Mercia Asset Management (LSE:MERC) — Final Results for the Year Ending 31 March 2021

0:01 Good afternoon, ladies and gentlemen, and welcome to the MERCIA ASSET MANAGEMENT PLC FINAL RESULTS INVESTOR PRESENTATION. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please just simply type in your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your investment company dashboard, and we'll send you an email to notify

0:31 you when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll, if you could give that your kind attention, we would be most grateful. And I'd now like to hand over to Mark Payton, CEO from MERCIA ASSET MANAGEMENT. Good afternoon to you, Mark. Thank you, Mark, and good afternoon, everybody, and welcome to MERCIA's 2021 preliminary results. For those that, we have not met before, my name is Mark Payton, chief executive for MERCIA, cofounder of MERCIA back in 2010. Twenty years of experience in predominantly life science, commercialization, and investing. Also, supported Nature Management Company, made the first investment in GruDAT as well as OXGEMENT.

1:20 On my right is Martin Glanfield, MERCIA's chief financial officer. Yeah. Good afternoon, everyone. I joined MERCIA just over just under seven

1:28 years ago to actually help Mark float MERCIA, and my background is is the CFO of technology enabled public and privately owned businesses. Julian. Yeah. Good afternoon, everyone. I'm Julian Biggers, chief investment officer. I've been a fund manager across MERCIA's venture funds for the last fifteen years or so. In that time, overseeing many IPOs and trade sales, including

1:52 software business Blue Prism, where we were the first investors back in 2004, investing a million pounds, and ultimately returning a total of 95,000,000 in returns, as we sold, that asset down, post its aim listing. Thank you. To slide four, nicely really summarizes what has been a strong and positive year for us in this reporting period with MERCIA ASSET MANAGEMENT rising from 800,000,000 to 940,000,000, so that's 18% rise over the period. Adjusted operating profit at 3,300,000, and I should just point out that that excludes performance fees, realized gains, and fair value movements on the balance sheet.

2:41 In terms of realized gains, we've seen 20,300,000.

2:45 That's up from nothing last year. And in terms of our direct investments fair value movements, it's been a positive 10,100,000 versus a negative 15,800,000 loss last year. Liquidity is very important for any investor in the market. £314,000,000 in unrestricted free cash across the group is an exceptional place to be in terms of making new investments as well as supporting existing portfolio. And that's broken down into 259,000,000 across our third party managed funds and nearly £55,000,000 cash on hand on our own balance sheet, and there is no debt in the group. And in terms of that no debt in the group, the business has traded extremely well during during this difficult period. We've made no, redundancies, no use of furlough, no use of CBILs either, and the business has continued to deliver.

3:36 And against that, concept is the fact that we had three three year strategic objectives set two years ago in 2019, all of which have now been achieved ahead of schedule a year ahead. That was to grow assets under management from 500,000,000 to 1,000,000,000, move the group from loss making to a sustainable profitable position, and to evergreen the balance sheet. And by evergreen the balance sheet, what we mean there is, investment realizations, cash realizations from balance sheet activity exceed exceed our run rate in terms of, investment activity. ESG is something we often hear about in the press. It's something that's at the heart of everything that MERCIA does into including our investment philosophy as a regional investor with the mantra of responsible employer, responsible investor. ESG is an important part of our operation.

4:24 And it's pleasing also to report that we started our initial maiden dividend at our interims 0.1p per share. We're upping that at our prelims to 0.3p per share. So that's 0.4p per share over this reported period.

4:44 And in effect, what MERCIA does is is three particular areas that we focus on, find value, add value, extract value. Find value, we're a regional investor embedded in the regions across the country. We've seen something like just under 3,000 inquiries. And importantly, of the 170 plus companies we've backed in this twelve month period, over 70 of those were brand new to us. And that's important as we continue to build momentum across the group by growing the portfolio, and the portfolio is in excess of 400 companies now across the group. Add value is what we do in terms of being a proactive investor. We're over a 100 employees now, strength in, sector disciplines, etcetera, but also centralized resources. We, do searches for c suite, for senior managers, non exec directors, and chair through a team internally, and that is at MERCIA's cost, not the portfolio cost as we look to grow those businesses. And back to making those new investments this year across the regions, our investment activity has created 467 new jobs across the regions, which I think is a a great place to be when it's such a difficult trading period for many.

5:49 We've seen 10 profitable exits. So in terms of extract value, we're continuing to do that. 10 profitable exits across the group. That's up from five last year, and that momentum continues into this year. Just to remind you what the addressable market is that we are looking to to, to to exploit and grow, it's the small to medium sized enterprises. These are businesses that typically are employing less than 250 people. When we're investing, usually, it's somewhere between five and fifty people at our initial investment. They're predominantly private businesses, and we're investing anything from £300,000 up to collectively across the funds and balance sheet to 10,000,000. And these are into businesses that typically lead less than 20,000,000 in their total finance. And the the reason why that's quite important is that when we come to sell these businesses or list these businesses, they are at enterprise values of somewhere between 20,000,000 and 200,000,000.

6:43 And, actually, if you look at those 10 profit exits that we've made, they fit within that range. In terms of market penetration so far, we've taken about 3% of the regional equity market, point 3% of the debt market. So plenty more to go off to so we remain focused on the regions and on The UK.

7:08 The model that we're operating is a hybrid investment model, third party funds combined with proprietary capital. Majority, over 700,000,000 of our assets under management are in our third party funds. These support businesses across private equity, debt, and venture capital. Our proprietary capital then co invest with these funds or invest in portfolio emerging from these funds. And just to repeat what I just said, there's over 400 companies across the portfolio, approximately 23 on our balance sheet. So a very selective approach in terms of balance sheet capital work. The other point of the balance sheet proprietary capital is selectively we're a limited partner in LP in a number of the funds that we manage. That's important when we're trying to grow places where we are doing well or looking into new regions that we want to exploit in terms of our early stage funds. And, of course, the other function of our proprietary capital is that of being used for acquisitions as we look to grow ourselves beyond organic,

8:05 which takes us nicely onto the next slide that just shows our own growth. Our portfolio performing well and growing well, and we would argue so are we. And this is from our IPO through to this financial year and our declaration of our our initial dividend. And you see on every metric, our growth during that period, that six year period, has been, I think, quite admirable in terms of turnover. It's gone from 500,000 to over 19,000,000. Assets under management from 100,000,000 to 940,000,000. Free cash, for instance, 53,000,000 up to 314. Strong growth driven by organic growth in terms of fundraising, but also through acquisitions. In 2016, acquired Enterprise Ventures. And in 2019, we acquired the fund management contracts of the Northern BCTs from MBM.

8:56 And to reflect the maturity of MERCIA ASSET growth, it too has a mature share register, a very broad share register, a deep share register, and one that's there to support our own growth as we go forward. You'll notice that there's a lack of concentration in any one institutional holding, and the largest actually is that of the board management and employees group together with a 17% ownership, of the business. And that, I think, prevents very presents very strong alignment with our other owners of MERCIA.

9:29 So we've achieved our three year strategic objectives a year ahead of plan. And so management team and the board met, and we we try to work out what is an ambitious hurdle for us to head for for the next three years. And this is where the MERCIA 2020 vision has come from. And by this, what we mean is 20% growth in AUM year on year over a three year period on average and a 20,000,000 pretax profit year on year for three years again on average. And the reason why I stress average is

10:00 on the one side, we've got a very profitable fund management business that's contributing towards, in fact, delivering the progressive dividend policy that we have developed and are growing. Then on the other side, it's really the balance sheet activity through realized gains and fair value movements, which provides, I guess, what one would describe as, you know, super profits for the group. And that is less dependable in terms of, occurrence, but we would expect over a three year period to be meeting and beating that 20,000,000 per annum pretax profit.

10:33 Thank you. MERCIA. Mark, thank you. Notwithstanding the challenging year that it's been for everybody, I'm pleased to say that MERCIA has come through unscathed, and these results reflect that fact. And it's also, I think, worth noting that throughout the entire year, almost all of our staff have been working remotely. So these results are a great tribute to their efforts as well. As you can see, we've increased revenues by just over 50% during the year, and that's quite good news, not least because our operating costs have only increased by 28%. So notwithstanding lockdown, the benefits of operating leverage have still been invisible. As Mark mentioned, we we achieved our adjusted operating profits of 3,300,000, again, a significant increase on the prior year, but that excludes the net performance fees we've also received at 3,800,000.

11:27 And those fees have come from the strong performances of both the VCTs and also, for the first time, our EIS funds. Those profits and fees plus the realized gains and fair value movements have resulted in profit after tax of 34,500,000, which is some 52,000,000, believe it or not, better than the prior year 17,500,000 loss, which, of course, was eight days into the pandemic. These encouraging income statement performance leads to net assets increasing significantly to 176,000,000 from 141.5 at the prior year end. And as a result, I'm pleased to say that our net assets per share significantly recovered to 40p from 32.1p this time last year.

12:13 And, again, as Marcus mentioned, we're very we have very strong liquidity on our balance sheet now for investment and other corporate purposes. And, again, with our strong cash generation, we are able to recommend to shareholders a final proposed dividend of 0.3p per share. This next slide summarizes the movement in our assets under management from the beginning to the end of the year. And what you can clearly see here in the performance column is the very strong recovery in the values of our portfolio led by our three excellently performing VCCs. And that's taken us 18% up to 940,000,000,000, just under the billion target we sort of set two years ago.

13:04 The next slide presents the income statement under IFRS, International Financial Reporting Standards. And so, therefore, the revenue number here is higher than the 19,200,000. That, of course, is because the the gross performance fees are included in this top line. But the rest of the numbers, hopefully, in that table should be familiar to you. And at the bottom, as you can see, is the 34,500,000 post tax profit. We are we continue to be nontax paying, and we continue to have tax tax losses, firstly.

13:38 Our very strong balance sheet now is dominated by the the portfolio of the investments, notwithstanding the four exits that we've had in the year at just over 96,000,000, and, of course, also the very strong cash balance as well.

13:55 And in our cash flow statement, you can see the top line there. We do generate cash as a trading business. We're not just reliant upon our trade exit, to generate cash. Thank you. Okay. Thank you, Martin.

14:14 So my first slide really shows, how and where we invested 95,000,000 across the year. Also shows the split of our 940,000,000 of assets under management and the significant liquidity that that Mark was talking about. So we have talked before about the importance of investing, through the cycles, and we did that last year, investing in 76 new companies, a 173 in total. Many of those new ones were in our debt division where we achieved, seagulls accreditation, during the summer period, but also 26 new venture deals. And we worked really hard, on the origination piece again during last year. A lot of efforts around our digital engagement platforms, webinars, outreach, meet the funder type events,

15:06 and that's really enabled those those new deals. So into our private equity division, we really focused on our portfolio. In the period, the start of the year, we saw increasing activity, and we're we're now in a position where we are close to completing a couple of new deals in that division. And I guess to finish on this slide, I'm really pleased with the significant liquidity that we have, and and that will enable us to continue to make good investments going forward. So this next slide shows the geographic split of those a 173 investments that we made.

15:51 As you can see, a widespread across The UK regions, but concentration in MERCIA's heartland, which is the Midlands and the North Of England. And the the spike or the larger bar, Yorkshire And Humber, does reflect those, contribution from our our debt deals that we've, we've done. So last year was a was a really successful year for exits. So 10 profitable exits across the group, as Marcus said, compared to five in the previous year. Those exits returned over 100,000,000 back to our investors. 37 of that came back to our balance sheet. Now clearly, successful realizations are key to our business, but that's by no means the whole story. So as Mark has already said, we we do need to buy well, hence, the focus on origination, and manage well as well.

16:50 And the assets on the left hand side, here were all very early stage investments or indeed start ups when we first invested. We've helped with advice

17:04 around strategy inputs, on recruitment and shaping those businesses along the way and indeed help at the point of exit itself. The right hand side shows the great year that our VCTs have had. Standout performance there is is from Agilitas, which was sold at to private equity,

17:29 given an eight times return. But those realizations have continued, this quarter as well, and the largest being, Music Magpie, which listed on AIM in April at 12 times cost. And our VCTs sold half the stake. They're returning a further 25 or so million back on that one as well.

18:01 K. The next slide, shows the summary performance across our equity classes. And just to bear in mind, we operate, some 40 funds, various ages, various sizes, remits, and geographies. And we use TBPI as a measure. And you can see we're showing some good performance here. We expect these percentage numbers to increase over time, acknowledging also that the newer funds, we expect, these numbers to be,

18:30 lower, and below cost in the early early periods given the, the fee drag and and and the effects of the of the j curve. Also to note, our retail funds, our AIS funds, the figures quoted here, do ignore the the the substantial tax benefits as well available to to the investors.

18:53 In terms of ECTs, again, we're showing some some really top top top quartile performance here. Total returns include cumulative dividends to date. And I guess I guess the really interesting thing is is is the is the NAV growth scene. So we we we're showing some really strong performance over twelve months. But also, I guess, representative is is the twenty four month numbers which are showing 13 to 16% increase, I guess, before and around the pandemic.

19:37 The next slide, we are into our proprietary capital, so our balance sheet. So 23 direct investments now and two new added in the year. As Mark said, we have had four exits 37,000,000 of cash generated from those exits, providing 20,000,000 of of of gains. And our property capital is currently delivering

20:02 an IRR of close to 15%. That's measured on a portfolio basis. And again, that's through our continued investing activity in those areas that we that we have always invested in. So in terms of investment focus, clearly, we'll we'll continue to to support our portfolio. We've we've got some really exciting assets in there, that are maturing well. We also have the fire the firepower now to add, new deals, with some 400 to select from, and we're carefully monitoring a number of those with some some logos down below, and those kind of are from software in in Timberly to from deep tech, troublesonics, and and life sciences with with new cells.

21:02 Now we're already an an LP investor in our current funds. We'll also look to to seed new funds as we grow our funds under management. And we're also seeing some some opportunities to provide that total capital solution alongside our funds to to provide some cash out, possibly to, exited founders or indeed, existing managers in deals. And and and this is quite interesting for us because many many funds, just can't do this.

21:42 So these are, three profitable, exits from our balance sheet last year. Now these all three of these are are different.

21:51 There were, strategic acquisitions for, for the buyers. So MERCIA ASSET MANAGEMENT PLC was sold in the middle of two two thousand twenty, clear review in the autumn, and then, our largest exit to date in the spring where we sold OXGEMENT to to WuXi in in a just under a £100,000,000 deal for, a figure that represented, something like 16 times revenue on that business. So all three sales above carrying value, and at significant multiples for both the funds, and our balance sheet. K. So this slide really does show in numbers the the the story, of the year.

22:42 So on the left hand side, starting with a portfolio value of 88,000,000 which we added a further 15 of of of new investments. Next two columns show the 37,000,000 of of cash returns and and the p and l effects of that. Together, those two columns, mean that 17,000,000 of of forward value has been effectively removed from the portfolio.

23:15 The next column is is our fair value uplift, so £10,000,000 of of of movements there, and and you'll see the the largest movements really across six assets. Those movements are reflective of third party indicators of value and clearly of of the progress made across a number of those assets. Compression Tech, also, we we did purchase a a co investor share at a at a at a favorable price. And My Health Check, which is a, an aim listed business, share price has recovered from, sub 1 p to, over $4.04 pence at the end of the, the period, and that's really changing, widening the focus of that business and also reflecting some management changes.

24:06 And that leaves us with a portfolio of 96,000,000 at the period end. K. So a little, deeper look at our top 10, holdings.

24:20 So, so just to recall, we we do look to build our stake over time, so some some substantial holdings there. We do look also to take, board seats across these assets. And and the main message here is that there's been some some significant progress to call to call sorry, across all of these assets. And that's measured in terms of growth in revenues, new license deals, partnership deals in the case of

24:52 ImpressionTech and and MERCIA ASSET MANAGEMENT. Just to spend a little bit more time on on our largest asset, which is Endreams. So some some very strong revenue growth, and and this is our VR games developer. So the revenues have have not just been from, work for hire, contracts, significant, increasing amount of of actual games revenues.

25:19 We are now selling above a 100,000 units, of two games, shooty fruity, and phantom both on on quest. The quest headset company's next game, which is called, Fracs, is is due out, in August, and that's on, Sony's, PSVR console. So, also, just to note, in the year we signed our first third party sorry, our first third party publishing deal. This is where we've partnered with an indie developer of games,

26:02 and we will publish that game, in return for a revenue share, as it's launched. So just to, touch on a couple of others in Technica, which is our ecommerce efficiency and security business. Some very strong growth in the consultancy part of that business, up to now 10,000,000 of revenues. And Netafia, the the bot management side, again, has been very well. 3,500,000 or so of of, dollars of of ARR and some exciting, new customers added. Boxpop. Me, our video analytics business is growing strongly. It is now, also interestingly, resigning customers that churned during last year, and it's doing very well.

26:49 Impression Tech, is is an asset looking at the automotive sector, so lightweighting of aluminum. Again, now has four licenses covering US, China, and Europe, and seen seen some significant, inbound interest from, OEMs. MERCIA ASSET PLC is doing very well as well. New new pharma deals across across the period. K. So the second part of our top 10. So for Adyen is our sodium ion battery play. And, again, the progress really is is is significant here.

27:34 So some some technical progress made where energy density and cycle life is is now very comparable to to other technologies, but more importantly, it's now into revenues and shipping shipping battery packs. So, you know, huge market opportunity here, and we're happy with the progress. Intelligence, positioning, again, is is an asset where we did take an impairment in the first part of last year as we saw some churn. That that thankfully has has now stopped, and we're back into growth. My Health checked. Excuse me. I've already just touched on that. But over the course of of of the last year and into this year, they've made two acquisitions and really changed the focus of that business to be, helping you take control of your own health, And we've now stepped off the board of of that business.

28:34 Warwick, acoustics is is again seeing some some some deeper and wider OEM engagements. The existing OEM relationship is is is really looking for, weight saving in in in the cars of the future, range extensions, and for sound quality of its of its speaker systems. Last but not least, Soccer Manager, which is another games business, seeing some strong growth. And we have the launch of the 2022 game coming up in in September. And, again, we've we've we're hoping for some some incremental growth again given some further licenses that we've, in the process of securing for that business.

29:24 Thanks, Mark. Thank you, Julian. The next slide quite rightly says responsible employer, responsible investor. MERCIA is a services business, a people business, and we are dependent on a high quality team here operating at MERCIA, about a 100 people across eight regional offices here. And because of that, we look towards things that focuses and aligns their activities and also retains these good people as we start to develop them and train them within MERCIA. We have a dedicated ESG team. We have had for some time, and that has representations from all parts of the group led by Jill, Jill Williams, and that group report from to myself. And that group is guided by the UN principles of responsible investing.

30:10 There are a number of facets to that. But the important focus for this particular year is one of diversity, both within MERCIA and within our portfolio. And just building that out, looking at our entire staff, 36% of our staff, 17% of our investment team, and 40% of our board are are women, which, it for the financial services is good, but personally, I think needs work to be done, and that is a a strong focus in one aspect of diversity. There are other aspects of what we're doing here in terms of further developing the team as we continue to grow the business. We have thing called MERCIA ASSET MANAGEMENT That's where we're dedicating our own time towards initiatives such as cancer research and I think called the skills builders partnership where we work with schools and helping them understand financial PLC. Discipline, etcetera, and what it means if you were to start your own business, for instance.

30:58 Other things that we're doing like MERCIA Knowledge and and MERCIA ASSET MERCIA Knowledge is connecting up the various databases, that we have within the business and AI systems within the business, connecting those up and joining those across the group so everyone can input and access that information. The MERCIA Academy is a training system supporting our staff develop as we continue to grow as well. And in in conclusion, just to summarize these results, we've had a very strong year, but this is very much the sort of, you know, as I've heard Martin say to me, the end of the beginning, but the beginning of much, much more. And there's more to come from this group. The strategic targets that we we we selected back in 2019 have been met a year ahead of plan, and we've withdraw we've withdrawn now to the MERCIA 2020 vision.

31:51 And there's a couple of questions on that that we'll talk to in a moment. The fee income of the business, the fund management business, I think, is is important to dwell on. 85% of that is contracted and recurring. So it's alongside of future income, and that underpins our progressive dividend policy. And that that's that's important because a number of our funds are either evergreen or long dated, you know, ten, twelve year funds. So that fee income goes out many, many years. Assets under management growing, 940,000,000 up from 800,000,000, growing predominantly on an organic basis in that period. And a lot of free cash across the group, but not too much. That reflects the opportunities, the investment prospects we've got, as well as the existing portfolio as we look to grow our presence, grow our portfolio size, and grow our portfolio value.

32:38 In respect to the direct investment portfolio, that is maturing, starting to deliver exits, three profitable exits, from from the balance sheet, 10 across the group in this period, and we expect that to continue. And that all underpins our, firm belief in the business and our statement in terms of taking the interim dividend point 1p up to the prelims level of 0.3p per share to a total 0.4p per share for the year. Thank you very much for your attention. That's brilliant. Mark, Julian, Martin, thank you very much indeed for updating investors, this afternoon. Ladies and gentlemen, please do continue to submit your questions using the q and a tab situated on the right hand corner of your screen. I I just want the company to take a few moments to review those questions submitted already. 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 Meet company dashboard.

33:32 I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations. Mark, Julian, Martin, if I could ask you just to have a look at the Q and A tab, you'll see there's a number of questions that have come in. If I could just hand back to you and ask you to read out the question if if you'd be so kind and give a response, where it's appropriate, and I'll pick up from you at the end. Brilliant. Thank you very much, Mark. And and, everybody, what I've done is I've just grouped them together, and then I'll pass them amongst, Julian, Martin, and myself to answer that. There was one question we received in in respect of whether or not we had a regret in terms of the NAV impact on the VCT fund management contract acquisition. I'd just like to pass that over to Martin, actually.

34:21 Yes. Thanks, Mark. I thought I'd perhaps provide some comparable facts between where we were before the placing and the acquisition in December 19 and and where we are today. So if we go back not that long ago, you'll some of you may recall that the share register and the dominance on the share register of one or two institutions, and we only had a free float back then of of 28%. And you'll see today that free float is at 69%. Back then, NAV per share was at 42.3p, and today we're at 40. So we are within fitting distance of getting back to to where we were from a NAV per share basis. However, if one then looks at other metrics, performance metrics since then, obviously, we weren't profitable back in December 2019.

35:13 We were on a run rate of of losing a million pounds a year, what we used to call net expenses, whereas of course now, we've declared adjusted operating profit of 3,300,000. And because we were not profitable at the at the adjusted operating profit line, we were not dividend paying either. But now, of course, we're able to recommend the payment of not just the instrument, but also a final dividend. We weren't receiving performance fees in December 2019. And, of course, this year, we've been able to report 3,800,000 of performance fees, largely coming from those acquired VPCs. And we weren't at critical mass. We had 490,000,000 of assets under management, which has now grown by 92% to 940,000,000. So in many respects, we would argue very strongly that in fact the fundraising discounted though as as it was at the time has resulted in a considerable progress for MERCIA.

36:09 And I think finally, that's reflected in today's current share price, which at 37.5 p is only at a 6.25% discount to NAV per share. Whereas back in December 2019, just before the placing was announced, the share price was at 32p per share, but that was then a 24 percent discount to NAV. Thank you. Thank you, Martin. And and, Julian, there's one question there's a question here with two parts to it, which one part, I'm pretty sure you won't be able to answer or not allowed to answer. But the question is, where are the next direct investment exits coming from, and do we sell 100% of our holding at exit? Yeah. Thanks, Mark. So so you're you're right.

36:54 I can't give a specific answer to to the to the first part of that question. I guess what I what I can say, though, is is we we we certainly are expecting exits over the course of the next three years, and that and that's really why we are comfortable with the 2020 plan and and, of course, evergreening the balance sheet. I can also say that, you know, the the three exits that we that we have had in the year are all strategic ones for for the buyers. So so they are looking for expertise, you know, perhaps intellectual property, and the growth potential for those assets, not necessarily, profits.

37:39 So, if we look across our portfolio, you know, we've got the likes of Voxpot Me and Technica and Dreams all in markets that are growing extremely fast and and in markets where there's significant corporate activity. And I guess if you look a little bit further out, you know, we we are starting to see some of the OEMs taking a look at, you know, what what is required for, you know, 2030, you know, kind of electric revolution, etcetera. So so there's there's inbound interest for, the likes of Faradian, ImpressionTech, and and and Warrick. So, that that's the long answer to your question.

38:26 Hope hopefully, I'll give you some flavor. And do do we do we exit all of all of an asset in one go? And and I guess that depends because, we certainly did, completely exit those those three. As I've said, our VCTs have have have exited partially or or indeed half their holding in in entertainment magpie. And indeed, that's how we ultimately exited, from from Blue Prism where we sold progressively over time. So I suspect, in the future, we'll see a combination of all of all those things happening within our, exit landscape. Thank you. Thank you, Julian. Another question was, in respect of the MERCIA 2020 vision and what makes up the 20,000,000 pretax profit.

39:18 And if I pass that to you, MERCIA. Yeah. The the question is, is it is it a sort of a the profit, is that a good idea for MERCIA? And I I think that's the best way to summarize it is that if we can achieve all other things remaining equal and just putting future dividend to one side for a moment, if we can increase can achieve an increase in 60,000,000 of NAV over the next three years, that would equate to a further 13.6p NAV per share. And if if one believes in a strong correlation between NAV per share and our share price, then shareholders should be rewarded by an increase in share price over the next three years. Excellent. Thank you, Martin. And and just to remind everybody that that's a a 20,000,000 pretax profit on average over the three years, and that, you know, that that's made up of a number of things such as realized gains, fair value movements, obviously, the operating profit from our fund management business, and periodically performance fees.

40:10 And because of the unpredictable nature of all those, although we expect over three years to achieve that, that, you know, any one year may be above or below that number. Another question sorry, Martin, to pass this one back to you. But another question was, of the pre of the tax losses that we're carrying at the moment, how far into the future do you think they'll take it? Well, that's an an impossible question to answer for for the following reasons. One one is because we don't know what the chancellor will do in the future in terms of tax legislation to to recover, obviously, all the the borrowing that he's had to put into the economy. And whether and although he's announced movements in the future in corporate tax rates, we don't know what other things he may do around loss, you know, accumulated tax losses brought forward and so on. The second second point I'd make is that our taxable profits really fall into two categories, the profits that we make when we sell investments and the profits that we make from our fund management trading activities.

41:01 And and we, as a business, qualify for, of course, shareholder substantial shareholder exemption. And if the businesses that we've invested in also qualify, then when we do sell those investments at a profit, there is no tax to pay on those gains. You one can only test at the point of exit whether each of your investments do qualify for FSC. And so it may well be in the future that depending upon which assets are exited next, they may or may not qualify. But assuming that they do, then we do have two or three years of brought forward tax losses, which could be used solely for future profits from our fund management operations. Thank you. And there's been a there's been a number of questions about the AUM growth going forward as well and where where that will come from.

41:49 And and I think it's important to note that, you know, AUM growth is delivered really by two parts of the businesses. It's obviously the funds under management, and it's the performance of the direct investments. It's the combination of those two. And in terms of fund under management, what drives that is track record and people. And we've got good track record across private equity, across debt, and across venture in a number of those asset classes. So that track record and the people associated with it will drive organically our fundraising ability. We've also got an extremely good track record of making good value creation, value creative acquisitions, and that is something that we'll be focused on too. So AUM growth in effect will come from acquisitions or acquisition. Come from organic fundraising. It'll come from our direct investment, performance. So I hope that that addresses that one.

42:38 Sorry. Forgive me. I'm just making sure we've covered off. Actually, there is a question that's just come through about COVID government support in our portfolio and whether, the withdrawal of that and so that the year end, whether that do you expect this withdrawal to have an impact during this year? And the answer is no. So so that that that we we access the future fund in a number of our portfolio at the beginning of the year, beginning of the financial year. Our our portfolio is well financed, and and we have, as I've already mentioned, 340,000,000 £14,000,000 of unrestricted cash cash across the group. So we are adequately financed to support our, portfolios. And now the withdrawal of that has not had an impact on us, and and our portfolio has predominantly not been impacted by the major sectors that have been hurt during this, awful period.

43:27 And then the final question, I guess, is aspirations for future dividends. Yes. And in that respect, the aspiration is to increase the dividend year on year. There was an earlier question which I perhaps I could also mark That's right. Which is around the question about why was the fundraising in the year relatively small. Ah, yes. And and that's for a number of reasons. I mean, first and foremost, we did raise 13,000,000 in new new venture in new EIF funds. But if you look at them at the other major classes, of assets that we're managing, they tend to go in cycles. So for example, one of the reasons we have so much liquidity in our funds in our venture funds at the moment is because we are in in the investing phase of some of those British business bank funds.

44:14 And so whilst in that first five year period, it would be unusual for major new funds to to be launched. Secondly, although the venture capital trust that we manage do typically, as the whole industry does, typically raises funds almost every year. Our own VCTs, with their recent successful cash exits, were already sitting on substantial funds and therefore made the decision not to raise any additional capital, in the last financial year. So that was really the the main reasons why our our new funds under management raise was quite small. And, of course, also, we were very much focused on preserving value in our portfolio companies in the last twelve months while we were fully sort of locked down. Looking forward to the next twelve months, I'm sure we'll see, some growth in new FUM from funds rate.

45:00 Thank you. And I I I've just also noticed that there was there was a question with a number of questions, so which one of the question was, if your balance sheet's maturing so rapidly and you're generating exits and and more cash, surely you should be returning cash back to investors or share buyback. Yes. And, obviously, we've looked at a a share buyback calculation, but in fact, particularly with the closing discount now to, NAV per share with the share price. If one, say, example, spent £10,000,000 on a share buyback, it would only move the NAV per share by 0.5 a penny. And if one believes that the share price is linked to NAV per share, then that would be a very, very small movement in the share price for shareholders whilst essentially getting rid of almost 20% of one's firepower.

45:49 So for that reason, because we do believe we have far better uses for that money, that our board does not have any plans for share buyback. Thank you, Martin. And I'm hoping that the audience today would have seen with a shadow portfolio of something like 17 businesses we're tracking on the balance sheet, a number of opportunities in terms of expanding the group further, the fact that our balance sheet capital can seed and grow funds under management as we look into new areas that, the management team and board have ample use of the capital there hands on hand and see that more security and opportunity to grow. Another question. Oh, but I'm trying to we're trying to keep up with your questions, but it's great to get the question is, how is competition in your market affecting the prices that you are having to pay, Julian?

46:37 Yeah. So so I guess that's a that that's an interesting question. So so, you we are we are seeing some some prices that that that are in excess of of of perhaps the ones that we'd like to pay. So, you know, that that that certainly is happening. Now what what we what we are trying very hard to do is is is where we cannot not not compete on price, but but really kind of, tell and and show, budding entrepreneurs that the the benefits of of MERCIA because it's not just about simply the money. It's about, you know, access to the to the talent functions that we have, you know, in terms of helping those businesses grow and strengthen their teams, the venture partner input that we can we can provide in our own track record, which is which is good because, you know, that shows entrepreneurs, you know, in partnering with us.

47:39 They've got a good chance of of of being successful. So, yeah, yes, we are seeing some competition, but, you know, we we we have some some very, strong answers to that as well. And and, you know, if I can just add to that, which is back to my and forgive me for the for standing so boring. It's the responsible employer, responsible investor, but the reputation, the brand reputation that we have in the market is strong. And we have serial entrepreneurs, and OXGEMENT is a great example there, where OXGEMENT wasn't the first business we backed as the cofounder, but the third business we backed as the cofounder. The second business being Native Engine Company. So those serial entrepreneurs come to us as a first choice, and we become the first choice investor. So it isn't anymore a simple point of I've got money. Do you want money? It's actually, I've got resource. I've got experience, and I've got understanding of what it's like to build a business in a difficult dynamic environment, and and that really helps us win deals.

48:39 Mark, thank you. It might be an opportune time for me to to to jump in. Obviously, you've been very kind and answer pretty much every question that's come through. And for for all those investors that submitted questions, thank you, once again for your interest. And perhaps, Mark, ahead of me diverting investors to give you feedback, I could ask you for a few closing comments, before doing so, and then I'll take the floor back from you. Thank you. Thank you, Mark. Well, I'm I'm hoping these results demonstrate the the power and strength and scalability of what what is our hybrid investment model of managed funds and proprietary capital with a focus exclusively on The UK and predominantly across the regions. Over 90% of our activity investment activities outside of London. And, really, all I can say is expect more to come. We expect more investment activities, expect more AUM growth, expect more profitability, and expect that progressive dividend policy to deliver.

49:30 And thank you very much for those that are part owners with us, and, we look forward to updating you in the coming periods. Mark, Julian, Martin, thank you once again for updating investors. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide 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 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 this afternoon's presentation. That now concludes today's session, and good afternoon to you all.