Mercia Asset Regulatory News (MERC)

Mercia Asset Management PLC

("Mercia", the "Group" or the "Company")

Preliminary results for the year ended 31 March 2019

Positive momentum maintained and now accelerating the path to profitability

Mercia Asset Management PLC (AIM: MERC) (formerly Mercia Technologies PLC), the proactive, regionally focused specialist asset manager, is pleased to announce its preliminary results for the year ended 31 March 2019.

Name change

· Company renamed Mercia Asset Management PLC to reflect the evolution of the Group's core competencies as a proactive, regionally focused specialist asset manager

· Group's new domain and website is www.mercia.co.uk

Direct investment portfolio highlights

· £19.4million invested into 17 portfolio companies during the year including two new direct investments, W2 Global Data Solutions and Locate Bio

· Net fair value increase of £3.9million (2018: £2.8million)

· Direct investment portfolio increased to £87.7million (2018: £66.1million)

· £6.5million syndicated investment into Oxford Genetics

· Significant commercial progress made by a number of portfolio companies including nDreams, the Group's largest direct investment

Managed fund developments

· Third-party funds under management ("FuM") totalling c.£381million (2018: c.£400million); contributing £9.6million in revenue

o FuM reduction reflects the winding down of the RisingStars Growth Fund including returning c.£17million of capital to fund investors

· Venture FuM £224.1million. RisingStars Growth Fund fully unwound in March 2019, generating IRR of 15% and a total value to paid-in capital ("TVPI") of 528% for investors

· Private equity FuM £61.2million. Coalfields Growth Fund has to date generated IRR of 19% and a TVPI of 236% for investors

· Debt FuM £96.0million. Finance Yorkshire Small Loans Fund winding down generating a 107% return on original fund commitments

Financial highlights

· Revenue increased 4.7% to £10.7million (2018: £10.2million)

· Net expenses £1.4million (2018: £0.4million)*

· Operating profit £2.0million (2018: £1.3million)

· Profit after tax for the financial year increased to £2.6million (2018: £1.7million)

· Earnings per share increased to 0.86 pence (2018: 0.55 pence)

· Net assets £126.1million (2018: £123.5million)

· Net assets per share grew to 41.6 pence (2018: 40.7 pence)

· Unrestricted cash and short-term liquidity investments £29.8million (2018: £49.4million)

* 2018 revenue included one-off performance-related fund management fees totalling £1.2million

Post year end developments

· Further funding rounds into Voxpopme, Medherant and Locate Bio, investing £1.3million, £1.5million and £1.8million respectively

· £0.8million investment into MyLotus developer, Concepta, as part of a £2.3million placing in April 2019

· £0.5million invested into new direct investment Clear Review, a fast-growing software-as-a-service ("SaaS") business providing HR management tools 

· nDreams announced its partnership with global technology company Oculus; developing its first title Phantom: Covert Ops, which has already gained significant industry recognition and won the Game Critics Award for the best VR/AR game at the recent E3 gaming industry Expo in Los Angeles

· Susan Searle stepped down as Non-executive Chair to focus on her other non-executive roles

· Ian Metcalfe, Mercia's Senior Independent Director, appointed Non-executive Chair. An additional Non-executive Director with specialist asset management experience will be appointed in due course

Mark Payton, Chief Executive Officer of Mercia, commented:

"These results mark the acceleration of Mercia's evolution towards becoming a profitable, proactive and regionally focused specialist asset manager. Across our four asset classes of balance sheet, venture, private equity and debt capital, we recorded our strongest level of deal completions and investments to date.

"We remain focused on progressing the top balance sheet direct investments and the pace and scale at which these are being developed. Since 2014 funds under management have grown from c.£22million to c.£381million, highlighting our track record and ongoing commitment to delivering balance sheet and fund value. With over £500million of assets under management, we are well resourced and have the team in place for our next stage of growth."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

For further information, please contact:

A meeting for analysts will be held at the offices of Buchanan, 107 Cheapside, London EC2V 6DN on 8 July 2019 commencing at 9.30 a.m. An audio webcast of this briefing will subsequently be available later in the day via the following link: https://webcasting.buchanan.uk.com/broadcast/5d0a569e221579216107e567 

Mercia's 2019 preliminary results will also be available today on the Group's website at www.mercia.co.uk.

About Mercia Asset Management PLC

Mercia is a proactive, specialist asset manager focused on supporting regional SMEs to achieve their growth aspirations. Mercia provides capital across its four asset classes of balance sheet, venture, private equity and debt capital; the Group's 'Complete Capital Solution'. The Group initially nurtures businesses via its third-party funds under management, then over time Mercia can provide further funding to the most promising companies, by deploying direct investment follow-on capital from its own balance sheet.

The Group has a strong UK regional footprint through its eight offices, 19 university partnerships and extensive personal networks, providing it with access to high-quality deal flow. Mercia has over £500million of assets under management and, since its IPO in December 2014, has invested over £84million across its direct investment portfolio.

Mercia Asset Management PLC is quoted on AIM with the epic "MERC". 

Non-executive Chair's statement

The year ended 31 March 2019 has seen continued positive progress by the Group's direct investment portfolio. This year has also seen the evolution of Mercia's business model to that of a proactive, regionally focused specialist asset manager. This natural progression arises from the increasing maturity and value of Mercia's balance sheet direct investments, as well as the significant success that the Group has achieved in winning new fund management contracts. This evolution has led to the Group's change of name and branding to Mercia Asset Management PLC, which better reflects what the Group has become and will be in the future.

Having assembled a talented team of investment and support professionals, and firmly established its regional footprint, Mercia is seeing the benefits of being able to offer a 'Complete Capital Solution' to UK SMEs. In so doing it is identifying, investing in and supporting an increasing number of young businesses which have the potential to deliver significant incremental value.

The Group invests in both its growing deal flow pipeline and existing portfolio companies via one or more of the four pools of capital it has under management: balance sheet, venture, private equity and debt. In total c.£507million of capital is now being managed by the Group.

Direct investment portfolio progress

As the direct investment portfolio matures it is encouraging to see both the increasing quality of the businesses being built and validation of their value-creating growth strategies, via investment rounds at higher valuations, some of which include syndicate investors. In this regard, the Board has been pleased by the tangible commercial progress made by both nDreams and Oxford Genetics; the growing emergence of other portfolio companies such as Intechnica, Medherant, Faradion, Voxpopme, Intelligent Positioning and Eyoto; and the increasing profitability of The Native Antigen Company.

Two new companies were added to the direct investment portfolio this year, W2 Global Data Solutions and Locate Bio, both of which have come through Mercia's managed funds pipeline. The Board recently conducted a detailed review of the companies which may emerge from that pipeline in the foreseeable future. The list is encouraging, continuing to grow and balanced by sector.

Strategic review - the next chapter

During the early part of 2019 the Board conducted a detailed strategic review of the Group's progress to date, with the aim of continuing to scale Mercia to become a profitable, dividend-paying and self-sustaining investment group. This review also took account of the ongoing challenges facing the intellectual property commercialisation sector.

Mercia's business model has always differentiated itself from other sector participants, having:

· A regional focus where entry pre-money valuations are often more realistic

· Both university and non-university deal flow pipelines offering a broader range of investment opportunities

· A non-therapeutic portfolio bias, reducing the risk and dependence on binary outcomes for value inflexion

· Typically, less capital required by investees to reach profitability

· 'Funds first' before the Group's balance sheet capital is invested

· A growing and profitable fund management operation which largely offsets the Group's total operating costs, thus minimising net asset value erosion and cash burn

Since its inception, Mercia has been clear in its determination to trade profitably so that its annual revenues (which exclude unrealised fair value movements) exceed the total operating costs of the Group. The key to reaching this objective is twofold - continuing to increase the quantum of funds which the Group manages on behalf of a growing number of third-party stakeholders, whilst at the same time maintaining control of costs.

The Group is also determined to reach the point of balance sheet sustainability, such that regular realised cash returns from trade sales and the unwinding of equity stakes in listed companies are sufficient for its annual direct investment needs.

Since its IPO in December 2014 Mercia has evolved from a Midlands-based, relatively small technology investor to a much larger regionally focused, specialist asset manager with investment expertise across its four asset classes. Continuing to grow all four pools of capital will enable the Group to achieve its twin strategic objectives. This is the path upon which the Group has now embarked.

Group Board

Since the appointment of Julian Viggars as Chief Investment Officer in April 2018 and Caroline Plumb OBE as an additional Non-executive Director in June 2018, the Board has focused on the strategic direction of the Group and its execution priorities. The Directors together with the Group's Chief Operating Officer, Peter Dines, provide a balanced and experienced leadership group to drive shareholder value creation. 

Within the past few days Susan Searle has stepped down from our Board to make the appropriate time commitment for her other roles. We will all miss her passion, enthusiasm and commitment to Mercia. Given the evolution of Mercia into a specialist asset manager, the Board intends to appoint an additional Non-executive Director with relevant background experience in due course.

People and culture

During the year the Executive Directors have continued to lead the development of the Group's 'One Mercia' culture, details of which will be set out in the Corporate, Employee and Social Responsibility section of this year's Annual Report.

It is pleasing to see the embedding of Mercia's core values, being growth-focused, responsive, knowledgeable and trusted, in all of the Group's internal and external stakeholder interactions, which continue to be strongly supported by Mercia's leadership team.

Outlook

All businesses must evolve to meet their ever-changing market dynamics and as its new name suggests, Mercia Asset Management PLC is no exception.

Mercia's recent strategic review has reinforced the Group's core competencies, being:

· Active direct investment portfolio management and support, including a focus on profitable cash exits

· Proven acquisition and integration expertise

· Fund mandate tendering and subsequent capital deployment

· Talent acquisition and retention 

These core competencies will be deployed to maximise the opportunities which now exist to increase returns for all stakeholders, but especially shareholders and the Group's investee company community. 

Notwithstanding the challenging political, economic and market sector climate, the Group looks forward to this financial year with great energy and purpose. The Board will remain focused on the progress of the largest balance sheet direct investments and the pace and scale at which these are being developed. Mercia's venture, private equity and debt funds activities are also monitored by the Board. As and when suitable opportunities present themselves, we will seek to expand this part of the Group's business.

Finally, I would like to thank our shareholders for their continuing loyal support, particularly during what has been a period of challenging investor sentiment. It is also a pleasure to interact with all the excellent staff at Mercia and in so doing, to see their energy and determination to succeed on behalf of Mercia's shareholders, fund investors and investee company management teams alike.

Ian R Metcalfe

Non-executive Chair

Chief Executive Officer's review

The regionally focused specialist asset manager

In the last 12 months Mercia has experienced marked growth in capital deployment from its balance sheet and managed funds as it builds a strong foundation from which to further expand its assets under management ("AuM"). In this reporting period, Mercia received 2,792 (2018: 1,800) requests for investment and invested c.£73million (2018: c.£46million) across the Group into 145 companies (2018: 90). Revenue grew 4.7% to £10.7million (2018: £10.2million), reflective of the Group's consolidation in the year following a period of recent and rapid expansion.

A simple measure of the progress that the direct investment portfolio is making is to compare the number of positive and negative fair value movements that are occurring year-on-year, as well as the overall value of those movements and the percentage that the total fair value movements represent, against each year's opening fair value. Given that just over four and a half years have elapsed since Mercia's IPO in December 2014, it is important to remember that the average amount of time that the balance sheet's capital has been invested in these typically young and intellectual property-intensive businesses is just over two years. Mercia's objective is to successfully exit following a three to seven-year timeframe from initial balance sheet investment. During the year to 31 March 2019 it is encouraging to see that there have been 12 fair value uplifts (2018: nine) and only three fair value decreases (2018: nine). As a result, the total net fair value gain has increased 39.3% to £3.9million (2018 £2.8million). Whilst the net fair value increase in the year at 5.9% (2018: 5.4%) is relatively modest, it is somewhat skewed by the £4.0million write-off of Mercia's investment in Smart Antenna Technologies. As set out in the Chief Investment Officer's review, the Executive Directors made the difficult recommendation, fully supported by the Board, to cease funding Smart Antenna Technologies due to a significant change in the investment needs of the business. Whilst Mercia's investment team works hard to minimise portfolio failures, it is the nature of venture capital investing that not every investment will work out as planned. It is worth noting however, that but for the Smart Antenna Technologies write-off, the underlying net fair value increase in the value of the portfolio during the year was 12.1%, which is a more indicative measure of the positive progress that the portfolio is making. Two new businesses were added to the portfolio during the year, W2 Global Data Solutions and Locate Bio.

Net expenses at £1.4million (2018: £0.4million) were better than market expectations and overall these results set the backdrop for creating a sustainable business seeking to accelerate growth in AuM over the near to medium term, coupled with a continued direction of travel towards profitable trading before the added value of profitable cash realisations and upward fair value movements.

In the regions, from the regions, to the regions

Mercia's stated intent is to become the leading regional provider of supportive balance sheet, venture, private equity and debt capital in transaction sizes typically below £10.0million. Recent research reports from Beauhurst have shown Mercia to be the fourth most active investor nationally and second most active in the North of England. We base ourselves in the regions so that we can access and support ambitious businesses, enabling us to move capital from London to the regions, whilst supporting business growth and providing attractive investment returns from the regions to our fund investors, shareholders and business owners. Mercia's strategic plan is supported by data from Beauhurst, the British Business Bank and the British Venture Capital Association. As a ratio based on the percentage of high-growth firms to total equity capital deployed, London has an approximately three times oversupply of capital compared to, for instance, the Midlands at 0.3 times. Our positioning in the regions provides an attractive opportunity to source high quality deal flow with relatively limited competition, whilst helping owners meet and beat their own growth ambitions.

A maturing direct investment portfolio underpinned by proprietary capital

Since Mercia's IPO in December 2014, we have to date invested c.£84million into the balance sheet portfolio of direct investments (focused on assets initially developed within Mercia's FuM) and £0.8million as a cornerstone investor in four of our managed funds. Our direct investment activity has resulted in c.£14million in realised cash returns thus far and the IRR of the direct investment portfolio is currently c.14%.

Our proprietary capital model means that we do not have the same pressure to invest capital for the sake of generating fees. Our teams have the time to actively nurture interesting companies from within our FuM and build relationships with management teams long before we invest directly and so we seek over the medium to long-term to generate superior returns. The combination of our balance sheet capital with third-party FuM, centred on regional investment activity, is the cornerstone of Mercia's business model. This approach ensures that our shareholders benefit from investment returns over the medium-term with minimal net asset value erosion from the net expenses of running our business. Our ungeared balance sheet, connected internal processes and focused investment model allow us to be competitive and agile for the right investment opportunities.

We ended the year with unrestricted cash of £29.8million (2018: £49.4million) and net assets of £126.1million (2018: £123.5million).

Portfolio performance

The portfolio of investments assembled within our FuM over the 17-year period from 2002 (and for our direct investment portfolio since 2014) is starting to create and realise significant value.

Notable direct investments initially supported by our FuM include nDreams (a fee-for-service and proprietary content developer for the virtual reality ("VR") gaming sector, which is in a period of strong revenue growth and has received further third-party investment post year end); Oxford Genetics (a promising synthetic biology business which is growing rapidly with revenues up by nearly 300% in the past 12 months and which recently completed a £6.5million syndicated investment round to further scale the business); Voxpopme SaaS based video analytics business in rapid revenue growth); Intechnica (a provider of bot analytics and website optimisation services and tools in strong revenue growth); and Faradion (a disruptive sodium-ion battery cell developer which completed a syndicated round of investment post year end).

Notable venture portfolio companies within our FuM include Axis Spine (a spinal implant innovator that is attracting significant attention from the US market) and Sense Bio (a developer of user-centred, handheld diagnostic test devices in the fields of infection and oncology). Another fund portfolio company, Clear Review (a SaaS business providing HR management tools), has been added to the direct investment portfolio since the year end.

In addition to the considerable new investment activity during the year, the Group also unwound its fund investment in Blue Prism Group (previously held in the RisingStars Growth Fund) for a money multiple on initial investment of c.95x; an outstanding investment return.

As well as our differentiated regional strategy and FuM combination with proprietary balance sheet capital, the Group has developed its own Mercia Platform for the benefit of its portfolio companies and our investment teams. The Platform comprises (i) portfolio talent management to assess and support investee boards, 'C Suite' and senior management recruitment and development, plus help build regional non-executive director networks; (ii) corporate advisory to manage deal syndications alongside the Group's capital; (iii) legal, where we look to support portfolio companies with legal investment documentation expertise; and (iv) research for the benefit of Mercia's strategic execution and our portfolio companies. These value-added services to investee companies positively differentiate Mercia in our marketplace.

Funds' performance and return

To date, Mercia's closed and legacy funds have returned c.£176million. The vintages of these funds have varied from 10 to 16 years with certain funds returning IRRs of 15-17%.

Venture

Our first venture fund to be fully unwound and capital returned to investors, RisingStars Growth Fund, was an early-stage fund specifically targeted at young businesses sourced from the North West of England. It has generated an investor IRR of 15%, total value to paid-in capital ("TVPI") of 528% and distributions as a proportion of paid-in capital ("DPI") of 468%. This fund benefitted from a portfolio generating nine trade sales and three IPOs.

Private equity

Our oldest private equity fund is another regional fund, Coalfields Growth Fund, which has so far generated an investor IRR of 19%, TVPI of 236% and a DPI of 167%. This fund benefitted from a portfolio generating three successful exits to date.

Debt

Our first and oldest debt fund which is currently winding down is the Finance Yorkshire Small Loans Fund. Focused on lending to businesses in Yorkshire, it will return 107% of original fund commitments.

Outlook

We enter our current financial year having developed a strong foundation for Mercia's next chapter as a proactive, regionally focused specialist asset manager. This domestic focus in part protects us from the uncertainties of the UK's departure from the EU and the nature of its new relationship and timing. The Group has a healthy cash position with c.£168million in free cash to invest from its FuM and in addition c.£30million of unrestricted balance sheet cash to support new and existing direct investments. We remain centred on transactions typically requiring less than £10.0million in total and by leveraging the four pools of capital that we manage across the Group, Mercia remains well positioned to combine third-party funds with our own balance sheet capital, where appropriate.

Mercia's presence in the UK regions of the Midlands, the North of England and Scotland is now firmly established. We continue to value our established relationships with the Group's 19 partner universities, as well as fund investors such as the British Business Bank, City Councils, regional pension funds, banks and our many private investors. We thank them all for their trust in us with their capital.

Our two clear goals remain to grow the value of Mercia's net assets through accelerated growth of the direct investment portfolio whilst seeking to expand our AuM to move the Group to a sustainable, profitable position before realised gains and fair value movements. The Group's objective is to grow AuM to at least £1.0billion over the medium-term. We believe that the achievement of these goals will result in a sustainable business model which will deliver significant shareholder value over the medium-term.

The Board strongly supports Mercia's next stage in its evolution, as demonstrated by the recent name change to Mercia Asset Management PLC. Internally, we reference the Group as 'One Mercia' as we leverage the collective strength of a highly talented 85-plus team. I would like to thank all our valued staff for their drive and commitment as we open 'Chapter Three' of Mercia's journey to become the leading, regionally focused specialist asset manager.

Dr Mark Payton

Chief Executive Officer

Chief Investment Officer's review

Having taken over the role of Chief Investment Officer in April 2018 this has been my first full year to focus on the construction of the direct investment portfolio and oversee the Group's activities across all of its managed equity funds. I am pleased to say that we have made significant progress in all of these areas and we are now starting to see the benefits of the previous hard work, as our portfolio companies start to mature; examples of this progress are highlighted below.

As with any young portfolio, in addition to the good progress we see, we would of course expect challenges. I commented in the half year results that we were prepared to take action in circumstances where our fundamental rationale for investment had changed, which had been the case with Edge Case Games. This business was sold to Wargaming in November 2018, returning an initial £1.1million to us in a deal involving further deferred contingent consideration of up to $10.0million in due course. In January 2019 we took another tough decision to stop supporting Smart Antenna Technologies. When the demands of Smart Antenna Technologies' mainly Chinese customers shifted from licensing its antenna technology to 'last touch' volume manufacture of the antennae themselves, the change in customer requirements necessitated a significant increase in the amount of capital committed by Mercia to Smart Antenna Technologies. The decision was therefore taken in January 2019 not to provide further funding and as a result the business ceased trading shortly thereafter. Although this has resulted in a disappointing write-off, my twenty years' experience of investing in technology companies tells me that it is far better to take these decisions and look at the strength of the remaining portfolio as a whole. Decisions like these should always be made from a position of risk and portfolio management and we always consider the opportunity cost of each £1 allocated to one of our assets compared to that £1 being invested in another.

During the year we conducted an in-depth review of our direct investment portfolio and allocated our time, energy and capital in a structured manner, leveraging the services of our newly formed Mercia Platform to help drive investee company growth. Mercia's Platform covers the four disciplines of talent resourcing, corporate advisory, legal and research, all of which we see as key to delivering investee company growth by helping management teams to scale their businesses. This supportive approach means that we can both help our portfolio management teams to take advantage of the opportunities ahead of them, as well as helping them to navigate the inevitable issues associated with growing and scaling young businesses. 

Track record

Track record is crucially important for any specialist asset manager and our oldest technology fund, the RisingStars Growth Fund, was finally closed at the end of March 2019. It was raised in 2003 and targeted entrepreneurs and early-stage ideas across the North West of England, operating out of Mercia's second largest office in the heart of the city of Manchester. We invested across the geography from software, through MedTech, AgTech and FoodTech, to specialty Pharma, in some 35 deals. The fund spawned four listed businesses, Provexis, Science in Sport and Plant Impact, but the standout success was Blue Prism Group. We were the first investor in Blue Prism Group in 2004 when the founders, Alistair Bathgate and Dave Moss, came to us after they had won their first bespoke deal with Barclays. We invested £0.9million over the following few years to support their progress and help build their team. They moved to a channel partner model as their newly coined 'robotic process automation' software started to gain traction. From there the story is impressive, following its AIM listing in 2016 and stellar subsequent growth to a market value of c.£1.1billion. That early investment has now been realised in full and has resulted in a staggering c.£94million profit on the original investment cost. 

Our first private equity fund is another regional fund, Coalfields Growth Fund, which has so far generated an IRR of 19% and a DPI of 167%. This fund benefitted from a portfolio which has generated three successful exits to date.

Direct investment portfolio overview

We have had another year of good progress across the direct investment portfolio, resulting in net upward fair value movements of £3.9million. The overall uplift should be considered in light of the £4.0million write-off of Smart Antenna Technologies, where we took the tough but right decision to discontinue financial support. 

We have seen the continued maturing of the direct investment portfolio with c.98% of the total portfolio value being represented by the top 20 investments. A number of our investee companies have raised significant sums of capital during the year to fund their growth and we have continued to build out the management teams and boards at our key assets. £19.4million has been invested over the past year and investee company loan repayments have totalled £1.7million. As at 31 March 2019 the value of the Group's direct investment portfolio has increased to £87.7million from £66.1million, reflecting the net investment of £17.7million and net fair value gains of £3.9million.

Investment activity

As many of our direct investment portfolio companies now look to scale their growth, our aim remains to build and/or maintain material equity stakes at c.20-40% in these assets, whilst increasingly looking to bring in new third-party capital.

We have continued to support our largest and most promising assets, with both capital and energy. £8.7million of the total amount of balance sheet capital invested in the year was invested into nDreams, Oxford Genetics, Warwick Acoustics, Intechnica, Impression Technologies and Voxpopme.

nDreams continues to develop its award-winning VRcontent; its own Shooty Fruity game won best PC Arcade game at the Viveport Awards in March 2019, making its first steps into the growing location-based entertainment ("LBE") market for VR. It also announced its first title, Phantom: Covert Ops, being developed for Oculus, which has recently received rave reviews and numerous awards at the global games Expo, E3 held in Los Angeles in June, including the Games Critics Award for best VR/AR game. Global enterprise VR hardware and software revenue is estimated to grow by 587% to $5.5billion in 2023, up from an estimated $800million in 2018, according to Business Insider Intelligence.

Oxford Genetics made significant commercial progress and closed a new £6.5million funding round in March 2019 led by Canaccord Genuity Wealth Management (formerly Hargreave Hale) and Invesco. According to data published by Allied Market Research the global synthetic biology market is expected to reach $38.7billion by 2020.

Warwick Acoustics continues to successfully pursue its goal of disrupting the $8.0billion automotive audio market. It launched its flagship premium headphone product, the APERIO, to global critical acclaim, further enhancing its brand, proving out its new automotive-grade transducer design and securing early commercial interest. On the back of this achievement, it has gained strong traction from the car industry, signing its first two design and development contracts with a major premium European car manufacturer. These contracts are helping to accelerate the growth of its pipeline of car companies seeking to adopt its premium audio solutions and should result in the company securing 'supplier ready' status with the automotive industry in early 2020. 

Intechnica is a Manchester-based services and software product business with annual revenues of c.£6million. Its focus is on the critical operations of ecommerce businesses, including website resilience and efficiency, high volume ordering systems, online ticketing and mobile customer relationship management applications. It is developing a suite of products to help manage inbound web traffic. In the last 12 months the business has raised £4.1million, with £2.0million from Mercia, to fund the ongoing commercialisation of its SaaS-based Netacea product offering. Statistics from Gartner estimate that the enterprise software market in 2019 will reach $427.0billion, up 7.1% from $399.0billion in 2018.

Impression Technologies has developed a proven, patented process for manufacturing advanced, light-weight high-strength components using aluminium. The process, known as Hot Form Quenching (HFQ®) technology, offers significant savings in weight, cost and part complexity compared with existing forming technologies and enables designers to create complex shaped components using high-strength aluminium that are not possible today. HFQ® technology addresses substantial global markets including automotive, aerospace, mass transit, industrial and consumer electronics. Impression Technologies owns and operates a pilot pressing facility in Coventry, which opened in late 2016. This facility now houses the world's first dedicated HFQ® hot forming press line. Impression Technologies' business model is to license its technology to Automotive OEMs and to their tier 1 suppliers. The in-house production line is used for process development and low volume supply to Aston Martin and others. During the year, Impression Technologies partnered with Novelis Inc., the world leader in aluminium rolling and recycling, to explore innovative ways to increase the broader adoption of aluminium through the hot stamping process.

Voxpopme is a Birmingham-based video insights platform that provides innovative video analytics for marketing purposes with internationally renowned clients such as Microsoft, Tesco, Verizon and Accenture. The business has successfully entered the US market and Mercia's capital will help scale its growth. The Group made its first direct investment into the company in March 2018 and with revenues of c.$5million in 2018, c.95% up on the prior year, Voxpopme is operating in a market estimated to be worth $46.0billion in market research and $17.0billion in customer experience.

During the financial year we also invested £2.5million into two new direct investments, W2 Global Data Solutions and Locate Bio, both of which originated from the managed funds pipeline. In addition, we contributed £0.6million of balance sheet capital to four of our regional managed funds.

W2 Global Data Solutions is a SaaS business providing real-time identity verification services to prevent fraud and money laundering in a market estimated to grow from $14.4billion in 2016 to $33.2billion in 2021. The company targets global firms in regulated, government and business communities and is primarily focused on selling to the gaming, payments and foreign exchange markets on multi-year revenue contracts.

Locate Bio is a gene and cell therapy company developing a pipeline of next generation medicines which utilise its proprietary technologies for non-viral gene therapy and cell therapy. The company operates in the global regenerative medicine market which is projected to reach $38.7billion by 2024 from $13.3billion in 2019, at a CAGR of 23.8%. This predicted growth is largely driven by the rising prevalence of chronic diseases and genetic disorders, growing government investments in regenerative medicine research and the increasing number of regenerative medicine companies globally. The company is currently expanding the application of its technologies (IntraStem™ and TAOS®) into new therapy areas, beyond musculoskeletal, to provide further in-house development and partnering opportunities.

We have seen strong growth in the pipeline for direct investment across our sectors in the last 12 months through the increasing scale of our managed funds, which have deployed £30.5million from our venture funds alone into 61 companies. We will continue our aim of building excellent management teams within these businesses, which can scale before we commit our balance sheet capital. As a result, and as shown with Oxford Genetics above, we expect that in the future larger and increasingly syndicated investment rounds will be a growing feature of our direct investment portfolio.

Some notable businesses in our venture funds that are making strong progress include Axis Spine, a spinal implant innovator that is attracting significant attention from the US market, and Sense Bio, a developer of user-centred, handheld diagnostic test devices in the fields of infection and oncology.

Fair value movements

The total net fair value gain in the year amounted to £3.9million compared to £2.8million in the prior year. We have recognised notable fair value uplifts at nDreams (£1.1million), Intelligent Positioning (£1.3million), Faradion (£1.6million), Oxford Genetics (£0.6million), Medherant (£1.2million), The Native Antigen Company (£0.9million) and Voxpopme (£0.5million). These fair value uplifts are based on our existing valuation policy where there is either third-party involvement and pricing in an investment round (in most instances), independent third-party input to valuation, or the business is profitable and the valuation is based against market comparators. We have also released a previous fair value provision for Soccer Manager as the company's revenues have increased, and in our view its prospects have materially improved, as we have helped to engineer operational and market-facing improvements.

As well as the fair value write-off of Smart Antenna Technologies we also recognised a negative fair value movement of £0.5million on Concepta, an investment which is listed on AIM so is marked to market at bid price. However, we have been pleased with the recent commercial progress that Concepta is now making, as shown by the recent agreement with Walgreen Boots Alliance, and so have continued to support the team under the oversight of Mercia's Chief Operating Officer Peter Dines, who has become a non-executive director on Concepta's board.

Third-party funds overview

Our third-party managed funds encompassing our venture (which includes c.£49million of EIS capital), private equity and debt funds are all performing well against their mandates.

In our primary regions of the Midlands and the North of England we manage allocations from the £250.0million Midlands Engine Investment Fund ("MEIF"), the £400.0million Northern Powerhouse Investment Fund ("NPIF") and the £125.0million North East Venture Fund ("NEVF").

Our £23.5million Midlands Engine Investment Fund Proof of Concept Fund ("MIEF POC") first invested in Locate Bio in April 2018, which subsequently became a direct investment six months later and has received significant further funds since the year end from both Mercia's balance sheet and via its third-party managed funds. In the North of England we manage c.£110million across the NPIF region in both venture and debt, with both mandates on target. Our newest fund covering the North East region of £27.5million was launched in April 2018 and made its first investments during the year.

In Scotland, we have significant relationships with a number of the leading universities, most recently the University of Edinburgh, and have used allocations from our EIS funds to lead an investment into Invizius, a company whose technology reduces the risk of cardiovascular disease among patients undergoing long-term dialysis.

Our newest £45.0million private equity fund invests in later-stage profitable SME businesses; supporting ambitious management teams by providing the focus, resources and finance required to move their companies onto the next level of growth. The fund operates across the UK, although makes a strength of its northern roots and has an experienced investment team, supported by two operating partners who regularly meet and advise management teams. The investment criteria of the fund starts with identifying management teams with a shared set of goals and typical investments will be into profitable, cash-generative businesses with a strong market position that can achieve rapid growth. During the year the fund invested £8.5million in total into an online aggregator car park booking site, ParkVia, and a specialist lifting equipment provider operating a depot network across the North of England and the Midlands, Quick Reach. Since the year end the fund has made two further investments including Total Resources, a temporary traffic management business which was a c.£8million deal that also included both our SME Loans Fund and North East Venture Fund. 

Our debt team was active in managing three third-party debt mandates; £4.0million of Rosebud Finance on behalf of Lancashire County Council, the £40.0million EV SME Loans Fund backed by Greater Manchester Pension Fund and Santander, and the £51.0million NPIF Debt Fund (part of Mercia's £110.0million NPIF allocation) focusing on Yorkshire and the Humber. Our experienced debt team of 18 people operates across the country, but with a focus on the North of England, and typically provides term loans of between £0.1million and £1.0million to established and profitable SMEs which can demonstrate growth and an ability to service the requested levels of debt. All funds are operating to agreed performance measures and during the year the team advanced loans totalling £15.0million to 65 businesses.

We are now investing at a steady rate across venture, PE and debt funds, creating a healthy pipeline of investments from which we can help shape business models, strategies and management teams, before making selective new direct investments using our balance sheet capital. 

Post period end developments

Investment activities have continued apace since the year end with new funding rounds at Medherant and Locate Bio where we invested a further £1.5million and £1.8million, respectively. We have also continued to support Voxpopme as the company executes its plan to grow its annual recurring revenues ("ARR"). 

Concepta announced a new £2.3million placing in April, with Mercia contributing £0.8million, and subsequently the company announced the first pregnancies by early users of its MyLotus system.

nDreams announced its partnership with Oculus and the first title in development, Phantom: Covert Ops, which received positive, wide recognition at E3 in Los Angeles in June 2019, including winning the Game Critics Award for best VR/AR game.

Another fund investment, Clear Review, a SaaS business providing HR management tools, has become the Group's latest new direct investment with an initial £0.5million equity investment.

In summary, and as is evident from the above, value-creating momentum continues and I am pleased to be able to share the positive progress that our investee companies are making alongside our active support. By using a highly structured approach over the last 12 months we have been able to focus our energy and capital into the most promising assets, which we believe will deliver far greater value to all our shareholders and fund stakeholders alike. This portfolio discipline is continuing in the current year.

Julian Viggars

Chief Investment Officer

Chief Financial Officer's review

In the year to 31 March 2019 Mercia Asset Management PLC experienced continuing positive momentum across both its balance sheet and fund management investing and lending activities.

Revenue (which excludes unrealised fair value movements) increased 4.7% to £10.7million (2018: £10.2million). The Group's revenue increase was largely derived from the full year impact of new fund management contracts won during the previous year. As referred to last year, 2018 revenue included one-off performance-related fund management fees totalling £1.2million.

Staff and administrative expenses increased by 13.9% to £12.1million (2018: £10.6million). The cost base increase arose mainly from the recruitment of additional investment staff in 2019 to manage and deploy the substantial new fund mandate wins of 2018. The Group now anticipates a levelling off of its cost base, as the additional investment and support staff required to invest the substantial fund mandate wins in both 2017 and 2018 have now largely been recruited.

Net expenses increased by £1.0million compared with 2018 largely as a result of average headcount increasing from 68 to 85 during the year. The Group's drive to minimise NAV erosion arising as a result of its operating model will continue.

During the year the Group invested £19.4million (2018: £21.3million) into 15 existing and two new direct investments (2018: 14 and three respectively). It also received investee company loan repayments of £1.7million (2018: £0.2million). Investment momentum has been positive at the start of the new financial year and is expected to selectively continue.

Net fair value increases during the year totalled £3.9million (2018: £2.8million) and as at 31 March 2019 the fair value of the Group's direct investment portfolio was £87.7million (2018: £66.1million). Net assets at the year end were £126.1million (2018: £123.5million) resulting in an increase in net assets per share (being net assets of £126.1million divided by 303,309,707 shares in issue) to 41.6 pence (2018: 40.7 pence).

Within total net assets, cash and short-term liquidity investments totalled £30.4million (2018: £52.9million), including £0.6million of cash held on behalf of third-party EIS investors (2018: £3.5million).

The net fair value increases contributed favourably to result in a 57.6% overall increase in the consolidated total comprehensive profit for the year to £2.6million (2018: £1.7million). This in turn has resulted in an increase in earnings per Ordinary share to 0.86 pence (2018: 0.55 pence).

Alternative performance measures

The Group believes that the measurement and reporting of both 'net expenses' and 'net assets per share' are important alternative performance measures of interest to investors. The reporting of net expenses enables a clear understanding of the impact of the Group's operating model on net asset value erosion, where operating costs exceed revenue. Similarly, the reporting of net asset value per share provides an indication of the overall progress that the Group is making in terms of shareholder value creation over the medium term. Where there is a difference between net asset value per share and the Group's share price, that difference represents either a discount or premium to Mercia's net asset value.

Goodwill and acquired intangible assets

The consolidated balance sheet includes goodwill of £10.3million (2018: £10.3million) and acquired intangible assets of £0.6million (2018: £0.9million). £7.9million (2018: £7.9million) of the goodwill and all of the intangible assets value arose as a result of the Group's acquisition of Enterprise Ventures Group Limited in March 2016, with the balance of the goodwill arising on the acquisition of Mercia Fund Management Limited in December 2014. 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 charge of £301,000 (2018: £301,000) in the consolidated statement of comprehensive income represents the amortisation for the year ended 31 March 2019.

Summarised consolidated statement of comprehensive income

Mercia continues to have strong liquidity and a growing investment portfolio from which to drive future increases in both earnings per share and net assets per share.

Revenue

Total revenue of £10,675,000 (2018: £10,197,000) comprised fund management fees, initial management fees from new investments, investment director monitoring fees and sundry business services income.

Other administrative expenses

Total other administrative expenses of £12,115,000 (2018: £10,633,000) consisted of all staff related and office, marketing and professional adviser costs.

Net expenses

Net expenses of £1,440,000 (2018: £436,000) represents total revenue less all staff and administrative expenses.

Fair value movements in investments

For the year as a whole, unrealised fair value gains arose in twelve (2018: nine) of the Group's 26 (2018: 26) direct investments at the year end. The largest fair value gain, being Faradion, was £1,625,000. There were three (2017: nine) fair value decreases, the largest being £4,048,000 for Smart Antenna Technologies which ceased trading during the year.

Share-based payments charge

The £171,000 (2018: £497,000) 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 2019. The year-on-year reduction is due to leavers during the year forfeiting their share options.

Amortisation of intangible assets

The amortisation charge of £301,000 (2018: £301,000) represents the amortisation of the acquired intangible assets of Enterprise Ventures for the year ended 31 March 2019.

Finance income

Finance income of £562,000 (2018: £274,000) comprised loan interest and redemption premiums received on loans repaid by investee companies during the year, as well as interest receivable earned on the Group's cash and short-term liquidity investments.

Taxation

The tax credit of £54,000 (2018: £54,000) represents the unwinding of the deferred tax liability recognised in respect of the intangible asset which arose on the acquisition of Enterprise Ventures.

Balance sheet and cash flows

Net assets at the year end of £126,065,000 (2018: £123,470,000) were predominantly made up of the Group's direct investment portfolio, together with cash and short-term liquidity investments. The Group continues to have limited working capital needs due to the nature of its business.

Direct investment portfolio

During the year Mercia's direct investment portfolio grew to £87,659,000 (2018: £66,070,000). The table below lists the Group's investments by value as at 31 March 2019, including a breakdown of the net cash invested during the year, fair value movements for the year and the equity percentage of each investee company owned.

Investee company loan repayments

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, as well as minimising net asset erosion from net expenses. The Group supports its direct investments via both equity and loan instruments. During the year loan repayments of £1,711,000 were received from Crowd Reactive, Edge Case Games and Smart Antenna Technologies.

Cash and short-term liquidity investments

At the year end, Mercia had total cash and short-term liquidity investments of £30,398,000 (2018: £52,908,000) comprising cash of £25,210,000 (2018: £42,908,000) and short-term liquidity investments of £5,188,000 (2018: £10,000,000), including £629,000 (2018: £3,473,000) of cash held on behalf of third-party EIS investors. 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 overall positive progress of the direct investment portfolio together with the Group's significant cash reserves, plus a continued focus on net expense minimisation, provides Mercia Asset Management with a strong financial platform from which to continue to drive growth in net assets and with it, NAV per share.

Martin Glanfield

Chief Financial Officer 

Summary Financial Information

Consolidated statement of comprehensive income

For the year ended 31 March 2019

Consolidated balance sheet

As at 31 March 2019

Consolidated cash flow statement

For the year ended 31 March 2019

Consolidated statement of changes in equity

For the year ended 31 March 2019

Notes to the consolidated financial statements

For the year ended 31 March 2019

1. General information

Mercia Asset Management PLC (formerly Mercia Technologies PLC) (the 'Group', 'Mercia') is a public limited company, incorporated and domiciled in England, United Kingdom, and registered in England and Wales with registered number 09223445. The change of name better reflects the Group's current trading activities and business model. Its Ordinary shares are admitted to trading on the AIM market of the London Stock Exchange. The registered office address is Mercia Asset Management PLC, Forward House, 17 High Street, Henley-in-Arden, B95 5AA. Mercia Asset Management 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 2019, which have been approved by the Board of Directors. The content of this announcement has also 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 'Act'). The auditor's report on the financial statements for the year ended 31 March 2019 was unqualified and did not contain any statement under section 498 of the Act. The Group's Annual Report and financial statements will be delivered to the Registrar of Companies in due course.

The financial statements have been prepared on an historical cost basis, as modified by the revaluation of certain financial assets and financial liabilities in accordance with International Financial Reporting Standard ("IFRS") 9 'Financial Instruments'. The accounting policies presented in the summary financial information are consistent with those set out in the audited financial statements.

3. Going concern

Based on the overall strength of the Group's balance sheet, including its significant liquidity position at the year end, together with its forecast future operating and investment activities, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing these consolidated financial statements.

4. Significant accounting policies

Basis of consolidation

Subsidiaries and subsidiary undertakings 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 and transaction costs are expensed as incurred. Goodwill arising on acquisitions is tested annually for impairment.

New standards

New standards impacting the Group that have been applied in the presentation of these consolidated financial statements are IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers'. The Group has concluded that the application of IFRS 9 results in no differences in the classification and measurement nor impairment of its financial instruments and as a result, there is no requirement to restate the comparative information provided in the consolidated financial statements, nor change its accounting policy. The Group has assessed that the application of IFRS 15 results in no differences in the timing of revenue recognition and as a result, there is no requirement to restate the comparative information provided in these consolidated financial statements. The Group has, however, changed its revenue recognition policy to adopt the standard's five-step framework, such that revenue in respect of services provided is recognised when a contractual performance obligation can be identified, a transaction price can be determined and allocated to that performance obligation and that performance obligation has been or is being satisfied.

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 consolidated 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 observable 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 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 IPEVCVG, 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 period 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.

5. Segmental reporting

For the year ended 31 March 2019, 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 proactive specialist asset management, 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:

6. Fair value movements in investments

No other gains or losses have been recognised in respect of financial assets held at amortised cost. No gains or losses have been recognised on financial liabilities held at amortised cost.

7. Operating profit

Operating profit is stated after charging:

8. Earnings per share

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

The calculation of the basic and diluted earnings per share is based on the following data:

9. 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. The balance of £2,455,000 arose on the acquisition of Mercia Fund Management Limited in December 2014.

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 those the assets will flow to the Group and the fair value of the assets can be measured reliably.

11. Investments

The net change in the value of investments for the year is £21,589,000 (2018: £14,042,000).

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 from disposals and the direct investment fair value movements.

In accordance with the Group's accounting policy in respect of investments in associates, 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 influence over those companies. This treatment is permitted by IAS 28, 'Investments in Associates'.

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

13. Issued share capital

On 26 March 2018 2,707,475 new Ordinary shares of £0.00001 each were issued at a price of 39.9 pence in settlement of the deferred consideration payable in respect of the acquisition of Enterprise Ventures. These new shares were admitted to trading on AIM on 29 March 2018.

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

14. Share premium

The premium on the issue of Ordinary shares in the prior year arises from the issue of 2,707,475 new Ordinary shares of £0.00001 each issued at a price of 39.9 pence on 26 March 2018, in settlement of the deferred consideration for the acquisition of Enterprise Ventures.

15. 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 4 to this summary financial information.

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 2019.

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 2019, the Group had one direct investment listed on AIM (Concepta); this has been classified as Level 1 and valued at its bid price.

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 reporting date, including assessment of any impairment indicators, which result in unobservable inputs into the valuation methodology. Four direct investments are valued at an enterprise value, based on a multiple of revenues or other observable input, given their stage of development and/or profitability.

16. Availability of Annual Report

The Annual Report of Mercia Asset Management PLC will be posted to all shareholders on 26 July 2019. An electronic copy will also be available on Mercia Asset Management PLC's website at www.mercia.co.uk. 

17. Annual General Meeting

The Annual General Meeting of Mercia Asset Management PLC will be held at Forward House, 17 High Street, Henley-in-Arden, Warwickshire B95 5AA on 24 September 2019 at 10.00 a.m.