MXC Capital : Annual Report for the Year Ended 31 August 2019

MXC CAPITAL LIMITED

ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

THE TECHNOLOGY FOCUSSED

ADVISER AND INVESTOR

MXC is a quoted (AIM: MXCP) adviser to and investor in technology companies, building value in the companies we invest in as well as for our own shareholders.

MXC's model of investing as a principal, sharing in the risk as well as the reward, unambiguously aligns our management directly with the interests of our shareholders.

MXC Capital Limited is a Guernsey based and incorporated permanent capital vehicle that is responsible for the Company's strategy, capital raising and investment decisions as well as the supervision of our London based advisory activities. MXC's Advisory Board comprises a number of the Company's key professionals all of whom are significant investors in the Company. The Advisory Board is responsible for originating investment opportunities and contributing to the day to day management of our investments.

www.mxccapital.com

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

A YEAR OF SIGNIFICANT PROGRESS

"In the year to 31 August 2019, MXC made significant progress both in terms of trading profitability and with respect to its investments. After a couple of difficult years, I am delighted that the hard work of the MXC team is paying off and that we were able to reward shareholders for their loyalty by way of a return of capital. I continue to be grateful for the diligence, initiative and creativity of the MXC team during the year and, as ever, for the ongoing support of our shareholders. The Board looks to the future with confidence."

PETER RIGG

CHAIRMAN

CONTENTS

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 01

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

SUMMARY

HIGHLIGHTS

1. total balance sheet net assets plus market value of shares held in the Employee Benefit Trust as at 31 August 2019
2. comprises cash balances, investments, outstanding loan capital and accrued interest and the market value of shares held in the Employee Benefit Trust as at 31 August 2019
3. earnings from trading activities before interest payable, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments and after interest income under the effective interest method as this is considered to be part of the trading activities of the Group
4. on 29 November 2019, Adept4 plc changed its name to CloudCoCo Group plc

02 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

OUR MANAGEMENT

MXC CAPITAL LIMITED BOARD

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 03

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CHAIRMAN'S STATEMENT

• 1) on 29 November 2019, Adept4 plc changed its name to CloudCoCo Group plc

1. earnings from trading activities before interest payable, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments and after interest income

04 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 05

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CHIEF EXECUTIVE OFFICER'S REPORT

06 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 07

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

FINANCIAL REVIEW

08 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

INVESTMENTS AND LOANS

During the year, the Group invested £4.7 million into its equity investment portfolio and advanced loans of £11.0 million. Proceeds of £24.2 million were raised from the disposal of the Group's investment and warrants in Tax Systems, a total profit since acquisition of £9.3 million plus fees. In addition, loans to the value of £3.4 million were repaid to the Group.

At the year end, the Group had outstanding loan capital and accrued interest of £8.7 million (2018: £0.5 million)

and its equity investment portfolio was valued at £30.8 million (2018: £41.1 million) as shown in the following table:

CASH FLOW

The Group's cash outflow from operating activities in the period was £0.3 million (2018: £1.9 million). This cash outflow partly reflects the fact that the IDE loan interest receivable, whilst included in the results for the year, is not payable until the end of the loan term. Also included within the cash outflow from operating activities are staff bonuses totalling £1.0 million which were paid in the year. Proceeds from the sale of the Tax Systems investment of £24.2 million were received and £4.7 million was invested into the Group's equity portfolio. Loans advanced, net of loans repaid, totalled £7.6 million. £3.5 million was received in respect of investments in the Group's subsidiaries by non-controlling investments and a dividend of £0.2 million was paid to non-controlling interests. £5.6 million was used to purchase shares of the Company into the Group's newly established Employee Benefit Trust and £0.3 million was spent servicing the Group's borrowings. The cash balance at the end of the period was £21.5 million (2018: £12.4 million).

NET ASSETS

Net assets at the end of the year were £71.3 million (2018: £63.9 million). Of this, £65.9 million (2018: £61.6 million)

was attributable to equity holders of the Company and £5.4 million (2018: £2.35 million) was attributable to non-controlling interests. During the year Ravenscroft purchased 25% of the issued share capital in one of the Group's subsidiary companies, MXCUK, and the GIF made a further investment into MXC JV Limited, a subsidiary of the Group which holds the investment in the joint venture with Liberty. Further details of the non-controlling interests are given in note 26.

The Group's shares held in the EBT are shown as a debit to equity in the consolidated statement of financial position. At 31 August 2019, the shares held in the EBT had a market value of £7.2 million (2018: £nil). Adding the value of these shares to the net assets at the end of the year gives an "Adjusted net asset value" of £78.5m (2018: £68.8 million), equivalent to 117 pence per share (2018: 95 pence).

In October 2019, the Company returned £1.7 million to shareholders by way of a tender offer at a price of 116 pence per share as we revived our policy of returning capital to shareholders.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 09

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

STRATEGIC REPORT

10 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 11

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

DIRECTORS' REPORT

The directors present their report together with the audited consolidated financial statements for the year ended 31 August 2019 for MXC Capital Limited (the "Company") and its subsidiaries (together the "Group").

CORPORATE STATUS

The Company is domiciled in Guernsey and was incorporated and registered in Guernsey on 19 August 2014 with company number 58895. Its registered office is 1st & 2nd Floors, Elizabeth House, Les Ruettes Brayes, St Peter Port, Guernsey, GY1 1EW.

PRINCIPAL ACTIVITY

The principal activity of the Group during the year was that of advisor to and investor in technology companies. The Company is a permanent capital vehicle that is responsible for the execution and supervision of the Group's strategy.

RESULTS AND DIVIDENDS

The trading results for the year and the Group's financial position at the end of the year are shown in the financial statements set out on the following pages. The review of the year and the directors' strategy and objectives for the future are set out in the Strategic Report.

The directors do not recommend the payment of a dividend for the year ended 31 August 2019 (2018: £nil).

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties are detailed within the Strategic Report, on pages 10 to 11.

Details of the Group's financial risk management objectives and policies are set out in note 19 of the consolidated financial statements.

The Company has agreed to indemnify its directors against any third-party claims which may be brought against them and has put in place a directors' and officers' insurance policy.

DIRECTORS' REMUNERATION

Remuneration in respect of the directors was as follows:

(1) figures relate to the period of directorship.

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DIRECTORS' INTERESTS

As at 31 August 2019 the directors and their beneficial interests and those of their families in the share capital of the Company were as follows:

To provide a more meaningful comparison, the 2018 shareholdings have been restated to reflect the 50:1 share consolidation that took place on 15 February 2019.

In addition to his above shareholding, Ian Smith was granted awards under the Company's long-term incentive plan in September 2015. The award is based on 2% of shareholder value created, subject to the achievement of share price and employment-related performance criteria. See note 21 for further details.  

RELATED PARTY TRANSACTIONS

Details of the Group's transactions and year end balances with related parties are set out in note 24 of the consolidated financial statements.

SUBSEQUENT EVENTS

Full details of post balance sheet events are included in note 27 to the consolidated financial statements.

DISCLOSURE OF INFORMATION TO THE AUDITOR

The directors who were in office on the date of approval of these financial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the directors has confirmed that they have taken all steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that it has been communicated to the auditor. The annual report and consolidated financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

AUDITOR

Grant Thornton Limited were appointed for the year ended 31 August 2019 and have expressed their willingness to continue to act as Auditor to the Company. A resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting.

By order of the board

PAUL GUILBERT

DIRECTOR

On behalf of the Board 2 December 2019

Registered Office: 1st & 2nd Floor Elizabeth House Les Ruettes Brayes St Peter Port Guernsey

GY1 1EW

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 13

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE STATEMENT

Since September 2018 all AIM companies have been required to comply with a recognised corporate governance code. MXC has chosen the Quoted Companies Alliance Corporate Governance Code ("QCA Code") published in April 2018 for this purpose. High standards of corporate governance are a priority for the Board, and details of how the Company addresses the ten broad governance principles defined in the QCA Code are set out below.

Principle 1 - Establish a strategy and business model which promote long-term value for shareholders

The Board has set out the Company's business model and strategy, including key challenges in their execution in the Strategic Report. In addition, further information of how the Company performed against its stated strategy and its strategy for growth can be found in the Chairman's Statement, the CEO's Report and the Financial Review.

As a public company, MXC is focused on delivering value for all of the companies in which we invest as well as our shareholders. Furthermore, the Company's strategy is to maximise the returns from all aspects of our investment and advisory model.

Principle 2 - Seek to understand and meet shareholder needs and expectations

MXC is committed to open communication with all of its shareholders.

Copies of the consolidated financial statements are issued to all shareholders who have requested them, and copies are available on the Group's website http://mxccapital.com. The Group's interim results and other market announcements are also made available on the website. The Group makes full use of its website to provide information to shareholders and other interested parties.

The Board reviews proxy voting reports and any significant dissent is discussed with relevant shareholders and, if necessary, action is taken to resolve any issues. In compliance with best practice, the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at all general meetings and in future will be announced.

Shareholders are given the opportunity to raise questions at the Annual General Meeting and the directors are available both before and after the meeting for further discussion with shareholders.

Ian Smith, Chief Executive Officer ("CEO"), is primarily responsible for communicating with investors. Meetings via the Company's broker are offered to shareholders to discuss strategy, financial performance and investment activity immediately after the full year and interim results announcements. The non-executive directors are available to meet with shareholders if such meetings are requested. Feedback from such meetings with shareholders is provided to the Board to ensure the directors have a balanced understanding of any issues and concerns raised.

The Board receives share register analysis reports on a regular basis to enable them to monitor the Company's shareholder base to better understand and identify the profile of investors on the register.

Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Group recognises its employees, clients, suppliers, advisors and shareholders as forming part of the wider stakeholder group. Management identifies key relationships within the business and effort is directed to ensuring these relationships are managed appropriately. Regular reviews are undertaken to ensure any issues are addressed promptly. The Board reviews the Group's interaction with its clients and the performance of its investments during quarterly Board meetings and these are summarised in documents provided to the Board.

The Company has a good relationship with its Nomad and broker and other advisers. Feedback from investors is provided by the broker as well as through direct engagement with investors by the Board. The Group meets frequently with clients and communicates regularly with suppliers. Any feedback from clients is brought to the attention of the Board and any issues raised are addressed.

The Company's internal stakeholders are its employees. The Group is committed to employment policies which follow best practice, based on equal opportunities for all employees, irrespective of ethnic origin, religion, political opinion, gender, marital status, disability, age or sexual orientation.

Staff policies

The Group's employment policies are designed to ensure that they meet the statutory, social and market practices in the United Kingdom and Guernsey. The Group systematically provides employees with information on matters of concern to them, consulting them regularly, so that their views can be taken into account when making decisions

14 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

that are likely to affect their interests. Given the small number of employees, employee involvement in the Group is encouraged, as achieving a common awareness on the part of all employees on the financial, strategic and economic factors affecting the Group, plays a major role in maintaining MXC's relationship with its staff.

The Group gives full and fair consideration to applications for employment from disabled persons, having regard to their particular aptitude and abilities.

The Board believes that its investment in the wider stakeholder network will assist the Company's management in achieving its long-term goals by creating an environment of inclusion, trust and communication which will have positive implications for the long-term success of the Company.

Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation

Risk assessment and evaluation is an essential part of the Company's planning and an important aspect of the Company's internal control system. The business and management of the Company and its subsidiaries are the collective responsibility of the Board. At each meeting, the Board considers and reviews the trading performance of the Group. The Board has a formal written schedule of matters reserved for its review and approval. These include the approval of the annual budget, major capital expenditure, investment proposals, the interim and annual results and a review of the overall system of internal control, corporate governance and risk management.

The Board has established a risk register which is bespoke to the Group's business. At least twice a year the register is reviewed, and the Board considers the appropriateness of the risks identified and the mitigating action taken by management on a risk by risk basis with a particular focus on those deemed most critical. The Group's principal risks and uncertainties are set out on pages 10 to 11 whist details of the Group's financial risk management objectives and policies are set out in the notes to the consolidated financial statements in note 19.

Principle 5 - Maintain the board as a well-functioning, balanced team led by the Chair

The Board, chaired by Peter Rigg, currently comprises one executive and three non-executive directors and it oversees and implements the Company's corporate governance programme.

As Chairman, Peter Rigg is responsible for the Company's approach to corporate governance and the application of the principles of the QCA Code. Peter Rigg, Paul Guilbert and Simon Freer are the Company's independent directors. Further details pertaining to the Board and the roles carried out by each member are set out within Principle 6.

Each board member commits sufficient time to fulfil their duties and obligations to the Board and the Company. They attend quarterly board meetings and join board calls and are available for consultation when needed. The contractual arrangements between the directors and the Company specify the minimum time commitments which are considered sufficient for the proper discharge of their duties. However, all board members understand the need to commit additional time as and when required.

Detailed board packs include information on all business units and investments as well as the financial performance of the Group and are circulated ahead of board meetings. Key issues are highlighted and explained, providing board members with sufficient information to enable an informed discussion in the board meeting.

The Board is supported by its Audit Committee and its Remuneration Committee. Further details of these committees are set out in Principle 9 below. All four quarterly board meetings held during the year have been attended by all directors in post at the time of the meetings. There have been two Audit Committee and three Remuneration Committee meetings during the year. All directors sitting on each committee have attended all meetings.

Principle 6 - Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities

The Chairman believes that the Board has a suitable mix of skills and competencies covering all essential disciplines bringing a balanced perspective that is beneficial both strategically and operationally and will enable the Company to deliver its strategy.

The Board consists of one executive director and three independent non-executive directors and comprises four men. The nature of the Company's business requires the directors to keep their skillset up to date. Periodic updates to the Board on regulatory matters are given by Company's professional advisers.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 15

MXC is committed to promoting a culture based on ethical values and behaviours across its business. Policies are in place covering key matters such as bribery, protection of intellectual property and sensitive information, conflicts of interest and whistleblowing. These are rigorously enforced.

The Company is committed to building an inclusive culture. Discrimination in all its forms (including on the basis of ethnic origin, religion, political opinion, gender, marital status, disability, age or sexual orientation) is not tolerated at any level.

Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the board

The business and management of the Company and its subsidiaries are the collective responsibility of the Board. At each board meeting, the Board considers and reviews the trading performance of the Group. The Board has a formal written schedule of matters reserved for its review and approval. These include the approval of the annual budget, major capital expenditure, investment proposals, the interim and annual results and a review of the overall system of internal control and risk management.

There are two standing board committees - Audit and Remuneration. Each of these committees acts within defined terms of reference. The roles of the Audit Committee and the Remuneration Committee are set out below:

Remuneration Committee

The Remuneration Committee, which comprises Paul Guilbert as Chairman, Simon Freer and Peter Rigg, meets not less than twice each year. The committee is responsible for the review and recommendation of the scale and structure of remuneration for senior management, including any bonus arrangements or the award of share options (or similar arrangements) with due regard to the interests of the shareholders and the performance of the Group.

Audit Committee

The Audit Committee comprises Paul Guilbert as Chairman, Simon Freer and Peter Rigg and also meets at least twice a year. The Board is satisfied that the Chairman of the Audit Committee has recent and relevant financial experience. The Board recognises that under the QCA Code the Chairman should not sit on the Audit Committee but considers Peter's experience is of benefit to the committee as a whole.

The Committee's formal terms of reference include the recommendation, appointment, re-appointment and removal of the external auditors, the review of the scope and results of the interim review and external annual audit by the auditors, their cost effectiveness, independence and objectivity. The Audit Committee also reviews the nature and extent of any non-audit services provided by the external auditors. In addition, the Audit Committee reviews the effectiveness of the Group's internal controls and risk management systems and the integrity of the financial statements and formal announcements. A whistle-blowing arrangement exists whereby matters can be confidentially reported to the Audit Committee. The CEO and Chief Financial Officer are not members of the Audit Committee but attend the meetings by invitation, as necessary, to facilitate its business.

Principle 10 - Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Company reports formally to its shareholders and the market generally twice each year with the release of its interim and full year results. The full year results are audited by an external firm of auditors with the interim statement usually subject to a review by the same external auditors. These reports contain full details of all the principal events of the relevant period together with an assessment of current trading and future prospects and the reports are made available via the Company's website to anyone who wishes to review them. Interim announcements are made to the market as required under AIM regulations.

The Company maintains a regular dialogue with stakeholders including shareholders to enable interested parties to make informed decisions about the Company and its performance. The Board believes that transparency in its dealings offers a level of comfort to stakeholders and an understanding that their views will be listened to.

The Board already discloses the results of general meetings by way of announcement and discloses the proxy voting numbers to those attending the meetings. To improve transparency, the Board has committed to announcing proxy voting results in future. In the event that a significant portion of voters vote against a resolution, an explanation of what actions it intends to take to understand the reasons behind the vote will be included.

Historical annual reports and other governance related material, including notices of all general meetings over the last five years can be found on the Company's website.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 17

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

STATEMENT OF DIRECTORS'

RESPONSIBILITIES

The directors are responsible for preparing the Strategic Report, the Directors' Report and the consolidated financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for the Group for each financial year. As required by the AIM Rules for Companies the directors have prepared financial statements for the Group in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs").

The consolidated financial statements are prepared in accordance with IFRS and The Companies (Guernsey) Law, 2008 (as amended) for each financial period and give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial period and of the profit or loss for that period.

In preparing each of the consolidated financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Group consolidated financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008 (as amended). They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors confirm that:

• so far as each director is aware, there is no relevant audit information of which the Company's auditor is unaware; and
• the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

18 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MXC CAPITAL LIMITED

OPINION

Our opinion on the group financial statements is unmodified

We have audited the group financial statements of MXC Capital Limited for the year ended 31 August 2019 which comprise the Consolidated Statement of Profit or Loss, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and notes to the consolidated financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion, the group financial statements:

• give a true and fair view of the state of the group's affairs as at 31 August 2019 and of its profit for the year then ended;
• are in accordance with IFRSs as adopted by the European Union; and
• comply with the requirements of the Companies (Guernsey) Law, 2008.

BASIS FOR OPINION

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the 'Auditor's responsibilities for the audit of the group financial statements' section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the group financial statements in Guernsey, including the Financial Reporting Council's (FRC) Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

CONCLUSIONS RELATING TO GOING CONCERN

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the group financial statements is not appropriate; or
• the directors have not disclosed in the group financial statements any identified material uncertainties that may cast significant doubt about the group's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the group financial statements are authorised for issue.

OVERVIEW OF OUR AUDIT APPROACH

• Overall materiality: £2,853,000, which represents 4% of the group's net assets;
• Key audit matters were identified as (a) valuation of the financial assets at fair value through profit or loss and recognition of the movement in fair value of investments; and (b) improper recognition of fee income; and
• Our audit approach was based on a thorough understanding of the group's business and was risk-based. 

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the group financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 19

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MXC CAPITAL LIMITED

Continued

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STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MXC CAPITAL LIMITED

Continued

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters in relation to which The Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

• proper accounting records have not been kept by the group; or
• the group financial statements are not in agreement with the accounting records; or
• we have not obtained all the information and explanations, which to the best of our knowledge and belief, are necessary for the purposes of our audit.

RESPONSIBILITIES OF DIRECTORS FOR THE GROUP FINANCIAL STATEMENTS

As explained more fully in the Statement of Directors' Responsibilities statement set out on page 18, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view , and for such internal control as the directors determine is necessary to enable the preparation of group financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the group financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE GROUP FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the group financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these group financial statements.

We are responsible for obtaining reasonable assurance that the group financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements of the group financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK).

A further description of our responsibilities for the audit of the group financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

USE OF OUR AUDIT REPORT

This report is made solely to the company's members, as a body, in accordance with Section 262 of The Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

CYRIL SWALE

FOR AND ON BEHALF OF GRANT THORNTON LIMITED

CHARTERED ACCOUNTANTS

St Peter Port

Guernsey

2 December 2019

22 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT

OF PROFIT OR LOSS

For the year ended 31 August 2019

1. earnings from trading activities before interest payable, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments.

The notes on pages 27 to 55 form an integral part of these consolidated financial statements. 

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STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT

OF FINANCIAL POSITION

As at 31 August 2019

The notes on pages 27 to 55 form an integral part of these consolidated financial statements.

These financial statements were approved by the Board on 2 December 2019 and signed on its behalf by:

24 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

CONSOLIDATED STATEMENT

OF CHANGES IN EQUITY

For the year ended 31 August 2019

The notes on pages 27 to 55 form an integral part of these consolidated financial statements.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 25

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 August 2019

The notes on pages 27 to 55 form an integral part of these consolidated financial statements.

26 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• GENERAL INFORMATION

MXC Capital Limited (the "Company") is a company incorporated and domiciled in Guernsey, whose shares are publicly traded on the AIM division of the London Stock Exchange. The registered office is 1st & 2nd Floors, Elizabeth House, Les Ruettes Brayes, St Peter Port, Guernsey, GY1 1EW and the principal place of business is Guernsey.

BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with applicable International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by the European Union (IFRS).

These financial statements have been prepared using the measurement bases specified by IFRS for each type of asset, liability or expense. The detailed measurement bases and principal accounting policies of the Company and its subsidiaries (the "Group") are set out below. The accounting policies have been applied consistently throughout the Group for the purposes of the preparation of these consolidated financial statements. The presentational currency of the Group and functional currency of the Company is Sterling (£). The consolidated financial statements have been rounded to the nearest thousand.

GOING CONCERN

These consolidated financial statements have been prepared on a going concern basis. The Group meets its day-to-day working capital requirements through its existing cash reserves which are sufficient to meet currently maturing obligations as they fall due. The directors have reviewed the Group's financial projections and, given the cash balances and the investments in liquid securities that the Group holds, are satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis. The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future.

ADOPTION OF NEW STANDARDS AND INTERPRETATIONS

The following new standards impacting the Group which were adopted in the annual financial statements for the year ended 31 August 2019 and which have given rise to changes in the Group's accounting policies are:

• IFRS 9 'Financial instruments' (effective 1 January 2018(1))
• IFRS 15 'Revenue from contracts with customers' (effective 1 January 2018(1))

The following new standards and interpretations, which have not been early adopted by the Group, will be adopted in future accounting periods:

• IFRS 16 'Leases' (effective 1 January 2019(1))

IFRS 9 'Financial Instruments'

The Group implemented IFRS 9 as of 1 September 2018 and has also considered the impact on the comparative results. The new standard includes revised guidance on the classification and measurement of financial instruments.

IFRS 9 introduces principle-based requirements for the classification of financial assets, using the following measurement categories: (i) Amortised cost; (ii) Fair value through other comprehensive income with cumulative gains and losses reclassified to profit or loss upon derecognition; and (iii) Fair value through profit or loss. IFRS 9 also introduces a new impairment model, the expected credit loss ("ECL") model.

The adoption of IFRS 9 has had no impact on the classification of the Group's financial assets. The Group's equity investments and warrants continue to be accounted for at fair value through profit or loss. In the case of the Group's other financial assets, these are held to collect the associated contractual cash flows, which are solely payments of principal and interest on the principal amount outstanding, and therefore these continue to be accounted for at amortised cost.

The Group now reviews the amount of credit loss associated with its financial assets based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. Having assessed the requirements according to the new standard, the Group has concluded that no significant impairment to the carrying values of the assets was required in any prior period. Details of the ECL for loan receivables is shown in note 13 and that for trade receivables is shown in note 14.

(1) Effective for annual reporting periods beginning on or after the dates above

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 27

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• GENERAL INFORMATION CONTINUED

IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group initially applied IFRS 15 on 1 September 2018 retrospectively in accordance with IAS 8 without any practical expedients. The timing or amount of the Group's fee income from contracts with customers was not impacted by the adoption of IFRS 15. The impact of IFRS 15 was limited to the enhanced disclosure requirements.

IFRS 16 'Leases'

The new IFRS 16 standard covering the accounting for leases will replace IAS 17 and associated interpretations. It introduces a standard accounting model for lessees. As a result, lessees are obliged to recognise right-of-use assets and liabilities for all contracts that are, or contain, a lease. The impact of IFRS 16 on MXC is being assessed. The main impact is expected to be around property leases of which the Group currently has one that would

be impacted.

Straight-line operating lease expense recognition will be replaced with a depreciation charge for the leased asset (included in operating costs) and an interest expense on the recognised lease liability (included in finance costs). In the earlier periods of the lease, the expenses associated with the lease under IFRS 16 will be higher when compared to lease expenses under IAS 17. However trading EBITDA results will be improved as the operating expense is replaced by interest expense and depreciation in profit or loss under IFRS 16. For classification within the statement of cash flows, the lease payments will be separated into both a principal (financing activities) and interest (either operating or financing activities) component.

BASIS OF CONSOLIDATION

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, until the effective date of disposal, as applicable.

The consolidated financial statements consolidate those of the Company and its subsidiary undertakings drawn up to 31 August each year. All subsidiaries have a reporting date of 31 August.

The Group applies the acquisition method in accounting for business combinations, with the exception of a business combination in 2015 which was regarded to be outside the scope of IFRS 3 and, as such, management used judgement in determining the appropriate accounting treatment. Under the circumstances, merger accounting was deemed suitable.

Under the acquisition method, the cost of acquisition is measured as the aggregate of the consideration transferred by the Group to obtain control of a subsidiary, which is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.

The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests where it is considered material to do so.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

28 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

• ACCOUNTING POLICIES

SEGMENTAL REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker ("CODM"). The CODM has been identified as the Board of Directors of the Company, which reviews the Group's internal reporting in order to assess performance and allocate resources.

During the year the CODM reassessed the Group's operating segments and concluded that the Group is now comprised of the transactional segment and central segment. These are defined in note 3.

REVENUE

Revenue comprises fee income and interest income. The Board considers the interest income to be part of the trading activities of the Group and therefore it has been presented as a component of revenue.

FEE INCOME

Fee income comprises the fair value of the consideration received or receivable for services provided in the ordinary course of the Group's activities. Revenue is shown net of Value Added Tax where applicable and after eliminating sales within the Group.

Revenue arises mainly from the services rendered by the Group to its customers.

To determine whether to recognise revenue, the Group follows a 5-step process:

1. Identifying the contract with a customer
2. Identifying the performance obligations
3. Determining the transaction price
4. Allocating the transaction price to the performance obligations
5. Recognising revenue when/as performance obligation(s) are satisfied.

In each identified contract with a customer there are two distinct performance obligations: (a) the Group's stand-ready obligation to render advisory activities as and when required which is referred to as the "Retainer fees"; (b) the Group's obligation to render advice for specific corporate finance transactions which is referred to as the "Transaction revenue". These fees are the Group's primary source of fee income. These are considered to be distinct performance obligations as the customer can benefit from each service on its own and the Group's promise to transfer each service to the customer is separately identifiable from other promises in the contract.

The recognition of the revenue is described below for each distinct performance obligation:

(i) Retainer fees

The Group has a stand-ready obligation to provide advisory services to customers as and when required. This performance obligation is in place for the life of the contract with the customer and satisfaction of this obligation is considered to be met on an ongoing basis as the scope of this arrangement is generally not considered reconcilable to input or output criteria to measure progress towards complete satisfaction of this obligation. For this reason, revenue is recognised straight-line over the performance of the contract via a fixed monthly retainer fee agreed as part of the contract. This fixed fee is specifically set out in the contract as the transaction fee allocated to this performance obligation. As the amount of work required to perform under these contracts does not vary significantly from month-to-month, the monthly billing provides a faithful depiction of the transfer of services. This is considered to align revenue recognition with the satisfaction of the stand-ready performance obligation. Accrued revenue is recognised when the revenue recognition criteria were met but in accordance with the underlying contract, the sales invoice has not been issued yet.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 29

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• ACCOUNTING POLICIES CONTINUED

(ii) Transaction revenue

This income stream comprises fees in relation to the Group's transactional services, such as corporate finance deal fees. For each corporate transaction entered into by a customer, the Group has an obligation to provide advisory services including executing acquisitions and disposals. This obligation is satisfied at the point when the transaction has completed, being when the customer has received the full benefit of the advisory services rendered. The transaction price allocated is the variable fee specifically presented in the contract for advisory services. This price is variable as it is determined based on an agreed percentage of the enterprise value of any corporate transactions or capital raisings concluded. There is no accrual of the revenue and it is only recognised on the completion of the relevant transaction. As the transaction price is based on a fixed percentage of a known enterprise value, there are no significant judgements applied by management in recognising transaction revenue.

INTEREST INCOME

Interest income and expense are recognised in profit or loss using the effective interest method. The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:

• the gross carrying amount of the financial asset; or
• the amortised cost of the financial liability.

When calculating the effective interest rate for financial instruments, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not expected credit losses.

The calculation of the effective interest rate includes transaction costs and fees that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.

Amortised cost and gross carrying amount

The 'amortised cost' of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any ECL allowance (or impairment allowance before 1 September 2018).

The 'gross carrying amount of a financial asset' is the amortised cost of a financial asset before adjusting for any ECL allowance.

As a result of the adoption of IFRS 9 in the period, the interest income calculated under the effective interest method is shown separately in the consolidated statement of profit or loss. The Board considers this interest income to be part of the trading activities of the Group and therefore the interest income calculated under the effective interest method has been presented as a component of revenue. The comparative figures have been restated to reflect this treatment.

EXCEPTIONAL COSTS

Costs which are material either because of their size or their nature, are highlighted separately on the face of the consolidated statement of profit or loss. The separate reporting of exceptional costs helps provide a better picture of the Group's underlying performance. Items which may be included within the exceptional category include, inter alia, acquisition and restructuring costs and other particularly significant or unusual items.

Exceptional items are excluded from the headline profit measures used by the Group and are highlighted separately in the consolidated statement of profit or loss as management believe that they need to be considered separately to gain an understanding of the underlying profitability of the trading businesses.

30 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

LEASES

Management applies judgement in considering the substance of the lease agreement. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the consolidated statement of profit or loss on a straight-line basis over the lease term. Where the Group has substantially all the risks and rewards of ownership, the assets are capitalised as property, plant and equipment and depreciated over the shorter of their useful economic life and the lease term. The resulting lease obligations are included in borrowings net of finance charges. Interest costs on finance leases are charged to the consolidated statement of profit or loss so as to produce a constant periodic rate of charge on the remaining balance of the liability for each period.

TAXATION

The Company is eligible for exemption from taxation in Guernsey under the provision of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, and has paid the annual exemption fee of £1,200.

The Group's subsidiaries' current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted at the balance sheet date in the jurisdictions certain of the Group's subsidiaries operate in.

Deferred income taxes are calculated in certain of the Group's subsidiaries using the liability method on temporary differences. Deferred tax is generally provided for on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided for on the initial recognition of goodwill or of any other asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided for if reversal of these temporary differences can be controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Tax losses which are available to be carried forward and other income tax credits to the Group are assessed for recognition as deferred tax assets.

Deferred tax liabilities are provided for in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying temporary differences will be able to be offset against future taxable income. Deferred tax assets and liabilities are measured at tax rates that are expected to apply in the period of realisation based on tax rates and laws that have been enacted or substantively enacted at the reporting date.

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.

INVESTMENTS

Investments of the Group include equity securities, warrants and loans. Equity securities classed as investments are designated as fair value through profit and loss ("FVTPL") on initial recognition, as is allowed by the relevant standard for a group of financial assets, financial liabilities or both that is managed and its performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel.

Certain subsidiaries of the Company hold investments in investees which are classed as associates and joint ventures as the subsidiary companies are deemed to hold significant influence over these investees. In the opinion of the directors, these subsidiary companies operate akin to venture capital companies and therefore the Group has taken advantage of the exemptions from applying the equity method to account for associates and joint ventures available under IAS 28 and has designated such investments as FVTPL on initial recognition.

Warrants, being derivatives, are by default FVTPL since they classify as held for trading. Loans are classified as loans and receivables.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 31

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• ACCOUNTING POLICIES CONTINUED

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less depreciation and any provision for impairment. Depreciation is provided to write down the cost to the residual value over the assets' estimated useful economic lives as follows:

The residual values and economic lives of assets are reviewed by the directors on at least an annual basis and are amended as appropriate.

IMPAIRMENT TESTING OF PROPERTY, PLANT AND EQUIPMENT

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). All individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset or cash-generating unit's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs to sell, and value in use based on an internal discounted cash flow valuation. Any impairment loss is charged pro rata to the assets in the cash-generating unit.

INTANGIBLE ASSETS AND IMPAIRMENT

(i) Goodwill

Goodwill represents the future economic benefits arising from a business combination that are not individually identified and separately recognised. Goodwill is carried at cost less accumulated impairment losses. The Group determines whether goodwill is impaired on at least an annual basis. This requires an estimation of the 'value in use' of the cash-generating units to which the goodwill is allocated. Estimating a value in use amount requires the directors to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

(ii) Customer contracts

On acquisition of a subsidiary the directors assess the business acquired to identify any intangible assets. Customer contracts meet the criteria for recognition as intangible assets as they are separable from each other and have a measurable fair value, being the amount for which an asset would be exchanged between knowledgeable and willing parties in an arm's length transaction. The fair value of customer contracts is calculated using the discounted cash flows arising from existing customer contracts and relationships based on both contracted and anticipated future fees. Customer contracts are amortised over their estimated useful lives of 3 years on a straight-line basis.

(iii) Impairment of intangibles and goodwill

In assessing impairment, management estimates the recoverable amount of each asset or cash generating units based on expected future cash flows and uses an interest rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise cash in hand and demand deposits held on call at banks.

FINANCIAL ASSETS

In accordance with IFRS 9, from 1 September 2018 the Group classifies its financial assets as either those to be measured at fair value (either through profit or loss, or other comprehensive income), or at amortised cost. At the reporting date the Group's financial assets are classified as detailed below.

From 1 September 2018 impairment of the Group's loans and trade and other receivables is assessed using a forward-looking ECL, as detailed in notes 13 and 14.

32 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

(i) Loans and receivables

Trade and other receivables are recognised initially at fair value less any transaction costs and subsequently amortised cost less any expected credit loss provision. Any transaction costs are taken to profit or loss.

The Group's loans receivable comprise loans which are initially recognised at fair value and stated at amortised cost at each reporting period end less any expected credit loss provision. Interest calculated using the effective interest method is recognised in consolidated statement of profit or loss within revenue.

(ii) Financial assets at fair value through profit or loss

The Group's equity investments are designated as at fair value through profit or loss on initial recognition. Any transaction costs are taken to profit or loss. Gains or losses arising from revaluation of the investments at each reporting period are recognised directly in the Group's consolidated statement of profit or loss.

The Group's warrants are classified as held for trading. Gains or losses arising from revaluation of the warrants at each reporting period are recognised directly in the Group's consolidated statement of profit or loss.

FINANCIAL LIABILITIES

Financial liabilities are obligations to pay cash or other financial assets and are recognised when the Group becomes a party to the contractual provisions of the financial instrument. The Group's financial liabilities include trade payables, borrowings and an obligation to purchase preferred ordinary shares issued in a subsidiary company. These are measured initially at fair value and subsequently at amortised cost using the effective interest rate method.

DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial assets and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

SHARE-BASED PAYMENTS

(i) Share options and Long Term Incentive Plan ("LTIP")

The Group has issued equity-settled share options and awards under LTIPs to certain current and former employees. The fair value of these options and awards is determined at the date of grant and is expensed on a straight-line basis over the vesting period based on the Group's estimate of shares or options that will eventually vest. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made where a change occurs to the expectation of a market based vesting condition. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

The fair value of the options and awards is measured by the Black-Scholes pricing method. All equity-settledshare-based payments are ultimately recognised as an expense in the consolidated statement of profit or loss with a corresponding credit to equity.

Upon exercise of share options, the proceeds received, net of attributable transaction costs, are credited to share capital and, where appropriate, share premium. Where share options are modified the fair value of those options is reassessed and any revised value is expensed over the vesting period of the modified option. See note 21 for further details.

(ii) Shares used to settle consultancy services

The Group on occasion issues equity-settledshare-based payments to settle consultancy agreements. The fair value of these payments is determined at the deemed date of grant and is expensed on a straight-line basis over the period of the provision of the relevant services.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 33

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• ACCOUNTING POLICIES CONTINUED

EQUITY

Equity comprises the following:

• Share premium, representing the fair value of consideration received for shares, net of expenses of the share issue;
• Shares held by Employee Benefit Trust, representing the cost price of investments in the Company's own shares;
• Share-basedpayments reserve, representing the cost of equity-settledshare-based payments until such share options and awards are exercised or lapse;
• Merger reserve, representing the excess of the Company's cost of investment over the nominal value of MXC Capital (UK) Limited's shares acquired using the principles of predecessor value method accounting;
• Retained earnings, representing the aggregate of all current and prior period retained profits and losses.

EMPLOYEE BENEFIT TRUST

The Group has established the MXC Employee Benefit Trust (the "EBT"), the purpose of which is to provide benefits through a trust to such employees whether directly or by way of entering into arrangements with the Group in support of its Employee Share Scheme. The assets and liabilities of the EBT are included in the Group's consolidated statement of financial position. Investments in the Group's own shares are shown as a deduction from equity. See note 20 for further details.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and judgements and their underlying assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenue and expenses during the periods presented. Actual results may differ significantly from the estimates, the effect of which is recognised in the period in which the facts that give rise to the revision become known. The following paragraphs detail the critical accounting estimates and judgements the Group believes to have the most significant impact on the annual results under IFRSs.

(i) Definition of business activities

The Board has exercised judgement in relation to the definition of the Company's business activities. The Board has assessed the Company's business model in detail against the criteria set out in IFRS 10 and is of the opinion that, although certain of its subsidiaries are investment holding companies, the Company itself does not meet the definition of an 'Investment Company' under IFRS 10, due, in part, to its broader advisory and corporate finance proposition. All subsidiaries of the Company, including those which are investment holding companies, are therefore consolidated into the Group financial statements as described elsewhere in these accounting policies.

(ii) Accounting for investments

Certain subsidiaries of the Company hold investments in investees which are classed as associates and joint ventures as the subsidiary companies are deemed to hold significant influence over these investees. In the opinion of the directors, these subsidiary companies operate akin to venture capital companies and therefore the Group has taken advantage of the exemptions from applying the equity method to account for associates and joint ventures available under IAS 28 and has designated such investments as fair value through profit or loss on initial recognition. In the opinion of the Board this gives a true and fair view of the Group's operations and financial position to shareholders.

(iii) Fair value measurement of investments

The Group holds investments in the form of quoted and unquoted securities and warrants measured at fair value. The fair value of these investments is estimated at the reporting period end, under methods detailed in note 12. Estimated fair values may vary from actual prices that would be achieved in an arm's length transaction at the reporting date.

34 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

(iv) Fair value measurement of share-based payments

The fair value of the Group's share-based payments is a significant estimate, calculated as detailed in note 21. Estimated fair values may vary from actual prices that would be achieved in an arm's length transaction at the reporting date.

(v) Impairment assessment

The Group tests annually whether goodwill and intangible assets have suffered any impairment, in accordance with the accounting policy for impairment. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

(vi) Recoverability of loans receivable, trade and other receivables

As detailed in notes 13 and 14, the Group has outstanding loans receivable. Other than in respect of the expected credit loss provision, the directors do not believe there are any signs of impairment in respect of the loans at the reporting period end. Given the quantum of the loans and the timescales until redemption the recoverability of these loans is a significant estimate.

(vii) Recognition of retainer fees

The revenue from the provision of advisory services is recognised over time by the billing of the annual fee on a monthly basis. The timing of the satisfaction of performance obligations and in assessing that this method faithfully depicts the transfer of services requires the application of judgement by management.

• SEGMENTAL ANALYSIS

Operating segments are reported in a manner consistent with the internal reporting to the Chief Operating Decision Makers ("CODM"). The CODM has been identified as the Board of Directors.

The Board is responsible for strategic decision making and for assessing the performance of the operating segments. The operating segments are defined by distinctly separate product offerings or markets. The CODM assesses the performance of the operating segments based on the Trading EBITDA generated by each segment. Assets and liabilities per segment are not monitored by the CODM and therefore that analysis is not provided below.

All revenue originates from the United Kingdom or Guernsey. Third party revenue is detailed in the segmental analysis as are charges for professional services rendered between the Group's operating segments. Recharges of costs between segments are excluded from the revenue analysis, in line with the internal reporting to the CODM.

During the year the CODM reassessed the Group's operating segments and concluded that the Group is now comprised of the following main operating segments:

Transactional segment - this segment comprises the Group's FCA regulated corporate finance and related services, together with the Group's advisory and consultancy activities, including originating and advising on investment opportunities for the Group, and providing operational and strategic guidance to clients.

Central - all other activities of the Group in performing its principal activity of advisor to and investor in technology companies, including the management of its investments, are considered together by the CODM.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 35

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

• SEGMENTAL ANALYSIS CONTINUED

Results for the year ended 31 August 2019

1. earnings from trading activities before interest paid, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments.

During the year, revenue from five of the Group's customers each represented more than 10% of total revenue. Revenue related to those customers was £1,039,000, £756,000, £398,000, £387,000 and £371,000 respectively. The revenue in respect of these customers was generated from both of the Group's operating segments.

36 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

1. earnings from trading activities before interest paid, tax, depreciation, amortisation, exceptional items, share-based payments and movements in fair value of investments.

During the year ended 31 August 2018, revenue from four of the Group's customers each represented more than 10% of total revenue. Revenue related to those customers was £273,000, £220,000, £186,000 and £107,000 respectively. The revenue in respect of each of these customers was generated from the Transactional segment.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 37

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

5 OPERATING PROFIT/(LOSS)

Operating profit/(loss) is stated after charging to operating expenses:

• PARTICULARS OF STAFF

The average number of persons employed by the Group, including executive directors, during the year was:

38 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

EXCEPTIONAL COSTS

Included in total payroll costs is £977,000 (2018: £1,221,000) in respect of staff bonuses and the related social security expense. The bonuses were paid as a result of the profit realised by MXC on the exit of certain of the Group's investments rather than as a result of the trading performance of the Group. Given this and the size of the total bonus expenses, they are therefore considered exceptional in nature.

DIRECTORS' REMUNERATION

Remuneration of directors, who were the key management personnel during the year, was as follows:

The remuneration of individual directors, who are the key management personnel of the Group, is disclosed in the Directors' Report on page 12. No retirement benefits in respect of defined contribution schemes are accruing to any directors.

In September 2015 the Group made awards to certain directors and employees under its Long Term Incentive Plan ("LTIP"). Ian Smith, a director of the Company, is entitled to 2% of the shareholder value created under the scheme. For further details, see note 21.

• FINANCE INCOME AND COSTS

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 39

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

8 TAXATION

The Company is eligible for exemption from taxation in Guernsey under the provision of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, and has paid the annual exemption fee of £1,200.

40 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

• EARNINGS PER SHARE

Earnings per share ("EPS") is based on the profit or loss attributable to shareholders of the parent company divided by the weighted average number of ordinary shares in issue during the year, excluding the shares held by the EBT.

The reconciliation of the weighted average number of shares for the purposes of diluted earnings per share to the weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows:

On 15 February 2019, the Company completed a share capital consolidation, being the consolidation of every

50 existing ordinary shares of no par value each into 1 ordinary share of no par value. For comparative purposes, the weighted average number of ordinary shares in issue has been restated as if the share capital consolidation had occurred prior to the 2018 reporting period end as follows:

In 2018, the weighted average number of ordinary shares for the purpose of calculating the basic and diluted measures was the same. This is because the outstanding share incentives, details of which are given in note 21, would have the effect of reducing the loss per ordinary share and therefore would be anti-dilutive under the terms of IAS 33.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 41

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

10 INTANGIBLE ASSETS

The amortisation charge is included in the consolidated statement of profit or loss within administrative expenses.

GOODWILL

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Goodwill is supported by calculating the discounted cash flows arising from value-in-use calculations based on each applicable cash generating unit ("CGU") as detailed below:

Capital Markets CGU

The goodwill arising from the acquisition of MXC Capital Markets LLP of £5,927,000 is allocated to this CGU. The value-in-use calculations use cash flow projections based on financial budgets approved by management until

31 August 2024. A terminal value calculation has been applied, with a terminal value growth rate assumed of 2%.

Investments CGU

This goodwill arising from the acquisition of MXC Holdings Limited of £5,489,000 is allocated to this CGU. The value-in-use calculations use cash flow projections over a 5 year period based on management-approved assumptions regarding the time an investment will be held for and the growth in value achieved. Exit multiples of up to 2.4 times are assumed based on historic averages achieved.

In the case of both CGUs, a pre-tax discount rate of 8.0% has been applied to the extrapolated cash flows, which reflects management's risk-adjusted estimate of the weighted average cost of capital. A reasonably possible adverse movement in any of the above key assumptions made would not give rise to impairment.

42 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

11 PROPERTY, PLANT AND EQUIPMENT

As at 31 August 2019, included in motor vehicles are assets held under finance leases with a carrying value of £76,000 (2018: £102,000).

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 43

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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

12 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The Group's investments relate to equity securities and warrants held in both AIM quoted and unquoted, private companies. These investments are accounted for at fair value through profit or loss and presented as financial assets at fair value through profit or loss in the consolidated statement of financial position.

FAIR VALUE MEASUREMENT

Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: not traded in an active market but the fair values are based on quoted market prices or alternative pricing sources with reasonable levels of price transparency; or
• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

The equity securities and warrants are measured at fair value. The quoted equity securities are categorised as level 1 fair values, the warrants and the unquoted equity securities as level 3.

In the case of the warrants, a valuation exercise to estimate their fair value at 31 August has been undertaken. The fair value of the warrants in previous financial years involved the production of a Black-Scholes valuation with estimates made in respect of items such as the timing of the achievability of performance criteria, share price volatility and exercise date. The historic volatility, which is a significant input to the valuation model, constitutes unobservable data in accordance with the relevant standard. The average historical volatility used in 2018 was 9.7%. The fair value of the Group's warrants at 31 August 2018 comprised warrants held in Tax Systems plc. On the disposal of the Group's investment in Tax Systems plc during the year ending 31 August 2019, certain of these warrants were exercised and the remainder were waived by the Group.

44 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

The fair value of the unquoted equity securities is based on a market approach, using either the latest fund raising valuation if applicable, or the application of market-average multiples (EV/EBITDA or EV/Revenue) to the companies' own data. The financial data of the valued companies themselves is not observable on the market, and whilst the market-average multiples are based on observable market data, the selection of comparable companies used is a significant judgement. The unquoted investees all operate within the technology sector and the key observable inputs were:

13 LOANS RECEIVABLE

During the year, the Group subscribed for £8.0 million of secured loan notes with a six-year term and an effective interest rate of 12% ("Secured LNs"). The subscribed amount plus the fees directly attributable to Secured LNs is the basis of the carrying value of the Secured LNs. The determined carrying value is not materially different from the fair value. The counterparty to the Secured LN's is a company in which the Group holds an investment as an associate and has board representation. Given its influence within, and therefore its knowledge of, the counterparty, together with the level of security held in respect of the Secured LN's, the Group considers the ECL in respect of the Secured LN's to be low. The Group also considers there has been no change in its assessment of its risk since the subscription for the Secured LNs and therefore considers it appropriate to reflect a 12 month ECL provision. After applying a sensitised valuation to the security held and an estimate of the likelihood of a default event in the next 12 months, the Group considers an ECL provision of £70,000 is appropriate (2018: £nil). The movement on the provision is therefore £70,000 and this is included within operating expenses in the consolidated statement of profit or loss.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 45

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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

14 TRADE AND OTHER RECEIVABLES

In adopting IFRS 9, the Group now reviews the amount of credit loss associated with its trade receivables based on forward looking estimates that take into account current and forecast credit conditions as opposed to relying on past historical default rates. In adopting IFRS 9 the Group has applied the Simplified Approach to measure lifetime expected credit losses and has assessed individual customer balances and their current and forecast trading conditions in deriving the ECL provision. The ECL provision of £33,000 (2018: £nil) is included within operating expenses in the consolidated statement of profit or loss.

The other classes of assets within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable disclosed above.

The carrying amounts of the Group's trade and other receivables are all denominated in sterling.

15 CASH AND CASH EQUIVALENTS

For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances:

16 TRADE AND OTHER PAYABLES

46 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

17 FINANCE LEASE LIABILITIES

18 OTHER FINANCIAL LIABILITIES

The Group has a future obligation to purchase preferred ordinary shares issued in MXC Holdings Limited for a total of £660,000. The amortised cost of this obligation is £619,000 which is analysed in the table below and is based on a discount rate of 3.25%, being the Group's borrowing rate at inception.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 47

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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

19 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

RISK MANAGEMENT OBJECTIVES AND POLICIES

The investment objective of the Group is to maximise its total return primarily through the capital appreciation of its investments. The Group holds investments in the form of equities, warrants and loans. In addition, the Group holds cash and liquid resources as well as having receivables and payables that arise directly from its operations. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The main risks that the Group is exposed to are market risk (which includes currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The most significant financial risks to which the Group is exposed are described below and relate to the following financial instruments:

Principal financial instruments

The principal financial instruments used by the Group from which financial instrument risk arises are as follows:

• Financial assets at fair value through profit or loss
• Loans, trade and other receivables ("loans and receivables")
• Cash and cash equivalents
• Trade and other payables
• Other financial liabilities

The maturity analysis of the Group's financial assets is as follows:

48 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

FINANCIAL RISK MANAGEMENT

Market risk

Currency risk

The Group has no direct exposure to currency risk. However, the Group is indirectly exposed to currency risk through the companies it invests in. The Group does not hedge against the currency risk, which the Board of Directors believe is a low risk to the Group.

Interest rate risk

The Group finances its operations through a mixture of Shareholders' capital and reserves, together with leases. During the year the Group received interest of £22,000 on its cash and cash equivalents (2018: £nil). The Group has issued loans and loan notes, which are interest bearing. During the year the Group charged interest of £796,000 (2018: £34,000), at a fixed interest rate, on its loans and loan notes. All other assets and liabilities of the Group are non-interest bearing.

At 31 August 2019, cash and cash equivalents of £21,454,000 (2018: £12,433,000) are potentially exposed to movements in interest rates. Due to the generally low rates available, a movement in interest rates would not have a material financial impact on the Group. Therefore, the Group does not hedge against the interest rate risk to which it is exposed.

Other price risk

The Group's exposure to other price risk consists mainly of movements in the value of the Group's investments. The Board manages the price risks inherent in the investment portfolio by ensuring full and timely access to relevant information on current and potential investments. The Board meets regularly and at each meeting reviews investment performance. For the Group's quoted equity securities, an average overall change in fair value of

45% has been observed during 2019 (2018: 10%). This is considered to be a suitable basis to apply to the Group's quoted investments for estimating how profit or loss and equity could have been affected by changes in other price risk that were reasonably possible at the reporting date. However, this figure is considered too high to apply to the Group's unquoted investments given their values are less affected by external factors. The 2018 rate of

10% is deemed appropriate to apply to these investments. If the valuation of the Group's investments increased or decreased by these rates, profit or loss and equity would have changed by £3,845,000 in either direction (2018: £4,112,000).

Credit risk analysis

Credit risk is the risk that a counterparty fails to discharge an obligation to the Group. The Group is exposed to this risk principally in respect of cash deposits with financial institutions and its loans receivable. The Group's maximum exposure to credit risk is limited to the carrying amount of financial assets recognised at 31 August, as summarised in the 'Principal financial instruments' table above.

The Group's management considers that all of the above financial assets that are not impaired or past due for each of the 31 August reporting dates under review are of good credit quality.

The credit risk for cash and cash equivalents is considered negligible, since the counterparties are reputable banks with high quality external credit ratings of AA- and above.

Liquidity risk analysis

Liquidity risk is that the Group might be unable to meet its financial obligations as they fall due. The Group manages its cash flows to ensure that it will always have sufficient liquidity to meet its liabilities when due. The Board of Directors manages liquidity risk by regularly reviewing the Group's cash requirements by reference to cash flow projections prepared by management.

Concentration risk analysis

Concentration risk is the risk that the Group may be adversely affected by its investments being focussed on a relatively small numbers of companies, all of whom operate within the technology sector. See 'Other price risk' for details of how the Group mitigates this risk and the impact it may have on reported results.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 49

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

19 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT CONTINUED

CAPITAL MANAGEMENT

The Group's capital structure is comprised entirely of shareholders' equity. The objective of the Board when managing capital is:

• to ensure the Group can meet its liabilities as they fall due; and
• to maximise the Group's total return primarily through the capital appreciation of its investments.

The capital structure is managed and adjusted to reflect changes in economic conditions. The Group funds its expenditure on commitments from existing cash and cash equivalent balances, primarily received from operating cash flows, the realisation of investments and the issuances of shareholders' equity. There are no externally imposed capital requirements. Financing decisions are made by the Board based on forecasts of the expected timing and level of capital, the operating expenditure required to meet the Group's commitments and development plans and the performance of the Group's current and potential investment portfolio.

20 SHARE PREMIUM

The Company is authorised to issue an unlimited number of ordinary shares of no par value.

B SHARES OF NO PAR VALUE

During a previous financial year the Company issued 1,049,089,816 B shares of no par value as part of the acquisition of MXC Holdings Limited. This is the total number of B shares in issue at 31 August 2019 and 2018. These shares are redeemable shares and are held by MXC Holdings Limited, a wholly-owned subsidiary of the company, and are therefore eliminated in full on consolidation.

As at 31 August 2019, the EBT held 8,057,677 shares (2018: nil). These shares are held as 'treasury shares'. The trustees of the EBT have voting rights in relation to these shares unless otherwise agreed with the Company. Unless otherwise requested by the Company, the trustees shall waive any and all dividends payable in respect of the shares held by the EBT. For further details of the EBT refer to page 34.

2019 ORDINARY SHARE CONSOLIDATION

On 15 February 2019, the Company completed a share capital consolidation, being the consolidation of every 50 existing ordinary shares of no par value each into 1 ordinary share of no par value.

2018 ORDINARY SHARE ISSUES

In November 2017 and June 2018 6,400,000 ordinary shares and 2,400,000 ordinary shares respectively were issued at a price of 0.0p per share to satisfy the exercise of share options.

50 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

21 SHARE BASED PAYMENTS

SHARE OPTION SCHEME

The Company has a share option scheme for certain current and former employees of the Group. Share options outstanding at the end of the year were:

Share options with an option life of 10 years were granted in 2013 and, as the performance criteria has been achieved, all options have fully vested. Where applicable, the Board has exercised its discretion so that options granted to former employees continue to be exercisable. See note 20 for details of the share consolidation in the year.

Options outstanding under the Company's share option schemes at 31 August 2019 were as follows:

The weighted average remaining contractual life of these options is 4 years (2018: 5 years).

The fair value of the employees' services received in exchange for the grant of share options is recognised as an expense. The total amount to be expensed over the vesting period was determined by reference to the fair value of the share options granted, calculated using the Black-Scholes option pricing model.

The share-based payments charge in respect of these share options has been fully expensed in previous financial years. 

LONG TERM INCENTIVE PLAN ('LTIP')

On 28 September 2015 the Group made awards to certain directors and employees under its Long-Term Incentive Plan ('LTIP').

The beneficiaries of the LTIP are entitled to receive a share in a pool of up to 12.5% of shareholder value created, subject to share price performance criteria, and need to have been employed by the Group for a minimum period of three years. Shareholder value is defined as the growth in the market capitalisation of the Company from the base value of at least three years from August 2014, taking into account dividends and capital returns, if any. The base value is defined as the aggregate value of all of the ordinary shares in the capital of the Company in issue in August 2014 as adjusted for the issue or cancellation of new ordinary shares after that date.

Initially the LTIP is implemented by way of an unapproved share option scheme. However, should certain share price targets be achieved then the unapproved share option scheme will be replaced in part or in whole by an employee shareholder share scheme. The overall entitlement of the beneficiaries and therefore potential dilution to shareholders will remain the same regardless of how the LTIP is implemented.

As at 31 August 2019, awards over 8.4% of shareholder value are in place (2018: 10.43%).

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 51

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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

21 SHARE BASED PAYMENTS CONTINUED

The LTIP scheme has the following broad principles:

Participants at 31 August 2019 are entitled to share in a pool equivalent to 8.4% of shareholder value created in excess of the base value of the Company as at August 2014, subject to the share price performance of the Company. Share price performance was initially to be measured at August 2017 or August 2018 (depending when employment commenced), with an extension to August 2019 if the performance condition was not met by those dates. The share price performance condition has been met.

The fair value of the LTIP is calculated by an external valuations' expert using a two-tieredBlack-Scholes option pricing model together with an empirical model. The fair value of the LTIP at date of implementation, adjusted for subsequent starters and leavers, was £4,497,000 (2018: £5,539,000), generating an expense for equity-settledshare-based payments in respect of employee services received during the year to 31 August 2019 of £247,000 (2018: £373,000). The significant inputs into the model were the LTIP expiry date of August 2020, the expected exercise date of within 12 months, the weighted average share price of 3.05 pence per share at the grant date, a risk-free rate of 0.5% and an average volatility of 49.0% which is based on an average of the short and longer- term historical volatility of the Company's share price.

22 OPERATING LEASE COMMITMENTS

At 31 August 2019, the Group had aggregate minimum lease payments under non-cancellable operating leases in relation to property as follows:

23 NET CASH FLOWS FROM OPERATING ACTIVITIES

52 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

24 RELATED PARTY TRANSACTIONS

Transactions between the Company and its wholly-owned subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Certain of the Group's investee companies are deemed to be related parties, because they are classed as associates or joint ventures of the Group. Transactions entered into, and trading balances outstanding at 31 August with these related parties, are as follows:

Amounts owed by related parties are stated gross of VAT.

Terms and conditions of transactions with related parties

Sales to and purchases from related parties are made on an arm's length basis. Outstanding balances with entities other than group companies are unsecured, interest free and cash settlement is expected within agreed payment terms. Terms and conditions for transactions with group companies are the same, with the exception that balances are placed on intercompany accounts with no specified credit period. The Group has not provided or benefited from any guarantees for any related party receivables or payables. During the year ended 31 August 2019, the Group has made a provision for ECLs relating to amounts owed by related parties of £33,000 (2018: nil).

In addition, at 31 August 2019, the Group had loans outstanding due from an associate as disclosed in note 13.

The directors are the key management personnel of the Company and their remuneration is disclosed in the Directors' Report. Social security costs in respect of directors' emoluments were £9,000 (2018: £9,000).

The directors are not aware of any ultimate controlling party.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 53

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NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

For the year ended 31 August 2019

25 SUBSIDIARIES

At 31 August 2019 the Company had the following subsidiary undertakings.

*held indirectly

26 SUBSIDIARIES WITH MATERIAL NON-CONTROLLING INTERESTS

The Group includes two subsidiaries, MXC Capital (UK) Limited and MXC JV Limited, with material non-controlling interests ("NCI").

MXC JV LIMITED

At 31 August 2019 an NCI held 50% of the ownership interests and none of the voting rights of MXC JV Limited, a Guernsey based company. The accumulated NCI at 31 August 2019 was £3,575,000. The losses incurred in MXC JV Limited during the year are not considered material to allocate to the NCI. No dividends were paid to the NCI.

Summarised financial information for MXC JV Limited, before intragroup eliminations, is set out below:

54 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019

MXC CAPITAL (UK) LIMITED

In September 2018, an NCI acquired 25% of the ownership interests and 25% of the voting rights of MXC Capital (UK) Limited, a UK based company ("MXC UK"). This was the ownership interest of the NCI at 31 August 2019. The NCI acquired its ownership interest in MXC UK as the holding company of MXC's UK trading entities. For the purposes of presenting information on the subsidiary that enables users to understand the interest that non-controlling interests have in the Group's activities and cash flows it is therefore necessary to look at group headed by MXC UK. No statutory consolidation is required for this group, however proforma consolidated information has been presented below. The NCI acquired its interest during the year ended 31 August 2019 therefore no comparative information has been provided.

The accumulated NCI at 31 August 2019 was £1,791,000 (2018: £nil). Profits of the MXC UK group amounting to

£340,000 (2018: £nil) were allocated to the NCI during the year. A dividend of £190,000 (2018: £nil) was paid to the NCI.

Summarised proforma financial information for the MXC UK group, before intragroup eliminations in respect of transactions with the rest of the Group, is set out below:

27 SUBSEQUENT EVENTS

On 25 October 2019 the number of exercisable voting rights in the Company was reduced to 65,742,407 following the purchase by the Company of 1,460,942 ordinary shares by means of a tender offer. All shares purchased by the Company under the tender offer have been cancelled.

MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019 55

STRATEGIC REPORT / GOVERNANCE / FINANCIAL STATEMENTS

COMPANY INFORMATION

56 MXC CAPITAL LIMITED ANNUAL REPORT FOR THE YEAR TO 31 AUGUST 2019