b'46 Mercia asset Management PLc Annual Report and Accounts 2021Chief Financial Officers review continuedDespite the challenging health and economic backdrop, the year to 31 March 2021 was one of significant strategic and profitable progress for Mercia Asset Management PLC. Furthermore, the Groups financial performance was achieved without having to apply for any Government-backed financial support, delay any payments to HMRC or suppliers, impose any pay cuts or make any of our valued staff redundant as a result of the pandemic.trading performanceThe financial year comprised four very distinct quarters, in terms of the impact of the pandemic on the Groups operating performance and thus both its interim and full year results. In the first quarter to 30 June 2020 Mercia was, like the rest of the United Kingdom, in lockdown. With the three Northern VCTs having already announced net asset value write downs averaging 22% as at 31 March 2020, Mercia experienced lower asset price linked VCT fund management revenues as a direct consequence. From an investment portfolio perspective, new deal flow (and with it initial management fee revenue) largely ceased across all asset classes and Mercias focus immediately switched to preserving value within the portfolios and supporting investee management teams. Where deemed appropriate, director monitoring fees were deferred and loan repayment holidays were granted on a case-by-case basis. With all staff working from home and no face-to-face meetings permitted, the Groups expenditure immediately reduced. The challenge of recruiting new staff remotely also had an immediate impact on both timing and cost. During this challenging quarter for the whole UK economy, the Group exited its investment in Crowd Reactive at the holding value of 0.2million. During the challenging quarter for the whole UK economy, the Group exited its investment in Crowd Reactive at its holding value of 0.2million.In the second quarter to 30 September 2020, the revenue and cost dynamics of Mercias new normal stabilised. Whilst revenues continued below previously anticipated levels, Mercias cost base also remained materially lower than budgeted. Remote working continued to impact both deal flow and recruitment timing. More broadly, portfolio sector growth trends began to emerge, funding strategies for each of Mercias portfolio companies were determined and the fair value of the vast majority of the Groups funds and balance sheet assets showed promising signs of stability and in some cases, recovery. The Groups debt funds division became Coronavirus Business Interruption Loan Scheme (CBILS) accredited, leading to a significant increase in the number of loan applications. The Groups consolidated interim results, which included a full six months contribution from its December 2019 VCT fund management acquisition, reflected a satisfactory first-half performance with lower costs more than offsetting the relatively subdued revenues. Throughout the first six months, Mercias staff worked tirelessly to support the Groups c.430 investees and each other. Towards the end of the second quarter, signs of recovering momentum across the Group became evident as Mercias timely digital marketing pivot gained traction, with greater focus on social media Complete Connected Capital brand awareness campaigns, alongside the increasingly popular Meet the Funder virtual events. The second quarters performance was enhanced by the Groups profitable exit from The Native Antigen Company, ultimately realising a gain in excess of holding value of 1.8million.In the third quarter to 31 December 2020, asset price linked VCT fund management revenues recovered to their pre-pandemic levels and investment activity picked up in earnest, although the timing of the recovery in investment momentum differed, asset class by asset class. Director monitoring fees from investees, which had either been deferred or provisioned against during the first half year, started to be paid with initial management fee income also increasing quarter on quarter. Whilst the Groups overhead cost base remained largely flat, recruitment efforts in earlier months began to bear fruit. Sector by sector, growth trajectories started to become clearer. For those sectors showing the fastest growth trends (in particular Life Sciences, Software and Digital Gaming), asset values and interest grew in Mercias most exciting investee companies. Although held for less than two years as a direct investment, the Group accepted a full offer for Clear Review, resulting in a realised gain in excess of holding value of 0.5million.During the final quarter of the financial year to 31 March 2021, Mercias long-held potential emerged. Revenues fully recovered, helped in part by elevated investment activity towards the tax year end, deal flow increased further as Mercias marketing pivot bore fruit, long-running recruitment efforts succeeded in attracting new talent into the Group and the excellent continuing work of all staff, still mainly working remotely, helped maintain its operational efficiency and leverage. A year of remarkable ups and downs culminated on 1 March 2021, when Mercia announced the sale of OXGENE for a substantial realised gain over holding value. The Group subsequently provided a positive trading update which included guidance on a much higher year end closing cash position.The more detailed financial analysis which follows therefore only tells part of the story of what was a breakthrough year for Mercia.adjusted operating profitalternative performance measure (aPM)The Group has always believed that the measurement and reporting of the difference between its revenues and total operating costs, excluding realised gains on disposal of investments, unrealised fair value movements, one-off items and non-cash charges, is an important APM of interest to shareholders.'