), adding to the growing pipeline of future direct investment prospects. Complementing the existing managed funds, GBP8.6million was raised in new EIS/SEIS funds to support early stage deal flow.
At Mercia's debut on AIM in December 2014, the Board stated that it was raising sufficient funds to build out the business over a two to three year period, with use of funds split 70% to invest into new and existing direct investments and the remaining 30% for regional expansion, selective acquisitions and to fund the Group's operating activities. I am pleased to report good progress on all of these elements with these results, as our focused activities begin to bear fruit. Thus far, over GBP30.0million of the IPO proceeds have been invested to strengthen our direct investment portfolio and this is in line with what was set out in the Group's Admission Document."
Enquiries:
+44 (0) 330 223
Mercia Technologies PLC (www.merciatech.co.uk) 1430
Dr Mark Payton, Chief Executive
Martin Glanfield, Chief Financial Officer
Matthew Mead, Chief Investment Officer
+44 (0) 20 7397
Cenkos Securities 8900
Ivonne Cantu/Mark Connelly (NOMAD)
Buchanan +44 (0)20 7466 5000
Sophie McNulty, Victoria Hayns, Stephanie
Watson
Note to editors
Mercia is a national investment company focused on the creation, funding and scaling of innovative businesses with high growth potential from the UK regions. Mercia benefits from 18 university partnerships and six 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' investment model initially nurtures businesses via its third party funds (expanded to circa GBP228.0million following its acquisition of Enterprise Ventures Group Limited) 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.
In a recent report (Source: Beauhurst, The Deal, 2015/16), Mercia was found to be the fifth most active investor in the UK and the fourth most active in technology. Since its IPO in December 2014, the Company has invested over GBP30.0million directly across its portfolio of Emerging Stars.
Overview
The six month period to 30 September 2016 has seen Mercia continue on its rapid growth path since its debut on AIM in December 2014. During the 23 months since IPO:
-- The fair value of the Group's direct investment portfolio has grown fivefold, from GBP9.0million to GBP46.6million as a result of GBP30.0million of net new capital invested and GBP7.6million of net upward fair value movements;
-- The portfolio of direct investments has more than doubled, from 11 to 26; -- Managed funds have grown from circa GBP22.0million to circa GBP228.0million;
-- The pipeline of new potential direct investments (via the total managed funds) has grown from circa 35 companies to circa 150;
-- Office locations which provide access to, and management of, early-stage deal flow have grown from one to six; and
-- University partnerships have grown from nine to 18.
Mercia's objective of creating a stable, sustainable and scalable infrastructure has been successfully met in this initial phase of the Group's development. In parallel the Directors are focused on building value from the direct investment portfolio to realise shareholder returns over the medium term. The progression of two of Mercia's direct investments onto AIM to date (Concepta plc in July 2016 and Abzena plc in July 2014) is a good illustration of this strategy in action.
The direct investment portfolio has grown significantly over this 23 month period (since Mercia's AIM debut) with investee company combined turnover having risen to circa GBP30.0million (from circa GBP15.0million) and employee numbers within the portfolio companies having doubled from circa 300 to over 600. In addition, a number of the portfolio companies have entered into relationships with strong industry-relevant corporates to accelerate their development and path to commercialisation. The progress of the Digital & Digital Entertainment portfolio as outlined in an RNS Reach update in October 2016, is of particular note.
With approximately GBP228.0million of third party managed funds, Mercia is now in the strong position of having created a significant pipeline of potential future direct investments, as well as securing a growing fee contribution to cover the majority of its operating costs. This blend of capital ensures that the majority of the funds raised at IPO continue to be used for direct investment purposes.
Financial performance was on track for the six month period, with the Group reporting revenues of GBP2.9million (2015: GBP0.7million), generated from its fund management and direct investing activities. Valued in accordance with International Private Equity and Venture Capital Valuation Guidelines, the direct investment portfolio increased 22% in value to GBP46.6million, which included new direct investments totaling GBP5.7million and net unrealised fair value gains of GBP2.8million.
The Board is already seeing the early metrics of delivery against the Group's strategy. There has been a material uplift in the holding value of nDreams. The recent admission to AIM of Concepta plc has thus far been a success, as demonstrated by strong subsequent share price gains, resulting in a material uplift in the carrying value of Mercia's stake. We have however decided to adjust downwards the value of our stake in Science Warehouse from GBP12.6million to GBP9.9million, largely to reflect the current valuation multiples of peer group companies.
The Mercia Model
Mercia's vision is to be a leading national organisation in the creation, funding and scaling of innovative businesses with high growth potential.
To achieve this, Mercia is:
-- focusing on technology rich sectors with high growth potential in which the Group has developed significant expertise, namely Software & the Internet, Digital & Digital Entertainment, Electronics, Materials & Manufacturing/Engineering and Life Sciences & Biosciences;
-- building a team of Investment Directors with significant industry and investment experience. With 60 employees, 25 of whom are threshold competent investment executives, Mercia benefits from a blended team of industry veterans, successful entrepreneurs and venture capitalists, providing the necessary insight to scale and exit investments across its selected sectors;
-- seeking strategic syndication into the direct investments in which material equity positions have been established, thus achieving progressive valuations while retaining meaningful upside until an appropriate exit path is chosen;
-- expanding the size of its managed funds and therefore building a sustainable pipeline of future Emerging Stars, whilst also generating fee income to offset the majority of the Group's operating costs;
-- continually assessing its operating environment to evaluate acquisition opportunities of complementary businesses or investment assets;
-- maximising its relationships with universities, accelerators, incubators, other deal flow sources and in-house business creation experience to match known market opportunities; and
-- operating in the capital-underserved regions of the Midlands, the North of England and Scotland where having a local presence provides a material advantage as well as the relevant, on the ground knowledge to identify and support some of the most exciting and innovative technology businesses.
Third Party Funds
Mercia is differentiated from its comparators by having circa GBP228.0million of third party funds managed by its wholly owned subsidiaries. In addition to Mercia's existing fund mandates, the Group is currently seeking new mandates for key public-sector supported regional funds. Fundraising for its SEIS/EIS funds also continued during the period with the majority of the GBP8.6million raised to be invested in this tax year, compared with circa GBP5.0million in the previous year.
Outlook
We are acutely aware of the current macroeconomic climate both nationally (following the EU referendum) and globally (following the US election). In these challenging conditions, corporates continue to turn to technology to achieve scale, cost efficiencies and productivity gains. This trend should support the ongoing development of the companies within Mercia's portfolio, focused as it is on technology rich sectors.
The Board believes that Mercia's hybrid investment model, with managed fund income covering a significant proportion of its operating costs, coupled with a growing balanced portfolio of direct investments, puts Mercia in a strong position to push ahead in those sectors in which it has specialist insight, to generate attractive returns for both shareholders and managed fund investors over time.
During the coming months, the Group will seek syndicated investment rounds for some of its direct investments as a natural progression of its funding strategy, whilst focusing on the medium to long-term goal of realising profitable exits from its investments.
Dr Mark Payton
Chief Executive Officer
Portfolio Review
The Group has been very active during the six months to 30 September 2016, making direct investments in nine companies, with the portfolio expanding from 22 direct holdings as at 31 March 2016 to 26 as at 30 September 2016. The Group will continue to add to the direct investment portfolio during the next six months and has already invested over GBP1.7million in four existing Emerging Stars since the period end.
The direct investments were held at a combined value of GBP46.6million as at 30 September 2016, which is up by 22% from GBP38.1million as at 31 March 2016. This movement in value is driven by GBP5.7million of new capital invested and GBP2.8million of net upward fair value movements.
14 of the top 18 direct investments are discussed in more detail below and account for GBP39.8million (85.4%) of the carrying value of the entire direct investment portfolio.
During the period under review GBP0.8million (14.0%) has been invested in the Software & the Internet sector, GBP0.8million (14.0%) in Digital & Digital Entertainment, GBP2.1million (36.9%) in Electronics, Materials & Manufacturing/Engineering and GBP2.0million (35.1%) in Life Sciences & Biosciences. The continual balancing of the direct investment portfolio (by value and number) ensures that no single company or sector dominates the portfolio and therefore the risks attached to any one sector or company are mitigated.
We have seen a large number of our assets across each of the target sectors making excellent progress in the six months since 31 March 2016, resulting in an overall aggregate fair value gain of GBP2.8million, comprising GBP6.0million of fair value uplifts and GBP3.2million of downward adjustments. Concepta Diagnostics was admitted to AIM as Concepta plc through a reverse into an AIM shell and the share price has since performed strongly, leading to a fair value gain of GBP2.5million in the period. We have also recognised a fair value gain of GBP3.0million in nDreams, reflecting the progress the business has made in the exciting but still emerging virtual reality ("VR") games and experiences market. The fair value uplift is supported by an independent valuation appraisal.
In addition to Concepta a number of Mercia's other healthcare companies are performing well, including Oxford Genetics and Medherant, as detailed further below. We have also recognised a GBP0.5million fair value gain in The Native Antigen Company which has successfully doubled revenue in its most recent year of trading and moved into profitability. At the period end a fair value impairment of GBP2.7million has been made against the equity carrying value of Science Warehouse. This is largely as a result of a recent review of current peer group comparable companies and reflects Mercia's principle of carrying assets at this stage of maturity against benchmarked valuation multiples. Although at a slower rate than in 2015/16, Science Warehouse has continued to grow its revenues in the last six months and is making good headway with its plans to broaden its product set and customer base internationally.
We are pleased with the overall progress and balance across the portfolio in all of our sectors and we are already seeing the benefits of the enlarged and fully integrated investment team, following the acquisition of Enterprise Ventures Group Limited ("EV") in March this year. Our unique blend of experienced entrepreneurs who have deep insight into their chosen technology sector, in combination with investment professionals holding broad venture capital skills, has created a strong investment team to build and manage the direct investment portfolio and to create the pipeline of future Emerging Stars.
Software & the Internet
The Gartner Worldwide IT Spending Forecast (a leading indicator of technology trends across the hardware, software, IT services and telecom markets) provides a sense of scale to this sector, estimating that worldwide IT spend is forecast to total $3.5trillion in 2016. The software market alone is huge, estimated by Reuters to be around GBP660.0billion. Mercia focuses principally on application software and security solutions, targeting businesses with fast growing, scalable revenues.
During the six months ended 30 September 2016 key portfolio developments in this sector included:
Science Warehouse
Science Warehouse joined the portfolio in December 2014 and was originally a spinout from the University of Leeds. As at 30 September 2016 Mercia held a 62.6% interest. In accordance with Mercia's valuation policy, the Group has revalued its holding in Science Warehouse to GBP9.9million (2015: GBP12.6million) as a result of a review of current peer group comparable company valuation multiples and an increasingly competitive marketplace. No new investment was made during the period.
Founded in 2000, Science Warehouse delivers a cloud-based procurement, catalogue and spend analysis platform with a highly intuitive user interface, ensuring customers have control of the purchasing cycle from requisition to payment, helping deliver cost savings and manage spend. Its core vertical markets are in further education and health services.
Science Warehouse continues to grow, with further revenue gains in the first half of the current financial year as well as having extended its offering in its spend management platform through adding product capability in the areas of supplier information management, spend management analytics and improved search. In particular, the company has experienced encouraging results in Australia where it recently opened a sales office. Sales wins include the University of Queensland and the Federation University. Following the earlier appointment of a new CEO, the business has further strengthened its management team through the recent appointment of a new chairman. This enhanced team has made an encouraging start, including launching new product extensions and implementing improvements in its technology platform to meet the increasingly sophisticated needs of its customer base to drive growth.
Allinea
Allinea joined the portfolio in December 2014. The business was originally a spinout from the University of Warwick and Mercia was a founding investor, initially through its managed funds in 2010. As at 30 September 2016 the Group held a 16.6% interest at a fair value of GBP1.9million (2015: GBP0.9million) based upon the latest trading results. No new investment was made during the period.
Allinea is a profitable, cash generative business. It provides a leading global solution in the optimisation and debugging software tools industry, for the development and use of high performance computing applications. Customers include Oakridge National Laboratories, French Nuclear Authority, Scandia National Laboratories, University of Tokyo and The Met Office.
Revenue, profits and cash balances have continued to increase as Allinea progresses very well. The company has enhanced its product set with a major release during the half year. Particularly pleasing have been the first sales to Japan, demonstrating that Allinea is now a truly global software company winning sales in the US, Europe and the Far East.
Intelligent Positioning
Intelligent Positioning joined the portfolio in November 2015. As at 30 September 2016 Mercia held a 21.5% interest at a fair value of GBP1.8million (2015: GBPnil). GBP0.8million was invested during the period and the investment is held at cost.
Intelligent Positioning is a developer of real-time search intelligence and Search Engine Optimisation ("SEO") analytics solutions for businesses. The company helps businesses to optimise their web presence through detailed and actionable reports on search ranking performance against key competitors. It works with agencies and leading brands to help them enhance their online presence. Customers include L'Oreal, Financial Times, Invesco and Legal & General.
The company is seeing strong revenue growth and continues to make its transition from a services to a software as a service ("SaaS") product business with 70% of its revenues now being from Saas product sales. The team has recently opened a new sales office in New York and has started to make inroads into the much larger US market.
Digital & Digital Entertainment
The video games sector is the largest in the entertainment sector, worth GBP92.0billion in 2015 and estimated to rise to GBP118.0billion by 2019, according to figures published by Newzoo. The market has seen consistent annual growth rates of around 6% which demonstrates the value creation opportunities that exist in this space. The UK is recognised globally as a centre of excellence in game development, publishing and creativity and we continue to see a strong flow of opportunities.
During the six months ended 30 September 2016 key portfolio developments in this sector included:
nDreams
nDreams joined the portfolio in December 2014. As at 30 September 2016 Mercia held a 40% interest at a fair value of GBP6.7million (2015: GBP1.9million) plus a GBP1.0million convertible loan held at cost, resulting in an overall holding value of GBP7.7million. There has been no new investment during the period but Mercia has recognised a fair value uplift of GBP3.0million and is now holding the asset at an enterprise value of GBP18.0million. This valuation is supported by a recent independent appraisal.
nDreams was founded in 2006 by Patrick O'Luanaigh, the creative director of Tomb Raider, as a game and experiences developer. Created initially to provide content for Sony PlayStation Home virtual world (a virtual 3D social gaming platform for the PlayStation 3), with direction and support from Mercia it later leveraged this expertise to become one of the first organisations to move into software development purely for VR.
In the last six months the management team has made excellent progress building out a portfolio of games and experiences for both high end and mobile VR, including the successful launch of The Assembly in July 2016 which made it to number one in the Oculus VR charts and has now been launched on the new Sony Playstation VR headset. Meanwhile, development continues on many fronts including for the new Google VR platform, Daydream. One of nDreams' titles will be a major part of the launch of this key new platform later this calendar year.
VirtTrade
As at 30 September 2016 Mercia held a 28.4% interest at a fair value of GBP2.8million (2015: GBP2.5million). GBP0.3million was invested during the period. The Group's equity investment is held at the price of the last investment round and the recent GBP0.3million convertible loan is held at cost.
VirtTrade has developed a unique engine that takes the principle of a traditional printed trading card collection and turns it into an interactive digital trading experience. This results in the players being able to trade one digital card for many globally in an open market. Unlike traditional trading cards, the VirtTrade platform can take live data feeds from the player, the brand or IP owner and the outside world. This enriches the trading experience as well as providing some exciting and novel opportunities. Monetisation comes from a mix of paid for and free collectable cards.
In the period VirtTrade has continued to build on its global relationship with Panini, which has recently released the 2017 version of its digital collectible app, NFL GRIDIRON, making it to number one in the US sports IOS charts just two weeks after release. Panini is providing heavyweight marketing support for the title through the months to Christmas. The updated and improved NBA Dunk app will also be released before Christmas plus one other new title which will be announced in the near future.
Edge Case Games
Edge Case Games joined the portfolio in July 2015. As at 30 September 2016 Mercia held a 21.2% interest at a fair value of GBP2.3million (2015: GBP1.1million). GBP0.5million was invested during the period. The investment is held at the price of the last funding round.
Edge Case Games was established in June 2014 as a new business under Mercia's guidance using seed and early stage finance through its third party funds and is a free to play, games-as-a-service business. The business, which is led by industry veterans James Brooksby and Chris Mehers, operates in the large and growing multiplayer online sub-sector of the gaming market.
In the last six months the management team has made very good progress. The team successfully took 'Fractured Space', the company's space PC game, out of Steam's 'Early Access' and into a full launch in September 2016. Early download and sales data have been strong with average revenue per paying customer as high as $20, and the company achieved more than 150,000 unique installations of the innovative game during the first week following the launch as a free to play title. So far the game has generated over $1.0million in revenue and now has over 75,000 monthly active players. The company is re-evaluating its strategic options for the Chinese mobile games market, having experienced challenges in its collaboration with Seasun Games. In the short term the management team is focused on maximising the potential of Fractured Space.
Electronics, Materials & Engineering/Manufacturing
According to the Government's Advanced Manufacturing Catapult website, manufacturing in the UK contributes 11% of UK Gross Value Added and remains a vital sector for the economy, employing over 2.6million people. Over recent years there has been a resurgence in advanced manufacturing in the UK and this is evidenced by the many examples of innovation in the areas of material and hardware technology throughout the UK regions where Mercia is active.
During the six months ended 30 September 2016 key portfolio developments in this sector included:
Smart Antenna Technologies
Smart Antenna Technologies, a spinout from the University of Birmingham, joined the portfolio in December 2014. As at 30 September 2016 Mercia held a 29.5% interest at a fair value of GBP1.8milion (2015: GBP0.6million). No new investment was made during the period and the investment is held at the price of the last funding round.
The company, which is based in Birmingham, is developing multi-function antenna solutions for mobile phones, tablets, laptops and smart TVs and its highly scalable technology has the potential to lower costs, reduce size, increase frequency range and offer much needed performance gains over existing designs and technologies.
In the last six months the management team has continued to engage with leading global manufacturers of portable devices and it is expected that the results of these discussions will be reported within the next 12 months.
Impression Technologies
Impression Technologies joined the portfolio in July 2015. As at 30 September 2016 the Group held an 18.4% interest at a fair value of GBP1.5million (2015: GBP0.8million). No new investment was made during the period and the investment is held at cost.
Impression Technologies, which is based in Coventry, is involved in the forming of complex, high strength, lightweight, ductile components used in the automotive, rail and aerospace industries. The company's patented heat treatment, forming and in die quenching ("HFQ(R) ") technology was developed by Impression Technologies and Imperial College, building on founding research at the University of Birmingham. The result is complex but lightweight aluminum components which do not compromise the strength or metallurgical properties of the material.
In the period a new CEO, Jonathan Watkins, has joined the business to drive its commercial progress with leading automotive brands and suppliers, such as Aston Martin, which has included HFQ(R) parts in its recently launched DB11 model. The business has begun production at its new pilot pressing facility and has also begun to explore new overseas market opportunities.
Warwick Audio Technologies
Warwick Audio Technologies joined the portfolio in December 2014 and was originally a spinout from the University of Warwick. As at 30 September 2016 the Group held a 73.6% interest at a fair value of GBP2.4million (2015: GBP0.6million). GBP1.0milion was invested during the period and the investment is held at the price of the most recent investment round.
Warwick Audio Technologies, which is based in the Midlands, has developed and patented a new style of electrostatic speaker. This speaker is extremely lightweight, thin and flexible and produces very high quality audio, easily exceeding the standard set for Hi-Res Audio by the Japanese Audio Society. The novel manufacturing process pioneered with this design enables these speakers to be produced reliably at scale to a very high standard, with consistent performance. This makes them potentially one of the most cost-effective Hi-Res Audio transducers on the market.
In the last six months the company has worked on delivering its product to the headphone market, initially focusing on the audiophile segment with a wired at-home product. Over the next 12 months it will turn its focus to the wireless closed back premium portable segment, where the company believes that major opportunities lie in creating a premium product for the iPhone 7 and other portable players. In the long term, the company will look to expand into other markets where the characteristics of its technology deliver benefits, in particular the automotive market. Post period end the company has announced the appointment of former BOSE VP, Gary Waters, to the board as a non-executive director.
sureCore
sureCore joined the portfolio in June 2016 and was sourced from the recently acquired EV portfolio. As at 30 September 2016 Mercia held a 13.3% interest at a fair value of GBP0.8million (2015: GBPnil). The investment is held at cost.
The company, which is based in Sheffield, is led by a team of industry experts with combined experience in the industry of nearly 100 years. The company develops and licenses low power and low operating voltage embedded memory IP designs for the semiconductor industry. sureCore is successfully exploiting growing market demand for more memory and lower power consumption in leading edge devices, such as those serving the networking space as well as the Internet of Things and wearable and consumer/handheld products.
In the last six months the management team has built a significant pipeline of potential customers, which are at various stages of evaluating the technology offering. Furthermore, the company has received verbal confirmation from a large Japanese customer of its preference to license the technology for its next product development which will start in Q4 2016. The company has also been awarded two significant grants for the development of next generation memory technology.
Life Sciences & Biosciences
The Life Sciences & Biosciences sector is of particular interest to Mercia as almost two-thirds of employment within this sector is found outside of London, instead residing within the UK regions. Mercia seeks investments into capital efficient businesses within this sector and excludes the more capital intensive therapeutics businesses that often have lengthy and more challenging regulatory pathways. The focus within this sector includes sub-sectors with the opportunity to move quickly into revenue such as digital healthcare, medtech services, synthetic biology and diagnostics businesses. According to UK government figures (www.lifesciences.ukti.gov.uk/trade-campaigns/in-vitro-diagnostics/), the global medical technology market is expected to reach $455.0billion by 2018, with in vitro diagnostics, for example, anticipated to be the largest segment ($58.8billion in 2018). In vitro diagnostics inform healthcare decision making; 70% of clinical decisions in the NHS alone are based on laboratory tests or near patient tests (point of care). UK capability is strong with some 220 companies spanning 'innovative platform providers', 'products & kits' and 'supply chain technologies'. A strong R&D base and a lead in genomics sequencing, synthetic biology and digital health are providing access to cutting edge technologies here within the UK.
During the six months ended 30 September 2016 key portfolio developments in this sector included:
Concepta plc
Concepta is a new direct investment and joined the portfolio in May 2016 as the first direct investment made from the EV portfolio. As at 30 September 2016 Mercia held an 18.3% interest at a fair value of GBP3.9million (2015: GBPnil). GBP1.4million was invested during the period and the fair value gain of GBP2.5million is based on Concepta's closing share price as at 30 September 2016, which has performed well since its admission to AIM.
The company, which is based in York, is developing a portfolio of women's health diagnostic products which monitor pregnancy, fertility and menopause. This is initially targeted at the Chinese market but will have the potential for future rollout to the rest of the world. The choice of China as the initial market reflects the core management strength and knowledge of the Chinese consumer diagnostic market and a clear market need as the gold-standard western-developed devices are not currently available.
The last six months have been extremely busy following the company's successful admission to AIM, which took place in July 2016, raising GBP3.5million. The management team is currently focused on the siting of a new manufacturing plant in Yorkshire and the launch of the MyLotus product in China later this year and subsequent to CE marking, targeting its launch in the UK and Europe in 2017.
Oxford Genetics
Oxford Genetics joined the portfolio in December 2015. As at 30 September 2016 Mercia held a 34.7% interest at a fair value of GBP1.2million (2015: GBPnil). No new investment was made in the period and the investment is held at cost.
Oxford Genetics, a leader in synthetic biology, is a specialised contract research organisation offering services to support the discovery, development and production of biologics, gene and cell therapies. The company has expertise in designing DNA, optimising expression of proteins, cell line development and improving viral gene delivery systems.
In the last six months the business has moved to new purpose built 6,000 sq ft facilities, achieved ISO quality status, expanded its commercialisation and management teams and is now providing a number of pharmaceutical clients with its services. Over the next 12 months the company aims to license its technologies in the rapidly expanding markets of cell and gene therapy. Post period end a further GBP1.0million has been invested and a grant of GBP1.7million has been awarded, both combining to continue to fuel the growth of this innovative business.
The Native Antigen Company
The Native Antigen Company joined the portfolio in December 2014 and was originally a spinout from the University of Birmingham. As at 30 September 2016 the Group held a 30.6% interest at a fair value of GBP1.1million (2015: GBP0.3million). No new investment was made in the period.
The business was established in 2010 and specialises in the research, development and scale-up manufacturing of highly pure viral and bacterial native antigens. It trades with over 50 organisations worldwide with exports accounting for 90% of its sales, much of which is annual repeat business.
Revenues continue to grow and this year revenue has doubled, taking the business into profitability and cash generation. The next step for the business is to further develop its growth opportunities and explore related applications of its technology, with a strong focus on the infectious disease sector. In accordance with Mercia's valuation policy and given the strong and profitable trading position of the business, the Group has moved to valuing its holding on a trading multiple basis, whereas previously the asset was valued on the basis of the price of the last investment round. This results in a fair value uplift of GBP0.5million.
Medherant
Medherant, originally a University of Warwick spinout, is the most recent addition to the direct investment portfolio, joining in September 2016. As at 30 September 2016 the Group held an 11.7% interest at a fair value of GBP0.7million (2015: GBPnil) and the investment is held at cost.
The company, which is based in the Midlands, is an IP-rich business focused on developing its transdermal drug delivery patch, known as the TEPI Patch(R) , for the widely used pain management drugs Ibuprofen and methyl salicylate. The patch, which incorporates novel adhesive technology licensed from Bostik, will also provide wider drug delivery opportunities across a number of therapeutics areas. As a result of the patch's ease of manufacture, efficient delivery and reduced use of material, the technology also has the potential to remove huge cost burdens from healthcare systems.
The company has just received scientific advice from the Medicines and Healthcare products Regulatory Agency in relation to its first product, for which a programme of pre-clinical studies is underway, and plans are being finalised to enter into clinical studies in 2017. Medherant has a pipeline of four other products from which it will select one or two for full pre-clinical development. The management team is also in discussion with numerous pharmaceutical companies regarding potential licensing of the products in its pipeline and is negotiating with some that would like to investigate the potential of TEPI Patch(R) to deliver their drug of interest.
Remaining direct investment holdings
As at 30 September 2016, the Group's remaining 12 direct shareholdings collectively accounted for GBP6.9million in value or 14.8% of the total direct investment portfolio.
We are pleased with the progress of the portfolio as a whole over the last six months and have a number of assets where we expect strong revenue growth during the next six month period. We will continue to selectively add new Emerging Stars and build a balanced portfolio of exciting businesses.
Matt Mead
Chief Investment Officer
Financial Review
Mercia has made further positive financial progress in the period under review. The financial results for the six months ended 30 September 2016 are notable for both the increased scale in the Group's revenues and operating activities, following Mercia's acquisition of EV in March 2016, and the fact that Mercia has now invested GBP30.0million of its 2014 IPO proceeds into its growing portfolio of direct investments, which totalled 26 (2015: 19) at the period end.
During the six months ended 30 September 2016 the Group invested GBP5.7million net (2015: GBP4.4million) in six existing and three new direct investments (2015: seven and four respectively). Since the period end the Group has invested a further GBP1.7million (2015: GBP4.2million) in four (2015: six) existing Emerging Stars.
As at 30 September 2016 the fair value of the Group's direct investment portfolio was GBP46.6million (2015: GBP29.2million). Net fair value gains during the period totalled GBP2.8million (2015: GBP0.2million). Net assets at the period end were GBP81.3million (2015: GBP80.2million), including cash and short-term deposits totalling GBP24.0million (2015: GBP48.5million).
The net fair value gains referred to above contributed favourably to a consolidated total comprehensive profit for the period of GBP1.1million (2015: GBP0.8million loss).
The net fair value gain is a positive indication of value creation momentum within the direct investment portfolio, notwithstanding the relatively short time in which the Group's net IPO proceeds are being invested.
Acquisition of Enterprise Ventures Group Limited
On 9 March 2016 Mercia Technologies acquired EV's entire issued share capital for up to GBP11.0million and an amount equal to EV's net cash at completion which was GBP2.0million. The initial consideration was GBP9.0million, comprising GBP8.3million satisfied in cash on completion and GBP0.7million satisfied by the issue of 1,645,711 initial consideration shares priced at 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 EV raising at least GBP80.0million of net new third party funds during the two year period post completion, to be satisfied by the issue of additional Mercia Ordinary shares.
During the six month period under review EV contributed GBP2.1million (2015: nil) to total Group revenues of GBP2.9million (2015: GBP0.7million). EV has been integrated into the Group and the combined investment and back office teams are working well together.
Summarised consolidated statement of comprehensive income
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
======================================== ======================== ======================== ========================
Revenue 2,887 654 1,755
Cost of sales (49) (35) (79)
Fair value movements in investments 2,807 244 896
Administrative expenses (4,292) (1,698) (4,011)
Share-based payments charge (166) (99) (230)
Amortisation of intangible assets (150) - (17)
Exceptional items - - (372)
Finance income 97 186 361
======================================== ======================== ======================== ========================
Profit/(loss) and total comprehensive
income/(loss) for the financial period 1,134 (748) (1,697)
======================================== ======================== ======================== ========================
Basic and diluted earnings/(loss) per
Ordinary share (pence) 0.53 (0.35) (0.80)
======================================== ======================== ======================== ========================
Revenue and cost of sales
Total revenues of GBP2,887,000 (2015: GBP654,000) 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").
Fair value movements in investments
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- ---------
Investment movements excluding cash invested:
Unrealised gains on the revaluation
of investments 6,052 794 1,582
Unrealised losses on the revaluation
of investments (3,245) (550) (686)
===================================== ============= ============= =========
Net fair value gain 2,807 244 896
===================================== ============= ============= =========
For the six months ended 30 September 2016, unrealised fair value gains arose in five (2015: four) out of the Group's 26 (2015: 19) direct investments. The largest fair value gain was nDreams Limited, which accounted for GBP2,962,000 of the total. There were five (2015: two) fair value impairments, the largest being GBP2,737,000 for Science Warehouse Limited.
Share-based payments charge
The GBP166,000 (2015: GBP99,000) non-cash charge arises from the issue of share options to 15 members of staff from the date of the IPO to 31 March 2016 and 40 more during the period to 30 September 2016, the majority of those new option awards being to EV's staff.
Amortisation of intangible assets
The amortisation charge of GBP150,000 (2015: GBPnil) represents amortisation of the acquired intangible assets of EV for the six month period under review.
Other administrative expenses
Total administrative expenses of GBP4,292,000 (2015: GBP1,698,000) consisted predominantly of staff related costs. Total headcount is growing in line with the Group's stated objectives at the time of the IPO.
Finance income
Finance income of GBP97,000 (2015: GBP186,000) was predominantly interest receivable earned on the Group's cash and short-term liquidity investments. The reduction from 2015 is attributable to the amount of cash now invested in the direct investment portfolio.
Balance sheet and cash flows
Net assets at the period end of GBP81,341,000 (2015: GBP80,190,000) 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 GBP38,143,000 (2015: GBP24,617,000) to GBP46,616,000 (2015: GBP29,223,000). The table below lists the Group's investments by value as at 30 September 2016, including a breakdown of the cash invested during the period, the fair value movements at the period end and the equity percentage of each company owned.
Net Net
investment Cash Fair value investment Percentage
value invested movement value held
As at Six months Six months As at As at
to to
31 March 30 September 30 September 30 September 30 September
2016 2016 2016 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000 %
=========================== ============== ================= ================= ================ =================
Science Warehouse Ltd 12,650 - (2,737) 9,913 62.6
nDreams Ltd 4,721 - 2,961 7,682 40.0
Concepta plc - 1,400 2,500 3,900 18.3
VirtTrade Ltd 2,575 250 - 2,825 28.4
Warwick Audio Technologies
Ltd 1,348 971 89 2,408 73.6
Edge Case Games Ltd 1,810 500 - 2,310 21.2
Allinea Software Ltd 1,916 - - 1,916 16.6
Smart Antenna Technologies
Ltd 1,827 - - 1,827 29.5
LM Technologies Ltd 1,392 378 - 1,770 36.9
Ton UK Ltd t/a Intelligent
Positioning 1,000 750 - 1,750 21.5
Soccer Manager Ltd 1,599 - - 1,599 29.9 Crowd Reactive Ltd 1,500 - - 1,500 28.3 Impression Technologies Ltd 1,500 - - 1,500 18.4 Oxford Genetics Ltd 1,150 - - 1,150 34.7 The Native Antigen Company Ltd 646 - 495 1,141 30.6 PsiOxus Therapeutics Ltd 1,137 - - 1,137 1.6 sureCore Ltd - 750 - 750 13.3 Medherant Ltd - 650 - 650 11.7 Other direct investments 1,372 17 (501) 888 n/a Totals 38,143 5,666 2,807 46,616 n/a =========================== ============== ================= ================= ================ =================
Cash and short-term liquidity investments
At the period end, Mercia had total cash balances of GBP24,011,000 (2015: GBP38,491,000 cash and GBP10,020,000 short-term liquidity investments). The cash reduction during the past 12 months is largely accounted for by the GBP13.9million of net investment in the direct investment portfolio and the GBP8.3million cash consideration for EV. The overriding emphasis of the Group's treasury policy remains the preservation of its shareholders' cash for investment and operating purposes, not yield. At the period end the Group's cash was spread across five (2015: four) leading United Kingdom based banks.
The summarised movement in the Group's cash position during the six months ended 30 September 2016 is shown below.
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
Opening cash and short-term liquidity
investments 30,932 53,633 53,633
Net cash used in operating activities (1,295) (843) (2,024)
Net cash used in investing activities
(including capital expenditure and
interest received) (5,626) (4,279) (12,346)
Purchase of subsidiary undertaking
net of cash acquired - - (8,309)
Share issue costs charged to share
premium account - - (22)
========================================= ============= ============= =========
Period end cash and short-term liquidity
investments 24,011 48,511 30,932
========================================= ============= ============= =========
Martin Glanfield
Chief Financial Officer
Consolidated statement of comprehensive income
For the six months ended 30 September 2016
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
Note 2016 2015 2016
GBP'000 GBP'000 GBP'000
=========================================== ====== ============= ============= =========
Revenue 2 2,887 654 1,755
Cost of sales (49) (35) (79)
=========================================== ====== ============= ============= =========
Gross profit 2,838 619 1,676
Fair value movements in investments 3 2,807 244 896
Administrative expenses:
Share-based payments charge (166) (99) (230)
Amortisation of intangible assets (150) - (17)
Other administrative expenses (4,292) (1,698) (4,011)
=========================================== ====== ============= ============= =========
Operating profit/(loss) before exceptional
items 1,037 (934) (1,686)
Exceptional items - acquisition costs - - (372)
=========================================== ====== ============= ============= =========
Operating profit/(loss) 1,037 (934) (2,058)
Finance income 97 186 361
=========================================== ====== ============= ============= =========
Profit/(loss) before taxation 1,134 (748) (1,697)
Taxation - - -
=========================================== ====== ============= ============= =========
Profit/(loss) and total comprehensive
income/(loss) for the financial period 1,134 (748) (1,697)
=========================================== ====== ============= ============= =========
Basic and diluted earnings/(loss) per
Ordinary share (pence) 4 0.53 (0.35) (0.80)
=========================================== ====== ============= ============= =========
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 2016
Unaudited Unaudited Audited
Note As at As at As at
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
--------------------------------- ------ ============= ============= ============
Assets
Non-current assets
Goodwill 5 10,328 2,455 10,328
Intangible assets 6 1,337 - 1,487
Property, plant and equipment 180 51 145
Investments 7 46,616 29,223 38,143
================================= ====== ============= ============= ============
Total non-current assets 58,461 31,729 50,103
================================= ====== ============= ============= ============
Current assets
Trade and other receivables 693 729 798
Short-term liquidity investments 8 - 10,020 10,000
Cash and cash equivalents 8 24,011 38,491 20,932
================================= ====== ============= ============= ============
Total current assets 24,704 49,240 31,730
================================= ====== ============= ============= ============
Total assets 83,165 80,969 81,833
Current liabilities
Trade and other payables (1,553) (779) (1,521)
Non-current liabilities
Deferred taxation (271) - (271)
================================= ====== ============= ============= ============
Total liabilities (1,824) (779) (1,792)
================================= ====== ============= ============= ============
Net assets 81,341 80,190 80,041
================================= ====== ============= ============= ============
Equity
Issued share capital 2 2 2
Share premium 9,494 8,825 9,494
Other distributable reserve 70,000 70,000 70,000
Retained earnings 1,405 1,220 271
Share-based payments reserve 440 143 274
================================= ====== ============= ============= ============
Total equity 81,341 80,190 80,041
================================= ====== ============= ============= ============
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 10 November 2016. 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 2016
Unaudited Unaudited Audited
Six months Six months Year
Note ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
============================================= ====== ============= ============= ============
Cash flows from operating activities:
Operating profit/(loss) 1,037 (934) (2,058)
Adjustments to reconcile operating
profit/(loss) to net cash flows used
in operating activities:
Depreciation of property, plant and
equipment 37 13 33
Fair value movements in investments (2,807) (244) (896)
Share-based payments charge 166 99 230
Amortisation of intangible assets 150 - 17
Working capital adjustments:
Decrease in trade and other receivables 90 75 522
Increase in trade and other payables 32 148 128
============================================= ====== ============= ============= ============
Net cash used in operating activities (1,295) (843) (2,024)
Cash flows from investing activities:
Purchase of direct investments (5,757) (4,362) (13,108)
Investee company loan repayment 91 - 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 investing activities (5,666) (4,362) (20,939)
Cash flows from other investing activities:
Purchase of property, plant and equipment (72) (15) (113)
Interest received 112 98 397
Decrease in short-term liquidity investments 10,000 19,980 20,000
============================================= ====== ============= ============= ============
Net cash generated from other investing
activities 10,040 20,063 20,284
Net cash generated from/(used in)
total investing activities 4,374 15,701 (655)
Cash flows from financing activities:
Transaction costs relating to issue
of Ordinary shares - - (22)
--------------------------------------------- ------ ------------- ------------- ------------
Net cash used in financing activities - - (22)
Net increase/(decrease) in cash and
cash equivalents 3,079 14,858 (2,701)
Cash and cash equivalents at the beginning
of the period 20,932 23,633 23,633
============================================= ====== ============= ============= ============
Cash and cash equivalents at the end
of the period 8 24,011 38,491 20,932
============================================= ====== ============= ============= ============
Consolidated statement of changes in equity
For the six months ended 30 September 2016
Issued Other distributable Share-based
share Share reserve Retained payments
capital premium GBP'000 earnings reserve Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
=================================== ======== ========= ======================== ========== =========== =========
As at 1 April 2015 (audited) 2 8,825 70,000 1,968 44 80,839
Loss and total comprehensive
loss for the period - - - (748) - (748)
Share-based payments charge - - - - 99 99
=================================== ======== ========= ======================== ========== =========== =========
As at 30 September 2015 (unaudited) 2 8,825 70,000 1,220 143 80,190
Loss and total comprehensive
loss for the period - - - (949) - (949)
Issue of share capital - 691 - - - 691
Costs of share capital issued - (22) - - - (22)
Share-based payments charge - - - - 131 131
=================================== ======== ========= ======================== ========== =========== =========
As at 31 March 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
----------------------------------- -------- --------- ------------------------ ---------- ----------- ---------
Notes to the interim financial statements
For the six months ended 30 September 2016
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") are consistent with those followed in the preparation of the Group's Annual Report and financial statements for the year ended 31 March 2016. These policies have been consistently applied throughout the period ended 30 September 2016 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 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 2016. 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 2016, 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 2016 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 2016 were approved by the Board on 29 June 2016 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 2016 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 10 November 2016, 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 2016.
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 2016. 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 performance, 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 2016, the Group's revenue and profit were derived from its principal activity within the United Kingdom.
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 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
2016 2015 2016
GBP'000 GBP'000 GBP'000
========================== ============= ============= =========
Fund management fees 1,654 187 473
Initial management fees 329 208 642
Portfolio directors' fees 865 211 536
Other revenue 39 48 104
Total revenue 2,887 654 1,755
========================== ============= ============= =========
3. Fair value movements in investments
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
======================================== ============= ============= =========
Net fair value movements in investments 2,807 244 896
======================================== ============= ============= =========
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.
4. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the financial period by the weighted average number of Ordinary shares in issue during the period. Diluted earnings/(loss) per share is computed by dividing the profit/(loss) 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/(loss) per share computations on a weighted average basis for the period. The profit/(loss) 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
2016 2015 2016
=========================================== ============= ============= =========
Profit/(loss) for the financial period
(GBP'000) 1,134 (748) (1,697)
=========================================== ============= ============= =========
Weighted average number of Ordinary shares
(basic and diluted) ('000) 213,646 212,000 212,099
=========================================== ============= ============= =========
Earnings/(loss) per Ordinary share basic
and diluted (pence) 0.53 (0.35) (0.80)
=========================================== ============= ============= =========
5. Goodwill
GBP'000
------------------------------------ -------
Cost
As at 1 April 2015 (audited) 2,455
------------------------------------ -------
As at 30 September 2015 (unaudited) 2,455
Additions 7,873
------------------------------------ -------
As at 31 March 2016 (audited) 10,328
------------------------------------ -------
As at 30 September 2016 (unaudited) 10,328
------------------------------------ -------
Goodwill of GBP7,873,000 arose on the acquisition of the entire issued share capital of Enterprise Ventures Group Limited ("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.
6. Intangible assets
GBP'000
------------------------------------ -------
Cost
As at 1 April 2015 (audited) -
------------------------------------ -------
As at 30 September 2015 (unaudited) -
Additions 1,504
------------------------------------ -------
As at 31 March 2016 (audited) 1,504
------------------------------------ -------
As at 30 September 2016 (unaudited) 1,504
------------------------------------ -------
Accumulated amortisation
As at 1 April 2015 (audited) -
------------------------------------ -------
As at 30 September 2015 (unaudited) -
Charge for the period 17
------------------------------------ -------
As at 31 March 2016 (audited) 17
Charge for the period 150
------------------------------------ -------
As at 30 September 2016 (unaudited) 167
------------------------------------ -------
Net book value
As at 31 March 2015 (audited) -
------------------------------------ -------
As at 30 September 2015 (unaudited) -
------------------------------------ -------
As at 31 March 2016 (audited) 1,487
------------------------------------ -------
As at 30 September 2016 (unaudited) 1,337
------------------------------------ -------
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.
7. Investments
The net change in the fair value of investments for the period is GBP8,473,000.
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 and their fair value movements.
GBP'000
==================================================== =======
As at 1 April 2015 (audited) 24,617
Investments made during the period 4,362
Unrealised gains on the revaluation of investments 794
Unrealised losses on the revaluation of investments (550)
---------------------------------------------------- -------
As at 30 September 2015 (unaudited) 29,223
Investments made during the period 8,746
Investee company loan repayments (94)
Cash received (384)
Unrealised gains on the revaluation of investments 788
Unrealised losses on the revaluation of investments (136)
---------------------------------------------------- -------
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
==================================================== =======
8. Cash, cash equivalents and short-term liquidity investments
Unaudited Unaudited Audited
As at As at As at
30 September 30 September 31 March
2016 2015 2016
GBP'000 GBP'000 GBP'000
======================================= ============= ============= =========
Cash at bank and in hand 24,011 38,491 20,932
======================================= ============= ============= =========
Total cash and cash equivalents 24,011 38,491 20,932
======================================= ============= ============= =========
Total short-term liquidity investments - 10,020 10,000
======================================= ============= ============= =========
9. 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 2016.
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 2016.
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") 4,054 - 42,562 46,616
----------------------------------------------------------------- --------- --------- --------- ---------
As at 30 September 2016 4,054 - 42,562 46,616
----------------------------------------------------------------- --------- --------- --------- ---------
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 2016, the Group had two (2015: one) direct investments quoted on AIM (Abzena plc and Concepta plc) and these have been classified as Level 1 and valued at their bid price as at 30 September 2016.
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 two investments 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 a variety of 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 2016.
The table below summarises the fair value measurements.
Fair value
As at
30 September
2016
Valuation technique Level GBP'000
------------------------------------------------- -------- --------------
Listed investments 1 4,054
Price of recent funding round 3 30,265
Cost 3 8,900
Enterprise value 3 3,057
Price of recent funding round/cost adjusted for
impairment 3 340
------------------------------------------------- -------- --------------
46,616
------------------------------------------------- -------- --------------
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, based on a multiple of revenues, given their stage of development and profitability.
10. 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 2016.
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 2016 which comprise the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 10. 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 inquiries, 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 Ireland) 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 2016 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
Chartered Accountants and Statutory Auditor
Birmingham, United Kingdom
10 November 2016
Directors, secretary and advisers
Directors
Susan Jane Searle (Non-executive Chair)
Dr Mark Andrew Payton (Chief Executive Officer)
Martin James Glanfield (Chief Financial Officer)
Matthew Sidney Mead (Chief Investment Officer)
Jonathan Brett Diggines (Executive Director, Funds)
Raymond Kenneth Chamberlain (Non-executive Director)
Ian Roland Metcalfe (Non-executive Director)
Martin James Lamb (Non-executive Director)
Company secretary Company registration number
Martin James Glanfield 09223445
Company website Solicitors
www.merciatechnologies.com 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 broker
Chartered Accountants and Statutory Cenkos Securities plc
Auditor
Four Brindleyplace 6.7.8 Tokenhouse Yard
Birmingham B1 2HZ London EC2R 7AS
Principal bankers Company registrar
Barclays Bank PLC SLC Registrars
One Snowhill 42-50 Hersham Road
Snow Hill Queensway Walton-on-Thames
Birmingham B3 2WN Surrey KT12 1RZ
Lloyds Bank plc Public relations adviser
125 Colmore Row Buchanan Communications Ltd
Birmingham B3 3SD 107 Cheapside
London EC2V 6DN
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BRBDBUDGBGLC
(END) Dow Jones Newswires
November 10, 2016 02:00 ET (07:00 GMT)
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