Mercia Annual Report 2024

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Mercia Asset Management PLC Annual Report and Accounts 2024

Non-executive Chair’s statement

Throughout the year under review, Mercia has continued to

mature and advance.

In spite of the global and domestic market backdrop, across our

equity investing and lending asset classes, the Group achieved

record fund inflows of c.£562million during the year, taking our

total assets under management (“AuM”) to c.£1.8billion, almost

double where we were three years ago.

In 2022, we welcomed Frontier Development Capital Limited

(“FDC”) into our Group. Mercia’s third acquisition since its Initial

Public Offering in 2014, FDC comprises an excellent, well-run

team, with strong investor and lending relationships. FDC

continues to perform well and we were all particularly pleased

to see them be awarded their first British Business Bank (“BBB”)

debt mandate in February this year.

Board focus

Good governance is fundamental to the long-term success

of any company, as well as maintaining a close watch on the

horizon and evolving market dynamics. Since our early days as

a public company, we have always recognised the importance

of covering our total cost base with our revenues, thereby

preventing annual shareholder value erosion and excessive cash

burn. This has led to our increasing focus on growing the high

quality, recurring revenues of our profitable fund management

operations – both organically and by acquisition. During this

final year of ‘Mercia 20:20’, in conjunction with external advisers,

the Board spent a considerable amount of time focusing on the

Company’s most appropriate future direction of travel.

Proposed reclassification as a trading company

When Mercia was admitted to trading on the AIM Market of

the London Stock Exchange (“AIM”) in December 2014, it was

established as a proactive, specialist asset manager focused

on supporting regional small and medium-sized enterprises

(“SMEs”), to achieve their growth aspirations. As such, under the

AIM Rules, Mercia was treated as an investing company. At that

time, Mercia’s net assets were c.£81million, considerably greater

than its c.£23million of third-party funds under management.

Since its admission to AIM, the Company has successfully grown

both its balance sheet and its funds under management (“FuM”).

As at 31 March 2024, Mercia had 22 direct investments fair valued

at £116.9million, net assets of £189.2million and had grown

its FuM to c.£1.6billion. FuM now dwarf net assets, the largest

component of which is the direct investment portfolio.

As the Board looks to the future, and refreshes its three-year

strategic plan, Mercia’s intention is to focus much more on our

profitable and fast-growing FuM. Our intention therefore is no

longer to make new direct investments from our balance sheet.

We will continue to support our existing direct investments, but

anticipate that their number will reduce as these investments

are realised.

In considering these proposed changes, we believe it is more

appropriate to characterise Mercia as a trading business, whose

principal business operation is one of asset management. If held

for more than two years, the shares of most trading companies

on AIM may currently be inheritance tax exempt. As such, at

the Annual General Meeting (“AGM”) on 26 September 2024, we

will be proposing a resolution that the Company ceases to be

an investing company under the AIM Rules. Notice of the AGM

(including further details of this proposal) is set out on pages

104 to 108 of this Annual Report.

Ian R Metcalfe OBE

Non-executive Chair

Natural

evolution

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