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MERC Mercia Asset Management Plc

33.10
0.30 (0.91%)
28 Mar 2024 - Closed
Delayed by 15 minutes
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
  0.30 0.91% 33.10 32.60 33.60 33.10 32.80 32.80 149,495 08:35:54
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Finance Services 25.88M 2.84M - N/A 0

Mercia Technologies PLC Half Year Results (4874Y)

06/12/2017 7:00am

UK Regulatory


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

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