Mercia Annual Report 2024
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Mercia Asset Management PLC Annual Report and Accounts 2024
Powering
growth
Chief Executive Officer’s review
Overview
The year to 31 March 2024 was characterised by market
volatility, high inflation and high interest rates driving up the
costs of doing business, alongside geopolitical uncertainty and
a thankfully short-lived recession. It is therefore pleasing to have
come through these universal headwinds with record organic
growth in our assets under management (“AuM”), driven by
Mercia’s diversified and differentiated approach to making
a positive impact for our investors and investees.
Since our Initial Public Offering in 2014, Mercia has naturally
evolved into a specialist alternative asset manager, focusing
on impactful investing throughout the UK, sourced via our
established local relationships, extensive non-executive director
(“NED”) and entrepreneurial networks, and one of the UK’s
largest venture capital and small and medium-sized enterprise
(“SME”) lending footprints across our 11 offices. Our capital
is long term in nature and not subject to redemptions, enabling
us to both equity invest and lend capital consistently through
market cycles. Our retail capital is raised exclusively via the
Enterprise Investment Scheme (“EIS”) and Venture Capital
Trusts (“VCTs”) – tax-efficient structures designed to mitigate
the market challenges of low levels of capital availability
in early-stage venture investment. We predominantly manage
public sector capital on behalf of the British Business Bank
(“BBB”), to help business owners access funding outside of
London. Additionally, our institutional capital is mainly raised
from regional pension funds which aim to support regional
businesses from their impact allocations. Where others have
faced challenges, we have delivered commercial returns that
meet the specific impact requirements of our fund investors.
This successful strategy and resulting capital returns have been
the primary drivers behind this year’s significant organic inflows.
Performance
For our financial year to 31 March 2024, we achieved
revenues of £30.4million (2023: £25.9million) and EBITDA of
£5.5million (2023: £5.2million). We closed the financial year
with £46.9million (2023: £37.8million) cash on hand, no debt
and assets under management (“AuM”) of c.£1.8billion (2023:
c.£1.4billion), up c.27% overall, exclusively driven by organic
growth in the year. As at 31 March 2024, we had completed
c.64% of the £5.0million share buyback and are pleased to
recommend a proposed final dividend of 0.55 pence per share
(2023: 0.53 pence per share) which, if approved by shareholders,
will take the full-year dividend to 0.90 pence per share, a year-
on-year increase of c.5%.
In December 2022, we welcomed Frontier Development Capital
(“FDC”) into our Group. The company continues to perform
well, securing their first BBB fund mandate in February 2024,
being the £44.0million Midlands Engine Investment Fund II debt
mandate for the West Midlands. The acquisition of FDC has also
marked the beginning of our deliberate shift towards adjacent
asset classes to venture capital.
Mercia’s direct investment portfolio was fair valued at
£116.9million as at 31 March 2024 (2023: £136.6million), with
the highlight during the year being the sale of nDreams Limited
for £30.2million in total, with £26.4million in cash returned back
to the balance sheet and a £4.5million realised gain. The overall
results were impacted, however, by the post-year end decision
to cease further material funding for Impression Technologies
Limited (“Impression Technologies”) and we therefore fully
impaired our investment fair value as at 31 March 2024. This
was an extremely tough decision to make as we have supported
the business since 2014 via our funds and since 2015 from our
balance sheet, because its novel HFQ® technology works and it
had a cornerstone customer. Ultimately however, after 10 years
of investment support, its licensing revenue model was unable to
reach critical mass and profitability. Two separate sale processes
either side of last Christmas both generated firm interest in the
business, but ultimately no sale transaction occurred.
‘Mercia 20:20’ outturn
This financial year also brings to an end our three-year ‘Mercia
20:20’ strategic plan, with AuM growing over the period by c.94%,
driven by £415.0million of acquired third-party funds under
management (“FuM”) with the purchase of FDC in December 2022,
and c.£464million via organic growth.
‘Mercia 20:20’ focused on both sides of our hybrid investment
model, firstly seeking ambitious growth in total AuM of 20% on
average per annum from c.£940million to a three-year target of
c.£1.6billion and secondly, delivering three-year cumulative profit
before tax (“PBT”) of £60.0million. Despite the tough economic
and new fund-raising backdrop, we managed to grow AuM to
c.£1.8billion, beating that three-year target. We did not reach
the cumulative PBT target of £60.0million, predominantly due
to fewer upward fair value movements, the full impairment of
our investment in Impression Technologies and fewer profitable
realisations from the direct investment portfolio and instead
delivered £21.6million, although cash realisations during the
three-year period did total c.£47million.
Dr Mark Payton
Chief Executive Officer
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