Mercia Asset Management (LSE:MERC) — Interim Results

0:00 Good afternoon and welcome to the MERCIA ASSET MANAGEMENT PLC interim results investor presentation. Throughout the recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses when it's appropriate to do so. Before we begin, I'd like to submit the following poll.

0:27 I'd now like to hand you over to Mark Payton, CEO. Good afternoon, sir. Good afternoon, and welcome, welcome, everybody, to MERCIA's interim results for the period 09/30/2023. I'm sure we've presented to a number of you, but for those that are new, again, welcome. One of the changes since our last presentation, our prelims, is I'm pleased to say that the executive team has been expanded to add Joe Bath, chief operating officer to the executive team. Joe joins us from OXGEMENT where she previously was COO, a business that grew rapidly and the number that you will recall, we exited that business. It was a very strong return for our EIS funds as well as for the balance sheet, and we're pleased to welcome Jo on board.

1:13 To my right, presenting later on is Martin Glanfield, MERCIA's chief financial officer. Yes. Good after

1:22 everyone. I joined MERCIA as employee number seven in October 2014, just over nine years ago now, to IPO the business with MERCIA when we had £22,000,000 of funds under management. And my background is mainly as a CFO of publicly listed and privately backed technology enabled businesses in The UK and The US. Thank you, Martin. To my left is is Julian. Julian Big is MERCIA's chief investment officer.

1:49 Hi. Good afternoon, everyone. So I came to MERCIA via the 2016 acquisition of Enterprise Ventures. So all the way back to 2003, I've been working in venture, managing various different funds for Enterprise Ventures, then lastly, MERCIA, now sit as chief investment officer across all of MERCIA's equity

2:19 investment offerings. Thank you, Julian. And we're coming to you today from our main office in Henley and Arden, and the schematic to the left just demonstrates the offices we have across the country. We have something like 11 offices delivering capital across The UK. This slide nicely highlights why we believe this to be a very strong period for MERCIA and its continued growth. We've seen assets under management grow to 1,500,000,000. That's up 1.7% compared to our last reporting period. Revenue has grown to 15,000,000. That's up that's up 23.5%, and that's compared to this time last year. EBITDA has grown to 2,800,000, up 33.4% again compared to this time last year. Importantly, in the current environment, at this period end, 36,500,000 was what our cash on hand position was following the recent successful sale of Endreams, a profitable sale of Endreams. That cash has now grown to $60,000,006.00, debt free.

3:23 I'm pleased to say that the progressive dividend policy continues to be delivered with the growth of the interim dividend by 6.1% to naught 0.35p per share. And as a number of you will have noted, we announced today a share buyback as well of up to £5,000,000.

3:44 This slide here just demonstrates the growth, and actually just choosing from the COVID period to now shows the growth of assets under management on the left side, the green being total AUM, the dark blue being third party funds, and the light blue piece being our proprietary position, our direct investments. And you see that steady growth over the three, three and a half year period, predominantly driven by our growth in our third party funds under management. And to the right side, you can see the associated growth in revenue driven by those third party funds under management and the commensurate EBITDA growth with the growth in the third party funds under management. And the final position there is where we are at this half year period. We would expect to the full year for that upwards trajectory to continue.

4:36 And in respect of our proprietary position, our direct investments, again, drawing the analogy from the same period COVID through till now, so a period of 04/01/2020 to September 2023. What this table on the right demonstrates is the net cash invested over that period of circa 57,600,000 and the returns importantly in cash over the same period of 86,800,000. In other words, the the balance sheet portfolio is is maturing. The cash that we're putting to work is returning cash to fund the growth of the business going forward, which is important as we contemplate growth within our own means. We have enough cash on hand to not need to go back to the city to raise money as we said many years ago, we wouldn't need to, and indeed not go to banks to raise debt, to remain debt free.

5:25 The the rows below that just show the movements in terms of realized gains and losses and unrealized fair value movements, And that just really demonstrates the trajectory of what is a venture portfolio, but is fundamentally delivering cash. A little over two and a half years ago, we set out on what we termed the MERCIA 2020 vision, the three year strategy, where we sought to grow assets under management by 20% per annum over a three year period, averaged if you like. Or another way of looking at that is assuming starting from just under 1,000,000,000 AUM after the three year period to have rise that rise that by over 600,000,000 to

6:08 1,600,000,000. And then profit before tax, looking at 20,000,000 per annum over a three year period averaged or, again, maybe looking at a three year cumulative position to 60,000,000. In terms of AUM growth, we remain confident that the 1,600,000,000 will be met, and we are you know, we'll talk later on about the organic prospects for that. And in terms of profit before tax, although at 31,200,000 over two and a half years, that is gonna be very difficult in the current environment that we find ourselves to achieve the 60,000,000. The progressive dividend that we talked about just a moment ago, that is demonstrated by the growth in the highly profitable third party fund management operation that in large part supports that. And to that point, the profit before tax is in large part supported by our direct investment strategy. And at the moment, as I said, the majority of the portfolio is in venture, and venture is in a challenging arena at the moment.

7:09 Thank you, Mark. As you can see, we achieved more solid growth in assets under management during the six month period, and there were once again no redemptions. From a starting position of 1,400,000,000, we added 45,000,000 of new inflows. We experienced a very small reduction in fair values across our asset classes, and we distributed £17,000,000 to our investors. And on the right hand side of this chart, you can see where the 45,000,000 was raised from being EIS VCT and business bank and the Northeast Venture Fund. And post period end so far, we've already raised an additional £10,000,000 from another EIS fundraise and from the British Business Bank. And currently, our BCTs have launched a £60,000,000 fundraise, which is going well.

7:57 We're confident that there is far more organic growth to come in the foreseeable future.

8:06 This slide provides more granularity on the makeup of our 1,500,000,000 of assets under management by asset class, investor type, and fund type. These varying fund types are typically either evergreen or long dated and are generating a blended fee margin of circa 2%. 80% of our total revenue is contracted and recurring, and in the six month period, 97% of our revenues came from our profitable fund management operations. So as you can see, we are well diversified by asset class, and we can invest UK wide.

8:48 This is our p and l account for the first six months, and as you can see, the the headline here is the revenue growth of 23.5%. But that obviously also includes the full six month period of the ownership of Frontier Development Capital. And although it's been a challenging period from an inflation perspective in our cost base where our underlying costs rose by 10%, I'm pleased to say that our underlying rep underlying revenues increased by 11%. So we have been yet able to absorb the cost pressures which have affected not just The UK financial services industry, but the whole of The UK during this period. I think the other interesting point worth noting on this slide is that a year ago, the bank interest that we earned in the first six month period on our cash balances was a £117,000, whereas in this six month period, we've earned £778,000 from our cash balances. And, of course, that period was prior to the receipt of twenty six point four million from the sale of Endrix.

9:52 Thank you. Our balance sheet remains rock solid at just over £200,000,000, dominated by the £142,000,000 balance sheet portfolio, which has obviously reduced some somewhat post period end from the sale of entries. But also the cash, of course, has gone up by the same amount following the exit from Endreams, and it's a really rock solid balance sheet. And our cash flow position is obviously now extremely strong at at 60,000,000. And what we have built is a very cash generative business built around our profitable and growing fund management business coupled with periodic cash realizations from our maturing direct investment portfolio.

10:40 And finally, for me, as as you've probably heard me say before, for an aim listed company, we're very appreciative of the significant blue chip share rates that we have, which, of course, includes circa 10% individual investors.

10:59 K. Thanks, Martin. So the left hand side of this chart does show our complete suite of investment products, so we can invest and lend from £200,000 upwards to 10,000,000 as a business scales, and in certain circumstances, 20,000,000 through our FDC funds. So on our venture side, that's split between our early stage venture activities, and we can write 500,000 to 5,000,000 check sizes, and then our VCT scale up capital really look at three to ten million of exposures. Regional debt teams do the smaller sub £1,000,000 debt lens, leading FDC to do the larger and some cases property transactions.

11:50 And again, for our private equity offering, the sweet spot really is is 4 to 5,000,000 of of replacement capital. On the right hand side of this chart, again, shows that the split of that 1,500,000 of AUM across those areas of activity, but also shows our significant liquidity. And we are not suffering from any scarcity of capital across any part of our business at this point. And again, so without any new funds raised, and we are consistently raising new money, but without that, we have at least two years of investment runway, which is a great a great place for us to be. Thanks, Mark. So this slide shows the performance across our equity products, which again continues to be solid. So firstly, proprietary capital balance sheet is running at IRR of around 13%.

12:49 And just as a reminder, over the last three years to March, we had equity realizations of £340,000,000. Add to that for the 52,000,000 to this period to September, and then 26,000,000 from Endreams. So circa 420,000,000 now realized over the course of the last three and a half years. So we operate close to 45 or so funds, various different mandates, remits. There are different ages and and and geographical focus areas, so we use TVPI as a performance measure, and we expect this to increase over time. In in venture, not necessarily uniformly.

13:36 We can see that across our legacy venture and current PE. Those numbers are ticking up over the last six months, and that's really a couple of recent exits in there. Our current venture activities are flat or slightly down, again, not not unsurprising really in the current market. And then onto our VCTs, the best measure is the total return here, which includes dividends paid out. So at between two and a half times, again, some some solid performance there, and again, pretty much flat over the course of the last six months. So I guess in conclusion, I continue to be happy with our performance in in what has become a much more challenging period for venture and smaller private equity.

14:28 Thanks, Mark. So this is the this is our direct investment portfolio in in numbers. So a little bit less complex than in July, but, again, starting off on the left, bottom left, a 137,000,000 or so of brought forward value to which we added 7,500,000. Then we have negative fair value movements of 1.6 to leave us with that 142,500,000 of of balance sheet value. So within our fair value movements, again, a number of upward moves here. So end dreams, again, you can see that number there as as we, of course, anticipated the the November exit. Again, that that transaction was in play at the September 30.

15:21 Voxpot Me, again, a new round which we put money into and also converted some older loans with very favorable structuring and conversion as was the case to some degree on TOM UK, which is intelligent positioning, and our two other software assets, Pimberly and Forensics, again, trading well and and therefore enterprise values ticking upwards. So four downward movements, impression tech, is the largest movement, and again, we've impaired that value as we had an exit and fundraise process and and and there was a lead buyer in that, which unfortunately fell away. So that process is is gonna have to be restarted.

16:15 I guess, somewhat similarly, but some on the auto, we had a setback in that, as you'll recall, we were in correspondence with the FDA over potential approval for company's slit lamp product. Ultimately, the FDA came back with a requirement for further trial data. And again, so we we are spending a lot of time on those two assets, really kind of reassessing commercial strategies, and we'll monitor them closely over the course of the next few months. There was a further small downward movement on Invincibles, and that's really only as the short term debt in that business increased momentarily around the period end, and our only listed assets, My Health Check continues to struggle as a small public company.

17:16 Thanks, Mark.

17:18 So our top ten first five here, a little bit more detail. So on Endreams, as as you you may well have seen, we we have sold that business now in mid November for an enterprise value of £91,000,000 to our co investors, Aeonic. And the great part of that deal also was that we were allowed to reinvest circa 4,000,000 back into AONIC, which we're excited about because it does give us a great opportunity to continue to benefit from the growth of not only just End Dreams, but seven or so studios that are in the the AONIC stable potentially at a at a at a lower overall risk level to us.

18:06 BoxPop. Me, again, is growing steadily, some $9,000,000 of of revenue now. We saw some churn in the early part of the year. That's been all replaced and and is back growing, moving towards breakeven, and that's the focus. Some interesting partnerships, one with Microsoft and ChatGPT, that's really to help VoxPop Me generate some better, quicker survey questions for its own clients. And Netasea, again, also growing $6,000,000 or so. Our biggest customer here has just renewed for three years, is a which is a great endorsement of the technology.

18:51 And again, we've been working with the team there's a new chairman in this business as well, which is something we're we're excited about. Verttrade is one of our two mobile games businesses, and again, cards, the universe, and everything, which is the the the first game, is now at 250,000 regular monthly users. And the next question for Verttrade is considering whether or not they they start to build a second game using its card play platform. Number five is MERCIA ASSET and we are in the clinic currently with MERCIA ASSET PARTICIPANT again making progress with other third parties with their own developments as well.

19:45 K. So on to Warwick acoustics. So again, this summer we announced the first OEM nominations. So this is for the company's flat electrostatic speakers. So this is a nomination onto one of the highest spec cars for a 2025 new launch. Actually, just recently, we're optimistic of of of some wider adoption across the range with that OEM. And, we expect revenues to come from mid twenty twenty four when we see some some schedules of of call offs for those products. And, again, what we are hoping for, and optimistic over is second and third nominations with other OEMs coming across 2024.

20:36 So going well is Warwick. As is invincibles, which is a second mobile game, again, Soccer Manager 2024, the latest iteration of that game launched in September, is tracking about 20% up on previous games, which is great. And we look forward to two new games coming out across, hopefully q one and q three of of next year.

21:01 Impression tech, we've already talked about. Then intelligent positioning, again, we are making some improvements to the user interface to to hopefully abate some of the churn, which again we've we've seen in the middle part of the year. We've recently won some new customers and pushing very hard, and I think we'll get there towards breakeven

21:30 in the early part of twenty twenty four. And lastly, the top 10, we've got locate bio, which is orthobiologics, so bone growth area. We have undertaken a pretty comprehensive sheet trial with excellent results out of Australia, excuse me, and are in the process now of organizing first in man trials, we have FDA pathway cleared and ethics approval alongside a funding round which is in progress. Thanks, Mark. Thank you, Julian.

22:15 So we're very fortunate at MERCIA to benefit from diversification on a number of levels. One is that the sectors in which we invest against, so we're not overweight in any one area. One is indeed the strategic assets that we manage, which are debt, private equity, and venture. And the final one is diversification across investor type. We manage retail capital, public sector capital, and institutional capital, which is typically regional pension funds. And looking at retail, that's through enterprise investment scheme, venture capital trust funds. We manage approximately 434,000,000 today, which is just under 5% of the opportunity that that the market our market share is 5% if you like. And looking to the next column, which is potential, our pipeline, our

23:06 near term pipeline, we're looking at a further 90,000,000 to secure into retail. The next area, public sector, we currently manage circa 315,000,000 of funds, regional debt and equity funds. And there's a opportunity mix of over 300,000,000, again, coming in the near to medium term that we would hope to secure some element of. And then finally, across the institutional capital, there's about 180,000,000 across private equity and private debt and property, again,

23:37 which we are looking to secure in the near to medium term. So that's over 500,000,000 on of third party funds on an organic basis that we have sight of going forward, and it is a a a key focus of the executive team at the moment.

23:55 So to why hold a share? Why why invest in MERCIA? I think the the first point here is just the strong liquidity, the strong cash on hand. MERCIA has got 60,000,000 now cash on hand debt free, which is approximately half our market cap today in cash. And then outside of the balance sheet, looking to the third party funds that Julian's just spoken to, approximately sort of 346,000,000 of unrestricted cash across all asset classes in which we manage.

24:24 The 5,000,000 share buyback or up to 5,000,000 share buyback announced today, again, is a positive trend and a demonstration of MERCIA's strong trading performance and cash position. The progressive dividend, our interim dividend being up by 6%, again, was a stated policy that we continue to deliver against. Of our assets under management, about over 85% of those are third party funds. There are other people's money that we are carefully investing and returning cash back from. Importantly, of those third party funds, 100% are closed end. And what we mean by closed end is permanent capital that we've got and we can depend on to support existing portfolio as well as in the current environment, look for value as we make new investments. Those funds are not subject to redemption, and we can forward plan our strategic intent and use of funds.

25:13 Those funds have a blended 2% fee margin across them, which is driving the performance of the profitability of the group.

25:21 And in terms of our performance, our ability to allocate into the funds to distribute into good deals and then bring that capital back again is testament to the fact that we've had 45,000,000 inflows during this period into existing funds.

25:36 And on that basis and on the previous slide that we just showed in terms of pipeline of opportunities in the near term, by near term, mean six to twelve months, we are well placed for third party funds under management expansion on an organic basis. That's circa 500,000,000 on an organic basis. However, with such a strong balance sheet with a direct investment that can turn into cash as is evident for Endreams, we are confident that we could fund accelerated growth through corporate expansion as well as we will evaluate opportunities over time.

26:09 In in addition to that, with the growth of the business at a 140 of us now, as I've said, across 11 offices, we have internal capabilities and competencies where there we have identified adjacent platforms for growth as well where we could look to grow into areas where we can use our existing skill set to do so. In respect of the business across the management team, employees, the board, we collectively own 17% of MERCIA, which shows good strong alignment to the other owners of MERCIA. And the final point I wanted to say here is MERCIA has never been in a stronger financial position than it finds itself in today. We have growth across the group. We have growth in all strategic asset classes we manage. We have sight on strong organic growth in third party funds under management, and we have a stabilized direct investment balance sheet that is delivering cash as is evident from the end rooms.

27:01 So thank you very much for your attention, and and I look forward to answering some of the questions. In fact, we'll endeavor to answer all the questions that have come through. Perfect. Mark, Martin, Julian, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments for you, those questions have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. As you can see, we received a number of questions throughout today's presentation. If I could just hand back to you just to read out the questions and provide responses where it's appropriate to do so, I'll pick up from you at the end. Absolutely. And and what I've done is I've themed these because there are themes as one would expect coming through, and we'll look to pass this to my colleagues of Martin and Julian where appropriate.

27:53 So the the first theme I'll pick up is to do actually with our investment activity, and I assume it's mainly equity, but Martin sits across debt. So I'll also ask Martin in respect of debt too. So in terms of equity,

28:07 Julian, given the current economic climate, have you adapted investment strategies to continue sort of you know, you've picked wisely in your team, but to continue to do that going forwards? Yeah. I think I think, you know, we we we have to be alive to the to the current environment clearly, and and, you know, what we are doing, no surprises here, is is concentrating on our on our existing portfolios, first and foremost, and also concentrating on on planning for and and and arranging the syndications that are required earlier because those are taking longer to put together.

28:54 We we are always looking forward, and and we're we're trying to fund our our businesses into the future. And, again, I think it's fair to say we're looking to extend those runways, and that's that's either by, you know, adding more cash or or or encouraging the companies to be making

29:14 slight changes to their investment models and strategy to to to enable themselves to be looking further into the future. So, you know, perhaps twenty four months of of of runway is is the ideal when we when we put money into into a business. And then, of course, we're we're carefully looking at at some of the the sectors that you would you would expect to be affected, and that's anything that, you know, perhaps involves any consumer spending, but also kinda high high capital requirements, etcetera, which again, we know are gonna take take longer to to raise. So I think those are the salient points there there, Mark, in terms of our our own strategies. And and, Martin, across debt, are are you seeing similar things and approaches within your the portfolio and the debt team?

30:04 Yes. So there's sort of three parts of country really where our debt teams are based. So Yorkshire And The Humber, where we are managing British business bank fund. The level of inquiries there is holding up really well. Average investment size is about £300,000. These are businesses of all shapes and sizes. They've all gotta be profitable because they've all gotta support the loan repayments and the and service the interest. A lot of them will have taken out loans during the COVID period, which now need to be repaid, and so there's some refinances going on. But these are, you know, pretty solid young or mature businesses actually that just want to shore up their balance sheets. And in the Northwest, our team there are more focused on small buyouts, an area where the the main banks have really left the arena. So probably lending up to a £1,000,000 for a small buyout or a small buy in, and their work in progress is particularly strong.

31:03 And then down in The Midlands, FTC, we're just about to celebrate the first anniversary of that acquisition. They are they've done brilliantly, and we're, you know, we're really thrilled that they're part of our group. The the integration went really smoothly. They're a fantastic bunch of people. They're delivering the expected results for us. And also, their whip is holding up quite well in particular. I think the the commercial property space is is holding up well. And yeah. And and they are, you know, optimistic that they will be securing additional fund mandates in the coming six to twelve months. Thank you, Martin. And, Julian, just on the the the theme of investment trends, are you seeing AI featuring more in proposals and opportunities and is that impacting affecting your investment decisions?

31:55 Again, I I think I'll answer that the same way as as as perhaps we have done in the past in that, you know, AI, you know, perhaps used to be called machine learning, very similar sorts of of of technology angle, big data, etcetera, but we're not we're not looking specifically for opportunities that that have AI, but we are certainly encouraging all of our portfolio companies to embrace it. And there's some examples I've already I've already suggested. There's there's VoxPop Me has a a specific partnership with Microsoft to use chat GPT, you know, even on Invincibles, so they are using AI and have done for an awful long time actually to to try and predict the point at which a player of their game actually leaves the game.

32:51 So, you know, that's the optimum time to send an offer or a deal or a reminder. So, you know, we we we are certainly encouraging our portfolio to to use it as as as I think we should. Okay. Thank you. And just keeping the pressure on you, Julie. Mhmm. So we sold Endreams within the balance sheet, and we've often talked about sort of diversification across sectors on the balance sheet. So does the sale of Endreams influence our, I guess, our divestment strategy or our overall portfolio balance strategy in that regard? I don't I don't think it will, Mark, really, because, you know, don't forget, we are we are already diversified by sector and and by stage on our balance sheet.

33:44 And don't forget, we still have an ongoing interest in in in in VR and AR with with our stake in AONIC and that alongside the two games businesses already in our portfolio. So, you know, we're we're we're kind of diversified by by by swapping an interesting investment opportunity with for cash. So I think that's that's that's diversification in in its own right. Okay. Thank you. Now we have, Martin, Julian, a large amount of funds under management. We've got EIS, BCT, regional debt venture. We've got private equity, institutional. So this is quite a difficult question to ask, so appreciate if you can do it succinctly.

34:29 But what flexibility, Martin, in terms of the debt mandates do you have in terms of selecting investments? Are you beholden to the fund providers and you have to choose what they're doing, or can you choose what's the process there? And do you have to get all the money out in a quick concession, or can you keep some of that back, etcetera? Yeah. So, again, let me go through if I may through the the the three regions I talked about. So the the British business mandate is to be predominantly invested in the Yorkshire and the Humber region. It is a ten year mandate, and we're coming to the end of the first five year investment phase. And we have done well in terms of the number of investments and the quantum of investments that we've made throughout the period, and so we will begin the the realization phase for the next five years in the new year.

35:21 In the Northwest, again, where the whip is is strong, our lending criteria goes up to about a million pounds. That that fund is also in its investment phase. It's got about another fifteen months or so to run, and then we'll go into a a a five year realization phase. And so that's at the moment, that's very active. FTC is managing I think it's about nine funds at the moment, and they cover a wide spectrum of lending criteria under their mandate. Some can go national, and some are very much focused on the West Midlands ranging as you as you've seen in the earlier slides from sort of, you know, 2,000,000 to 20,000,000 in stages, particularly on the on the property side. So, yeah, wide wide ranging mandates. Some are evergreen.

36:08 Some are our ten year funds. Yeah. And and, you know, all with as you've seen again in the slides, all with great capacity to to lend, all profitable, and all doing well. I think, you know, I I know, Martin, you sit on the investment committee, but the investment decisions are in house. Yeah. The deals are sourced in house. Yeah. And so it's very much an initiative driven, and we often describe ourselves as an impact investor because what we're doing is we are investing for profitable reasons, but because we're investing across The UK and in the regions, we're seeing as we create jobs. We're investing in businesses that others don't see because they're not based in the regions. So there are whole it it is a broad, and I apologize, a broad sort of question there. But, Julian, same question over to you. You know, what's the level of independence really in terms of funds we manage, and do we have to get all the cash out of door? Are we free to keep hold of that?

37:02 Yeah, so again, it does very much depend, is the answer to that question. So, for example, our regional equity funds, they certainly do have geographic restrictions which we know at the outset. There are some targets that our LP investor, primarily British business bank, want us to to achieve, and that that would be, you know, anything from within certain subregions to some kind of sectors. We also have some restrictions that we that are placed upon us by both our our LPs, but also from from regulatory regimes. For example, in in the VCT and EIS, there's kind of age restrictions and and and sectors that aren't eligible, but but they are relatively small.

37:59 So we are we are normally free. You know, as long as we understand what the LP or or the retail investor actually wants, we are relatively free to go and find the best investment opportunities. And and, again, in in all these funds, we we we do very carefully look at how much capital is is required on day one, but over the life of an asset. And, again, the restrictions that we that we have normally allow us to to be very well prepared for that duration of life of the asset as well. Great. Thank you very much. And these the next few questions are more sort of corporate central focused in that respect. So the first one here, Martin, actually, should we expect a consistent trend in future dividends?

38:48 Yes. And the short answer to that is yes because as we've stated the last few years now, our dividend policy is what we call progressive, which is that we do anticipate growing the dividend year on year rather than it being anchored to some form of profit multiple. Thank you. And another one, I'm afraid to you. That's fine. Is what is what are MERCIA's regulatory capital requirements? Yes. So we have four regulated entities across the group. For three of them, it depends on the the nature of their FCA permissions. For three of them, the the required capital adequacy is is negligible. It's down to the sort of the £5,000 level. For MERCIA fund management, which have different permissions, its regulatory capital is higher, And there, what we have to do is build up over five years to have 25% of our fixed overhead base, so excluding things like bonuses, as as capital.

39:47 And over that five year period, I think we're probably two years into that now, we've got to build up over five years to about £3,000,000. So we have more than enough cash to to hold to meet those capital adequacy requirements. Fabulous. Thank you. So number of questions on the share buyback. So in respect of the fact that we're relatively illiquid shares, we're a small cap business. How long would you anticipate the £5,000,000 share back perhaps taking? Yeah. That's a that's a very good question. So assuming that the full 5,000,000 is is is used to to buy back shares at roughly today's share price. If you assume that to be somewhat constant, then it will be 18,000,000 roughly 18,000,000 shares will be bought back with the £5,000,000.

40:43 And between Canaccord and Singers, they have set to to maintain orderly markets, etcetera, and to stay within the safe harbor provisions of the market abuse regulations. They've set a weekly buyback limit of a million shares. So assuming that there was a demand every week to buy back 18,000,000 shares would be in the region of eighteen weeks. Although, obviously, if the demand is is much lower, it it could go as for as long as up to a year also. Thank you. And considering the strong cash position the three of us have set to date, why why cap it at 5,000,000? Why not do more than 5,000,000? Yeah. It it's always a a balance. If you had sort of, you know, four accountants in a room, you'd probably get five opinions speaking as one. And I think what we do is we start at the end and we work backwards. So we look at all the other requirements in our business over the long term for cash.

41:38 So we've never any intention now coming back to the market to raise more money. So what do we think we need over the next couple of years or so for the balance sheet portfolio? You know, what do we need for dividends? What do we need for deferred consideration? What do we think we need for corporation tax? What might we like to do from an m and a perspective? And then what's left. And it's always a balance, and we felt that £5,000,000 was the right amount. Bear in mind, obviously, also that with the the number of shares in issue and the share price, that we are capped at 10% rightly, we're capped at 10% of our issued share capital anyway, and this buyback of 5,000,000 is is circa 5%. It's circa half of our authority. So in the round, we felt that £5,000,000 was the the right amount. Smashing. Thank you very much. One one question was about the strategic priorities, and I'll I'll pick this up.

42:28 So we we have made historically three acquisitions, and after each acquisition, we've seen organic growth in FUM following that. So very much our AUM is built up partly through acquisition, partly through organic growth. But the central philosophy here is a domestic investor and a domestic impact investor. So the capital that we're managing, I spoke about retail capital as tax efficient capital, EIS and VCT is brought in to address a market failure and hence the tax efficient nature of it. So tax efficient capital is one part of it. The regional pension funds that we manage are very much our regional. They're looking at putting capital to work within the regions, helping businesses grow, creating jobs, etcetera. And then public sector such as British Business Bank, again, are looking to address market failures as they would term it.

43:15 What we've done and built a business and model and systems is that we do that profitably for those investors as well. Our strategic vision is to continue to do that so that we become the first choice for investors, for investees, and for employees so that we can be the impact investor across The UK. And another question that was brought on was FEC. It was FEC just acquired for asset gathering, really, AUM gathering. Well, that fits quite nicely with the strategic question actually, which is they too are an impact investor. They too are managing regional funds, and those regional funds can be pivoted across. So what I mean by that is that you can move those to adjacent asset opportunities because it's about relationships very often with the capital and trust with that capital.

44:01 The cultural fit, their impact investment philosophy, and our strong confidence that, again, we can grow AUM from that acquisition was very much the rationale behind that acquisition. And I believe that is all of the questions answered, I'm hoping anyway. Yep. Perfect. Mark, Martin, Julian, thank you very much for that. I think you've addressed all those questions from investors. And, course, the company will review all the questions submitted today, and we'll publish those responses on the investor meet company platform. But just before redirecting investors to provide you their feedback, which is particularly important to the company, Mark, could I just ask you for a few closing comments? Yeah. Yeah. I've I've one question just flew in, and I think you're only right and proper because we always say we will answer those questions. Talking about the abol the abolition of EIS and VCT.

44:49 Actually, there is no abolition of the EIS and VCT. What was very pleasing in the autumn statement was the sunset clause that basically limits its life, which was due to end next year, has been expect expanded now to 2035. So that's a thoroughly big positive. And what we're seeing in terms of appetite for the tax efficient structures of EIS and VCT, which is what we manage, that appetite has gone up, and we are now one of the, preferred investors across those categories. So we see further growth there. So I just felt it should answer that. And then just bringing that really, and I'm hoping, people who've picked up this central theme today, which is we're in a very good position. We see growth and momentum, across our third party funds in particular and across all investor types. We see continued growth in the profitability of the group and that progressive dividend policy that's associated with. And we are really looking forward to updating all of you at the next at our prelims to reflect on that continuation of profitable growth. So thank you very much for everybody's attention. We really appreciate it, and we really appreciate the questions as well.

45:55 Perfect. And thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of MERCIA ASSET MANAGEMENT PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all.