b'Strategic report Governance Financial statementsRisk Possible consequences MitigationThe risk of the COVID-19 pandemicStaff welfare issues, due to direct illness, familyMercia tested its remote working capability for all staff under its business continuity affecting staff, operational servicesillness and/or bereavement, potential stresses duepolicy and procedures ahead of the formal lockdown and has been able to move to portfolio companies andto isolation. Impact on the operational efficiency ofseamlessly to working from home. Staff welfare is kept high on the agenda of the business development.the Group. Executive Team and morale is being maintained through the use of Zoom and Market falls and risks to portfolioRisk to the valuation of funds and VCT portfoliosSlack for meetings, social interaction and supporting information sharing. Mental companies affect valuationsmanaged by Mercia regulated entities, as well aswellbeing amongst staff is also being monitored and tools such as Headspace,and net asset values whichgeneral market falls impact on direct investment fairthe meditation app, have been offered to all staff. impacts asset price related fundvalues. A COVID-19 working group was formed, which initially met daily before moving to management revenues. Impact onIncreased risk of portfolio valuation reductions and/ weekly, to maintain an appropriate consensus of necessary actions.portfolio companies individually,or failures and consequent reduction in revenuesPortfolio valuations have been reviewed and fair values amended where required. leading to failures and loss offrom fund management contracts and portfolioMercia has organised briefings and webinars to assist portfolio companies and revenues as a consequence. companies. has made use of existing forums, such as the Mercia Slack channel, exclusively for Opportunity loss where remote working reduces theportfolio company CEOs.ability to source and assess new opportunities forWe have drawn on our networks and worked across funds, using technology to investment. facilitate meetings in order to maintain deal flow.Mercias budget for the year ending 31 March 2021 has been reviewed in light of the changing conditions and the revised budget has been approved by the Board. Mercia will be carefully considering the Government strategy for easing the lockdown to identify the appropriate path to returning to office working and business travel as and when appropriate and safe to do so.The acquisition and integration ofPotential failure to undertake appropriate dueThe risks and consequences of failure to integrate the VCT business were carefully the VCT fund management businessdiligence; failure to identify and maximise the valueconsidered through detailed due diligence and detailed integration planning before of NVM Private Equity LLP may notdrivers for the transaction including the synergiesthe acquisition, with involvement of a team of senior staff and external advisers. turn out to be successful and maybetween the teams and portfolios; inability to raiseThe TSA between Mercia and NVM, in place until 30 September 2021, reduces the not deliver enhanced shareholderfuture VCT funds; failure to identify the key functionsrisks associated with the handover of key processes.value over the medium term. required to be covered under the transitional Successful delivery and transfer,services agreement (TSA). Mercia completed its 100-day plan in the period immediately after acquisition and over the transition period, of VCTResidual risks and potential consequences, post-will be creating a 365-day transition plan for the final year of the TSA.governance and support servicesacquisition, included the failure to appropriatelyPost acquisition integration has focused on:including the key processes tomanage the TSA and ensure continuity and standardpeople and culture: internal communications, training and social eventsensure continuity of VCT eligibility. of services delivered to the three VCTs; the risks of(prior to lockdown);Retention of the fund managementnot managing a successful integration of the VCTintegration of key staff into management structures;contracts for the VCTs. team members into Mercia; and building a stronginvestment processes and protocols;and successful relationship with the VCT boards andoversight and monitoring of the services provided by NVM to Mercia underIn the near term, the economicindirectly with their investors. the TSA;consequences of COVID-19 areBoard and Executive level engagement between Mercia and the VCT boards; andnegatively impacting asset prices.new co-investment agreement.Revenues derived from the three VCT fund management contracts are in part linked to VCT net asset values. Where their portfolio company fair values have fallen, so to an extent will the revenues received by Mercia from those contracts.Rosie BhattacharjeeGroup Compliance Director.Mercia Asset Management PLC 53Annual Report and Accounts 2020'