Mercia Asset Management — Excellent results despite the tough market

Mercia Asset Management (LN: MERC)

Last close As at 01/03/2024

23.75

0.00 (0.00%)

Market capitalisation

GBP106m

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Research: TMT

Mercia Asset Management — Excellent results despite the tough market

FY22 was the first year of Mercia’s Vision 20:20 strategy, and a year of real progress for the group. Mercia reported FY22 PBT of £27.4m, with AUM rising marginally to £959m, passing the £1bn mark with £45m of VCT and EIS funds raised post-year-end. Mercia exited Faradion, its second largest holding (4.2x ROI, IRR of 72%) and also completed a major up-round for nDreams, helping to drive net assets up 14% to £200.6m and NAV per share to 45.6p. Mercia trades at 0.65x FY22 NAV/share and at 0.56x adjusted NAV/share (52.5p, including our estimate for the fund management business of 7p per share at 4% of FUM). Based on FY22 EPS of 5.9p (FY21: 7.8p), Mercia trades on a trailing P/E of 5x. With cash of £61.3m at year end, Mercia remains well placed for a downturn, with the potential for opportunistic M&A in FY23.

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TMT

Mercia Asset Management

Excellent results despite the tough market

FY22 results

Investment companies

15 July 2022

Price

29.5p

Market cap

£130m

Net cash (£m) at 31 March 2022

61.3

Shares in issue

440.1m

Free float

69%

Code

MERC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.6

(12.6)

(16.9)

Rel (local)

5.0

(4.5)

(13.2)

52-week high/low

43.3p

28.3p

Business description

Mercia Asset Management is a regionally focused specialist asset manager. Its stated intent is to become the leading regional provider of supportive balance sheet, venture, private equity and debt capital in transaction sizes typically below £10m.

Next event

AGM

September 2022

H123 interim results

December 2022

Analysts

Richard Williamson

+44 (0)20 3077 5700

Rob Murphy

+44 (0)20 3077 5700

Mercia Asset Management is a research client of Edison Investment Research Limited

FY22 was the first year of Mercia’s Vision 20:20 strategy, and a year of real progress for the group. Mercia reported FY22 PBT of £27.4m, with AUM rising marginally to £959m, passing the £1bn mark with £45m of VCT and EIS funds raised post-year-end. Mercia exited Faradion, its second largest holding (4.2x ROI, IRR of 72%) and also completed a major up-round for nDreams, helping to drive net assets up 14% to £200.6m and NAV per share to 45.6p. Mercia trades at 0.65x FY22 NAV/share and at 0.56x adjusted NAV/share (52.5p, including our estimate for the fund management business of 7p per share at 4% of FUM). Based on FY22 EPS of 5.9p (FY21: 7.8p), Mercia trades on a trailing P/E of 5x. With cash of £61.3m at year end, Mercia remains well placed for a downturn, with the potential for opportunistic M&A in FY23.

Period end

Net cash* (£m)

Direct investments (£m)

FUM
(£m)

NAV
(£m)

NAV per share (p)

P/NAV
(x)

03/20

30.2

87.5

658.0

141.5

32.1

0.92

03/21

54.7

96.2

764.0

176.0

40.0

0.74

09/21

52.1

110.3

762.0

186.4

42.4

0.70

03/22

61.3

119.6

758.0

200.6

45.6

0.65

Note: *Includes liquid securities but not funds held on behalf of EIS investors.

FY22 results underpinned by fee income

Revenue (excluding performance fees) increased 7% to £20.6m (FY21: £19.2m), with 95% of revenues (FY21: 96%) coming from fund management fees and 87% (FY21: 88%) contracted and recurring. PAT fell 24% to £26.1m (FY21: £34.5m), largely due to lower gains on disposal of £9.9m in FY22 (FY21: £20.3m), from Faradion (4.2x ROI, IRR of 72%). EPS also fell 24% to 5.93p (FY21: 7.83p). Mercia reported cash and short-term liquidity investments of £61m (FY21: £55m). The company declared an FY22 dividend of 0.8p (FY21: 0.5p), offering a yield of 2.7%.

An electric first year for the Vision 20:20 strategy

FY22 was another year of real progress for Mercia, its first year under its three-year Vision 20:20 strategy. Mercia reported FY22 PBT of £27.4m (46% of the FY22–24 target) and a 2% rise in AUM to £959m (achieving the £1bn mark post year-end), a resilient performance given £90m of investor distributions and the market falls seen in 2022. Third-party FUM fell by 1% to £758m in FY22 (FY21: £764m), with £87m of investor distributions again a key factor. Following its acquisition of the Northern VCT fund manager, Mercia has now delivered a NAV/share CAGR FY20–22 of 19%.

Valuation: FY22 0.65x NAV, 5x P/E, 2.7% yield

Mercia trades on 0.65x its FY22 NAV/share (45.6p), placing Mercia towards the middle of our field of direct investment peers, which largely trade between 0.4x and 0.75x NAV. This is before considering the incremental value of the third-party funds business, which we estimate adds an additional 7p per share at 4% of FUM. Mercia trades on a P/E of 5x FY22 EPS (vs average FY21/22 P/E multiples for Gresham House and ICG of 16x and 7x, respectively), as well as offering a 2.7% historical dividend yield. Mercia has substantial cash reserves (FY22: £61.3m) to support its portfolio and for further M&A, which would drive growth in FUM and fee income.

FY22 results

Predictable third-party fund management revenues

Mercia recorded record gross performance fees in FY22 of £2.6m (FY21: £4.2m), and net performance fees of £1.6m (FY21: £3.8m), based on the continuing strong market conditions seen in 2021. Excluding these performance fees, group revenues increased 7% to £20.6m (FY21: £19.2m), with 95% of revenues (FY21: 96%) coming from fund management fees and 87% (FY21: 88%) of revenues contracted and recurring. Fund management fees represented 2.7% of closing FY22 funds under management (FUM) (FY21: 2.5%).

Exhibit 1: Mercia’s key financial figures

Source: Mercia Asset Management. Note: *Excludes performance fees. **Excludes funds held on behalf of EIS/VCT investors.

Admin expenses (adjusted for performance fees) increased by 5% to £16.6m (FY21: £15.9m), more than covered by Mercia’s recurring management fees for a second successive year. Adjusted operating profit more than doubled to £8.4m (FY21: £3.3m), mainly due to net finance income soaring to £4.4m in FY22 (FY21: £0.05m), partly as a result of the disposal of Mercia’s stake in Faradion, which crystallised convertible loan interest and a redemption premium. For the record, adjusted operating profit is defined as operating profit before performance fees net of variable compensation, realised gains on disposal of investments, fair value movements in investments, share-based payments charge, depreciation, amortisation of intangible assets, movement in fair value of deferred consideration and exceptional items. It includes net finance income.

Aggregate PBT for FY21 and FY22 in excess of £61m

On an IFRS basis and against a very tough comparator in FY21, operating profit fell by 32% to £22.9m (FY21: £34.0m), with PBT of £27.4m (FY21: £34.0m) and PAT falling to £26.1m (FY21: £34.5m). This was despite FY22 gains on disposal of £9.9m (from Faradion), which were still lower than the £20.3m of gains in FY21 (from OXGENE, Native Antigen Company and Clear Review).

Exhibit 2: Breakdown of FY22 AUM

Exhibit 3: Cash as % of FY22 NAV

Source: Mercia Asset Management

Source: Mercia Asset Management

Exhibit 2: Breakdown of FY22 AUM

Source: Mercia Asset Management

Exhibit 3: Cash as % of FY22 NAV

Source: Mercia Asset Management

Mercia’s tax losses now substantially used up

FY22 was the first year that Mercia paid meaningful tax (4.6%), as historical tax losses have now largely been used up – although a potential deferred tax asset of £4.4m (FY21: £5.7m) for cumulative unrelieved management expenses and other tax losses has not been recognised in the FY22 accounts as its future use is uncertain. The majority of the FY22 tax charge relates to an allowance for the increase in corporation tax from 19% to 25% from 1 April 2023, with the group's deferred tax liability calculated at a rate of 25% as at 31 March 2022 (from 19% previously). However, despite the impending increase in corporate tax rate and paucity of remaining tax losses, gains on disposal by a company like Mercia are often exempt from corporation tax as they are sheltered by the substantial shareholding exemption (SSE).

Record levels of cash provide a valuable strategic buffer

The group held cash and short-term liquidity investments of £61m (FY21: £55m), part of which we expect to be deployed towards M&A in due course. Mercia’s record balance of cash and liquid investments represents 30% of NAV, offering a significant buffer to support the existing portfolio, make new investments as well as support potential future M&A.

FY22 dividend of 0.8p offers a 2.7% dividend yield

As part of its progressive dividend policy, Mercia declared a final dividend of 0.5p (FY21: 0.3p), taking the total dividend to 0.8p (FY21: 0.5p) for the year. At the current share price, Mercia’s shares offer a yield of 2.7%.

Vision 20:20: PBT of £27.4m, AUM and FUM broadly flat

FY22 was another year of real progress for Mercia, and its first year under its three-year Vision 20:20 strategy (which targets average annual PBT of £20m FY22–24 as well as to grow assets under management (AUM) by 20% on average over this period). Mercia reported FY22 PBT of £27.4m (FY21: £34.0m) and AUM rose marginally (2% y-o-y) to £959m in FY22 (FY21: £940m), passing the £1bn mark and post-year-end, with a further £45m of VCT and EIS funds raised. The group also returned £90m of distributions to investors, including £3m of dividends to shareholders.

Third-party FUM were also largely unchanged (down 1%) over the course of FY22 at £758m (FY21: £764m), although also affected by £87m of the distributions noted above. Of FY22 FUM, 83% of funds are committed to various stages of venture (EIS, VCT, venture capital (VC) and proprietary capital) with private equity (5%) and debt (12%) the remainder.

NAV per share of 45.6p (FY20–22 CAGR of 19%)

Net assets and NAV per share both rose 14% in FY22, to £200.6m (FY21: £176.0m) and 45.6p (FY21: 40.0p), respectively, driven by the sale of Faradion (Mercia’s second largest holding), a major up-round for nDreams and valuation uplifts for 10 of Mercia’s top 20 holdings. Hard NAV (portfolio fair value plus net cash) and hard NAV per share climbed 20% to £180.8m and 41.1p per share (FY21: £150.9m, 34.3p per share), respectively.

Mercia trades at 0.65x FY22 NAV/share of 45.6p and at 0.56x adjusted NAV/share (52.5p, including the value of the fund management business at 4% of FUM). Following the acquisition of the Northern Venture Trust’s fund manager, Mercia has delivered an FY20–22 NAV/share CAGR of 19% as well as a 24% CAGR in hard NAV/share.

Adjusted NAV/share of 52.5p including the third-party funds business

Thanks to the fees it charges on its third-party managed funds (2.1% of FUM), of which c 87% were contracted and recurring in FY22, Mercia is structurally profitable and able to sustain a progressive dividend policy. An NAV-based valuation fails to capture the incremental value of this fund management business, an ever-widening gap as FUM increases.

We continue to estimate the value of Mercia’s embedded fee-earning funds business at 4% of FUM (at what we believe is a conservative valuation considering Mercia’s attractive fee margins) on top of the NAV-based valuation of its direct investment business. With last reported FUM of £758m, this implies a valuation for the funds business of c £30m, or 7p per share on top of the FY22 NAV of 45.6p per share, implying a hybrid valuation of 52.5p per share.

Direct investment portfolio

The value of Mercia’s direct investment portfolio at FY22 year-end rose to £120m, a 24% increase year-on-year (FY21: £96m), with Mercia making gross investments of £18.4m (£8.5m net) into 15 portfolio companies (FY21: £4.9m net realisation, 18 portfolio companies). In line with previous reporting periods, Mercia’s top 20 direct investments represented 99% of total portfolio value at 31 March 2022, with the top 10 representing 81% of total portfolio value. Mercia weights its efforts accordingly, with £11.1m of total investment being invested across the top 10 assets.

Exhibit 4: Direct investment portfolio at 31 March 2022 (£000s)

Holding

Year of first direct investment

Net value
1/4/21

Net cash invested FY22

Investment realisations
FY22

Realisations
FY22

Fair value change
FY22

Net value
1/4/22

Holding as % of total portfolio fair value

Cumulative holding as % of total

nDreams

2014

17,726

1,301

-

-

6,734

25,761

21.5

22

Intechnica

2017

9,996

1,531

-

-

2,884

14,411

12.1

34

Voxpopme

2018

8,845

1,500

-

-

166

10,511

8.8

42

Impression Technologies

2015

8,622

1,750

-

-

-

10,372

8.7

51

Medherant

2016

8,105

534

-

-

350

8,989

7.5

59

Warwick Acoustics

2014

4,255

1,039

-

-

1,012

6,306

5.3

64

Ton UK (Intelligent Positioning)

2015

4,913

660

-

-

501

6,074

5.1

69

VirtTrade (Avid Games)

2015

2,812

1,096

-

-

1,479

5,387

4.5

73

Locate Bio

2018

3,006

1,664

-

-

188

4,858

4.1

78

Invincibles Studio (Soccer Manager)

2015

3,553

-

-

-

1,047

4,600

3.8

81

Eyoto Group

2017

1,813

1,147

-

-

-

2,960

2.5

84

W2 Global Data Solutions

2018

2,300

200

-

-

-

2,500

2.1

86

Sense Biodetection

2020

945

909

-

-

625

2,479

2.1

88

sureCore

2016

2,417

-

-

-

-

2,417

2.0

90

Edge Case Games

2015

2,300

-

-

-

-

2,300

1.9

92

PsiOxus Therapeutics

2015

2,407

-

-

-

(627)

1,780

1.5

93

Forensic Analytics

2021

-

1,750

-

-

-

1,750

1.5

95

MyHealthChecked

2016

4,488

-

-

-

(2,856)

1,632

1.4

96

MIP Discovery

2020

302

1,147

-

-

-

1,449

1.2

97

Pimberly

2021

-

1,375

-

-

-

1,375

1.2

99

Faradion

2017

5,693

738

(16,309)

9,878

-

-

-

99

Other direct investments

N/A

1,722

43

-

-

(118)

1,647

1.4

100

Total

 

96,220

18,384

(16,309)

9,878

11,385

119,558

100

Source: Mercia Asset Management

Portfolio driven by sale of Faradion and a major up-round for nDreams

Although half the top 20 holdings recognised increases in fair value, the sale of Faradion and an up-round for nDreams were the two major highlights in FY22. The value of Mercia’s top 10 holdings increased by 28% over FY22.

In January 2022, Mercia announced the sale of its second largest holding, Faradion (a leading sodium-ion battery technology company), for £100m to Reliance New Energy Solar, a subsidiary of India’s Reliance Industries. Mercia received total cash proceeds of £19.4m from the sale, an uplift of approximately 50% over Faradion’s carrying value of £12.9m at 30 September 2021. The sale delivered a 4.2x return on Mercia's direct investment cost of £4.4m and an internal rate of return (IRR) of c 72%.

Mercia’s largest direct investment, nDreams, a VR games developer and publisher, completed a £20.0m third-party funding round with Aonic (aonic.co), a Stockholm-based video games investor (Mercia invested £1.3m in a prior round during the year). At year-end, Mercia held a 33.2% stake in nDreams valued at £25.8m, a rise of £6.7m from its FY21 carrying value.

At the other end of the spectrum, the publicly traded share price of MyHealthChecked (COVID-19 travel tests, £2.9m write-down) has remained under pressure, although its financial results have been positive.

Mercia made two new investments during the year, including a £1.8m direct investment into Forensic Analytics, alongside a £2.7m investment by the Northern VCTs. In November 2021, Mercia's third-party managed fund portfolio company, Pimberly, completed a £4.3m funding round, with Mercia investing £1.4m from its own balance sheet.

Outlook: Vision 20:20 off to a strong start

Mercia has delivered a direct investment portfolio IRR of 14% from its initial public offering in 2014 to 31 March 2022, as well as annual growth in NAV per share of 24% over the last two years, following completion of the acquisition of the Northern VCT fund management business.

Mercia’s Vision 20:20 strategy targets average annual growth in AUM of 20% between 2022 and 2024 (closing AUM of £1.5bn, implying a CAGR of 25% FY23–24) and average PBT of £20m per year, or total PBT of £60m over the three-year period – of which it has achieved 46% in the first year of the strategy. Management intends to increase the size of its equity holdings, taking stakes of 10–30% in a diversified portfolio of up to 30 companies (versus 23 at 31 March 2022).

M&A appears to be front of mind

With £61m of unrestricted cash on the balance sheet as at 31 March 2022, and a cash-generative model, management has indicated it will look to supplement organic growth with M&A around the group’s core and/or complementary competencies. Having demonstrated the success of the acquisition of the Northern VCT funds in 2019 for £25m (£270 FUM, 6.3x PBT) and Enterprise Ventures Group in 2016 for £11m (£200m FUM, 7.9x PBT), we believe Mercia has the means and the rationale to target further M&A opportunistically, without recourse to the markets. Acquisitions are expected to be earnings enhancing, with similar fee structures, increasing UK market FUM.

Valuation: FY22 0.65x NAV, 5x P/E, 2.7% yield

As a specialist fund manager, Mercia’s financial performance centres around realised gains, the growth in fair value of its direct investment portfolio on its balance sheet, together with the growth in FUM and the predictable, recurring management fees that result. Mercia is unusual in that its fee income more than covers central costs, meaning that it can point to a growing stream of post-tax profits and sustain a progressive dividend policy.

Valuations for the direct investor sector have fallen significantly over the last six months, with concerns over rising interest rates, high technology valuations, inflation and the war in Ukraine. However, in a more challenged investment scenario, Mercia’s model has identifiable downside protection, with its broad regional footprint aligned with the government’s levelling-up agenda, offering an investment portfolio diversified across both asset class and sector, and a model that is sustainably profitable and dividend generating. Mercia’s balance sheet portfolio also has a relative lack of public market exposure, with only around 1% of its direct investments quoted.

Exhibit 5: Quoted peer group

Price

Currency

Market cap (£m)

Last NAV reported (£m)

Net cash/
(debt) (£m)

NAV per share (p)

NAV premium/
discount

Mercia Asset Management

29.5

GBp

130

201

61

45.6

0.65

 

Specialist asset managers

Gresham House

803.0

GBp

307

148

40

367

2.19

Intermediate Capital Group

1355.0

GBp

3,937

1,995

461

696

3.89

Mean

3.04

Direct investors

Augmentum Fintech

116.0

GBp

208

295

61

155

0.75

Forward Partners

47.5

GBp

64

102

32

104

0.46

HgCapital Trust

326.0

GBp

1,494

1,980

(93)

433

0.75

IP Group

71.7

GBp

741

1,436

270

139

0.52

Molten Ventures

412.8

GBp

632

1,434

48

937

0.44

Oakley Capital Investments

397.0

GBp

705

1,020

180

571

0.70

TMT Investments

3.70

USD

116

283

19

9.00

0.41

Mean

0.57

Source: Company accounts, Refinitiv. Note: Priced at 11 July 2022.

Mercia trades on 0.65x its FY22 NAV/share (45.6p), placing Mercia towards the middle of our field of direct investment peers, which largely trade between 0.4x and 0.75x NAV. This is even before considering the incremental value of the third-party funds business, which we estimate adds an additional 7p per share at 4% of FUM. However, when we look at specialist asset managers such as Gresham House and Intermediate Capital Group, trading at consensus FY22 P/Es of 15x and 11x, respectively, we can see there is plenty of upside potential ahead as FUM scale. Mercia trades on a P/E of 5x FY22 EPS as well as offering a 2.7% historical dividend yield.

Given Mercia’s defensive characteristics, the strength of its business, its structural profitability and underlying operating model, we believe Mercia remains undervalued at these levels.

Exhibit 6: Financial summary

Year end 31 March

£'000

2018

2019

2020

2021

2022

INCOME STATEMENT

Revenue

 

 

10,197

10,675

12,747

23,410

23,183

Cost of Sales

-

-

-

-

-

Gross Profit

10,197

10,675

12,747

23,410

23,183

Operating costs

(10,633)

(12,115)

(12,661)

(16,554)

(17,857)

Adjusted operating profit/(loss)

 

 

(81)

(794)

518

3,337

8,395

Fair value changes

2,823

3,916

(15,844)

9,723

10,863

Realised gains

871

-

-

20,251

9,878

Normalised operating profit

 

 

3,258

2,476

(15,758)

36,830

26,067

Amortisation of acquired intangibles

(301)

(301)

(852)

(2,317)

(2,033)

Exceptionals

(1,125)

-

(695)

-

-

Share-based payments

(497)

(171)

(528)

(543)

(1,109)

Reported operating profit

1,335

2,004

(17,833)

33,970

22,925

Net Interest

274

562

220

48

4,437

Joint ventures & associates (post tax)

0

0

0

0

0

Profit Before Tax (norm)

 

 

3,532

3,038

(15,538)

36,878

30,504

Profit Before Tax (reported)

 

 

1,609

2,566

(17,613)

34,018

27,362

Reported tax

54

54

159

440

(1,262)

Profit After Tax (norm)

3,532

3,038

(15,538)

36,878

27,454

Profit After Tax (reported)

1,663

2,620

(17,454)

34,458

26,100

Net income (normalised)

3,532

3,038

(15,538)

36,878

27,454

Net income (reported)

1,663

2,620

(17,454)

34,458

26,100

Basic average number of shares outstanding (m)

302

303

341

440

440

EPS - basic normalised (p)

 

 

1.17

1.00

(4.55)

8.38

6.24

EPS - diluted normalised (p)

 

 

1.13

1.00

(4.55)

8.38

6.12

EPS - basic reported (p)

 

 

0.55

0.86

(5.11)

7.83

5.93

Dividend (p)

0.00

0.00

0.00

0.40

0.80

Revenue growth (%)

53.1

4.7

19.4

83.7

-

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

Normalised Operating Margin

32.0

23.2

(123.6)

157.3

112.4

BALANCE SHEET

Fixed Assets

 

 

77,428

98,724

124,899

131,171

152,443

Intangible Assets

11,213

10,912

36,705

34,388

32,355

Tangible Assets

145

153

125

107

113

Right of use assets

-

-

598

456

417

Investments

66,070

87,659

87,471

96,220

119,558

Current Assets

 

 

53,965

31,180

31,951

61,269

62,358

Debtors

1,057

782

1,298

4,060

1,074

Unrestricted cash

42,908

24,581

23,971

54,491

56,049

Restricted cash

3,473

629

467

2,484

-

Short term liquidity investments

6,527

5,188

6,215

234

5,235

Current Liabilities

 

 

(7,760)

(3,730)

(6,659)

(9,827)

(9,989)

Creditors

(7,760)

(3,730)

(4,805)

(8,127)

(6,963)

Lease liabilities

-

-

(118)

(122)

(157)

Short term borrowings

-

-

-

-

-

Other (including deferred consideration)

-

-

(1,736)

(1,578)

(2,869)

Long Term Liabilities

 

 

(163)

(109)

(8,731)

(6,592)

(4,223)

Long term borrowings

-

-

-

-

-

Lease liabilities

-

-

(473)

(351)

(295)

Other long-term liabilities

(163)

(109)

(8,258)

(6,241)

(3,928)

Net Assets

 

 

123,470

126,065

141,460

176,021

200,589

Shareholders' equity

 

 

123,470

126,065

141,460

176,021

200,589

NAV per share

 

 

40.71

41.56

32.14

39.99

45.58

CASH FLOW

Op Cash Flow before WC and tax

3,258

2,476

(15,758)

36,830

26,291

Depreciation and amortisation

81

84

212

212

224

Gain on sale of direct investments

(871)

-

-

(20,251)

(9,878)

Fair value movements in direct investments

(2,823)

(3,916)

15,844

(9,723)

(10,863)

Working capital

(87)

(3,724)

695

(1,457)

3,600

Exceptional & other

-

-

(695)

-

-

Net operating cash flow

 

 

(442)

(5,080)

298

5,611

9,374

Capex

(75)

(92)

(45)

(52)

(76)

Acquisitions/disposals

10,618

1,711

(12,400)

-

-

Net interest

260

531

245

(2)

(1)

Direct investments

(21,282)

(19,384)

(15,656)

21,640

2,363

Equity financing

-

(196)

30,000

-

-

Dividends

-

-

-

(2,540)

(2,540)

Other

25,000

4,812

(3,052)

5,863

(5,137)

Net Cash Flow

14,079

(17,698)

(610)

30,520

3,983

Opening net debt/(cash)

 

 

(28,829)

(42,908)

(24,581)

(23,971)

(54,491)

FX

-

-

-

-

-

Other non-cash movements

-

(629)

-

-

-

Closing net debt/(cash)

 

 

(42,908)

(24,581)

(23,971)

(54,491)

(58,474)

Closing net debt/(cash) inc short-term liquidity investments (not EIS)

(49,435)

(29,769)

(30,186)

(54,725)

(61,284)

Source: Company accounts

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Mercia Asset Management and prepared and issued by Edison, in consideration of a fee payable by Mercia Asset Management. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services. The research analyst primarily responsible for the preparation of this report personally holds an equity position in the company of less than 1%.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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