b'Strategic report Governance Financial statementsGoing concernOn 30 January 2020, the World Health Organisation declared the outbreak of coronavirus (COVID-19) to be a public health emergency of international concern. COVID-19 presents the biggest risk to the global economy and to individual companies since the 2008 financial crisis and has had a severe impact on economic growth forecasts worldwide. The impacts of COVID-19 are not yet all apparent and the position will remain fluid until the length and extent of the crisis become evident. Clearly, however, not all industries or companies will be impacted to the same degree. The effects will be felt in a number of areas across the Group and its portfolio companies. Mercia continues to monitor and follow closely the information released from the UK Government and the Directors continue to monitor the impact that the COVID-19 pandemic has on the Group and its portfolio companies. The full extent to which the COVID-19 pandemic may impact the Groups future results, operations and liquidity isuncertain. The Directors have made an assessment of going concern, taking into account both the Groups current performance and its outlook, which considered the impact of the COVID-19 pandemic, using the information available up to the date of issue of these consolidated financial statements. As part of this assessment the Directors considered:an analysis of the adequacy of the Groups liquidity, solvency and regulatory capital position. The analysis used has modelled a number of adverse scenarios to assess the potential impact that COVID-19 may have on the Groups operations and portfolio companies. The Group manages and monitors liquidity regularly ensuring it is adequate and sufficient and this is supported by its monitoring of investments, operating expenses and receipt of portfolio cash income. In addition, Mercia raised 30.0million gross proceeds through its successful placing in December 2019. As at 31 March 2020 liquidity, comprising unrestricted cash and short-term liquidity investments, remained strong at 30.2million (31 March 2019: 29.8million);any potential valuation concerns with respect to the Groups direct investment portfolio as set out in these consolidated financial statements. The approach to valuations was consistent with the normal process and valuation policy. A key focus of the portfolio valuations at 31 March 2020 was an assessment of the impact of the COVID-19 pandemic on each portfolio company, considering the performance before the outbreak of COVID-19, as well as the projected short-term impact on the ability to generate earnings and cash flows, and also the longer-term view of each companys ability to recover;the operational resilience of the Groups critical functions, which includes the wellbeing of its staff and the resilience of its IT systems. COVID-19 has emphasised the importance of Mercias and its portfolio companies focus on keeping employees safe, motivated and able to continue to fulfil their roles effectively where possible; andan assessment of the Groups supplier base, considering any single points of failure and contingency plans, should suppliers be deemed at risk. Based on the overall strength of the Groups balance sheet, including its significant liquidity position at the year end, together with its forecast future operating and investment activities, and having considered the impact of COVID-19 on the Groups operations and portfolio, the Directors have a reasonable expectation that the Group is well placed to manage business risks in the current economic environment and has adequate financial resources to continue in operational existence for a period of at least 12 months from the date of this report. Accordingly, the Directors continue to adopt the going concern basis in preparing these consolidated financial statements. Basis of consolidationSubsidiariesThe consolidated financial statements incorporate the financial statements of Mercia Asset Management PLC and entities controlled by it (its subsidiaries). Other than Mercia Fund 1 General Partner Limited (which is 98% owned) and Mercia Investment Plan LP (which is 90% owned), all subsidiaries are 100% equity owned and have been included in the consolidated financial statements. Control is achieved when the Group:has power over the subsidiary; is exposed, or has rights, to a variable return from its involvement with the subsidiary; and has the ability to use its power to affect its returns. The Group reassesses whether or not it controls a subsidiary company if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.When the Group has less than a majority of the voting rights of an investee company, it considers that it has power over the investee company when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee company unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Groups voting rights in an investee company are sufficient to give it power, including:the size of the Groups holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Group, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Subsidiaries and subsidiary undertakings are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.Mercia Asset Management PLC 79Annual Report and Accounts 2020'