Preliminary Results

For immediate release

30 June 2016

 

Mercia Technologies PLC

 

Preliminary Results for the year ended 31 March 2016

 

A year of significant progress for Mercia's value creation strategy

 

Mercia Technologies PLC (AIM: MERC, "Mercia" or "the Group"), which is focused on the creation, funding and scaling of innovative technology businesses with high growth potential from the UK regions, is pleased to announce its preliminary results for the year ended 31 March 2016.

 

Group and portfolio highlights

·     £12.6million net invested in 16 portfolio companies during the year, including 6 new Emerging Stars:

o  New direct investments include Impression Technologies, Edge Case Games, Intelligent Positioning and Oxford Genetics

o  Further investments into existing Emerging Stars to support growth include nDreams, Smart Antenna Technologies and Crowd Reactive

o  Initial direct investment in Edge Case Games followed by co-investment with leading Chinese games publisher, Kingsoft, validating the Group's digital investment strategy

·     Considerably expanded presence in the regions, with the opening of a Scottish office and 5 new university partners secured in the year

·     Acquisition of Enterprise Ventures Group Limited ("Enterprise Ventures") in March 2016 is accelerating Mercia's growth:

o  Significantly increased pipeline of exciting direct investment opportunities

o  Strengthened regional presence to become a market-leading investor in the North of England

o  Experienced investment team with proven track record of exits

o  Successfully integrated into the Group

 

Post year end

·     First direct investment completed in Enterprise Ventures' portfolio company Concepta Diagnostics Ltd, demonstrating the early strategic benefits of the significantly enlarged pipeline

·     nDreams appointed by Google to make apps and experiences for Daydream, Google's platform for high performance mobile virtual reality

·     4 additional university partnerships secured since 31 March 2016 with Edinburgh Napier, Heriot-Watt, St Andrews and Sheffield Hallam universities, taking the total number of university partnerships to 18

·     Pipeline of potential new Emerging Stars via the greatly enlarged third party funds under management, currently circa 150, underpins further anticipated progress

 

Financial highlights

* 2015 numbers relate to the 3½ period from Mercia's admission to AIM on 18 December 2014 to 31 March 2015

·     Revenue of £1.8million (2015*: £0.5million)

·     Direct investment portfolio value up by £13.5million to  £38.1million (2015: £24.6million)

·     Net fair value gains of £0.9million (2015: £3.9million)

·     Net assets of £80.0million (2015: £80.8million)

·     Cash and short-term liquidity investments of £30.9million (2015: £53.6million)

·     Pre-tax loss of £1.7million (2015*: £2.0million profit), reflecting the full year investment in headcount to scale the Mercia Model, compared with lower absolute costs in 2015 due to the 3½ month reporting period

 

 

Mark Payton, Chief Executive Officer of Mercia, commented:

 

"Mercia Technologies has made significant progress in the year under review. Our existing portfolio of direct investments is well balanced, having completed a number of both new and follow-on direct investments. Furthermore, we have put in place the foundations to accelerate our growth in the months and years ahead.

 

In particular, we have positioned the Group as the "go-to" provider of funding for innovative companies in the UK Regions, with the opening of our Scottish office in October 2015 and the additional university partners secured both during the year and more recently in June 2016. Our regional presence was further strengthened in March 2016 with the acquisition of Enterprise Ventures, complementing our existing footprint and significantly expanding our ability to source new investments through the expansion of our pipeline in the North of England.

 

The integration of Enterprise Ventures went extremely well and we have already identified a number of exciting direct investment opportunities from its third party investment portfolio. With our pipeline of new direct investments now more than doubled from this time last year, we are excited about the potential for our business to deliver on its growth ambitions and in so doing, create considerable value for shareholders over the medium term."

 

 

For further information, please contact:

Mercia Technologies PLC Mark Payton, Chief Executive Officer Martin Glanfield, Chief Financial Officer www.merciatechnologies.com	+44 (0)330 223 1430
Cenkos Securities plc Ivonne Cantu / Mark Connelly (NOMAD)	+44 (0)20 7397 8900
Buchanan Sophie McNulty, Victoria Hayns, Stephanie Watson www.buchanan.uk.com	+44 (0)20 7466 5000

 

About Mercia Technologies PLC

Mercia is a national investment group focused on the creation, funding and scaling of innovative businesses with high growth potential from the UK regions. Mercia now benefits from 18 university partnerships and 6 offices across the Midlands, the North of England and Scotland, providing it with access to high quality, regional deal flow.  Mercia is quoted on AIM with the epic "MERC".

 

Mercia's "Complete Capital Solution" investment model initially nurtures businesses via its third party funds under management (expanded to circa £220.0million following its acquisition of Enterprise Ventures) and then over time Mercia can provide further funding to its Emerging Stars thanks to its ability to deploy direct investment follow-on capital from its own balance sheet.

 

In a recent report (Source: Beauhurst, The Deal, 2015/16), Mercia was found to be the fifth most active investor in the UK and the fourth most active in technology.  Since its IPO in December 2014, the Company has invested over £24.0million directly across its portfolio of Emerging Stars and continues to seek both early stage third party investment opportunities as well as providing its direct investments with the required capital and management support to build towards exits that will realise incremental value for Mercia shareholders over the medium term.

 

 

Chief Executive's Report

During the past 12 months Mercia has laid the foundations for a sustainable investment business executing against its strategic intents set out at the time of its Admission to AIM in December 2014. We have continued to build material equity stakes in direct investments, in total funding £12.6million net into 16 direct investments, of which 6 are new "Emerging Stars". This increases Mercia's direct investment portfolio from 14 to 22 direct investments. Together this demonstrates growth in both the value of the portfolio as well as in the number of companies invested in during the period. As at 31 March 2016, the Group's investing activities resulted in net fair value gains of £0.9million, leading to a direct investment portfolio fair value of £38.1million reflecting a year of equity stake building. Through the investment management activities across the Group during the year under review, £1.8million of revenue was generated to offset in part the Group's operating costs, resulting in an overall loss for the year of £1.7million and net assets at the year end of £80.0million. 

 

A key step in Mercia's value creation strategy was the acquisition in March 2016 of Enterprise Ventures Group Ltd ("Enterprise Ventures"), the dominant provider of funding to SMEs across the North of England, for an initial consideration of £9.0million plus acquired cash of £2.0million. The acquisition has enabled Mercia to expand its regional footprint and talent pool of investment and commercialisation professionals and has also considerably widened the pipeline of potential new direct investment opportunities, as a result of the numerous investee companies which are already supported by Enterprise Ventures' circa £200.0million of equity and debt funds under management. Enterprise Ventures currently has approximately 400 companies across its third party equity and debt fund portfolios.

 

During the year Mercia expanded its local presence with the opening of its office in Edinburgh and has grown its university partnerships from 9 to 14, including Scottish partnerships with the University of Strathclyde and Abertay University as well as 3 partnerships across the North of England with the universities of York, Liverpool and Liverpool John Moores. Post year end the number of direct investments increased to 23 following the recent investment into Concepta Diagnostics Ltd (the first Emerging Star from the Enterprise Ventures' portfolio) in May and the number of university partnerships has grown to 18, with the addition in June of Edinburgh Napier, Heriot-Watt, Sheffield Hallam and St Andrews.

 

Mercia and Enterprise Ventures have collectively invested approximately £30.0million from their third party funds under management into 49 new portfolio companies that could provide future direct investment opportunities in the years ahead. The Group's model is focused on building a balanced portfolio of innovative businesses (via its third party funds) which creates a funnel of potential investment opportunities for direct investment, which are then supported through to exit. Mercia's long-term goal is to achieve above industry returns for its direct investments - we believe this in turn will deliver significant benefit for both shareholders and fund investors alike.

 

Strategy

In order to maximise investment returns to shareholders and fund investors, the following are Mercia's key value drivers in building a sustainable investment business:

 

A.            The market

·     Access proprietary deal flow from the underserved UK regions and local universities to build a portfolio of companies within its third party funds under management

·     Utilise Mercia's ability to operate a Complete Capital Solution

·     Focus on making direct investments in key growth sectors where we have a deep understanding

 

 

B.            Direct investments

·     Build material equity stakes (target 20% to 40%) in companies with relatively low capital needs

·     Seek to bring in syndicated investment or near to medium term exit events to deliver NAV growth

·     Ensure balance across the portfolio in terms of number and value of investment by sector

 

C.            Funds under management

·     Invest to build a sustainable portfolio, de-risking potential future direct investment opportunities

·     Revenues generated will contribute to offsetting the operating costs of the Group

 

Investment sectors

Mercia's direct investment activity is focused on sectors in which we hold deep knowledge and we invest into sub-sectors where we believe we can create businesses with global growth prospects but with relatively modest capital needs.

 

The 4 investment sectors are:

 

·     Software & the Internet;

·     Digital & Digital Entertainment;

·     Electronics, Materials & Manufacturing/Engineering; and

·     Life Sciences & Biosciences.

 

Complete Capital Solution

By first investing through tax efficient or public sector funds under management, Mercia is able to absorb the initial high risk, early stage phase of a start-up's development when assembling a management team, building out the service or product offering and testing the business model. At this point, for those companies achieving significant commercial traction ("Emerging Stars") we then invest directly from our own balance sheet and scale the opportunity towards an exit, benefiting both Mercia's shareholders and the original fund investors.

 

This twin approach enables Mercia to take a perspective of up to 15 years from day 1 investment to overall exit.

 

Regional focus

Mercia is building infrastructure and investment expertise to capitalise on the underserved regions of the UK.  In particular, it has established and is developing a local presence in the UK regions of the Midlands, the North of England and Scotland to access high quality deal flow from university sources and local networks in a less competitive pricing environment, compared with London and the South East of England.

 

University partners

As a leading university commercialisation partner of choice in the UK with 14 university partnerships on a non-exclusive basis as at 31 March 2016 (expanded to 18 post year end), we partner with research institutes that match Mercia's sector expertise and investment focus. Collectively these university partners received circa £217.0million in Research Council funding in 2014/15 into the areas of research important to Mercia's investment activity. Approximately 30% of Mercia's investment activity via its third party funds has been into university spinouts.

 

 

Group Board and staff

During the year under review we have further strengthened the Board with 2 new appointments. Matthew Mead joined as Chief Investment Officer in May 2015, bringing a successful investment track record from his former senior roles at 3i plc and NESTA. Matthew leads the Group's team of 24 equity investment professionals as well as having oversight and overall responsibility for the Group's investment portfolios - both third party and direct investments. Jonathan Diggines joined the Board on 9 March 2016 as Executive Director, Funds, following the Group's acquisition of Enterprise Ventures. Jonathan is the former chief executive of Enterprise Ventures and has a successful investment track record, having built Enterprise Ventures into a leading regional investment business, supporting over 400 equity and loan investments. Jonathan's new role sees him assume overall responsibility for all of Mercia's third party fund raising, including Mercia's annual EIS/SEIS growth funds as well as new technology, growth and loan fund mandates.

 

In addition to the expanded Board, Mercia continues to build a team of highly capable investment and support professionals to enable the Group to achieve its medium-term strategic objectives.  

 

In May 2016, Susan Searle, previously Non-executive Deputy Chair of the Group, succeeded Ray Chamberlain as Non-executive Chair. Ray is one of the co-founders of Mercia and a highly successful long-term technology entrepreneur. Having reached 70 years of age this year and seen the Group establish itself as a leading regional technology investor, Ray has decided that he can best contribute to the continuing development of the Group solely as a Non-executive Director.

 

Outlook

The past year has been about scaling the 'Mercia Model' and building the direct investment portfolio. The current year will focus on supporting those companies to make progress towards value inflexion, identifying new Emerging Stars from the greatly enlarged fund portfolios, whilst continuing to seek out new early stage investment opportunities from the Group's expanding network of university partnerships and other established deal flow networks.

 

Mercia's investment momentum has continued into the new financial year, including completing its first investment into an Enterprise Ventures' portfolio company, Concepta Diagnostics. We expect further near-term direct investment opportunities from Enterprise Ventures' third party funds under management, having already achieved the requisite commercial milestones which satisfy Mercia Technologies' direct investment criteria. Furthermore, the successful integration of Enterprise Ventures into Mercia Technologies and the shared experience, knowledge and track records of the combined investment team bodes well for the future.

 

We are cognisant of the current macroeconomic climate both nationally (specifically with the recent referendum for the UK to exit from the EU) and globally, which casts some uncertainty over the pace of the global economic recovery. These trends may impact the general funding environment for young technology businesses in the near term. However, we believe that Mercia's hybrid investment model for such early stage businesses, typically already in revenue and with relatively modest capital needs, is the right approach to take in the current climate. As part of its diversified and balanced approach, Mercia benefits from a growing pool of exciting portfolio companies targeting global markets with a high percentage of their revenue deriving from exports and with leading commercial partners, distributors and customers including the likes of Aston Martin, Jaguar Land Rover, Nike, O2, Mastercard, Google, Apple, Samsung, Panini, Sony, Oculus and Steam. We have now established the foundations of a sustainable investment business with the breadth and depth to access new Emerging Stars in combination with an ever maturing existing direct investment portfolio. The current year will build on the last 12 months of strict focus and business development.

 

Although Mercia has yet to yield a material exit from any of its direct investments in its short time on AIM, we expect many of these businesses to yield significant technical, corporate and revenue milestones in the near to medium term and thus begin to demonstrate the real opportunity of delivering a material return for Mercia's shareholders and fund investors. The Group therefore looks forward to reporting on further positive progress in due course.

 

 

Operational Review

This has been an exciting year for Mercia Technologies PLC in developing its direct investment portfolio. In the last 12 months we have focused on building material equity stakes in the existing portfolio companies, and broadening the direct portfolio by selectively making investments into new Emerging Stars that we have previously invested in and guided through our third party funds under management.

 

We have deployed a net total of £12.6million of capital in the last 12 months and added 6 new investments to the direct portfolio across Mercia's target technology sectors:

•              Intelligent Positioning - cloud-based search engine optimisation data business;

•             Edge Case Games - digital games business focused on bringing sci-fi games to both PC and mobile platforms;

•              Impression Technologies - specialists in forming complex, high strength, lightweight, ductile components used in the manufacture of vehicles;

•              Oxford Genetics - synthetic biology company specialising in DNA design, protein expression optimisation and cell line development technologies and services;

•              LM Technologies - designs, develops and manufactures wireless modules and adapters; and

•              PsiOxus Therapeutics - a biotechnology company developing novel therapeutics that address cancer and other clinically unmet diseases.

 

In addition we have made further investments into 10 of Mercia's existing direct investments such as nDreams, Smart Antenna Technologies and Crowd Reactive, where we see the potential to build valuable businesses.

 

During the year we have also transferred the 9 trading investments previously held in Mercia Fund 2 across to become direct holdings on Mercia's balance sheet, 6 of which were already direct investments, so we have now been able to build our direct ownership positions in these companies, such as Allinea Software and PsiOxus Therapeutics.

 

We closed the year with a direct investment portfolio of 22 companies valued at £38.1million, which includes net fair value uplifts recognised in the year of £0.9million.

 

Currently the 15 leading investments account for 96.4% of the carrying value of the entire portfolio:

 

 

	Holding as at 31 March 2015	Fair values as at 31 March 2015	Portfolio composition 31 March 2015	Holding as at 31 March 2016	Fair values as at 31 March 2016	Portfolio composition 31 March 2016
Investment	%	£'000	%	%	£	%
Science Warehouse Ltd	62.6	12,650	51.4	62.6	12,650	33.2
nDreams Ltd	32.8	1,909	7.8	40.0	4,721	12.4
VirtTrade Ltd	21.2	1,750	7.1	28.4	2,575	6.7
Allinea Software Ltd	20.0	1,902	7.7	16.6	1,916	5.0
Smart Antenna Technologies Ltd	8.4	149	0.6	29.5	1,827	4.8
Edge Case Games Ltd	-	-	-	21.2	1,810	4.8
Soccer Manager Ltd	22.4	999	4.1	29.9	1,599	4.2
Impression Technologies Ltd	-	-	-	18.6	1,500	3.9
Crowd Reactive Ltd	11.9	500	2.0	28.3	1,500	3.9
LM Technologies Ltd	21.9	821	3.3	37.1	1,392	3.7
Warwick Audio Technologies Ltd	16.8	396	1.6	65.2	1,348	3.5
Oxford Genetics Ltd	-	-	-	34.7	1,150	3.0
PsiOxus Therapeutics Ltd	1.6	897	3.6	1.6	1,137	3.0
Ton t/a Intelligent Positioning Ltd	-	-	-	14.3	1,000	2.6
The Native Antigen Company Ltd	31.3	529	2.1	35.6	646	1.7
Other direct investments	-	2,115	8.7	-	1,372	3.6
	n/a	24,617	100.0	n/a	38,143	100.0

 

It remains Mercia's intention to actively balance investment activity across the sectors in which we focus, so that in time no single company or sector over-weights the portfolio. We are pleased with the progress we have made in this area over the last 12 months and will continue to make further progress on this objective in the year ahead. In the next 12 months we should also see the continued development of the direct investment portfolio, new direct investments across the target sectors and high levels of investment activity in its managed funds, all of which will significantly enhance Mercia's pipeline of investment opportunities. Furthermore, now that Mercia has built material stakes in a number of its leading investments, it expects in the forthcoming year to increase its syndicate investor numbers to both provide industry relevant input and external validation of the respective portfolio holding values, the first notable example of this approach being Kingsoft (the large Chinese listed software developer) in Edge Case Games.

 

Software & the Internet

The global software market is huge and estimated by Reuters to be around $660.0billion. Within this broad sector, Mercia has chosen to focus in the near to medium-term on 4 attractive and growing sub-sectors: cloud software, marketing technology software, security software and artificial intelligence. In all of these areas the UK has established centres of excellence and a track record of producing global leaders. Each of the sub-sectors address significant market opportunities, for example Gartner estimates the size of the information security market currently to be around $75.4billion and Bank of America Merrill Lynch expects the artificial intelligence market to be worth $70.0billion within the next 5 years. We are creating networks in each of these areas and university relationships that will deliver great opportunities for early stage investments. Over time a number of these companies will emerge to become direct investments for Mercia.

 

For the year to 31 March 2016, Mercia invested £2.1million in this sector with 1 new Emerging Star from its managed funds, Intelligent Positioning, receiving direct investment. The Group has a total of £17.4million of asset value in this sector and the key assets are as follows.

 

Science Warehouse

As at 31 March 2016, the Group held a 62.6% interest in Science Warehouse at a fair value of £12.7million which is valued at the price of the last round of investment.

 

Founded in 2000 as a Leeds University spinout, Science Warehouse offers a cloud-based e-procurement solution for large decentralised organisations. E-procurement remains an attractive sector for growth, with the global procurement technology and B2B e-commerce market predicted to grow from $4.9billion in 2015 to be worth $6.7billion by 2018, according to research by procurement market analysts Spend Matters.

 

In 2015, Philip Padfield joined as CEO to shape the future strategy and drive revenue growth. Philip is a successful CEO with a track record of delivering increased market share and shareholder value in enterprise software and other technology areas. Philip has made a successful transition into the business in the last 12 months and has started to build out the executive team which includes Jonathan Russell, former senior director of software engineering at FICO, as chief technology officer and Amanda Grant, former business development director at m-Hance, as sales & marketing director.

 

In the year, the business has recorded double-digit revenue growth and won a number of new buyer accounts in the NHS, Central Government (Defence) and UK Local Government, as well as 2 major contracts with Australian universities.

 

Crowd Reactive

As at 31 March 2016, the Group held a 28.3% interest in Crowd Reactive, at a fair value of £1.5million, the investment being held at cost. The Group invested £1.0million during the year to help fund the company's growth.

 

Founded in 2013 Crowd Reactive powers social media conversations by collecting content from platforms including Twitter, Instagram and Vine and displaying them on large screens. Since its formation the Crowd Reactive platform has been used at 110,000 events and has displayed over 4.0million photos in 121 different countries.  It has also built an impressive customer base, including notable brands such as O2, Coca Cola, San Francisco 49ers, Nike, Mastercard, Rolls Royce, Adidas, England Rugby and Starbucks.

 

Crowd Reactive is scalable and capable of working with almost any social media platform, at any kind of event, with the company estimating its total addressable market to be $4.0billion. It has expanded its operations across the Atlantic, with 65% of its sales currently coming from the United States.

 

Mercia first invested in the business at a pre-revenue stage through its third party funds under management in 2014 and since then the company has grown from 2 founders to 16 employees in London, and 6 in the United States. The Board has also expanded, with Linda Grant, previously managing director of Metro UK, joining as a Non-executive director in April 2016.

 

The investment made by Mercia Technologies in the last 12 months will help the company to scale its operations across Europe, Asia and Latin America and develop new products.

 

Allinea Software

As at 31 March 2016, the Group held a fully diluted 16.6% interest in Allinea Software ('Allinea') at a fair value of £1.9million, the investment being held at an enterprise value as the business is profitable and cash generative. During the year Mercia invested £17,000, exercising its pre-emption rights on small share parcel purchases.

 

Incorporated in 2009, Allinea is a spinout from one of Mercia's university partners, the University of Warwick. It is a leading provider of software tools for developing and optimising high performance computing applications. Headquartered in the Midlands, one of Mercia's core investment regions, Allinea has since grown to incorporate teams in the United States, Europe and Japan.

 

According to research by IDC1, the high performance computing market is forecast to experience 8.2% annual growth until 2019, with the market expected to reach $15.2billion by this point.

 

In the last 12 months the business has continued to develop notable partnerships including relationships with many blue chip organisations, including Intel, Cray, IBM, Fujitsu, Atos and HP, and also has an impressive customer base, with its software used on 65% of the world's 100 largest supercomputers.

 

Digital & Digital Entertainment

Mercia sees this sector having an ever increasing volume of investment opportunities through our proprietary networks. Gaming in particular has seen a dynamic shift from a niche sector to a worldwide, social experience, with the global games market estimated to be worth close to $81.3billion in 2014 (Newzoo/UKie), making it the largest market in the entertainment sector. This number will only increase, with the games market expected to grow to $113.0billion in 2018 (Newzoo/UKie), in part driven by new innovations such as virtual reality ("VR").

 

Indeed, 2016 has been heralded as 'The Year of VR' by the media, with exciting new products within the virtual and augmented reality ("AR") fields entering the market. The UK in many respects is leading the field in both the traditional games market and the impressive new developments with VR and AR and this is showcased by 3 businesses within the Mercia Technologies' portfolio: nDreams, Edge Case Games and VirtTrade. Mercia has a strong portfolio of exciting new entrants in these markets and is well placed to fulfil its medium to long term goal as being one of the leading investors in interactive entertainment in the UK.

 

For the year to 31 March 2016, Mercia made £4.9million of direct investment into this sector, taking the total holding value to £10.7million, including: £2.0million into nDreams, £0.8million into VirtTrade, £1.5million into Edge Case Games and £0.6million into Soccer Manager.

 

nDreams

As at 31 March 2016, the Group held a 40.0% interest in nDreams at a fair value of £4.7million. The company received £2.0million of investment during the year and the investment is held at the price of the last investment round.

 

nDreams was founded in 2006 and quickly became the leading publisher in PlayStation Home and a developer of several major alternate reality games ("ARGs"). In 2013, however, its focus shifted to virtual reality and it is now the largest UK software developer to be solely focused on creating virtual reality entertainment creating content for the major VR headset manufacturers, including Samsung Gear VR, HTC Vive, Oculus Rift and Sony Playstation VR. On 20 November 2015, 2 of nDreams' mobile VR titles - Gunner and Perfect Beach - were released and are both now available to download for Google Cardboard and Gear VR.

 

In the last 12 months nDreams has significantly increased its marketing and development activity and moved into publishing of third party VR titles. Post year-end nDreams has announced a major partnership with Google to develop 2 games for the launch of Google's new VR platform, Daydream. The company's flagship game The Assembly, which has already received very positive reviews from industry commentators, will launch in summer 2016 alongside the major high end hardware releases from Oculus, HTC Vive and Sony Playstation VR.

 

With its increasingly broad catalogue of games and experiences, relationships with all of the major hardware platforms and deep technical capability, we believe that nDreams is well placed for significant growth in the years ahead.

 

Edge Case Games

Edge Case Games is a new direct investment and as at 31 March 2016, the Group held a 21.2% interest in the business at a fair value of £1.8million. The company received £1.5million of investment during the year and the investment is valued at the price of the last syndicated investment round.

 

Established as a new business under Mercia's guidance, with seed and early stage finance through its third party funds, Edge Case Games is a free to play, games-as-a-service business. Founded by 2 industry veterans, James Brooksby and Chris Mehers, Edge Case Games is in the process of developing its first major title, Fractured Space, a strategic tactical space combat game using large, intricately detailed space battleships. In the last 12 months it has secured investment from a leading Chinese developer, Kingsoft Corporation ("Kingsoft"), and built a loyal user base of PC gamers through its open development model.

 

Mercia invested £1.5million into the company during the year, with its second investment being alongside Kingsoft, which committed £1.0million to the round.

 

Edge Case Games is now preparing for the full launch of Fractured Space, following a soft launch via Steam's digital distribution platform in the Early Access programme. The company has already attracted over 500,000 users, with many contributing to the continued improvement of the gameplay experience, thanks to feedback from users in the forums and blogs set up by the company in conjunction with its open development policy.

 

With the increasing number of users, Edge Case Games is stepping up its operations here in the UK, having recently made several key hires, including Martin Frain, formerly of EA and Atari, who has joined as marketing director, and Jorge Ezquerra, formerly of Gameloft, who now leads the monetisation strategy. The company has also employed a network of high profile PR agencies around the world and is implementing an impressive digital strategy, which includes live streams of gameplay by staff to the gaming community.

 

With Mercia's continued support and the continued growth of the global video games market, Edge Case Games is well placed to build a potentially highly valuable business.

 

VirtTrade

As at 31 March 2016, the Group held a 28.4% interest in VirtTrade at fair value of £2.6million. The company received £825,000 of investment during the year and the investment is valued at the price of the last investment round.

 

VirtTrade, founded in 2012, provides an advanced digital solution to the trading and collectibles market. The traditional physical market is estimated to be worth in excess of $2.5billion per annum and VirtTrade anticipates that it will fully digitise in the same way that books, music, TV and film have during the past decade. Its highly customisable platform allows users around the world to trade cards on smartphones and tablets, with collections having the potential to exhibit real-time data, video, audio and social media feeds to create dynamic and constantly relevant collectibles.

 

In 2015, following an investment from Mercia Technologies to further support product development, VirtTrade announced a partnership with Panini, the world leader in sports and entertainment collectibles. Panini owns the digital rights to a significant portfolio of prestigious sports and entertainment franchises and together they subsequently published 2 titles in partnership for the NFL and NBA franchises; Gridiron and Dunk.  During the same year VirtTrade also directly partnered with Premiership Rugby Ltd for the 2015-16 season and post year end launched the first ever Video Cards featuring tries from every game of the campaign and Social Access Cards offering live scrolling Twitter feeds for leading players - industry pioneering in both instances.

 

The company is now in discussions to independently support and launch digital collectibles for a number of other high profile rights holders from sport, TV and franchise entertainment. These discussions anticipate new product launches in 2017.

 

Electronics, Materials & Manufacturing/Engineering

Mercia has a particular interest in enabling technologies in the sub-sectors of energy and storage, displays and high value electronics and telecommunication applications. These market segments are undergoing rapid change in response to fundamental technology and economic drivers, which provide an ideal backdrop for differentiated innovative solutions to build value. Although this sector is dominated by a limited number of large global corporations, we see considerable opportunity for innovative young companies. Enterprise Ventures also has a strong track record in this sector, including the AIM listing of Xeros and positions in several interesting businesses in its managed funds.

 

Recognising that these technologies can take some time to achieve real commercial validation as they come to market we will continue to build a balanced portfolio in this sector, with a blend of investments with different risk/return profiles.

 

For the year to 31 March 2016, Mercia invested £4.5million in this sector, with 2 new Emerging Stars from its managed funds, Impression Technologies and LM Technologies, receiving direct investment. We have £6.7million of assets in this sector and the key assets are as follows.

 

Smart Antenna Technologies

As at 31 March 2016, the Group held a 29.5% interest in Smart Antenna Technologies at a fair value of £1.8million, based on the price of the last round of investment. During the year it received £1.3million of investment.

 

Smart Antenna Technologies is a spinout from partner university, the University of Birmingham, and is developing multi-function antenna solutions for mobile phones, tablets, laptops and Smart TVs.

 

With 1.0billion mobile handset devices alone produced annually, the global antenna market is predicted to grow to $19.9billion by 2019, according to a report published in December 2014 by BCC Research.

 

The market has, until now, been restricted by the limitation of certain electronic devices which can have up to 7 antennae to enable communication across the different radio standards. As more functionality is incorporated into devices, more antennae are required, thus increasing the material costs to both the manufacturer and ultimately, the consumer.

 

Based on patented technology developed by founder and CTO Sampson Hu, Smart Antenna Technologies is tackling these problems whilst meeting the requirements of the next generation of consumer electronics and mobile platforms. Its technology has the potential to reduce the cost of antennae in a typical smart phone by up to 50%, and could also improve battery life significantly.

 

Smart Antenna Technologies is now looking to branch out into other applications such as the next generation of Smart TVs. In October 2015, Mercia committed a further £1.2million, which has helped Smart Antenna Technologies to continue development of its technology alongside ongoing discussions with several major commercial partners, including tier 1 laptop/tablet customers.

 

Impression Technologies

As at 31 March 2016, the Group held an 18.6% interest in Impression Technologies at a fair value of £1.5million. This is a new direct investment. Mercia made its first investment in July 2015, following initial funding from Mercia Fund Management in 2014, and made a further investment during the year. The investment is held at cost and total investments made during the reporting year were £1.5million.

 

Impression Technologies specialises in forming complex, high strength, lightweight, ductile components which can be used in the manufacture of cars, trains and aeroplanes using its proprietary Hot Form Quenching ("HFQ®") process.

 

The technology was originally developed by Impression Technologies and Imperial College, building on founding research from the University of Birmingham. Impression Technologies' business model is to license its technology to major vehicle OEMs and their tier 1 suppliers but they also offer services such as licensing, training and support, forming simulation and material test methods to manufacturers.

 

Although design cycles in the automotive industry can be long, Impression Technologies has already established a long list of potential collaborations with vehicle brands, tier 1 contractors, aluminium suppliers and designers. They have secured prestigious customers from within the automotive industry, including Aston Martin, which has included parts made using the HFQ® method in its recently launched DB11 model.

 

Since receiving a total of £5.0million in investment from Mercia Technologies and syndicate partner Imperial Innovations, Impression Technologies has now moved into a pioneering new press facility, which houses the world's first dedicated HFQ® hot forming press. This capacity will be formally launched later this year and should lead to further growth opportunities in the year ahead.

 

Warwick Audio Technologies

As at 31 March 2016, the Group held a 65.2% interest in Warwick Audio Technologies at a fair value of £1.3million, based on the price of last round of investment. The company received £885,000 of investment during the year.

 

Warwick Audio Technologies is a University of Warwick spinout company founded in 2007. It has developed a patented electrostatic speaker with hi-fi quality sound that is extremely light, thin, flexible, cheap to manufacture and uses significantly less power than current speaker technology. The company is focused on 3 core markets - headphones, other consumer goods applications such as sound bars and in the longer term, in-car directional speakers.

 

The headphone opportunity has accelerated significantly in the last 12 months. The wired product is a high-fidelity, high-end, enthusiast's offering and sits in a worldwide addressable market size of circa $300.0million. It was demonstrated at the Consumer Electronics Show ("CES") in Las Vegas in January 2016, where it was well received and partnerships for production runs within the next 12 to 18 months have been entered into. The prototype has outperformed many of its comparators and received very favourable trade press reviews, also benefiting from significantly reduced manufacturing costs which has enabled an attractive retail price point to be achieved.

 

The wireless/portable product requires additional development largely to ensure that the technology can meet the appropriate form factor and power/battery life market requirements. The intention is to bring this product to market in the next 18 months, launching into a much larger global market opportunity estimated at circa $3.0billion.

 

Life Sciences & Biosciences

The key areas of focus in this sector are digital health, diagnostics and medical devices. These sub-sectors have clear regulatory paths to market, are not typically capital intensive and are areas in which investee companies can quickly become revenue generating. The strategy rules out the capital intensive plays of drug discovery and novel drug development. We have increased fund investment activity in these sub-sectors in the last 12 months making 5 new investments, largely through university partnerships.

 

The Life Sciences & Biosciences sector is of particular interest to Mercia as it resides largely within its core regions of focus as almost two-thirds of employment within this sector is outside of London, according to a report by the Office for Life Science. Also, whilst the biopharmaceutical industry is dominated by corporate giants, 98% of the medtechnology sector in the UK is driven by SMEs. This provides a wealth of investment opportunities, which we can source both directly through the Investment Directors' extensive personal networks, as well as via university partnerships.

 

For the year to 31 March 2016, Mercia invested £1.1million in this sector. We have a total of £3.3million of value in this sector and the key assets are described below.

 

Post year end Mercia launched a third party fund, SME Innovation Fund, in partnership with the West Midlands Academic Health Science Network which is linked to, and funded by, the NHS. Post year end Mercia also made an investment into Concepta Diagnostics, a life sciences business sourced from the portfolio of investments managed by Enterprise Ventures.

 

The Native Antigen Company

As at 31 March 2016, the Group held with a 35.6% interest in The Native Antigen Company at a fair value of £0.6million based on the price of the last round of syndicated investment. The company received £118,000 of investment during the reporting year.

 

The Native Antigen Company is a spinout from partner university, the University of Birmingham. The company specialises in the research, development and manufacture of high purity antigens, which are proteins that are located on the surface of cells such as bacteria and viruses.

 

The company has developed a proprietary, high yielding mammalian cell system which, unlike other manufacturing systems, produces pure antigens which conform very closely to their natural form. The company has employed this platform to produce a catalogue of (often unique) high quality, pure antigens for a number of life-threatening diseases, including dengue, West Nile and yellow fever and it also offers custom manufacturing services for bulk quantities of antigens and other biological materials.

 

In 2015 The Native Antigen Company received worldwide industry attention by developing the world's only commercially available native antigen from the Zika virus. Known as the Zika NS1 protein, the product provides a natural match for key parts (or antigens) of the Zika virus, allowing research facilities to safely test biological reactions for a wide variety of circumstances, such as disease diagnosis and vaccine development.

 

In addition to antigens and custom services, it has a development pipeline of point-of-care diagnostic for the detection of microbes which represent an increasing threat to public health, including dengue and Chikungunya viruses. The increasing threat and prevalence of these pathogens is contributing to the significant growth in the point-of-care diagnostics market, which is forecast to be worth in excess of $20.0billion worldwide by 2019.

 

In 2016, the team was strengthened by Dr Andy Lane who brings extensive experience of building companies in the life science research and diagnostics sectors. This will support the company in addressing the significant opportunities within this market which The Native Antigen Company is well placed to capitalise upon during the coming year.

 

Oxford Genetics

As at 31 March 2016, the Group held a 34.7% interest in Oxford Genetics, at a fair value of £1.2million.  The investment is held at cost and the company received £1.2million of investment during the reporting year.

 

Founded in 2011 Oxford Genetics became a direct investment for Mercia in December 2015, following revenue growth arising from key partnerships with organisations such as Sigma-Aldrich (now part of the Merck Group).

 

Oxford Genetics is a synthetic biology company focused on providing product solutions to maximise protein production. The company's central focus is to use its DNA design and algorithm technologies to enable customers to create products to overcome the key issue of poor protein yield with certain recombinant technologies and constructs.

 

The company has a hybrid model of providing an e-commerce DNA catalogue which has already developed the world's largest library of plasmid DNA 'building blocks' for simplified genetic engineering, combined with the creation of bespoke mammalian cell lines capable of achieving the optimised production of proteins, antibodies and viruses. Its customers comprise academia, pharma and biotech companies.

 

The forthcoming year holds great potential as the business is benefiting from state of the art facilities and accelerated expansion of its board and management to meet the marked increase in demand for its services.

 

Financial Review

As Mercia Technologies was formed just prior to its Initial Public Offering ("IPO") on 18 December 2014, the prior period consolidated results represent approximately 3½ months' trading activity to 31 March 2015.

 

Mercia's objectives are centred on investing its £66.0million net placing proceeds into new and existing direct investments, the recruitment of experienced investment and commercialisation professionals, regional organic expansion and the acquisition of complementary investment businesses, whilst at all times maintaining liquidity and operational flexibility. Mercia's results for the year to 31 March 2016 reflect significant progress in all of these key business objectives.

 

During the year ended 31 March 2016 the Group invested £12.6million net (2015: £11.7million) into 10 existing (2015: 3) and 6 new (2015: 3) direct investments. As at 31 March 2016 the fair value of the Group's direct investment portfolio (including investments transferred from Mercia Fund 2) was £38.1million (2015: £24.6million). Net fair value gains during the year totalled £0.9million (2015: £3.9million). Total net assets at the year end were £80.0million (2015: £80.8million), including cash and short-term liquidity investments totalling £30.9million (2015: £53.6million). The net fair value gains referred to above contributed positively to a consolidated loss and total comprehensive loss for the year of £1.7million (2015: £2.0million profit). Given the early stage nature of the vast majority of the Group's direct investment portfolio, these results are reflective of the relatively short time in which the Group's cash has been invested.

 

Acquisition of Enterprise Ventures

On 9 March 2016 Mercia Technologies acquired Enterprise Ventures' entire issued share capital for up to £11.0million and an amount equal to Enterprise Ventures' net cash at completion which was £2.0million. The initial consideration was £9.0million, comprising £8.3million satisfied in cash on completion (which was funded from the Group's existing cash resources) and £0.7million satisfied by the issue of 1,645,711 initial consideration shares at a price of 42.0 pence (being the average of the daily closing mid-market price for an Ordinary share of Mercia Technologies for the 5 trading days immediately preceding completion).

 

Deferred consideration of up to £2.0million will also be payable, contingent upon Enterprise Ventures raising at least £80.0million of net new third party funds during the 2 year period post completion, to be satisfied by the issue of additional Mercia Technologies Ordinary shares.

 

The consolidated results for the enlarged Group therefore include Enterprise Ventures' post acquisition trading from its date of acquisition to 31 March 2016.

 

Dissolution of The Mercia Fund 2 Limited Partnership ("Mercia Fund 2")

During the immediate post IPO period to 31 March 2015 the Group became the sole limited partner in Mercia Fund 2, a fund owning investments in 9 trading technology companies, 6 of which are companies in which Mercia Technologies also has a direct stake. The intention of becoming the sole limited partner was to enable the fund to be dissolved and the investment stakes held by Mercia Fund 2 to become directly owned by Mercia Technologies. Just prior to 31 March 2016 the shares held by Mercia Fund 2 in those 9 companies were successfully transferred to Mercia Technologies along with residual cash of £384,000. Mercia Fund 2 is now being dissolved.

 

Goodwill and acquired intangible assets

The year end consolidated balance sheet includes goodwill of £10.3million (2015: £2.5million) and acquired intangible assets of £1.5million (2015: £nil). As more fully disclosed in note 9, £7.9million (2015: £nil) of the goodwill and all of the intangible assets value arose as a result of the Group's acquisition of Enterprise Ventures. The intangible assets are separately identifiable assets arising from Enterprise Ventures' fund management contracts with third party limited partners and other similar investors. The fair value of the intangible assets is being amortised on a straight-line basis over the average duration of the remaining fund management contracts. The amortisation charge of £17,000 (2015: £nil) in the consolidated statement of comprehensive income represents the amortisation of the intangible assets from their date of acquisition to 31 March 2016.

 

Summarised Statement of Comprehensive Income

	Year ended  31 March 2016 £'000	Period ended 31 March 2015 £'000
Revenue	1,755	508
Cost of sales	(79)	(10)
Fair value movements in investments	896	3,934
Administrative expenses	(4,011)	(1,495)
Share-based payments charge	(230)	(44)
Amortisation of intangible assets	(17)	-
Exceptional items - acquisition and IPO costs	(372)	(1,018)
Finance income	361	93
(Loss)/profit and total comprehensive (loss)/income for the financial year/period	(1,697)	1,968
Basic and diluted (loss)/earnings per Ordinary share  (pence)	(0.80)	0.93

 

Revenue and cost of sales

Total revenues of £1,755,000 (2015: £508,000) 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 ("MFM").

 

Fair value movements in investments

	Year ended  31 March 2016 £'000	Period ended 31 March 2015 £'000
Investment movements excluding cash invested:
Unrealised gains on the revaluation of investments	1,582	4,225
Unrealised losses on the revaluation of investments	(686)	(291)
Net fair value gain	896	3,934

 

For the year as a whole, unrealised fair value gains arose 5 (2015: 5) of the Group's 22 (2015: 14) direct investments. The largest fair value gain was nDreams Limited, which accounted for £812,000 of the total. There were 4 (2015: 3) fair value impairments, the largest being £150,000 for Nightingale-EOS Limited.

 

Administrative expenses

Total administrative expenses of £4,011,000 (2015: £1,495,000) consisted predominantly of staff related costs. Total headcount has grown in line with the Group's stated objectives at the time of the IPO.

 

Share-based payments charge

The £230,000 (2015: £44,000) non-cash charge arises from the issue of share options to 10 members of staff at the date of the IPO and 5 more during the year.

 

Amortisation of intangible assets

The amortisation charge of £17,000 (2015: £nil) represents the amortisation of the acquired intangible assets of Enterprise Ventures from their date of acquisition to 31 March 2016.

 

Exceptional items - acquisition costs

Total acquisition costs in relation to the acquisition of Enterprise Ventures amounted to £394,000. Of this total £22,000 were share issue related costs and have been charged to the share premium account. The balance of £372,000 has been charged to the consolidated statement of comprehensive income, as an exceptional non-trading and non-recurring cost. The prior period exceptional item represents costs incurred in relation to the Group's IPO.

 

Finance income

Finance income of £361,000 (2015: £93,000) was predominantly interest receivable earned on the Group's cash and short-term liquidity investments.

 

Balance sheet and cash flows

Net assets at the period end of £80,041,000 (2015: £80,839,000) 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.

 

 

Investment	Net investment value As at 1 April 2015 £'000	Cash invested/ (received) Year to 31 March 2016 £'000	Mercia Fund 2 transfer Year to 31 March 2016 £'000	Fair value movement Year to 31 March 2016 £'000	Net investment value As at 31 March 2016 £'000	Percentage held As at 31 March 2016 %
Science Warehouse Ltd	12,650	-	-	-	12,650	62.6
nDreams Ltd	1,909	2,000	-	812	4,721	40.0
VirtTrade Ltd	1,750	825	-	-	2,575	28.4
Allinea Software Ltd	823	17	1,120	(44)	1,916	16.6
Smart Antenna Technologies Ltd	149	1,300	-	378	1,827	29.5
Edge Case Games Ltd	-	1,500	-	310	1,810	21.2
Soccer Manager Ltd	999	600	-	-	1,599	29.9
Impression Technologies Ltd	-	1,500	-	-	1,500	18.6
Crowd Reactive Ltd	500	1,000	-	-	1,500	28.3
LM Technologies Ltd	-	750	642	-	1,392	37.1
Warwick Audio Technologies Ltd	318	885	78	67	1,348	65.2
Oxford Genetics Ltd	-	1,150	-	-	1,150	34.7
PsiOxus Therapeutics Ltd	-	240	897	-	1,137	1.6
Ton t/a Intelligent Positioning Ltd	-	1,000	-	-	1,000	14.3
The Native Antigen Company Ltd	164	118	364	-	646	35.6
Other direct investments	963	129	638	(358)	1,372	n/a
Mercia Fund 2	4,392	(384)	(3,739)	(269)	-	n/a
Totals	24,617	12,630	-	896	38,143	n/a

 

Cash and short-term liquidity investments

At the year end, Mercia had total cash and short-term liquidity investments of £30,932,000 (2015: £53,633,000) comprising cash of £20,932,000 (2015: £23,633,000) and short-term liquidity investments of £10,000,000 (2015: £30,000,000). The overriding emphasis of the Group's treasury policy remains the preservation of its shareholders' cash for investment and working capital purposes, not yield. At the year end the Group's cash and short-term liquidity investments (which is cash on deposit with maturities between 3 and 6 months) were spread across 5 leading United Kingdom banks.

 

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

 

	Year ended  31 March 2016 £'000	Period ended 31 March 2015 £'000
Opening cash and short-term liquidity investments	53,633	-
Cash acquired with MFM on 17 December 2014	-	124
Net cash used in operating activities	(2,024)	(2,029)
Net cash used in investing activities (including capital expenditure and interest received)	(12,346)	(11,692)
Purchase of subsidiary undertaking net of cash acquired	(8,309)	-
Issued share capital	-	70,000
Share issue costs charged to share premium account	(22)	(2,770)
Year/period end cash and short-term liquidity investments	30,932	53,633

 

 

Summary Financial Information

Consolidated statement of comprehensive income

For the year ended 31 March 2016

	Note	Year ended 31 March 2016 £'000	Period ended 31 March 2015 £'000
Revenue	4	1,755	508
Cost of sales		(79)	(10)
Gross profit		1,676	498
Fair value movements in investments	5	896	3,934
Administrative expenses: Share-based payments charge		(230)	(44)
Amortisation of intangible assets		(17)	-
Other administrative expenses		(4,011)	(1,495)
Operating (loss)/profit before exceptional items	6	(1,686)	2,893
Exceptional items		(372)	(1,018)
Operating (loss)/profit		(2,058)	1,875
Finance income		361	93
(Loss)/profit before taxation Taxation		(1,697) -	1,968 -
(Loss)/profit and total comprehensive (loss)/income for the financial year/period		(1,697)	1,968
Basic and diluted (loss)/earnings per Ordinary share (pence)	7	(0.80)	0.93

 

 

Consolidated balance sheet

As at 31 March 2016

	Note	As at 31 March 2016 £'000	As at 31 March 2015 £'000
Assets
Non-current assets
Goodwill	8	10,328	2,455
Intangible assets	10	1,487	-
Property, plant and equipment		145	49
Investments	5	38,143	24,617
Total non-current assets		50,103	27,121
Current assets
Trade and other receivables		798	716
Short-term liquidity investments	11	10,000	30,000
Cash and cash equivalents	11	20,932	23,633
Total current assets		31,730	54,349
Total assets		81,833	81,470
Current liabilities
Trade and other payables		(1,521)	(631)
Non-current liabilities
Deferred taxation		(271)	-
Total liabilities		(1,792)	(631)
Net assets		80,041	80,839
Equity
Issued share capital	12	2	2
Share premium	13	9,494	8,825
Other distributable reserve		70,000	70,000
Retained earnings		271	1,968
Share-based payments reserve		274	44
Total equity		80,041	80,839

 

 

Consolidated cash flow statement

	Note	Year ended 31 March 2016 £'000	Period ended 31 March 2015 £'000
Cash flows from operating activities: Operating (loss)/profit		(2,058)	1,875
Adjustments to reconcile operating profit to net cash flows used in operating activities:
Depreciation of property, plant and equipment		33	6
Fair value movements in investments		(896)	(3,934)
Share-based payments charge		230	44
Amortisation of intangible assets Working capital adjustments: Decrease/(increase) in trade and other receivables		17   522	-   (507)
Increase in trade and other payables		128	487
Net cash used in operating activities		(2,024)	(2,029)
Cash flows from investing activities: Purchase of direct investments		(13,108)	(11,687)
Investee company loan repayment		94	-
Cash received on the dissolution of Mercia Fund 2		384	-
Purchase of subsidiary undertaking		(10,262)	-
Cash acquired on purchase of subsidiary undertaking		1,953	124
Net cash flow from direct investment activity and the purchase of subsidiary undertakings		(20,939)	(11,563)
Cash flows from other investing activities: Purchase of property, plant and equipment		(113)	(27)
Interest received		397	22
Decrease/(increase) in short-term liquidity investments		20,000	(30,000)
Net cash generated from/(used in) other investing activities		20,284	(30,005)
Net cash used in total investing activities		(655)	(41,568)
Cash flows from financing activities: Proceeds from issue of Ordinary shares		-	70,000
Transaction costs relating to issue of Ordinary shares		(22)	(2,770)
Net cash (used)/generated from financing activities		(22)	67,230
Net (decrease)/increase in cash and cash equivalents		(2,701)	23,633
Cash and cash equivalents at the beginning of the year/period		23,633	-
Cash and cash equivalents at the end of the year/period	11	20,932	23,633

For the year ended 31 March 2016

 

Transaction costs relating to issue of Ordinary shares have been deducted from share premium.

 

 

Consolidated statement of changes in equity

For the year ended 31 March 2016

	Issued share Capital  £'000 (note 13)	Share premium £'000 (note 14)	Other Distributable reserve £'000	Retained earnings £'000	Share based payments reserve £'000	Total £'000
As at 17 December 2014	-	-	-	-	-	-
Profit and total comprehensive income for the period	-	-	-	1,968	-	1,968
Issue of share capital	2	81,595	-	-	-	81,597
Costs of share capital issued	-	(2,770)	-	-	-	(2,770)
Share premium reduction	-	(70,000)	70,000	-	-	-
Share-based payments charge	-	-	-	-	44	44
As at 31 March 2015	2	8,825	70,000	1,968	44	80,839
Loss and total comprehensive loss for the year	-	-	-	(1,697)	-	(1,697)
Issue of share capital	-	691	-	-	-	691
Costs of share capital issued	-	(22)	-	-	-	(22)
Share-based payments charge	-	-	-	-	230	230
As at 31 March 2016	2	9,494	70,000	271	274	80,041

 

 

 

Notes to the Summary Financial Information

 

1.      General information

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

 

2.      Basis of preparation

The summary financial information included in this announcement has been extracted from the audited financial statements of the Group for the year ended 31 March 2016, which have been approved by the Board of Directors. The content of this announcement has been agreed with the Group's auditor. The summary financial information does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The auditor's report on the financial statements for the year ended 31 March 2016 was unqualified and did not contain any statement under section 498 of the Companies Act 2006. The Group's Annual Report and financial statements will be delivered to the Registrar of Companies in due course.

 

The consolidated financial statements of Mercia Technologies PLC for the year ended 31 March 2016 have been prepared on the going concern basis, under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities at fair value through profit or loss, as required by International Accounting Standard ("IAS") 39 'Financial Instruments: Recognition and Measurement', and in accordance with European Union endorsed International Financial Reporting Standards ("IFRSs"), the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee ("IFRIC")) interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies presented in the summary financial information are consistent with those set out in the audited financial statements.

 

3.      Significant accounting policies

Basis of consolidation

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

 

Critical accounting judgements

In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

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

 

Fair value measurements and valuation processes

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

 

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

 

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

 

4.      Segmental reporting

For the year ended 31 March 2016, the Group's revenue and loss was derived from its principal activity within the United Kingdom.

 

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

 

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

	Year ended  31 March 2016 £'000	Period ended 31 March 2015 £'000
Fund management fees	473	99
Initial management fees	642	310
Portfolio directors' fees	536	73
Other revenue	104	26
	1,755	508

             

5.      Investments

The net change in the fair value of investments for the year is £13,526,000 (2015: £24,617,000).

 

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

	£'000
As at 1 April 2015	24,617
Investments made during the year	13,108
Investee company loan repayments	(94)
Cash received on the dissolution of Mercia Fund 2	(384)
Unrealised gains on the revaluation of investments	1,582
Unrealised losses on the revaluation of investments	(686)
As at 31 March 2016	38,143

 

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

 

6.      Operating (loss)/profit

 

Operating (loss)/profit is stated after charging:	Year ended  31 March 2016 £'000	Period ended 31 March 2015 £'000
Staff costs	2,503	1,026
Other administrative expenses	1,508	469
Share-based payments charge	230	44
Exceptional Items	372	1,018

 

7.      (Loss)/earnings per share

Basic (loss)/earnings per share is calculated by dividing the (loss)/profit for the financial year/period by the weighted average number of Ordinary shares in issue during the year/period. Diluted (loss)/earnings per share is computed by dividing the (loss)/profit for the financial year/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 (loss)/earnings per share computations on a weighted average basis for the year/period. The (loss)/profit and weighted average number of shares used in the calculations are set out below.

	Year ended  31 March 2016	Period ended 31 March 2015
(Loss)/earnings per Ordinary share
(Loss)/profit for the financial year/period (£'000)	(1,697)	1,968
Weighted average number of Ordinary shares (basic and diluted) ('000)	212,099	212,000
(Loss)/earnings per Ordinary share basic and diluted (pence)	(0.80)	0.93

 

8.      Goodwill

	£'000
Cost
As at 17 December 2014	-
Additions	2,455
As at 31 March 2015	2,455
Additions	7,873
As at 31 March 2016	10,328

 

Goodwill of £7,873,000 arose on the acquisition of the entire issued share capital of Enterprise Ventures Group ("Enterprise Ventures") Limited 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, details of which are set out in note 9.

 

9.      Subsidiaries

The Group consists of Mercia Technologies PLC and its subsidiary undertakings.

 

On 9 March 2016 Mercia Technologies acquired Enterprise Ventures' entire issued share capital for £10,953,000 and an amount equal to Enterprise Ventures' net cash at completion which was £1,953,000. The initial consideration was £9,000,000 comprising £8,309,000 satisfied in cash on completion (which was funded from the Group's existing cash resources) and £691,000 satisfied by the issue of 1,645,711 initial consideration shares at a price of 42.0 pence (being the average of the daily closing mid-market price for an Ordinary share of Mercia Technologies for the 5 trading days immediately preceding completion).

 

Deferred consideration of up to £2,000,000 will also be payable, contingent upon Enterprise Ventures raising at least £80,000,000 of net new third party funds during the 2 year period post completion. The deferred consideration has not been accounted for in the consolidated statement of comprehensive income, cost of investment or goodwill balances as at 31 March 2016 due to the level of uncertainty as to whether the £80,000,000 of net new funds will be raised within the 2 year period.

 

To the extent payable, the deferred consideration will be satisfied by the issue of additional Mercia Technologies Ordinary shares, at a price which will be determined by the average of the daily closing mid-market price for an Ordinary share for the 5 trading days immediately following the end of the 2 year deferred consideration period.

 

The Enterprise Ventures vendors have all agreed not to dispose of any of their initial consideration shares for at least 18 months following issue, nor any of their deferred consideration shares for a minimum period of 12 months following issue.

 

The amounts recognised in respect of the identifiable assets acquired and liabilities assumed in respect of Enterprise Ventures are set out in the table below:

	Enterprise Ventures Group Limited £'000
Financial assets
Property, plant and equipment	16
Investments	-
Trade and other receivables	640
Cash and cash equivalents	1,953
Total assets	2,609
Financial liabilities
Trade and other payables	762
Deferred tax liability	271
Total liabilities	1,033
Net identifiable assets	1,576
Goodwill	7,873
Intangible assets	1,504
Total consideration transferred	10,953
Satisfied by:
Cash	10,262
Equity instruments	691
Total consideration transferred	10,953

 

10.   Intangible assets

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

 

 

 

	£'000
Cost
As at 1 April 2015	-
Additions	1,504
As at 31 March 2016	1,504
Accumulated amortisation
As at 1 April 2015	-
Charge for the year	17
As at 31 March 2016	17
Net book value
As at 31 March 2016	1,487
As at 31 March 2015	-

 

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

 

	As at  31 March 2016 £'000	As at 31 March 2015 £'000
Cash at bank and in hand	20,932	23,633
Total cash and cash equivalents	20,932	23,633
Total short-term liquidity investments	10,000	30,000

 

12.   Share capital

 

	As at 31 March 2016		As at 31 March 2015
	Number	£'000	Number	£'000
Allotted and fully paid As at the beginning of the year/period	212,000,000	2	-	-
Issue of share capital during the year/period	1,645,711	-	212,000,000	2
As at the end of the year/period	213,645,711	2	212,000,000	2

 

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

 

On 9 March 2016 1,645,711 new Ordinary shares of £0.00001 each were issued at a price of £0.42 as part of the initial consideration for the acquisition of Enterprise Ventures. These shares were admitted to trading on AIM on 16 March 2016.

 

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

 

 

13.   Share premium account

	As at  31 March 2016 £'000	As at 31 March 2015 £'000
As at the beginning of the year/period	8,825	-
Premium arising on the issue of Ordinary shares	691	81,595
Cost of share capital issued	(22)	(2,770)
Capital reduction	-	(70,000)
As at the end of the year/period	9,494	8,825

 

The premium on the issue of Ordinary shares in the year arises from 1,645,711 new Ordinary shares of £0.00001 each issued at a price of £0.42 on 9 March 2016 as part consideration for the acquisition of the entire issued share capital of Enterprise Ventures.

 

14.   Availability of Annual Report

The Annual Report of Mercia Technologies PLC will be sent to all shareholders on 29 July 2016. An electronic copy will also be available on Mercia Technologies PLC's website at www.merciatechnologies.com.  

 

15.   Annual General Meeting

The Annual General Meeting ("AGM") of Mercia Technologies PLC (the "Company") will be held at Forward House, 17 High Street, Henley-In-Arden, Warwickshire B95 5AA on Monday 19 September 2016 at 10.00 a.m.