Mercia Asset Management (LSE:MERC) — Preliminary Results

0:00 Good afternoon, and welcome to the MERCIA ASSET MANAGEMENT PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question that receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Mark Payton, CEO. Good afternoon, sir.

0:31 And thank you, and welcome everybody to MERCIA's preliminary results for the twelve month period to the 03/31/2024. I'm Mark Payton, cofounder and chief executive of MERCIA. Strong background in life sciences and still have life science responsibility on certain portfolio companies. I'm joined today with Martin, Martin Glanfield, MERCIA's CFO. Yes. Good afternoon, everyone. I joined MERCIA almost ten years ago now to float MERCIA with Mark

1:01 when there was just a small handful of us. My background is mainly as a CFO of listed and private equity backed technology led businesses in The UK and The US. Thank you, Martin. Also within the executive team is Julian Biggers, MERCIA's chief investment officer, and recently joining us actually from a successful OXGENE sale a while ago, which is a portfolio company. Joe Bath joins us as chief operating officer.

1:29 So this slide really demonstrates and what we've been referring to the natural evolution of the business is the growth from predominantly the third party funds under management and highlights some really key features of progress made in this twelve month period. Revenue has grown by circa 17.6%. That's up to 30,400,000 compared to this year, this time last year. And alongside that, EBITDA of 5,500,000 is a 6.7% increase again on a year on year comparison.

2:00 The proposed final dividend for this period is naught 0.55p per share, up by nearly 4%. And actually with the cash generative nature of the fund management operation and the successful Endream sale towards the end of the calendar year last year, we have cash on hand at 46,900,000. And, again, that is up from 37,800,000 this period last year, and the group is debt free.

2:25 Assets under management have grown by over 26% to 1,800,000,000, and of that 1,600,000,000 is through managed funds. And that growth has come predominantly through organic growth in terms of funds inflows, nearly 600,000,000 in this period. So a strong period of growth for MERCIA.

2:48 And this period sees the end of what we termed the MERCIA 2020, where this had three key metrics over a three year period, AUM growth by 20% per annum over those three years, PBIT, profit before tax, by 20,000,000 per annum over three years, and then the start of what we call the progressive dividend policy. Looking at AUM, I'm pleased to say that we are at 1,800,000,000, so we we beat our target of 1,600,000,000 for that three year period. Profitable tax, we've arrived at 21,600,000, so fallen short of the original 60,000,000 target, which was predominantly driven by fair value movements, etcetera, from our balance sheet investment activity. But due to the profitable cash generative nature of the business, the progressive dividend has continued from the initial naught 0.8p per share.

3:41 And in terms of the direct investment portfolio over a circa seven year period, you can see the nine exits that have been realized from the balance sheet. If you add those up against investment cost and realizations, we've invested approximately 35,000,000 in those nine assets and realized a 104,000,000 in value, of which over a 100,000,000 is in cash straight back to the balance sheet. That's a three times return on invested capital. So the balance sheet has performed well over that period and importantly has been generating cash back to the business to grow and keep that sustainable growth for the business going forwards. Thank you, Mark. This slide shows our substantial growth in assets under management, revenues, and EBITDA during the last four years.

4:28 And over the four year period, AUM has grown 94% from 940,000,000 to 1,800,000,000.

4:36 Revenue has grown from 19,200,000 to 30,400,000, and EBITDA has grown from 3,300,000 to 5,500,000. It's obviously during a period when we've had both COVID and the prolonged period of significant cost inflation. As you can see on this slide, MERCIA's AUM grew by 27 to 1,800,000,000, and all of this growth this year was organic. There were no redemptions, and the only reduction of any magnitude was the original three year British business bank ten year funds and our small PE fund ending their respective five year investment phases. When this occurs, our revenues become based on the net asset value of each mandate rather than as a percentage of the original mandate size.

5:23 And once again, it's been a very strong year of AUM growth despite the continuing challenges across the wider asset management sector.

5:34 This slide provides more granularity on the makeup of our AUM by asset class, investor type, and fund type. Combined, these typically long dated or evergreen funds are generating a blended fee margin of circa 2%, and this is across what we have now is 61 different investment mandates. And we are increasingly able to equity invest or lend across The UK under the many different fund mandates that we manage.

6:01 As you can also see, we are diversified by investor type and asset class, and 76% of our revenue is contracted and recurring, which is a great comfort to us during these unpredictable times, with the remaining 24% arising as a direct result of our investment deployment.

6:22 This is our income statement in accordance with international financial reporting standards. So you see the revenue increase of 17.6%, but what you don't see here in this format is the EBITDA of 5,500,000, nor do you see the 9,700,000, which is what we call the adjusted operating profit, which is EBITDA plus net finance income.

6:46 Our balance sheet remains extremely strong with a 190,000,000 of net assets. During the year, we invested 19 just over 19,000,000 into the balance sheet portfolio, and we still have at the end of the year significant liquidity with £47,000,000 and no debt. And that is why we're able to propose to shareholders a final dividend of 0.55p, a 4% increase on the prior year.

7:15 MERCIA is about generating cash from its operating activities and not reliant purely on realizations for cash inflows. And as you can see here during the year, our operating activities, our fund management activities generated 7,000,000 of cash inflow. And our investing activities, thanks to the significant disposal of our investment in Endreams, we generated more cash from our investing activities than from investing into the balance sheet portfolio with a net effect of 9,400,000 of cash inflow. In terms of cash outflows in the year, we paid 1,500,000 in deferred consideration to the vendors of FTC, the business we bought just over twelve months ago. And we also, in the period, spent 3,200,000 of the 5,000,000 allocated for the share buyback, which ended in May.

8:02 Thank you, Martin. Over the next section, I'll talk about investment performance of the group, initially through our fund management operation and then laterally into the direct investments.

8:18 Just as a remind those about MERCIA and how we operate, we manage broadly what we call strategic assets within MERCIA Ventures, MERCIA Debt, and MERCIA Private Equity. If you look in MERCIA Ventures, we can invest anything from as little as naught 500,000 up to 10,000,000 on a regional and on a national basis. We exclusively deploy capital within The UK. We deliver that through one of our 11 offices across the country from London all the way to Newcastle. We have 913,000,000 in funds under management within the ventures operation, and importantly, 404,000,000 of which is in unrestricted free cash to invest going forwards. MERCIA debt can invest anything from 200,000 up to 20,000,000, again, on a regional and national basis. 687,000,000 of funds under management within our debt teams, 206 262,000,000 of which is unrestricted and free cash.

9:18 MERCIA private equity, which is a relatively small fund, and as Martin says, gets adjusted into its harvest period on a net asset basis. That's shrunk because it's returned capital back to the limited partners in that fund. That fund is performing very well, and we're in the process of a follow on fund to come after that. And that typically invests anything from 2,000,000 to 10,000,000.

9:42 And then our proprietary capital, I'll come on to in a moment. But if you run through that right bar, the 713,000,000 of unrestricted cash across the group in a 1,800,000,000 asset under management business, we have substantial capital in picking new deals and supporting existing portfolio.

10:01 And then on to our proprietary capital, our direct investment portfolio. On this table is listed the the 20 assets we now hold on the direct investment portfolio with end the NDream sale moving across towards the bottom. So we started the year at a 136,500,000. We invested 19,600,000 across the portfolio. If you remember for those that have been following us, we stopped making new investments this time last year. So this is just exit this is existing portfolio being supported. With the successful sale of Endreams, approximately $2,627,000,000 came back to the balance sheet and a modest stake circa 3,700,000 remains within the acquirer, AONIC, and I'll talk to that in a moment. The fair value movements of that transaction is shown there, the 4,500,000.

10:53 Then with fair value movements upwards and downwards, we have a net provision position of 17,300,000, predominantly driven by the full provision of Impression Technologies. In our first, in our, interims, we reported on a 50% provision against Impression Technologies following an unsuccessful sale of the business. We restarted that. That did not result in a successful sale, and hence, the full provision against that asset. So we close the year with that provision and the full sale of Endreams at a 116,800,000. Now of those 20 holdings, the top 10 account for about 60% by value of the direct investment portfolio.

11:38 And here listed is the top five of those top 10. We have Vox Pop. Me as our number one holding by value, strong revenue growth, strong ARR growth. Business is now at a breakeven position, so it does not require any more support on a capital basis from us, and that business continues to progress well.

11:58 Netasea, which is a bot detection and mitigation platform in a real time basis service side. Again, strong revenue and ARR growth. We have a final plan to get that business to break even and are looking to support that to that case. Warwick Acoustics, a business developing electrostatic flat speakers, both in very high end, high quality headphones as well as now integrated into the automotive sector. Again, continues to perform extremely well. We had a recent funding round into that business with an external investor. Medherin, this is a business in the life science med tech space. It has a significant partnership with Bayer and is developing an in house HRT testosterone patch, which has gone through clinical range finding, dosing, and is now moving into a registration trial in due course.

12:50 And then finally, in the top five, we have avid games with their game, the cards, the the universe, everything. That's a business actually where revenue has plateaued. And because of the softer revenue multiples in the gaming sector, we've actually taken a provision against that business and lowered its value of holdings.

13:12 Then into the next five businesses, we have Invincible Studios, which is Soccer Manager. We've seen revenue continue to grow in that business, but to my point before, due to the softer revenue multiples in the gaming sector, that's taken a modest provision against that holding. Locate Bio, which had a recent and successful fully funded round, is about to enter into the clinic on a BMP scaffold to get bone repair. That business progresses well. That round had a slight up round, and hence, they're right up in that business. IOTO in our first half results because it slipped behind business plan, we had put a provision against that, and we maintain that provision in the full year. Intelligent positioning has now got to a breakeven position, doesn't require further capital from us, and our business benefited from a modest upswing in valuation.

14:02 And finally, AONIC, which is our residual holding from Endreams that was sold to them. This is a business turning over approximately a €100,000,000, making €25,000,000 profit EBITDA, and we have a small small stake in that business, and we expect to realize that in due course.

14:21 Thanks, Mark. In terms of valuation methodology of of private assets, we, like everybody else in the asset management industry, follow what's known as the IPEV guidelines. And in respect of our our balance sheet portfolio, 68% of the portfolio was valued based on the price of a last investment round, and 25% of the portfolio was based on an enterprise value basis.

14:44 We're required to calibrate those principal valuation methodologies, which we always do. And in some cases, we'll use DCF as a secondary calibration mechanism, but we never use DCF as our primary valuation methodology. As you can see in the top circle of this page, we only have one direct investment on the on the public markets, which is my health check on AIM. So we have minimal exposure to the volatile public markets. And when we've been through this exercise, which we do every six months, we still adopt a final hands on heart review, Mark and I and Julian, making sure that we feel comfortable with those final fair values. And in the bottom right hand corner of this chart, you can see that our direct investment portfolio is still quite well spread against against those four investment sectors that we've always focused on.

15:34 Thank you. Thank you, MERCIA.

15:36 So why hold shares in MERCIA? Why invest in MERCIA?

15:41 And I guess it's that classic overnight success that's taken us ten years to build on AIM where we have now a very sustainable, liquid, and profitable cash generative business going forwards. And in terms of the sustainability, this slide brings us somewhat to life. In terms of our third party funds, as I've said already, 1,600,000,000 under management, which has grown year on year by 32%. That has dry powder, so unrestricted cash across it of circa 700,000,000. It in itself has grown 89% year on year. But importantly, if we were to assume, and this will not happen, but if we were to assume we did not raise any new funds for the next three years and we maintain the existing investment rate across our funds in terms of backing new deals and in terms of supporting existing portfolio, we have a three year runway of capital here. So a substantial runway for our managed funds going forwards across the asset classes we manage.

16:35 And then we flow down to the balance sheet portfolio, which you'll you'll see finished on just under a 117,000,000 closing at the year end. We have 47,000,000 at the year end of dry powder of unrestricted cash to invest, and we have modeled the portfolio requirement over the next three years. And it is important to note, as I'm sure many of you would have picked up about our sentiment here about this being a natural evolution for the group, is that we will be now divesting from our direct investments in an orderly fashion over these three years, and we would expect to sell out of most of these businesses within the next three years for most of them. And that actually means that it'll be generating cash, but in the context of just ignoring that and generating cash, they will be consuming 25,000,000. So in other words, we have well in excess capital to support the portfolio over the next three years as well.

17:24 So what we have across the group is substantial unrestricted cash, which means for the next three years, we can support those businesses going forwards. And then in terms of the group net asset value, if you look at the bar chart beyond below it, of that 189,000,000, you can see a substantial amount of that makes up what we call the hard NAV. So cash plus the direct investments, a majority

17:46 of the value of the group NAV. And our investors and our behavior is very much one of a being an impactful and responsible investor, be it through retail, be it through institutional, or British Business Bank. And we operate very clearly against those three metrics that measure that. If it's within the house, as we look at the electric electric vehicle rollout, etcetera, or within our portfolio, we have over 500 companies across debt, private equity, and venture or indeed businesses we bank. And Nova Pangea, which is on the balance sheet and it held across our funds, a business focused on bio aviation, fuel, biochar, etcetera. A business that's generating a lot of attention and interest. Social impact, we'll have invested over this twelve months from our funds, £227,000,000, and 90% of that outside of London. We have a London office, and London is an important area for us to invest in, but a majority of our investment ex expertise and activities outside of London.

18:48 And we backed a 155 companies during the twelve month period and leveraged in alongside that investment activity, 161,000,000 of co investment. And in addition to this, and I'll talk a little bit about real assets in a moment, we have financed 14 projects focused on urban regeneration in opportunities such as Cornerstone, The Hippodrome here in Birmingham, Telegraph Building. As a listed business and a business within the financial services and governance is clearly a very important metric to us, and you can see a number of memberships and agencies that we're a member of in that respect. But I also think it's important that the executives, they are measured and part of the remuneration is against culture and ESG. And importantly, a focus for us over this MERCIA twenty twenty period is to try and get more women into the financial services industry, which is, extensively a male dominated industry. And I'm very pleased to say that 40% of the nonexec directors of this, listed business are women, 39% of the executive committee, 25% of the executive team, and importantly, 41 of the entire MERCIA group are women. So work still to be done, but I think a a real proactive achievement there. And then finally, with forums such as IMC, which are frankly is an excellent forum to reach out to to all of you and for you to reach out to us for your questions, We are actively engaged in retail and in institutional events to ensure that we hear and speak to you directly about the changing approach to the business and understand any comments or concerns that you may well have.

20:20 Differentiated investment strategies and asset classes are at the heart of what MERCIA does, and I've spoken to the strategic asset classes of private venture, debt, and private equity, and, of course, the balance sheet. But since our acquisition, as Martin alluded to over twelve months ago now, Frontier Development Capital, FDC, we've moved increasingly into e what we call intermediary real asset finance, be that, brownfield remediation, regeneration, or social housing, or infrastructure. And this is an area of growth from The Midlands that we see going nationally, and real assets will become an important part that will be very complementary to the strategic asset classes that we manage. You can see the split of AUM across at the top table, and at the lower end of the table, the split of unrestricted cash available across all those asset classes.

21:14 As you would have seen in this morning's announcement, we when we floated on AIM in 2014, we floated as what's called an investing company, and that is because our primary objective in raising the £70,000,000 that we raised back then was to build a balance sheet portfolio, and therefore, we were classified as an investing company. And you can see there that post IPO, the net assets were 81,000,000, and the funds under management were only 23,000,000. If you roll the clock to today, you can see how our funds under management now dominate our balance sheet net assets. And therefore, over time, we've really become much more of a trading company than an investing company. And to move to trading company status, we need to seek shareholder approval for that move under the AIM rules, and therefore, a resolution will be proposed at the September AGM to to do just that.

22:09 Thank you. As you will have seen before, if you've watched this webinar before, we have, for a named company, a fantastic blue chip shareholder base that any main market listed company would be really proud to have. And I'm pleased to say that we've had a very stable shareholder base throughout the year, as you can see here on this slide. Thank you, MERCIA. So just in conclusion, we have always had, and many of will be familiar with this, a single vision within MERCIA, which is to be the first choice for investors, investees, and our team, our employees. And these results, which are our strongest as yet, particularly around the fund management operation, demonstrate the delivery against this vision with a record year of organic fund inflows of 562,000,000.

23:03 Liquidity strong liquidity, which is critical in this environment of 46,900,000 on the balance sheet, but over 600,000,000 in our funds. And I think that sort of $66.06 in the funds is really important because what we're seeing at the moment in the current environment of decreasing liquidity is increasing quality and quantity of deal originations across all of what we do. So that is helping us pick bigger and better opportunities as we face forwards. The business performance means we can continue to deliver against this progressive dividend policy with a proposed final dividend up circa 4%. We benefit from a blended 2% fee margin, and I think the outlook for what we are terming MERCIA '27, so our next three year strategic plan, which is 100% growth in EBITDA over those three years and to take AUM up to 3,000,000,000, is very positive.

23:58 We are targeting for this financial year 10% organic inflows of new funds under management. We're building systems to help scalable, efficient approaches as we build our AUM under management. Real assets and associated adjacent asset classes have been mapped out, and we will look to grow in that area. To put that into context, we are currently looking for a head of institutional distribution to join us. We have retail distribution as an internal engine. We're wanting to replicate that now for institutional distribution. We have full and strong alignment across the group with employees, with the management team, and the board, with the rest of our shareholders as we own 17% collectively, and we're in a very strong financial position. We're very well set up to go forwards in terms of our unrestricted cash across the group, and I think importantly tailwinds for a change because we've had years, frankly, of headwinds. Any leadership team, I'm sure, would say that. But we see now tailwinds facing forwards as the group's prospects continue to improve.

24:59 Thank you very much for your attention. Mark Martin, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions just by the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a 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 have received a number of questions throughout today's presentation. I please ask you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Forgive me while I just note down these. We're very keen to answer all the questions, but I've tried to theme them. What I'm gonna do okay. So so I think the first theme is really around the balance sheet investments in their first place. There's a theme about the change of status to from investment company, Martin, to trading, which we'll cover off as well.

25:58 And then there's a theme around about sustainable funds inflow for the business as it grows. So I think on the direct investments, there's an important point here, which is what about those existing direct investments? Well, what we're not proposing at all here is to abandon those direct investments. We strongly and firmly believe in those 20 businesses, and we believe that within the next three years, a majority of those businesses will naturally evolve through to an exit. We will continue to support those businesses and have mapped out their capital needs. This is that 25,000,000 approach over three years. A number of those businesses now trade on a breakeven basis and and are profitable and don't require further support. But we will be supporting those businesses through to an exit. What we are not doing is adding any new businesses to that. This is now about our focus and intention on our third party funds under management.

26:55 I think another theme, Martin, is to do with the change of status from investment company to trading company. Yeah. Yes. And I'm happy to go into a little more detail on that. So and forgive me if this gets too too boring, but for every company that floats on the stock market, you have to when you're raising money, have to explain to your potential shareholders what you're going to do with that money. And AIM classifies companies into these two categories, either you're an investment company, which tends to suggest a passive type company maybe in real estate management or or a quoted asset management or a trading company, typically, let's say, a retail company or a manufacturing business or something like that. And I guess we sort of fell in between really because we were gonna be proactive in investing, but nevertheless, we were gonna take in balance sheet money and put that into assets. So we were categorized as an investing company.

27:42 What that does mean is that when you invest into balance sheet companies from your cash, as an investing company, you do not have to run that transaction through what's called the class tests. Whereas if you were a trading company, you would have to run each balance sheet investment transaction through the class test. So over the last nine years or so, every time we've made a balance sheet investment, we haven't had to run the class test, and we've just been able to make our investments based on the criteria which is set by our board. So moving to a trading company status, if approved by our shareholders, the only sort of slight additional administrative burden will be that we will need to run a class test on every £250,000 or £500,000 investment that we make into the existing portfolio, which is no burden whatsoever.

28:30 As you may also know, although I'd like to emphasize at this point, we are not giving any tax advice whatsoever, but as many of you may also know that trading companies on AIM, typically, their shares are IHT relief. They they attract IHT relief in the event of a shareholder passing away and their estate moving on to their descendants. And so it may well be in the future depending upon the incoming government and future budgets that the IHT relief is maintained. MERCIA shares may well, as a trading company, well, may well then attract IHT relief. As it happens, some years ago, we did receive tax advice that, in fact, MERCIA as a trading company, albeit categorized as an investing company, its shares may well already attract IHT relief, but HMRC won't opine on that matter until a MERCIA shareholder dies. And what we've Mark and I have never wished to do is try and make contact with any the the estate of any deceased shareholder.

29:31 So we've never, to our knowledge, been able to test that, but we do but we do believe that this transition, should IHT relief still apply to AIM companies in due course, will apply to MERCIA's shares. So I hope that provides a fuller explanation of the rationale. Thank you. An additional question while I've got you in that case, is there's been a question about the long term outlook for the dividend growth and capital return to shareholders. Yes. And we describe it as progressive because, again, some of you will have heard me say in the past, we don't want to be anchored to any particular performance metric, be it sort of a dividend cover based around profits or EBITDA or operating profit and so on because of the nature of our business, which does as you've seen in this year's numbers fluctuate.

30:17 Some years, we'll have a really good realized gain, a really good cash inflow, and other years, we may not. So we would rather, as we've described it, as a progressive dividend, seek to increase the dividend at a reasonable rate year on year, and it is our intention to continue to do that. In terms of other mechanisms for returns to shareholders, you'll have seen that we did undertake a £5,000,000 share buyback over the last few months. And whilst we've no current intention of undertaking another one, it's not something that we would ever rule out again in the future because striking that balance between using our cash proceeds from realized gains and and trading cash flow, striking that balance between using it to accelerate the growth of the business through, say, m and a versus returns to shareholders is a balance that we we keep under under review.

31:07 Fabulous. Thank you. And the next few questions I'll I'll I'll take, and these are in no order because they're discrete questions. One of them was asked the house perspective on life science and life science investments. I think that's a that's a critical question actually in the current environment where there is we've always a number of you know, we've always tried to shy away from capital intensive businesses because when such an environment as we are in today, you what what materializes is syndication risk. In other words, other investors' appetite to do new deals as following investments. And if they don't do them, you're left actually with the burden of that capital intensive business. So our life science businesses within our portfolio actually have quite modest capital needs, the locate buyers, the med herits, etcetera we see. We are definitely seeing a decrease in appetite for the more deeper capital intensive businesses.

31:58 And I think until public markets open up for those sorts of businesses, that will continue to be a challenge. So that doesn't impact us. It just reinforces, I'm afraid, our philosophy about not getting into these capital intensive businesses in the first point. The other question was about realized proceeds from the balance sheet direct investments. What will we do with that? Will they go out through dividends? Will they go out through buybacks, etcetera? We have, you know, coincidentally, almost every three years, acquired a business as and then looked for organic growth from that business. And to put that into context, our first one that we acquired, which was Enterprise Ventures, we got the first generation of regional funds that came after that acquisition, and the recent good news is the second generation of regional funds that come after that after that acquisition. So we will be looking at acquisition opportunities. There's not one under consideration at the moment, but we will be looking for that. And in the near term, we believe we can finance that with our own capital reserves and say very much on the theme of sustainable business in that respect.

33:01 There was a question on regional focus and whether we would reinforce that and deliver capital to regional SMEs, etcetera. Very much in our DNA, that. We break The UK down into sectors and into regions. As I said, we do deals in London. We do deals in Cambridge. We do deals in Oxford, but actually a lion's share of what we do. So 85% of what we do is outside of that triangle of Oxford, Cambridge, London, and we have 11 offices across The UK regions. And what that means is that we have the capacity and capability as we scale strategic assets in particular, but also real assets coming through. We have the feet on the ground to do that already. So so that will give us and provide us over the three year period a degree of operational leverage. Another question which was asked, Martin, was the mercy of 2027.

33:49 So we've set set out a a 3,000,000,000 target in terms of FUM, and we've set out a 100% EBITDA focus in that regard. And what are the key metrics we should be what shareholders or what others should be looking to follow as that journey unwinds? Yeah. That's a good question. And I think that the obvious one perhaps is EBITDA margin. I think what we really want to do is we scale continue to scale the the assets under management is to really focus on the efficiency that this the the increasing scale will bring us, and therefore, we'd hope to see and we intend to to drive growth in our EBITDA margin over time as well. Thank you, Martin. Another question talks to what is I mean, it is a substantial year for us in terms of the organic fund inflows from institutional funds, from the BBB funds, and from our retail. So across all the three pools of capital that we manage, it's been a substantial year for us. It's not a one off, but we it will be not replicated next year.

34:51 So so that's why the 10% are not a more aggressive burden on that. And what drives the 10% is retail activity and institutional activity in the early days. Now as we move into real assets and as we build an internal institutional distribution team, we would expect that, of course, to greatly scale. But in this year, as we're going through the building process of that, it's a 10% target inflows, and that's really what's driving that. And there's a question just come in, Mark, actually on that. And why which is why 10 why are you targeting 10%? And although one can never be certain when it comes to fundraising, we do have a pipeline of organic fundraising activities for the current financial year. I think just finally closing out, and this is a this is a kindly framed question, so thank you. Now how do you plan to sustain and build upon the record growth in the coming years?

35:41 And that's through specialism. So so really what we're doing what we're saying there is we've grown now to a capability where we have where we are looking at specialized units. So we almost have a mechanism and machine. So deal origination is working extremely well. We're seeing great investment prospects coming through to the group. Retail distribution is working really, really well. We've had record EIS and VCT fundraisers for the year. Institutional distribution is new to us. It's something that a number of people have done almost as a second job. We're looking at that being a centralized function to do that and go forwards. We have inbound interest for capital, which is frankly the first time I've ever had that. So we have been chasing money rather than money chasing us, and we feel very, very well placed with things like the mansion has compact, which is really helping.

36:28 And for us, this is predominantly local government pension schemes, but really helping capital think about how do you deploy regionally and domestically capital through the through the regions, through houses such as MERCIA. And that is an exciting time for that we find ourselves in. So that is the sustainable element element here as we've built the infrastructure, we've built the track record of delivery, we're building the distribution teams, and we expect that to generate a sustainable high growth business going forwards. Mark Martin, thank you for answering all these questions you have from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to yourself and the company, Mark, could I please just ask you for a few closing comments?

37:16 Thank you. And and to that point, we do welcome feedback. We we are trying to grow a valuable business with impact meaning across The UK and the regions and listening to our all our shareholders, their comments, concerns, etcetera are very important to us. I hope you agree with both Martin and I that what we have is the start of something that is building momentum at the moment. There are now tailwinds behind us. We have a very strong financial position, strong unrestricted cash as well, and actually a compelling balance sheet that will help us fund our next growth and generation. So thank you very much for your support and for your time today. Mark, Martin, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations?

38:03 This may only take a few moments to complete, and I'm sure will 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.