Mercia Asset Regulatory News (MERC)

Mercia Technologies PLC

Preliminary results for the year ended 31 March 2017

A year of positive progress across the Group's investing activities

Mercia Technologies PLC (AIM: MERC, 'Mercia' or 'the Group'), the national investment group focused on the creation/identification, funding and scaling of innovative technology businesses with high growth potential from the UK regions, is pleased to announce its preliminary results for the year ended 31 March 2017.

Group and portfolio highlights

£11.7million net invested in 15 portfolio companies during the year, including four new Emerging Stars

Concepta was admitted to AIM in July 2016. Its board has recently been strengthened by the appointment of Philips UK CEO, Neil Mesher, as a non-executive director

The fair value of nDreams has increased significantly following a successful syndicated investment round in November 2016

Allinea Software was sold to ARM in December 2016 providing an 88.4% uplift on the Group's direct investment cost

The integration of Enterprise Ventures Group Ltd ('Enterprise Ventures') was successfully completed, creating a critical mass of more than 65 investment professionals and support staff across six locations within the UK regions

A sustainable funnel of new investment opportunities is now built following significant new fund mandate wins which scale the Group's fund management business from circa £220.0million to circa £336.5million of funds under management

The successful Placing which raised £40.0million in February 2017 has provided additional balance sheet capital which is predominantly to be used to scale the Group's direct investment portfolio as it continues to develop

Financial highlights

Direct investment portfolio value up by £13.9million to £52.0million (2016: £38.1million)

Net fair value gains £4.3million (2016: £0.9million)

Realised gains £0.8million (2016: £nil)

Net assets £121.4million (2016: £80.0million)

Net assets per share increased to 40.4 pence (2016: 37.5 pence)

Cash and short-term liquidity investments £63.8million (2016: £30.9million)

Revenue increased to £6.7million (2016: £1.8million)

Pre-exceptional operating profit £1.9million (2016: £1.7million loss)

Exceptional item - 50% of the anticipated Enterprise Ventures deferred contingent consideration has been accounted for as the £80.0million net new funds target has already been achieved half way through the deferred consideration period: £1.1million (2016: £0.4million Enterprise Ventures acquisition costs)

Profit for the financial year £1.0million (2016: £1.7million loss)

Post year end

£4.6million invested post year end, including £1.5million into Impression Technologies, £0.8million into Edge Case Games, £0.8million into Warwick Audio Technologies and £0.5million into Oxford Genetics, with the increased investment momentum expected to continue

Mark Payton, Chief Executive Officer of Mercia, commented:

"Mercia is focused on delivering growth in net assets, by executing against each of our shareholder value creation objectives, including the Group's first cash realisations.

We look forward to the years ahead with a well-funded balance sheet and a materially increased level of third party managed funds. Our confidence in delivering shareholder value is supported by Mercia's hybrid investment model combined with a strong regional presence, excellent Investment Team and established deal flow networks.

This has been a positive year for Mercia, having built a compelling and sustainable model which we believe will deliver value to our shareholders and stakeholder community in the years ahead."

For further information, please contact:

A meeting for analysts will be held at the offices of Buchanan, 107 Cheapside, London, EC2V 6DN on 3 July 2017 commencing at 9.30 a.m. Mercia's 2017 preliminary results will also be available today on the Group's website at http://www.merciatech.co.uk/.

An audio webcast of the analysts' meeting will be available later today: http://vm.buchanan.uk.com/2017/mercia030717/registration.htm

About Mercia Technologies PLC

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

Mercia's 'Complete Capital Solution' initially nurtures businesses via its third party funds (now with circa £336.5million under management following recent mandate wins) and then over time Mercia can provide further funding to its 'Emerging Stars' by deploying direct investment follow-on capital from its own balance sheet. Since its IPO in December 2014, Mercia has invested over £41.0million directly across its portfolio of 'Emerging Stars'.

Non-executive Chair's summary

The year ended 31 March 2017 was one of tangible progress for Mercia Technologies PLC, having built the Group's investment model and regional infrastructure. It included the first full year of ownership of Enterprise Ventures, the business having been acquired on 9 March 2016, enabling us to proactively build into the regions of the Midlands, the North of England and Scotland. Acquiring Enterprise Ventures has put us in a strong position to win further early stage third party fund mandates to create a sustainable engine for growth and has completed the establishment of our Complete Capital investment model. The integration of Enterprise Ventures has been successful and the benefits of the acquisition are already demonstrable.

Progress against plan

Managing a substantial level of third party funds to support early stage investments ensures that we have the ability to be highly selective when scaling businesses using the Group's balance sheet capital. As the direct investment portfolio continues to develop we expect to make announcements of syndicated investment rounds, following on from that of nDreams in November 2016 and more recently Impression Technologies. Oxford Genetics is another investment which is making good progress towards a syndicated investment round in the current year.

The Group's value crystallisation strategy will be principally realised through the trade sale of its direct investments. It is however worth noting that the combined stock market value of those companies in which the Group's funds under management have invested and helped shape prior to their listing is currently approximately £1.0billion. Whilst companies such as Blue Prism listed prior to Mercia's acquisition of Enterprise Ventures, this does point to the significant body of investment talent working within Mercia and our ability to identify and shape early stage opportunities into valuable businesses. Such companies are to be found not just in London and the South East, but also within the Midlands, the North of England and Scotland.

Group Board and staff

Having succeeded Ray Chamberlain as Non-executive Chair in May 2016 my focus has been to ensure that the strategy agreed by the Board is being executed by the Executive Directors, that the Group's business model is delivering and in particular, that there remains a focus on the Group's top balance sheet investments in terms of development, scaling, the quality of management teams and their boards. The continuing evolution of good corporate governance is also important as is Board composition and diversity.

Bringing two businesses together is never straightforward, particularly when the staff numbers of both businesses are similar, but on behalf of our Board I should like to thank all colleagues throughout the enlarged Group for the positive spirit and professionalism in which they have come together to create 'One Mercia', a market leading, technology focused investment group.

Outlook

Whilst the ramifications for the UK economy arising from the current political uncertainty and Brexit negotiations will take time to become clear, technology is a sector that works without national barriers and will only increase in importance. All of the Group's direct investments have global target customer bases that are not restricted to mainland Europe; our digital businesses for example often have a strong focus on Asian markets. Mercia has assessed the possible impact of a negative outcome from the UK/EU negotiations for each of its direct investments and for the Group itself. Access to suitably skilled labour is an important growth driver for all young businesses and Mercia's portfolio companies are no exception. However, whilst this risk will be closely monitored and mitigating actions taken where appropriate, the Group does not currently see the forthcoming Brexit negotiations as a potential barrier to shareholder value creation.

A number of our comparators in the intellectual property commercialisation sector have suffered setbacks in recent months which has for the time being dampened investor appetite by some market participants in our sector. As these results clearly demonstrate however, Mercia Technologies is making solid progress on all fronts and whilst all investing activity in early stage technology companies carries a degree of risk, the Group's hybrid investment model goes some distance towards mitigating the risk of significant net asset value reduction events through investment failures. In short, we have built a robust platform and we believe that we have the optimal investment model in the sector.

Mercia Technologies' investment momentum has accelerated at the start of the new financial year, including completing its first investment into a new Emerging Star, Intechnica, as well as completing new funding rounds into Impression Technologies, Edge Case Games, Warwick Audio Technologies and Oxford Genetics amongst others.

Mercia has been a listed company for just over two and a half years and its growing portfolio of direct investments are still, in almost all cases, relatively young companies in their own right. Despite this we can already see several material value inflexion points arising in the coming year and we look forward to updating shareholders on further positive net asset value progress throughout the year ahead.

Finally, I would like to thank shareholders for their support of the recent £40.0million Placing and look forward to turning this additional capital into increasing shareholder value through growth in the value of and exit from each of the Group's direct investments, over time.

Susan Searle

Non-executive Chair

Chief Executive Officer's review

The last 12 months have seen momentous changes in the political landscape, moving away from globalisation towards a more local agenda. An example of this domestically is the focus by the UK Government on boosting growth within the UK regions, with initiatives such as those driven by the British Business Bank using regional and national venture funds.

This recent period of change plays well to Mercia's own regional focus and as a result it has been a productive year. In a relatively short time frame we have built a sustainable and scalable hybrid investment model, focused on accessing and supporting young businesses via managed funds and then selectively scaling a number of these businesses, which operate with a global outlook, using Mercia's own balance sheet capital.

Mercia also has a greatly strengthened balance sheet following the recent successful £40.0million Placing. Its direct investments are already showing early signs of promise as demonstrated by the IPO of Concepta, the trade sale of Allinea Software and the unwinding of our holding in Abzena. The overall value of the portfolio rose 36.5% to £52.0million from £38.1million (net of £2.1million of investment realisations), with cash invested during the year contributing £11.7million of the growth and fair value gains contributing a further £4.3million, as the model starts to deliver.

We remain focused on what we believe to be our two key strategic objectives; (i) to accelerate the growth in value of our direct investment holdings whilst managing down side risk and turning these investments into cash, and (ii) to minimise net asset value ("NAV") erosion by offsetting operating costs with fee income and realised gains. These results demonstrate that Mercia is starting to deliver on both of these important facets of our investment model.

Built to deliver

At the time of the Group's listing on AIM in December 2014 when it raised £70.0million, Mercia had 11 direct investments (and a 20% stake in The Mercia Fund 2 Limited Partnership) valued in total at £9.0million, nine university partnerships, one office in the Midlands and approximately £20.0million in managed funds.

In March 2016, Mercia acquired Enterprise Ventures in a transaction driven by a desire to access Enterprise Ventures' managed funds' portfolio, the expertise and track record of the team and to build a strong presence in the North of England which would further scale Mercia.

Today Mercia benefits from:

24 direct investments valued at £52.0million

A strong balance sheet comprising £63.8million of cash with the vast majority available for direct investment

A material regional footprint in the Midlands, the North of England, together with a growing presence in Scotland

Approximately £336.5million of funds under management including circa £150.0million of capital available to invest in early stage businesses

18 university partnerships

I am pleased to report that following the successful integration of Enterprise Ventures, the Investment Team has completed three direct investments so far from its managed funds' portfolio namely Concepta, Faradion and sureCore and post year end, a fourth direct investment into Intechnica.

Mercia has also been able to leverage the Investment Team's excellent track record to help secure new fund mandates totalling £108.5million, from the Northern Powerhouse Investment Fund. This provides significant levels of new capital to invest over the next five years which, when combined with the £8.6million in Enterprise Investment Scheme ("EIS") and Seed EIS ("SEIS") funds raised in the last 12 months, will enable the Group to build a sustainable funnel of potential future direct investments.

The benefits of managed fund capital are fourfold:

Underpins a significant investment footprint across the UK regions

Early access to compelling prospects in key technology sectors which are then shaped within our managed funds ahead of the selective allocation of scale-up capital from Mercia's balance sheet

Using the managed fund capital for the more high risk early investment phase eliminates a significant potential drain on Mercia's balance sheet, thus retaining direct investment capital predominantly for the most promising scale-up opportunities

Fee generation from the managed funds materially contributes to offsetting the Group's operating costs thereby helping to minimise NAV erosion

Looking specifically at Mercia's university partnerships, each one has been carefully selected to dovetail with Mercia's own strategic goals, both geographically and by sector focus. Having successfully scaled the network from nine partners at IPO in December 2014 to 18 today, the last 12 months have seen the University Team develop its relationships with the those partners, which has generated 11 deals during the year for Mercia's managed funds and one for the direct investment portfolio, Medherant.

Strengthened asset base

The year to 31 March 2017 has started to see early signs of shareholder value creation with the IPO of Concepta in July 2016 (derived from Enterprise Ventures' managed funds), the material uplift of nDreams' fair value in November 2016, following a successful syndicated investment round, the cash sale of Allinea Software (a University of Warwick spinout) to ARM in December 2016, and the profitable unwinding of the Group's holding in Abzena (a joint University of Warwick and Imperial College spinout) in February 2017. All of these investments have been shaped over time in the Group's managed funds, from sectors in which we have deep knowledge and experience, before bringing them across as direct investments.

The strength of the Group's investment model is defined by the quality and value creation potential of Mercia's direct investments. As well as the fair value gains and realisations already referred to, there are notable developments within the portfolio in each of our four technology sectors. As an example, the Life Sciences team, headed by Peter Dines, has created a well balanced portfolio of seven investments thus far, all of which have come through our managed funds where Mercia was the early investor. Highlights include the move into profitability for the specialised in vitro diagnostic component kit provider The Native Antigen Company, the material $50.0million upfront deal secured by PsiOxus Therapeutics with Bristol-Myers Squibb, the strong revenue growth at Oxford Genetics, the disruptive technology developer Medherant utilising novel patch delivery technologies ready to move into clinical trials, and the fertility testing kit developer Concepta which listed on AIM in July 2016.

In Mercia's Digital & Digital Entertainment sector, headed by Mike Hayes, notable developments include the revenue growth and additional new game roll outs by Edge Case Games and Soccer Manager, and the continuing development of nDreams as one of the key names globally in virtual reality ("VR") software development for experiences and games. During the last year nDreams has expanded its relationships with Google, Facebook and other leading VR headset vendors and strengthened its management team with the addition of Tom Gillo (ex-game director at Sony Entertainment), David Corless (ex-head of marketing at SEGA), Paul Fitzsimons (non-executive chair, previously at Apax Partners) and Rob Precious (non-executive director, previously at Geomerics/ARM). Strong teams go hand-in-hand with successful businesses and at Mercia this continues to be a key lever for driving accelerated value creation.

Good progress is also being made by the portfolio companies in Mercia's other two investment sectors, Software & the Internet and Electronics, Materials & Manufacturing/Engineering, the latter being documented in the recent sector update.

Mercia's managed funds historically have experienced a 40-50% failure rate as is typical with early stage investments, ensuring that risk is more measured within the direct investment portfolio. However, and in keeping with Mercia's valuation policy, during the year we made a 25% provision against our equity holding in Science Warehouse, in recognition of a decline in peer group valuation multiples. In addition, a 50% provision has been applied to VirtTrade's equity valuation in recognition of slower market progress than anticipated.

Financial progress

Although Mercia Technologies itself is less than three years old, during the last year the Group generated £2.9million (2016: £nil) of cash inflow from direct investment realisations and net fair value gains of £4.3million (2016: £0.9million).

The Group also saw revenue (which in Mercia's case excludes fair value movements) increase to £6.7million (2016: £1.8million) and operating profit before exceptional items improve to £1.9million (2016: £1.7million loss). These positive metrics demonstrate the tangible progress which Mercia is making.

We face the years ahead with a well-funded balance sheet and a materially increased level of third party managed funds. The Investment Team will continue to be highly selective both in terms of new fund investments and in respect of what is scaled using balance sheet capital. We will also continue to proactively seek timely exit opportunities from the direct investments, as the portfolio continues to develop.

Future developments and outlook

It is important that we continue to operate a clear and consistent approach by investing in sectors in which we have significant expertise. The complexity, scale and geography of Mercia's hybrid model is now of a size that makes it difficult for others to replicate, but we are not complacent.

As a listed business, Mercia faces a continual increase in financial and governance regulation, but we have an experienced team in place to manage this environment. Mercia's focus on minimising NAV erosion by increasing revenue generation combined with tight cost control and cash management will also continue.

With a strong regional presence, an excellent Investment Team and established deal flow networks, I remain confident that Mercia will achieve its goal to deliver incremental shareholder value by becoming the dominant provider of capital to innovative companies throughout the UK regions.

In summary, this has been a positive year for Mercia, having built a compelling and sustainable model. I would like to thank all of the Mercia team for their hard work, ambition and rigour.

Dr Mark Payton

Chief Executive Officer

Chief Investment Officer's review

Portfolio overview

In the second full year since Mercia's listing on AIM the Investment Teams have continued to focus on the direct investment portfolio by building out the management and boards of these key companies, combined with deploying further capital into existing assets that are making good commercial progress. £11.7million has been invested over the past year with four new Emerging Star investments totalling £4.9million, whilst £6.8million has been invested into 11 existing direct investments. As at 31 March 2017 the value of the Group's portfolio has increased to £52.0million from £38.1million reflecting the new investments of £11.7million, investment realisations of £2.1million and net fair value gains of £4.3million. The portfolio consists of holdings in 24 companies of which the top 18 account for 98.5% of the total portfolio value. I remain pleased with the continued commercial development of the portfolio and expect this to continue during the next 12 months.

Investment activity

Of the four new Emerging Stars, the first three came from the funds managed by Enterprise Ventures with the fourth investment, Medherant, being sourced from Mercia's EIS/SEIS Growth Funds portfolio:

Concepta - a digital fertility/pregnancy testing business which is now AIM listed

sureCore - a low cost, low power embedded memory technology company which is silicon-proven

Faradion - a novel battery materials business which focuses on producing sodium-ion batteries with potential applications in home storage and transport markets

Medherant - a University of Warwick spinout with a novel medical patch technology

Post year end one further company has been added to the portfolio as a result of a small initial investment in Intechnica, in anticipation of a larger round later in 2017. Sourced from Enterprise Ventures' managed funds' portfolio, Intechnica is a services and software product business focused on critical business operations including ecommerce websites, high volume ordering systems, online ticketing and mobile CRM applications.

The pipeline of further new direct investments continues to develop well across each of our sectors. As already referred to, the managed funds business has grown significantly in the year as a result of new mandate wins. This increased level of activity will enable us to grow the investment run rate over the next three to five years by investing in new and existing managed funds' portfolio businesses with strong growth prospects sourced across the UK regions. This will in turn provide a proprietary flow of future Emerging Stars for our balance sheet of companies where we already have a board seat and know the asset well. 

Fair value movements

The total net fair value gain in the year amounted to £4.3million compared to £0.9million for the prior year. We have recognised notable fair value uplifts at nDreams (£4.8million) based on the price of third party investment into the business, Concepta (£2.0million) as a result of successful share price progression since reversing the business into an AIM cash shell, and PsiOxus Therapeutics (£1.2million) which saw an increase in the value of the business following a major commercial deal with Bristol-Myers Squibb.

In our half year results to 30 September 2016 we recognised a provision of £2.7million against Mercia's equity holding in Science Warehouse, reflecting downward movement in peer group valuations. In the second half of the year we have also made a £1.3million provision against our equity holding in VirtTrade, to reflect slower than anticipated market progress by the business.

In December 2016, we were delighted to complete the sale of Allinea Software to ARM. This successful transaction has yielded cash proceeds of £2.7million to date and a realised gain on investment of £825,000. The disposal of Allinea Software is early validation of our investment model which is based on driving cash realisations from our assets through trade exits or IPOs. In February 2017 a second divestment was completed as we exited our minor residual direct holding in Abzena, generating net cash proceeds of £168,000 and a small realised gain of £14,000.

The year ended with a portfolio of 24 companies valued at £52.0million. The Board's aim remains to build a balanced portfolio across the four technology sectors that we focus on. Further details on each of our four key sectors and a number of our leading investee companies are provided below.

Software & the Internet

As an early indicator of what is to come to the balance sheet over the near to medium term, during the year Mercia has made new investments through its managed funds into its key areas of focus including artificial intelligence ("AI"), cybersecurity, software as a service ("SaaS"), analytical tools and adtech. Each of these sub-sectors represent significant market opportunities.

Mercia is engaging with a number of companies which are developing these innovative technologies and are in the process of establishing themselves as influential leaders in their chosen field.

For the year to 31 March 2017, Mercia made direct investments of £1.5million in this sector and at the year end had £14.2million of asset value representing 27.3% of the total portfolio value. Post year end, Mercia also invested in one new Emerging Star from its managed funds, Intechnica.

Science Warehouse

As at 31 March 2017, the Group held a 62.6% interest in Science Warehouse at a fair value of £9.9million. At Mercia's 30 September 2016 half year, the Group revalued its holding in Science Warehouse to £9.9million (2016: £12.7million) as a result of a review of peer group comparable company valuation multiples and an increasingly competitive marketplace. This fair value reduction represented a 25% provision against Mercia's equity value. No new investment was made during the year and the valuation as at 31 March 2017 remains unchanged.

Established in 2000 as a spinout from the University of Leeds, Science Warehouse provides a SaaS cloud-based procurement platform to what it refers to as 'buyers' who include higher education ("HE") (such as the universities of Manchester, Leeds, Bristol and Cambridge), public sector research ("PSR") (such as the Francis Crick Institute), NHS (trusts such as Wirral, Humber and Worcestershire) and a continued push into Housing, Construction and Government markets. Since the last reporting date, Science Warehouse has added new customers to its platform and continues to expand the number of product offerings from its suppliers.

Recent developments include a successful platform migration to increase scalability and availability for all customers and providing a dedicated hosting environment in Australia. Significant progress has been made in building new applications and delivering new iterations of existing applications to meet customer demands. One of the key new applications to be brought to market in mid-2017 is Supplier Information Management ("SIM"). SIM will provide a tool to buying organisations that will enable them to invite suppliers into the community and to transact business without charge, thus accelerating the supplier on-boarding process and building the supplier community.

During the year Gordon Matthew joined as chair to support the development of the company's strategic plan and offer key industry insight to help drive the business forward. He has extensive experience in software and telecommunications and has worked with a number of technology businesses supporting successful transformation projects. The business has continued to build out a broader product offering to provide customers with increased functionality across the whole procurement cycle.

Notwithstanding the fair value downward movement during the year referred to above, the company has continued to increase revenues by 9% in 2016/17, securing new contract wins in the key sectors of HE, PSR and the NHS, which has improved its overall financial performance.

Intelligent Positioning

As at 31 March 2017, the Group held a 26.7% interest in Intelligent Positioning at a fair value of £2.5million, the investment being held at cost. The Group invested £1.5million during the year to help fund the company's growth.

Since the company's formation as a Search Engine Optimisation ("SEO") consultancy in 2004, it has pivoted, initially within Mercia's managed funds, into a business where the principal activity is the provision of an innovative, real-time search intelligence and organic analytics platform. It also provides technical support, customer education and set up services. The business has many high profile, blue chip customers including Harrods, Clarks, Tesco, L'Oreal, Zoopla, Superdry, Invesco, Ricoh, The Financial Times, Easyjet Holidays and SkyScanner.

During 2016/17 the company also launched two new platforms; the Vault, marketed at agencies, and Pi Market Intelligence, which offers global Share of Voice and customer trend analysis. Both new platforms have already secured new business. As well as opening offices in Brighton, London, Hyderabad and New York, the company will also open a new office in Singapore this year.

Digital & Digital Entertainment

Mercia has identified a number of strong investment opportunities within this sector, initially through its managed funds, which have now evolved into direct balance sheet investments. The global games market is expected to grow to an estimated $128.5billion by 2020, with the UK being a key driver of this growth (Source: Newzoo Global Games Report).

UK consumers spent a record £4.3billion on games in 2016 and the UK was the sixth largest video games market in terms of consumer revenues after China, USA, Japan, South Korea and Germany. Overall, approximately 31.6million people in the UK play games (Source: Ukie, The Games Industry by numbers) and we are likely to see this number continue to grow.

As an example of continuing games market growth, Cisco anticipates that VR headsets will grow from an installed base of 18.0million in 2016 to nearly 100.0million by 2021, a compound annual growth rate of 40.0% (Source: Cisco Visual Networking Index). VR and augmented reality ("AR") market developments are expected to follow a similar trend.

For the year to 31 March 2017, Mercia made direct investments totalling £2.3million in this sector taking the total investment holding value at the year end to £16.4million, which represents 31.6% of the total portfolio value.

nDreams

As at 31 March 2017, the Group held a 47.0% interest in nDreams at a fair value of £11.0million. The company received £2.8million of investment during the year of which Mercia contributed £1.5million. The investment is held at the price of the last syndicated investment round.

Mercia first invested in nDreams in March 2014 through its managed funds. The company is now known as one of the UK's leading developers and publishers of VR content and was one of the first to enter the VR games market.

Content development has been good during 2016/17. The business launched its award-winning game, The Assembly, on Sony's PlayStation VR in October 2016, following its debut on the Oculus Rift and HTC Vive earlier in the year. nDreams also published Danger Goat, its first title for Google on Daydream, Google's new high-quality mobile VR platform, and released Perfect on both mobile and console VR.

Google is one of a number of partnerships that nDreams has secured with leading VR headset manufacturers and content providers and it also has strong relationships with Sony (PlayStation VR), Oculus/Facebook (Rift), HTC (Vive) and Samsung (Gear VR). These high profile partnerships demonstrate the industry's confidence in the design and production quality of nDreams' experiences and games. There are an increasing number of potential partner discussions occurring which reflects the increasing interest in VR.

The company has sold over 200,000 units of VR games during the last 12 months and will be releasing several new games and experience titles by the end of 2017. It is also currently developing prototypes for AR and mixed reality ("MR") devices.

During the last year nDreams has strengthened its management team with the addition of Tom Gillo (ex-game director at Sony Entertainment), David Corless (ex-head of marketing at SEGA), Paul Fitzsimons (non-executive chair, previously at Apax Partners) and Rob Precious (non-executive director, previously at Geomerics/ARM). They join the existing team lead by founder and CEO Patrick O'Luanaigh, the former Codemasters and Eidos Creative Director (Tomb Raider: Legend, Hitman: Blood Money, Conflict: Desert Storm, Micro Machines V3).

Edge Case Games

As at 31 March 2017, the Group held a 21.2% interest in Edge Case Games at a fair value of £2.3million. Mercia invested a further £0.5million during the year and the investment is valued at the price of the last syndicated investment round.

Formed in 2014, Edge Case Games is a developer and publisher of PC based games focused on the free-to-play, science fiction genre. Edge Case Games' first offering is called Fractured Space, which launched via Steam Early Access in November 2014 and was fully launched on Steam's PC delivery platform in September 2016. It has so far generated over $2.0million of revenue since the beta launch and its key metrics measured during the full launch weekend matched those of global market leaders in the free-to-play PC games market. The game is attracting third party publishing interest.

Fractured Space has the potential to become a significant franchise in the free-to-play market with the right publishing and marketing support. The company is close to realising this opportunity and has also started developing a second title. Edge Case Games is a great example of the value in investing in smart, original, creative content within the free-to-play PC games market.

Electronics, Materials & Manufacturing/Engineering 

Mercia is focused on identifying and supporting the next generation of disruptive proprietary technologies in energy and communications together with high value electronics and manufacturing applications. The portfolio has continued to progress product development and commercial engagement, including in some cases with global brands. In many instances Mercia's target sectors are undergoing rapid change in response to fundamental technological and economic drivers, which provide an ideal backdrop for differentiated, innovative solutions to build value.

There have been a number of industry-leading product developments across this portfolio in the past year, including sureCore's ultra-low power six-transistor static memory cell ("SRAM"), Warwick Audio Technologies' portable electrostatic wired headphone system and LM Technologies' launch of the world's first dual mode Bluetooth 4.1 serial adapter.

For the year to 31 March 2017, Mercia invested £4.8million in this sector with new Emerging Stars, sureCore and Faradion, both outlined below, receiving direct investment. As at 31 March 2017 the Group had a total of £11.4million of asset value in this sector representing 21.9% of the total portfolio value.

sureCore

As at 31 March 2017, the Group held a 23.0% interest in sureCore at a fair value of £1.5million. Mercia invested £1.5million during the year and the investment is held at cost.

sureCore, a provider of low power memory solutions for semiconductor applications, is based in Sheffield. It has developed a low power memory portfolio with world beating low voltage operation and is successfully exploiting growing market demand for more on-chip memory and lower power consumption in leading edge devices, such as those serving the Internet of Things ("IoT"), wearables and networking spaces.

Founded in 2011 and led by a team of industry experts each with over 30 years of experience, sureCore joined the direct investment portfolio in June 2016 having been sourced from the Group's managed funds portfolio and having already received £2.5million of third party funding prior to Mercia Technologies' first direct investment.

Faradion

As at 31 March 2017, the Group held a 13.6% interest in Faradion at a fair value of £1.3million. The investment is held at cost. The company received £3.0million of investment during the year in a syndicated round.

Faradion, also based in Sheffield, is a leading developer of low-cost sodium-ion battery technology and joined the direct investment portfolio in January 2017 from the Group's managed funds. The business had previously raised circa £3.8million from a number of investors including trade investor Haldor Topsoe.

This new technology is underpinned by 18 patent families and promises performance comparable to lithium-ion batteries but at least 30% cheaper for the cost of materials, offers a higher level of safety and is less susceptible to rare metal price movements. The sodium salts used to prepare these battery materials are highly abundant, coming from more sustainable sources than those of equivalent lithium salts, making them both cheaper and more easily obtainable.

The technology is suitable for a wide range of applications such as industrial and residential storage, providing power for telecoms base stations and in-bus transportation. The company is now working with potential customers and partners in Europe and China to demonstrate the scalability of the technology, gain early commercial traction and validate its supply chain.

Impression Technologies

As at 31 March 2017, the Group held an 18.2% interest in Impression Technologies at a fair value of £1.5million and the investment is held at cost. Post year end the Group has invested a further £1.5million as part of a £3.0milllion syndicated investment round to fund the company's exciting growth prospects.

Located in Coventry and based on intellectual property developed at the University of Birmingham and Imperial College London, Impression Technologies has a proprietary Hot Form Quench (HFQÒ) technology for developing complex, high-strength, lightweight components for the transportation industry. The business is making positive progress in bringing its technology to market following the opening of the world's first HFQÒ facility in October 2016, which is located on the former site of the Jaguar factory in Lyons Park, Coventry.

The company is already supplying global brands including Aston Martin and Lotus Cars and is now in discussions with a number of other leading automotive brands, tier one suppliers, press manufacturers and aluminium suppliers to further scale the business.

Life Sciences & Biosciences

The key areas of focus in this sector are diagnostics, digital health and medical devices.

Life Sciences & Biosciences continues to be an attractive area in which to invest with two new direct investments during the year; Concepta, a women's health diagnostics company with an initial focus on unexplained infertility, and Medherant, an IP-rich University of Warwick spinout developing novel transdermal drug delivery patches. There have also been a number of new life sciences investments made through Mercia's third party managed funds.

For the year to 31 March 2017, Mercia invested £3.1million in this sector with new Emerging Stars, Concepta and Medherant, receiving direct investment. As at 31 March 2017 the Group had a total of £10.0million of asset value in this sector representing 19.2% of the total portfolio value.

Concepta

As at 31 March 2017, the Group held an 18.2% interest in Concepta at a fair value of £3.4million. £1.4million was invested in the business during the year and the investment is held at its closing bid price.

Concepta is a women's health diagnostics company with an initial focus on developing a product to help women with unexplained infertility to conceive. The company has designed and developed a proprietary platform, myLotus, for at-home and point-of-care testing.

Neil Mesher was appointed as a non-executive director in March 2017 and has more than 25 years of global experience within the healthcare and consumer electronics industries. He is currently CEO of Philips for the UK and Ireland and is also a member of the government's Life Science Industrial Strategy Board, representing the interests of the medical technology sector with other senior leaders from across healthcare.

In July 2016, Concepta was admitted to AIM via a reverse takeover of Frontier Resources International. Since admission Concepta's market capitalisation has risen and the company has continued to progress commercial partnerships. In September 2016 Concepta signed a manufacturing agreement with leading Chinese manufacturer Shijiazhuang Huanzhong Biotech Limited and is also making significant progress in preparing the myLotus fertility product for commercial launch in China and Europe.

Post year end, Concepta has signed its first distributor agreement with Beijing ThinkBrio Medical Technology Consulting Co. Limited. The agreement covers an initial three year period and relates exclusively to the distribution of the myLotus range of products within LiaoNing province in China. If successful, Concepta intends to cover further Chinese territories.

Oxford Genetics

As at 31 March 2017, the Group held a 47.9% interest in Oxford Genetics at a fair value of £2.2million. The company received £1.0million of investment during the year and the investment is held at cost.

Oxford Genetics is a specialist designer and developer of biological molecules such as proteins, viruses and cells. Mercia first invested in Oxford Genetics through its managed funds. In 2015 Mercia Technologies invested £150,000 plus a further £2.0million in 2016 to build Mercia's direct equity positon and help further scale the business.

The team has been building a best-in-class synthetic-biology based tool set, supplemented by online sales of its DNA designs and plasmid development services, towards a model of technology licensing and high value-add service provision. Oxford Genetics has significantly grown its IP portfolio estate and now has six patent families. The company has also secured £1.9million of grant funding to accelerate growth in the bioproduction and complex antibody discovery system product lines.

Oxford Genetics benefits from exceptional talent at all levels in the organisation and with continuing growth has recently expanded into new premises. The company intends to grow its research and development team further to meet market demand, escalate its end-to-end system by capturing greater value downstream and establish an office in USA to increase its market reach. Revenues have grown by 100% year on year for the last three years as the business continues to accelerate its commercial progress, in what is a very attractive sector.

Medherant

As at 31 March 2017, the Group held an 11.3% interest in Medherant at a fair value of £0.7million and the investment is held at cost. The company raised £1.5million during the year in a syndicated investment round.

Medherant is a University of Warwick spinout developing an innovative patch technology for the delivery of a variety of drugs. Since Mercia's first investment through its managed funds, the company has secured an exclusive deal with Bostik SA, a leading adhesive specialist, to use a novel pressure sensitive adhesive material in the development of the patch. Following this significant commercial development, Mercia made a direct investment from its balance sheet. As a reflection of Medherant's continued growth, it has moved to new laboratories and has validated that its technology works successfully on drugs that were previously unsuitable for transdermal delivery.

In keeping with Mercia's desire to build leading teams in its portfolio companies, Medherant has made some significant appointments over the last year, including Ken Cunningham as non-executive chair (medically qualified, ex-CEO of Skypharma plc, and sits on the boards of Abzena plc and Verona plc) and Sally Waterman as COO (extensive experience gained at Abzena plc, Protherics plc and Xenova plc).

The company has identified the final formulation of its Ibuprofen patch and the product has entered pre-clinical development. Using known chemical entities such as Ibuprofen, the company expects relatively rapid progress through clinical trials and into market with this very versatile technology and innovative product strategy.

Matthew Mead

Chief Investment Officer

Chief Financial Officer's review

In the year to 31 March 2017 Mercia Technologies PLC has made further positive progress in executing against each of its shareholder value creation objectives, including its first cash realisations.

Having successfully built the 'Mercia Model' during its first two years on AIM, the Group's key objective now is to focus on investing its substantial balance sheet capital into new and existing, predominantly regionally sourced, direct investments via its significantly expanded deal-flow pipeline of managed funds' investments.

During the year the Group invested £11.7million (2016: £12.6million) into 11 existing (2016: 10) and four new (2016: six) direct investments. Cash proceeds from the Group's first investment realisations totalled £2.9million (2016: £nil). As at 31 March 2017 the fair value of the Group's direct investment portfolio was £52.0million (2016: £38.1million). Net fair value gains during the year totalled £4.3million (2016: £0.9million). Total net assets at the year end were £121.4million (2016: £80.0million), including cash and short-term liquidity investments totalling £63.8million (2016: £30.9million). Net assets per share increased 7.7% to 40.4 pence (2016: 37.5 pence). The net fair value gains referred to above contributed positively to a consolidated profit and total comprehensive income for the year of £1.0million (2016: £1.7million loss). Given the early stage nature of the majority of the Group's direct investment portfolio and the relatively short length of time in which the Group's cash has been invested, these results are very encouraging.

Placing of 86,956,521 shares raising £40.0million gross proceeds ('Placing')

On 31 January 2017 Mercia announced a conditional placing of, in aggregate, 86,956,521 Placing shares at 46.0 pence per Placing share. The Placing price represented a discount of approximately 8.9 per cent. to the closing mid-market price of 50.5 pence per Ordinary share on 30 January 2017 (being the last practical date prior to the announcement of the Placing).

The primary purpose of the Placing was to accelerate the development of the Group's existing portfolio companies and to capture the opportunity to invest in new direct investment opportunities across its target sectors nationally and specifically within the UK regions. The number of investment opportunities has been significantly enhanced through the acquisition of Enterprise Ventures in March 2016 and the Group's newly replenished investment capital will be almost entirely deployed into the growing direct investment portfolio.

Acquisition of Enterprise Ventures

On 9 March 2016 Mercia acquired Enterprise Ventures' entire issued share capital for up to £11.0million and an amount equal to Enterprise Ventures' net cash position 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 for the five trading days immediately preceding completion).

Deferred consideration of up to £2.0million will also be payable, contingent upon Enterprise Ventures securing at least £80.0million of net new third party fund mandates during the two year period post completion. Payment of the deferred consideration is also conditional upon each of the vendors of Enterprises Ventures still being employed by the company on the second anniversary of completion. To the extent payable, the deferred consideration will be satisfied by the issue of additional Mercia Ordinary shares, at a price which will be determined by the average of the daily closing mid-market price for an Ordinary share for the five trading days immediately following the end of the two year deferred consideration period. As at 31 March 2017 over £80.0million of net new fund mandates have been secured and all bar one of the vendors have remained within the enlarged Group. As the deferred consideration period is approximately 50% complete, half of the anticipated deferred consideration payable, being £1.1million (including potential employer's National Insurance), has been accounted for in these consolidated financial statements.

Goodwill and acquired intangible assets

The year end consolidated balance sheet includes goodwill of £10.3million (2016: £10.3million) and acquired intangible assets of £1.2million (2016: £1.5million). £7.9million (2016: £7.9million) of the goodwill and all of the intangible assets' value arose as a result of the Group's acquisition of Enterprise Ventures. The intangible assets are separately identifiable assets arising from Enterprise Ventures' fund management contracts with third party limited partners and other similar investors. The fair value of the intangible assets is being amortised on a straight-line basis over the average duration of the remaining fund management contracts. The amortisation charge of £301,000 (2016: £17,000) in the consolidated statement of comprehensive income represents the amortisation of the intangible assets for the year to 31 March 2017.

Summarised consolidated statement of comprehensive income

Revenue and cost of sales

Total revenues of £6,660,000 (2016: £1,755,000) comprise fund management fees, initial management fees from new investments, investment director monitoring fees and sundry business services income. The substantial increase in revenue has largely arisen as a result of the full year effect of the acquisition of Enterprise Ventures. Cost of sales represents third party fees incurred for administering the funds under management by Mercia Fund Management.

Fair value movements in investments

For the year as a whole, unrealised fair value gains arose in seven (2016: five) of the Group's 24 (2016: 22) direct investments. The largest fair value gain was nDreams which accounted for £4,758,000 of the total. There were six (2016: four) fair value impairments, the largest being £2,737,000 for Science Warehouse. 

Gains on disposal of investments

During the year, realised gains of £839,000 (2016: £nil) arose on the disposal of two (2016: nil) of the Group's

direct investments, being Allinea Software and Abzena.

Share-based payments charge

The £395,000 (2016: £230,000) non-cash charge arises from the issue of share options to Executive Directors and other employees of the Group ranging from the date of the IPO to 31 March 2017.

Amortisation of intangible assets

The amortisation charge of £301,000 (2016: £17,000) represents the amortisation of the acquired intangible assets of Enterprise Ventures for the year ended 31 March 2017.

Administrative expenses

Total administrative expenses of £9,051,000 (2016: £4,011,000) consisted predominantly of staff related costs. Administrative expenses as a whole have grown largely as a result of the full year effect of the acquisition of Enterprise Ventures.

Exceptional items

Deferred consideration of £1,125,000 in respect of the acquisition of Enterprise Ventures has been accounted for in the consolidated statement of comprehensive income as an exceptional item. The prior year exceptional charge of £372,000 represents costs incurred in relation to the acquisition of Enterprise Ventures.

Finance income

Finance income of £186,000 (2016: £361,000) was predominantly interest receivable earned on the Group's cash and short-term liquidity investments.

Taxation

The tax credit of £54,000 (2016: £nil) represents the unwinding of the deferred tax liability recognised in respect of the intangible asset arising on the acquisition of Enterprise Ventures.

Balance sheet and cash flows

Net assets at the year end of £121,354,000 (2016: £80,041,000) were predominantly made up of the Group's direct investment portfolio, together with cash and short-term liquidity investments. The Group has limited working capital needs due to the nature of its business.

Direct investment portfolio

During the year Mercia's direct investment portfolio grew to £52,028,000 (2016: £38,143,000). The table below lists the Group's investments by value as at 31 March 2017, including a breakdown of the net cash invested during the year, investment realisations, fair value movements at the year end and the equity percentage of each company owned.

Direct investment realisations

Mercia is focused on creating shareholder value through the investment in, development of and at the appropriate time, exit from (predominantly through trade sales) its direct investments. Although the Group's direct investment portfolio is still at a relatively early stage, two successful cash realisations were completed during the year under review. In December 2016 Mercia Technologies sold its 16.6% stake in Allinea Software Limited ('Allinea') for an initial cash consideration of £2,570,000 (net of transaction costs). Following agreement of Allinea's closing working capital position, additional cash consideration of £171,000 was received in March 2017. Further cash consideration of £300,000 is expected to be received once a customary 18 month warranty lock-in period has expired. The total cash consideration received to date of £2,741,000 represents a 43.1% uplift against the £1,916,000 holding value of Mercia's direct investment in Allinea at the date of disposal and an 88.4% uplift compared with Mercia's total investment cost.

In February 2017 Mercia Technologies also disposed of its small remaining direct investment in AIM listed Abzena plc ('Abzena'). The total cash consideration received was £168,000 (net of transaction costs) and represented a 9.1% uplift against the £154,000 holding value of Mercia's direct investment in Abzena at the date of disposal.

Although neither of these cash realisations are for substantial amounts compared with the total value of the direct investment portfolio, they do nevertheless demonstrate the commercial attractiveness and realisable potential of the portfolio despite its early stage nature, as well as the Group's determination to not just create incremental shareholder value, but also to realise it in cash.

Cash and short-term liquidity investments

At the year end, Mercia had total cash and short-term liquidity investments of £63,829,000 (2016: £30,932,000) comprising cash of £28,829,000 (2016: £20,932,000) and short-term liquidity investments of £35,000,000 (2016:£10,000,000). The overriding emphasis of the Group's treasury policy remains the preservation of its shareholders' cash for investment and working capital purposes, not yield. At the year end the Group's cash and short-term liquidity investments (which is cash on deposit with maturities between three and six months) were spread across five leading United Kingdom banks.

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

The encouraging progress of the existing direct investment portfolio coupled with the Group's recent, significantly enhanced available cash resources, provide Mercia with a strong financial platform from which to drive growth in net asset value in the years ahead, free from any near-term fundraising distractions.

Martin Glanfield

Chief Financial Officer  

Summary Financial Information

Consolidated statement of comprehensive income

For the year ended 31 March 2017

Consolidated balance sheet

As at 31 March 2017

Consolidated cash flow statement

For the year ended 31 March 2017

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

Consolidated statement of changes in equity

For the year ended 31 March 2017

Notes to the consolidated financial statements

For the year ended 31 March 2017

1. General information

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

2. Basis of preparation

The summary financial information included in this announcement has been extracted from the audited financial statements of the Group for the year ended 31 March 2017, which have been approved by the Board of Directors. The content of this announcement has been agreed with the Group's auditor. The summary financial information does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The auditor's report on the financial statements for the year ended 31 March 2017 was unqualified and did not contain any statement under section 498 of the Companies Act 2006. The Group's Annual Report and financial statements will be delivered to the Registrar of Companies in due course.

The consolidated financial statements of Mercia Technologies PLC for the year ended 31 March 2017 have been prepared on the going concern basis, under the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities at fair value through profit or loss, as required by International Accounting Standard ("IAS") 39 'Financial Instruments: Recognition and Measurement', and in accordance with European Union endorsed International Financial Reporting Standards ("IFRSs"), the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee ("IFRIC")) interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The accounting policies presented in the summary financial information are consistent with those set out in the audited financial statements.

3. Significant accounting policies

Basis of consolidation

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

Critical accounting judgements

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

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

Fair value measurements and valuation processes

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

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

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

4. Segmental reporting

For the year ended 31 March 2017, the Group's revenue and profit were derived from its principal activity within the United Kingdom.

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

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

5. Fair value movements in investments

No other gains or losses have been recognised in respect of loans and receivables. No gains or losses have been recognised on financial liabilities measured at amortised cost.

6. Operating profit/(loss)

Operating profit/(loss) is stated after charging:

7. Earnings/(loss) per share

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) for the financial year by the weighted average number of Ordinary shares in issue during the year. Diluted earnings/(loss) per share is computed by dividing the profit/(loss) for the financial year by the weighted-average number of Ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options on an as-if-converted basis. The potential dilutive shares are included in diluted earnings/(loss) per share computations on a weighted average basis for the year. The profit/(loss) and weighted average number of shares used in the calculations are set out below.

8. Goodwill

Included in goodwill is £7,873,000 which arose on the acquisition of the entire issued share capital of Enterprise Ventures on 9 March 2016. This represents the difference between the fair value of consideration transferred and the fair value of assets acquired and liabilities assumed.

9. Intangible assets

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

10. Investments

The net change in the value of investments for the year is £13,885,000 (2016: £13,526,000).

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

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

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

12. Issued share capital

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.

On 16 February 2017 the Group issued 86,956,521 new Ordinary shares of £0.00001 at a price of £0.46 per share via a Placing which raised £40,000,000 (before share issue costs).

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

13. Share premium

The premium on the issue of Ordinary shares in the year arises from the placing of 86,956,521 new Ordinary shares of £0.00001 each issued at a price of £0.46 on 16 February 2017.

14. Fair value measurements

The fair values of the Group's financial assets and liabilities are considered a reasonable approximation to the carrying values shown in the balance sheet. Subsequent to their initial recognition at fair value, measurements of movements in fair values of financial instruments are grouped into Levels 1 to 3, based on the degree to which the fair value is observable. The fair value hierarchy used is outlined in more detail in note 2 of the Group's consolidated financial statements for the year ended 31 March 2017.

The following table gives information about how the fair values of these financial assets and financial liabilities are determined and presents the Group's assets that are measured at fair value as at 31 March 2017.

The Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate to their fair values.

Financial instruments in Level 1

As at 31 March 2017, the Group had one direct investment listed on AIM (Concepta PLC) and this has been classified as Level 1 and valued at its bid price as at 31 March 2017.

Financial instruments in Level 3

If one or more of the significant inputs required to fair value an instrument is not based on observable market data, the instrument is included in Level 3. Apart from the one investment classified as Level 1, all other investments held in the Group's direct investment portfolio have been classified as Level 3 in the fair value hierarchy and the individual valuations for each of the companies have been arrived at using appropriate valuation techniques.

The table below summarises the fair value measurements.

The price of recent funding round or cost of investment provide observable inputs into the valuation of an individual investment. However, subsequent to the funding round or initial investment, the Directors are required to reassess the carrying value of investments at each year end, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. One direct investment is valued at an enterprise value, based on a multiple of revenues, given its stage of development and profitability.

15. Availability of Annual Report

The Annual Report of Mercia Technologies PLC will be sent to all shareholders on 21 July 2017. An electronic copy will also be available on Mercia Technologies PLC's website at www.merciatechnologies.com.

16. Annual General Meeting

The Annual General Meeting ("AGM") of Mercia Technologies PLC (the 'Company') will be held at Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA on 18 September 2017 at 10.00 a.m.