Mercia Asset Regulatory News (MERC)

10 July 2015

Mercia Technologies PLC

Momentum building in the direct investment portfolio. Strengthened Board reflects the Group's ambition.

Mercia Technologies PLC (AIM: MERC, 'Mercia' or 'the Group'), a Midlands-based investment group, building, funding and commercialising technology businesses across the UK, has published its results for its maiden 3½ month trading period ended 31 March 2015.

Portfolio developments

· £8.4million invested since the IPO in 6 portfolio companies during the reporting period with a further £3.0million invested post period end

· £3.3million invested to become the sole limited partner of Mercia Fund 2 ("MF2") - a source of future emerging stars

· 3 exciting new companies added to the portfolio of direct investments: VirtTrade, Crowd Reactive and Soccer Manager, all with significant upside potential

· Material investment into Science Warehouse to scale the business

· Good progress made with Mercia's other direct investments

· 22 investments by Mercia Fund Management ("MFM"), the Group's wholly owned fund management subsidiary, during the last 12 months; 11 into new businesses as the MFM portfolio of future potential emerging stars continues to build

Financial highlights

· Admission to AIM on 18 December 2014, raising £70.0million gross proceeds

· Pre-tax profit of £2.0million

· Net assets of £80.8million

· Direct investment portfolio of £24.6million

· Net fair value gains of £3.9million

· Cash reserves of £53.6million

People

· Matthew Mead appointed as Chief Investment Officer

· Martin Lamb appointed as an additional Non-executive Director

· Peter Dines appointed as Investment Director, Life Sciences

· Dr Nicola Broughton appointed as Investment Director, University Technology Transfer

Mark Payton, Chief Executive of Mercia Technologies said:

"Since our admission to AIM in December last year, when we raised £70million, we have continued to scale the business and have already invested a further £15million, £12million during the reporting period and £3m post period end.

"As a national investment business, we have a strong focus on the Midlands, the North and Scotland.

"Our post IPO momentum has continued into the new financial year and with a growing portfolio of direct investments and an exciting pipeline of young technology companies, we are well placed to achieve attractive medium to long term shareholder returns."

 Enquiries:

Note to editors

Mercia creates, funds and develops technology businesses nationally with an emphasis in the Midlands, the North and Scotland. It brings technology transfer, company formation, incubation, commercialisation and investment to technology ventures. Approximately 50% of its investments derive from university spinouts. Mercia invests across key technology sectors in which it has deep sector expertise.

The Mercia model is one of patiently nurturing businesses through its tax efficient third party funds under management, and then scaling them with direct investment at the point of commercial traction. Through this, Mercia has a well seeded portfolio and pipeline of investments - its 'emerging stars'. Currently, the Group has a direct investment in 18 operating companies and access to a portfolio of 44 businesses through its third party funds, managed by its wholly owned subsidiary Mercia Fund Management.

Mercia's shares started trading on AIM on 18 December 2014 and since then up until 31 March 2015, Mercia has invested approximately £12million directly across its portfolio of emerging stars, which in themselves have attracted a total investment of over £70million alongside investment from the Group to date. In addition to its direct investments, Mercia (via Mercia Fund Management) has invested over £19million to build its portfolio of potential emerging stars.

Overview

The arrival of Mercia Technologies PLC on AIM in December 2014 heralds the scaling of the Group's 'complete capital solution'. The Mercia model is one of patiently nurturing businesses through its tax efficient third party funds under management, and then scaling them with direct investment at the point of commercial traction.

Mercia came to the market with an established portfolio of growing companies within MFM offering the promise of becoming emerging stars in the near to medium term, combined with 11 existing direct investments. The main purpose of listing on AIM was to scale the Mercia model, as demonstrated by the Group's investment activities and growth in staff since the IPO.

For the Group's first trading period (18 December 2014 to 31 March 2015), the Group raised £70.0million gross, has invested £8.4million into 6 companies (3 new emerging stars and 3 existing direct holdings) and acquired for £3.3million the remaining 80% interest in MF2 from its limited partners (the only traditional 10 year fund under management by MFM), with the intent of unwinding MF2's holdings over time to become additional direct investments.

Following the period end valuation of the Group's direct holdings and the fund value of MF2, Mercia reports a fair value write up of £0.3million for MF2 and £3.6million for the Group's direct holdings. Through its investment activities across the Group during this initial trading period, £0.5million of revenue was generated from fund management, initial management, portfolio director and business services fees to partially offset the Group's operating costs. Overall this has resulted in a profit for the period of £2.0million (which also includes costs associated with Mercia's IPO) and a net asset value for the Group of £80.8million.

The £70.0million IPO fundraising has provided Mercia with significant capital to invest in those young technology companies which commercially emerge from a portfolio of over 40 investments held by the Enterprise Investment Schemes ("EIS") and Seed Enterprise Investment Schemes ("SEIS") funds, which are managed by the Group's wholly owned subsidiary, MFM. In the short period which has elapsed since the IPO to 31 March 2015, the Group has already put almost £12.0million of the IPO proceeds to work in new and existing direct investments.

Since the IPO the Group has further strengthened the Board with 2 new important appointments. In January 2015 Martin Lamb, the former chief executive of IMI plc, joined as a Non-executive Director and member of the Audit Committee and in May 2015, Matthew Mead joined as Chief Investment Officer. Whilst Martin brings both strong corporate governance and business building skills from his 13 years leading IMI into the FTSE100, Matthew brings a successful investment track record from his former senior roles at 3i plc and NESTA. Both new Directors are already actively contributing to the leadership and development of Mercia.

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

Strategy

The Group's strategy is based on the strict focus of the overlap between the Group's core expertise and offering, being:

· Deep industry insight and business acumen in the sectors in which Mercia proactively seeks to make investments.

· A national investment business, with a strong emphasis on the underserved regions of the Midlands, the North and Scotland.

· A differentiated investment model, offering a complete capital solution to young technology entrepreneurs.

· A team focused on business building and delivery.

Sector focus

Mercia is focused on creating and developing companies which combine technology and service provision, have significant intellectual property, are scalable and require relatively modest capital infusion. Mercia focuses on some of the highest growth sectors of the UK economy including:

· Software, Electronics and Hardware;

· Digital Entertainment;

· Advanced Materials, Engineering and Specialised Manufacturing; and

· Life Sciences.

Regional focus

Mercia's vision is to become a leading national player in the seeding, scaling and development of high-growth businesses ("HGBs") with technology at their core. Mercia believes that significant opportunities exist in the Midlands, the North and Scotland to develop leading technology businesses through the efficient and targeted provision of capital and support, creating substantial value for shareholders over time.

Complete capital solution

The Mercia Model has evolved to provide a complete capital solution from supporting early stage technology-backed businesses towards cash generation and ultimately a trade sale or flotation.

Currently there are circa 40 portfolio companies under development by MFM as a result of an investment of circa £19million to date via its third party funds under management - a number of these portfolio companies have already been identified as near to medium term emerging stars for direct investment.

Build and deliver

Within MFM, Mercia actively balances the investment portfolio as it seeks to create the emerging stars of the future for direct investment activity. The Group works to build management teams around potentially disruptive technologies as it drives to mitigate risk prior to the investment becoming a direct investment, to provide a strong portfolio of direct investments from which to maximise shareholder returns.

University partners

Mercia has collaborative relationships, on a non-exclusive basis, with the following 9 universities (5 of whom invested in Mercia at or shortly after the Group's AIM listing) and research centres in the UK to access their flow of spinout opportunities. All but Leicester University have previously invested directly into the Mercia funds.

· University of Warwick

· University of Birmingham

· Aston University

· Keele University

· Staffordshire University

· University of Wolverhampton

· University of Leicester

· Coventry University

· Birmingham City University

Current trading and outlook

As part of the Group's diversified and balanced portfolio of companies, Mercia benefits from a growing position in Digital Entertainment and its related sub-sectors. This plays to Mercia's approach of proactively seeking investment prospects without being tied in an exclusive manner to any one source or type of deal flow. This sector also complements the Group's investment strategy across other key technology sectors, with many of the Life Sciences opportunities deriving from Mercia's network of university and NHS partnerships.

With more capital under management via MFM for deployment over the next 12 months to expand the MFM portfolio of companies, Mercia's proactive expansion from the Midlands to the North and into Scotland, and with the Group's growing portfolio of direct investments, Mercia is well placed to continue its early successes to date, steadily building towards achieving attractive medium to long term returns for its valued shareholders.

Mercia's immediate post IPO investment momentum has continued into the new financial year, with an exciting pipeline of young technology companies approaching the requisite commercial milestones, which satisfy Mercia Technologies' direct investment criteria. As at the date of this announcement, Mercia has invested a further £3.0million, increasing its direct investment portfolio to 18, from the 14 held at the period end. The MFM portfolio has also grown from 40 to 44 companies.

Operational review

The current direct portfolio comprises investments acquired just prior to Mercia's listing and businesses where the Group has subsequently made direct investments in the post IPO period. There were 14 direct holdings as at 31 March 2015, up from 11 at listing, and the Group expects to add significantly to this portfolio during the current trading period. Mercia has already made further investments in the period since 31 March 2015 in both new and existing direct investment portfolio companies.

The direct investments and holdings currently within Mercia Fund 2 ("MF2") are held at a combined value of £24.6million, which is up from £9.0million at the Group's listing on 18 December 2014. This movement in value is driven by £11.7million of new capital invested and £3.9million of net upward fair value movements.

Currently, the 8 leading direct investments discussed in more detail below account for £20.7million (84.1%) of the carrying value of the entire direct investment portfolio of companies (including the holdings currently within MF2), with £15.1million (61.1%) being in the Software, Electronics and Hardware sector and a further £4.7million (19.1%) in Digital Entertainment. The active balancing of the direct investments portfolio (by value and number) to ensure that no one company, or in time, sector, over weights the portfolio will continue during the next trading period, so as to ensure that risk mitigation is optimised.

During the period, the Group became the sole Limited Partner in MF2 and thus in effect acquired the full fund assets. Within this fund are additional investments which could become emerging stars in the near to medium term. In addition, there are certain investments within MF2 in which the Group has concurrent holdings with its existing direct investments. These include Allinea, The Native Antigen Company, Nightingale-EOS and Warwick Audio Technologies. A limited number of investments acquired through MF2 are outside of the Group's sector focus, so over the medium term will be subject to an 'accelerated exit', to ensure that Mercia's core focus is maintained across the Group.

It remains the Board's intent to build a portfolio across the Group's technology sectors, in which Mercia has both technical expertise and the hands-on experience within the team of creating, growing and exiting businesses.

Software, Electronics and Hardware

A broad technology sector which includes telecoms, with 7 investments accounting for circa 72% of the value of the Group's direct investments portfolio, this sector plays to a longstanding UK strength in research, development and commercialisation. As with Mercia's general investment approach, companies within this sector offer an opportunity to expand rapidly outside of the domestic market with over 50% of the collective product and service sales from this sector (in both the Group's portfolio of direct investments and within MFM's portfolio) being exported overseas.

This is a key sector for the Group, and Mercia's university partners and incubators have been an excellent source of investment prospects for MFM, and in due course will be for the Group's direct investment strategy. The UK has a strong legacy of innovation and invention in the electronics, telecoms and software sectors and today these are significant parts of its economy.

In the period to 31 March 2015, Mercia has made £4.1million of direct investment into this sector, taking the total direct holding's value (excluding MF2) to £14.6million including:

- £3.6million to increase its investment in Science Warehouse;

- £0.5million (of up to a £1.5million commitment) into a new direct holding, Crowd Reactive.

Science Warehouse

As at 31 March 2015, the Group had a 62.6% interest in Science Warehouse with a fair value of £12.7million. The Group invested £3.6million during the period to increase its holding and recognised a fair value uplift of £3.5million.

Founded in 2000 and a Leeds University spinout, Science Warehouse delivers a cloud-based procurement, catalogue and spend analysis platform with a highly intuitive user interface, giving its customers control of the purchasing cycle from requisition to payment, helping deliver costs savings and manage spend.

Science Warehouse has customers across its target markets, which include higher education and public sector research (the origins of the platform in its early development), the NHS (with the backdrop of a continued push to reduce purchase and administration costs) and the construction industry. In the last year alone, in excess of £500million of spend was processed through its platform. The market in which it operates is an attractive market to be in, with enormous potential for sophisticated spend management and procurement solutions, as well as the potential to offer supplier participants access to an increasing range of buyers, as the customer base expands further.

During the past year Science Warehouse has won seven new contracts including engagement with Queen's University Belfast, York St John University, Kettering NHS Trust, Princess Alexandra NHS Trust and following the opening of its Australian office to focus on the higher education market, it has secured a contract with the Charles Perkin Centre (part of the University of Sydney). The Group's recent substantial investment into the business is therefore to enable Science Warehouse to capitalise on a clear market opportunity to scale, both in the UK by seeking customers in new vertical markets and internationally, firstly in Australia where the initial focus is on its current customer sectors.

Our investment is also to fund the further development of the management team alongside the founder Dr David Hames, with the appointment of Philip Padfield who has recently joined as CEO, to drive revenue growth. Philip has a successful sales background gained through numerous leadership and CEO positions, including running businesses in the UK and the US.

This new senior appointment, as well as the recent appointment of a sales director, reflects Mercia's proactive approach in supporting its investments with more than just capital. Our capital injection is also being used to develop and enhance the technology platform, bringing together individual customer modules that have evolved over time into one integrated architecture and application. This will provide increased functionality and a platform that can be scaled to meet Science Warehouse's customer growth targets.

Allinea

As at 31 March 2015, the Group (including an ownership interest currently within MF2) held a combined 20.0% interest in Allinea with a fair value of £1.9million, which includes a fair value increase during the period of £0.5million.

Founded in 2009 and a spinout from one of Mercia's partner universities, the University of Warwick, Allinea is now a profitable, cash generative business providing a global leading solution in the optimisation and debugging software tools industry, for the development and use of high performance computing applications. Turnover is growing 20% year on year and Allinea's software is now deployed globally into some of the world's largest supercomputing systems in Europe and North America, covering government, academic and industrial markets. Allinea has featured in the Red Herring Top 100 and has established, and is growing, offices in the UK and the US.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 34.8% of the business.

Crowd Reactive

As at 31 March 2015, the Group had an 11.9% interest in Crowd Reactive with a fair value of £0.5million, the investment being held at cost.

Founded in 2013, a business derived from one of Mercia's partner incubators and originally supported via the MFM funds prior to becoming a direct investment this year, Crowd Reactive creates a direct interaction between the attendees and the large multi-media screens at multiple types of events, with the crowd entertained by pictures and video from their smart phones. Premium features include content moderation, reach analysis and on-site Instagram printing.

The early success of this sophisticated, integrated software play has led to its rapid deployment nationally and now, following the Group's recent investment, it has expanded into the US with the opening of an office in New York. Clients using its technology platform include O2, Nike, Coca Cola, Chevrolet, Vogue, Audi, Ferrari, Starbucks, Southern Comfort and England Rugby.

Mercia closed its first direct investment of £0.5million in Crowd Reactive in March 2015, recognising the opportunity to scale the business internationally. The Group has committed up to a further £1.0million of funding, which it expects to invest during 2015 when the business requires further expansion capital.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 22.2% of the business.

Digital Entertainment

In the UK alone the gaming industry contributes circa £1.7billion to the domestic economy. The digital sector comprises a breadth of sub-sectors in which Mercia proactively seeks deal flow and for which the Group is fortunate to have relatively limited competition. Mercia is building a portfolio of businesses in MFM to provide future emerging stars, as described below.

The early stage MFM holdings are now creating strong opportunities for the Group to deploy its own capital. During the period to 31 March 2015, Mercia made £4.1million of new direct investments in this sector, taking the total direct holding's value (excluding MF2) to £4.7million including:

- £1.6million into nDreams (virtual reality ("VR") developer of games and experiences);

- £1.5million into VirtTrade (virtual trading card platform);

- £1.0million into Soccer Manager (online, cross device football manager gaming platform).

nDreams

As at 31 March 2015, the Group had a 32.8% interest in nDreams with a fair value of £1.9million, the investment being held at cost.

Founded in 2006 by Patrick O'Luanaigh, the creative director of Tomb Raider, nDreams is a game and experiences developer, with a strong social media background.

Created initially to provide content for Sony Playstation Home virtual world (a virtual 3D social gaming platform for the Play Station 3), it later leveraged this expertise to be one of the first players to move into software development for VR.

nDreams has taken the strategic approach of focusing on 2 specific categories: VR gaming and VR experiences. It has been careful to partner with a majority of the VR hardware developers and its games and experiences will launch as these devices come to market. It is working specifically with Oculus's Rift, Samsung's Gear VR, Sony's Project Morpheus and HTC's Vive. The much awaited launch dates for these various VR hardware devices is estimated to be between the autumn of 2015 and summer of 2016.

nDreams is building one of the UK's best software teams for creating VR games and experiences across platforms. Through a combination of development contracts with leading rights holders and the development of its own intellectual property, nDreams is creating a diversity of revenue streams as the VR market begins to accelerate. The Group invested £1.6million in the period ended 31 March 2015, to continue the company's growth as it expands the number of VR games and experiences under development with the leading hardware developers.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 40.5% of the business.

Soccer Manager

As at 31 March 2015, the Group had a 22.4% interest in Soccer Manager with a fair value of £1.0million, the investment being held at cost.

Preston based Soccer Manager was founded in 2005 and subsequently became supported by MFM. The company develops and publishes its multi-player game Soccer Manager Worlds. Under MFM's guidance and investment, the company pivoted to a new product venture, Soccer Manager 2015 - a single-player, multi-platform game that delivers a much improved and engaging football management experience in the very lucrative and continually growing football manager global market.

Following the launch of its new game in February 2015, Soccer Manager 2015 immediately achieved circa 30,000 Daily Active Users ("DAUs") and this was the trigger for Mercia to make a direct investment to scale the game globally. The Group invested £1.0million in the period ended 31 March 2015 to continue the company's growth as it rolls out the new mobile cross platform application developed with initial funding from MFM.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 33.9% of the business.

VirtTrade

As at 31 March 2015, the Group had a 21.2% interest in VirtTrade with a fair value of £1.8million, based on the price of the last round of investment.

VirtTrade has developed a unique engine that takes the principle of a traditional printed card/sticker album and turns it into an interactive digital trading experience. This results in the players being able to trade one for many globally in an open market. Unlike traditional trading cards, VirtTrade driven cards can take live data feeds from the player, the brand or IP owner and the outside world. This uniquely enriches the trading experience as well as providing some clearly exciting and novel opportunities.

The trading card market is worth over £2.4billion annually but its current distribution model is archaic. VirtTrade's engine is seeking to disrupt the current model and bring trading cards into the digital space. VirtTrade has already secured a number of licences which it is unable to disclose publicly until the date of the relevant trading card launch.

It has recently expanded its new business portfolio following the signing of a partnership agreement with Panini in respect of a number of high profile sport and entertainment digital trading game plays. The Group anticipates a number of product/licence right launches over the next six months.

Monetisation comes from a mix of paid for and free collectable cards, with a revenue share between the rights holder and VirtTrade. The Group expects to see early evidence of the success of this model over the next 12 months. In the period ended 31 March 2015, the Group invested £1.5million to accelerate the company's development as it rolls out a number of trading platform applications with its new partner Panini and separately, as it develops other licences.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 38.1% of the business.

Advanced Materials, Engineering and Specialised Manufacturing

This is an attractive and potentially lucrative market sector, providing annual turnover of some £200billion for the UK alone for companies that produce and process materials. Furthermore, with the Midlands being a manufacturing centre of excellence within the UK, it lends itself to being of potential importance to Mercia.

During this period to 31 March 2015 Mercia made a £0.2million investment into existing direct investment portfolio company, Warwick Audio Technologies.

Warwick Audio Technologies

As at 31 March 2015, the Group held a 16.8% interest in Warwick Audio Technologies (including an ownership interest currently within MF2), at a fair value of £0.4million. This valuation is arrived at after accounting for a 50% fair value provision, reflective of a delay in evaluation contracts converting to revenue generating product supply.

A University of Warwick spinout company founded in 2007, Warwick Audio Technologies ("WAT") has developed a patented electrostatic speaker with hi-fi quality sound that is extremely light, flexible, cheap to manufacture and uses significantly less power than current speaker technology.

Post IPO a modest direct investment was made to allow the business to focus on an application with a major operator in the consumer electronics segment, with the lead product candidate being incorporated into wall mounted speakers and a television speaker sound bar. In March 2015 this key consumer electronics manufacturer made a major public announcement that it had put on hold all early stage development programmes whilst it underwent an internal strategic review and global restructuring. Mercia took rapid and corrective action following this announcement by directly reviewing all ongoing evaluations at WAT, restructuring the business and management to focus on the commercialisation of the technology. The Group has invested a further £0.3million since the year end by way of a convertible loan note to continue this commercial evaluation process.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 30.9% of the business.

Life Sciences

Mercia's focus within the Life Sciences sector, as with its other technology sectors, is in respect of businesses with rapidity to revenue, whilst requiring relatively modest investment capital needs. This rules out the capital intensive plays of drug discovery and novel drug development and provides a focus on diagnostics, medtech and clinical services. Through its university partnerships 30% of portfolio companies within the MFM funds are from the Life Sciences sector and a number have the potential to be future emerging stars. Currently the only direct Life Sciences investment within the Group is a holding in The Native Antigen Company.

The Native Antigen Company

As at 31 March 2015, the Group held a 31.3% interest in The Native Antigen Company ("NAC"), (including an ownership interest currently within MF2), at a fair value of £0.5million, incorporating a modest write up during the period of £0.05million.

Established in 2010 and a University of Birmingham spinout, NAC specialises in the research, development and scale up manufacturing of highly pure viral and bacterial native antigens. NAC's antigens are used primarily by pharmaceutical and IVD manufacturers in vaccine research and serology. As well as offering antigens from a rapidly expanding portfolio, NAC undertakes bespoke product development and partnering.

NAC trades with over 50 organisations worldwide with exports accounting for 90% of its sales, much of which are annual repeat business. Revenue continues to grow and it expects to reach positive cash flow within the next 18 months. The next step for the business is to assess accelerated growth opportunities to scale its proven model and expertise.

Including holdings within the MFM funds, combined with its own direct holding, the Group controls 59.1% of the business.

Remaining direct investment holdings

As at 31 March 2015 the Group's remaining 6 direct holdings not discussed above (Smart Antenna Technologies ("SAT"), Canary Care, Concurrent Thinking, Kwanji, Nightingale-EOS and Ventive) collectively accounted for £1.1million in value or 5.5% of the total direct investment portfolio excluding the value of MF2, or less than 5% including the value of MF2. However, even this group of smaller investments contains future potential emerging stars. In particular, SAT is continuing with its third party prototyping and evaluations with major laptop and mobile phone manufacturers.

Financial review

Mercia Technologies PLC was incorporated on 17 September 2014. It acquired its 2 wholly owned subsidiaries, Mercia Investments Limited ("MI") and Mercia Fund Management Limited ("MFM") on 17 December 2014, just prior to the Group's Initial Public Offering ("IPO").

The financial results of MI and MFM have been consolidated from their date of acquisition to 31 March 2015, referred to throughout this preliminary announcement as the 'period end'. The Group's results therefore represent approximately 3½ months' trading activity. There are no comparative figures as these results represent the Group's first trading period.

From a financial perspective, Mercia has made a positive start to its life as an Alternative Investment Market ("AIM") listed group. The gross IPO proceeds of £70.0million (before IPO related and share issue costs) provide the Group with a strong balance sheet and with sufficient liquidity to enable Mercia to execute its short and medium term strategic objectives.

Having acquired a portfolio of direct investments and a 20% interest in Mercia Fund 2 ("MF2") shortly before Admission for £9.0million in total, during the post IPO period to 31 March 2015 the Group invested £8.4million in 6 existing and new direct investments. It also invested a further £3.3million to acquire the remaining 80% limited partner interests in MF2, a transaction outlined in the Group's Admission Document.

At 31 March 2015 the fair value of the Group's investment portfolio (including MF2) was £24.6million. Net fair value gains during the trading period totalled £3.9million. Total net assets at the period end were £80.8million, including cash and short term deposits totalling £53.6million.

The net fair value gains referred to above contributed to a consolidated profit and total comprehensive income for the period of £2.0million.

Summarised Consolidated Statement of Comprehensive Income

Revenue and cost of sales

Total revenues of £508,000 comprise fund management fees, initial management fees from new investments, investment director monitoring fees and sundry business services income. Cost of sales represents third party fees incurred for administering the funds under management by Mercia Fund Management.

Fair value movements in investments

Unrealised fair value gains arose in 6 out of the Group's 14 direct investments and there was also an overall fair value gain for MF2. The largest fair value gain was Science Warehouse, which accounted for £3,487,000 of the total. There were 3 fair value impairments, the largest being £139,000 for Concurrent Thinking.

Administrative expenses

Total administrative expenses of £1,495,000 consisted predominantly of staff related costs. Total headcount is growing in line with Group's stated objectives at the time of the IPO.

Share-based payments charge

The £44,000 non-cash charge arises from the issue of share options to 10 members of staff at the date of the IPO.

IPO costs

Total IPO related costs (which were estimated in the Admission Document to be £3,980,000) amounted to £3,788,000. Of this total £2,770,000 were share issue related costs and have been charged to the share premium account. The balance of £1,018,000 has been charged to the consolidated statement of comprehensive income as an exceptional item.

Finance income

Interest receivable of £93,000 arose on the Group's cash and short-term liquidity investments.

Balance sheet and cash flows

Net assets at the period end of £80,839,000 were predominantly made up of the Group's direct investment portfolio, together with cash and short-term liquidity investments.

Direct investment portfolio

During the period, Mercia's investment portfolio grew from £8,996,000 (being the fair value of the investments held by Mercia Investments at the date of its acquisition) to £24,617,000. The table below lists the Group's period end investments by value, including a breakdown of the cash invested and all fair value movements.

Cash and short-term liquidity investments

At the period end, Mercia had total cash and short-term liquidity investments totalling £53,633,000 comprising cash of £23,633,000 and short-term liquidity investments of £30,000,000. The overriding emphasis of the Group's treasury policy is the preservation of its shareholders' cash for investment and working capital purposes, not yield. At the period end the Group's £30,000,000 short-term liquidity investments were spread across 4 leading United Kingdom based deposit taking institutions.

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

Looking forward, the Group has adequate financial resources to continue to execute its strategic and operational objectives.

Going concern

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

Summary Financial Information

Consolidated Statement of Comprehensive Income

For the period ended 31 March 2015

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

For the period ended 31 March 2015

Consolidated Cash Flow Statement

For the period ended 31 March 2015

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

Notes to the Summary Financial Information

1. General information

Mercia Technologies PLC ('the Group', 'Mercia') is a public limited company incorporated on 17 September 2014 under the Companies Act 2006 and domiciled in the United Kingdom, with registered number 09223445. Its Ordinary shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange. The registered office address is Mercia Technologies PLC, Forward House, 17 High Street, Henley-in-Arden, B95 5AA. Mercia Technologies PLC's 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 period ended 31 March 2015, 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 period ended 31 March 2015 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 House in due course.

The consolidated financial statements of Mercia Technologies PLC for the period ended 31 March 2015 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

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

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

Fair value measurements and valuation processes

The judgements required to determine the appropriate valuation methodology of unquoted equity investments means there is risk of a material adjustment to the carrying amounts of assets and liabilities. These judgements include a decision whether or not to impair or uplift investment valuations. The fair value of unlisted securities is established using the International Private Equity and Venture Capital Valuation Guidelines ("IPEVCVG").

The valuation methodology most commonly used by the Group is 'price of recent investment', which can be either the 'price of recent funding round' or 'cost' in the case of a new direct investment.

Given the nature of the Group's investments in early-stage companies, where there are often no current and no short-term future earnings or positive cash flows, it can be difficult to gauge the probability and financial impact of the success or failure of commercial development or research activities and to make reliable cash flow forecasts. Consequently, the most appropriate approach to determine fair value is a methodology that is based on market data, that being the price of a recent investment. The Group considers that fair value estimates that are based entirely on observable market data will be of greater reliability than those based on assumptions and accordingly, where there has been any recent investment by third parties, the price of that investment will generally provide a basis of the valuation. Where the investment being valued was itself made recently, its cost will generally provide a good indication of fair value unless there is objective evidence that the investment has since been impaired, such as observable data suggesting a deterioration of the financial, technical, or commercial performance of the underlying business.

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

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

4. Segmental reporting

For the period ended 31 March 2015, the Group's revenue and profit was derived from its principal activity within the United Kingdom.

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

The net change in the fair value of investments for the period is £3,934,000.

The table below sets out the movement in the balance sheet value of investments from the start to the end of the period, showing investments made and their fair value movements.

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

6. Operating profit

Operating profit is stated after charging:

7. Earnings per share

Basic earnings per share is calculated by dividing the profit for the financial period by the weighted average number of Ordinary shares in issue during the period. Diluted earnings per share is computed by dividing the profit for the financial period by the weighted-average number of Ordinary shares outstanding and, when dilutive, adjusted for the effect of all potentially dilutive shares, including share options on an as-if-converted basis.

The potential dilutive shares are included in diluted earnings per share computations on a weighted average basis for the period. The profits and weighted average number of shares used in the calculations are set out below.

8. Goodwill

Goodwill of £2,455,000 arose on the acquisition of the entire issued share capital of Mercia Fund Management Limited on 17 December 2014. This represents the difference between the fair value of consideration transferred and the fair value of assets acquired and liabilities assumed.

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

10. Share capital

On 18 December 2014 212,000,000 new Ordinary shares of £0.00001 each were admitted to trading on AIM. Each Ordinary share is entitled to one vote and has equal rights as to dividends. The Ordinary shares are not redeemable.

11. Share premium account

The premium on the issue of Ordinary shares arises from the shares issued on the acquisition of Mercia Investments Limited and Mercia Fund Management Limited and the issue of shares which were placed at the IPO date.

On 18 March 2015, the Group successfully applied to the Court for the cancellation of £70,000,000 of its share premium account. £70,000,000 has therefore been transferred from the share premium account to distributable reserves and categorised as 'other distributable reserve'.

12. Availability of Annual Report

The Annual Report of Mercia Technologies PLC will be sent to all shareholders on 31 July 2015. An electronic copy will also be available on Mercia Technologies PLC's website at www.merciatechnologies.com

13. Annual General Meeting

The 2015 Annual General Meeting of Mercia Technologies PLC will be held at the offices of Instinctif Partners at 65 Gresham Street, London EC7V 7NQ on 7 September 2015 at 10 am.