Mercia Asset Management (LSE:MERC) — Interim Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the MERCIA ASSET MANAGEMENT PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just simply type in your questions at any time and press send. The company may not be in a position to answer every question received during today's meeting. However, the company review all questions submitted today and will publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll and I'm sure the company will be most grateful for your participation.

0:32 It gives me great pleasure to hand over to Mark Payton, CEO. Good afternoon. Good afternoon and thank you, Mark. And I do encourage those questions to come through. We'll be looking at them throughout the presentation and try and theme them at the end and look to address them all. So welcome, everybody, to our interim results. For those that we have not had the privilege of meeting yet, just a few introductions from those presenting to yourselves. So my name, Mark Payton, chief executive and cofounder of MERCIA. Strong background actually in venture and life sciences and still have a number of portfolio responsibilities as well as running the group in the life science space. PLC MERCIA MANAGEMENT PLC.

1:12 MANAGEMENT PLC, CFO. I joined MERCIA just ASSET over eight years ago as employee number seven to help Mark float the business on AIM. My background is as CFO of multiple public companies in the technology space.

1:28 Good afternoon, everyone. Julian Viggers, chief investment officer. So I joined MERCIA on its acquisition of Enterprise Ventures back in 2016 have looked after many of Enterprise Ventures and and MERCIA's venture funds. One of the first of those, going back to two thousand three stroke four,

1:55 was a fund that included Blue Prism. We were the first investors in Blue Prism, is a software business, and we ended up for our £900,000 investment at the time we invested. We realized ultimately about £95,000,000 off the back of that. So

2:17 again, twenty years or so in in venture capital doing exactly the sort of deals that that we're doing now. Great. Thank you, Martin. Julian. This first slide really summarizes what have been for this first half of our year, a continued strong progress. Strong progress in respect of the MERCIA 2020, strategic goals, and I'll speak to those in a moment at our midpoint. I think importantly, in this period of uncertainty, very strong liquidity, just under 300,000,000 in free unrestricted cash across our managed funds and our balance sheet. And, of course, those managed funds are long dated ten year plus or evergreen funds that are subject are not subject to redemptions.

3:03 In respect of the, equity portfolio across the managed funds and the balance sheet, well funded and modest capital needs as well. So that means that, in times of uncertainty, if other investors retrench, something we call syndication risk and move backwards from the portfolio companies, typically, we're able to support and really preserve value in our own rights in those businesses. The group itself is highly resilient, sustainable, and profitable, and continues to be so as we look forwards. That's also reflected in the increase in net asset value per share now at 46.8p. That's up from 45.6p from the 03/31/2022.

3:49 And in line with our progressive dividend policy, I'm pleased to say that we're proposing a 10% increase for the interim dividend at naught 0.33p per share. And to the right, you see a schematic that has our offices across the country. We are talking to you today from our office in Henley and Arden, following the acquisition of Frontier Development Capital, FDC. We now have an office in Birmingham in the city center, which is really important as we continue to grow through The Midlands as well.

4:24 In respect of the model that MERCIA operates, it's a somewhat unique hybrid model comprising of a profitable fund management operation on the left there in pink. This has complementary asset classes under management across private equity, debt, and venture recurring and profitable and cash generative fee income from that element, and importantly, a series of scalable platforms where we foresee in the near to medium term organic growth in funds under management. Working in symbiosis with that is our proprietary capital, our cash on hand, very strong discipline that we operate there in respect of its deployment where we invest selectively alongside our managed funds into portfolio companies emerging from those. As we look to scale additional funds under management, we can invest as a limited partner in new funds and, of course, use our capital selectively for corporate activities.

5:22 Those two pools of capital fully aligned as we look to drive both capital growth as refined in NAV per share and yield and prime our progressive dividend policy. And in terms of corporate activities, ahead of today, we've made two acquisitions. Julian just alluded to Enterprise Ventures, our first one in 2016. And when looking at acquisitions, we have a very strict discipline following what we call a value driver analysis. And what that means is we're looking for at least 20 defensible reasons why an acquisition should take place, and those form part of the integration planning exercises. We look to extract value from that acquisition thereafter. At the top of that list is strong cultural fit, and not part of that list are cost synergies. We're not looking at stripping costs out of businesses. We're looking at accessing capabilities to scale the broader group following the acquisition.

6:19 We look to adjacent or complementary or more of the same asset classes through these acquisitions. They must, of course, be earnings enhancing. We are focused exclusively on The UK as a domestic market on a regional basis, so we're looking at funds under management scale to that point and looking at a strong fit with the internal capabilities and systems that MERCIA has built over time, and that drives the organic growth that derives from that acquisition. As I mentioned, nine years ago now, 2016, Enterprise Ventures, that was acquired on a structured deal of 11,000,000 in total, and that brought across 200,000,000 in third party funds under management against a 7.9 times PBIT.

7:06 From that acquisition, we saw 150,000,000 of organic funds under management coming through. Three years later, 2019, so three years ago, almost to date, amazingly, we acquired the three VCT fund management contracts from MVM, and the team from those VCT operations came across to MERCIA. That was on a structured deal, 25,000,000. We acquired 270,000,000 in third party funds under management against the 6.3 PBIT multiple, and we've seen 66,000,000 of new funds under management come through on that acquisition. And it's pleasing today to announce the acquisition of Frontier Development Capital, FDC. Again, the entire group acquired this time on a structured deal, 9,500,000, bringing across 415,000,000 in third party funds under management against a 7.3 p bit multiple.

8:01 So you can see a consistent basis for acquisitions running across those three acquisitions. And a little bit more detail on this slide in terms of the acquisition. FTC is an alternative national fund manager, exclusively focused on providing loans to both SMEs and property developers across The UK through the regions, established in 2016. As I've said, headquartered in Birmingham and 24 employees, which I'm pleased to say all join us today. The transaction in this instance was cash only and not a total consideration of 9,500,000, 5,500,000 being the initial part of that, and 4,000,000 as part of the deferred consideration over a two year period driven against revenue forecasts and a 100,000,000 net in new institutional third party fundraising.

8:55 The business itself, FTC, typically lends 2,000,000 to 10,000,000 and above can lend up to 20,000,000. And we see this very much as a platform for future FUM growth. And in itself, it fits very tightly and neatly with what we call the complete connected capital, where we see that interplay of the various pools of capital that we manage.

9:19 So casting this back on the left side there is Venture ahead of the acquisition of the VCT fund management contracts. MERCIA used to deploy Venture in the range of 200,000 to 2,000,000, and we saw an opportunity to scale our capabilities and, through a further 5,000,000. So up to the 5,000,000 end by acquiring the VCT operation. Now you look at what our debt used to do, our legacy debt team here, which is point two to 1,000,000. FTC then extends that, as I said previously, to 10,000,000 and up to 20,000,000. So the fit and the complementarity of that is highly attractive as well as the opportunity to further scale FUM. And when you look across the piece and add up the various FUM that we have now, that's grown to circa 1,400,000,000, which is quite impressive when you think we started the journey and Marty Martin alluded to our IPO where we had something like 30,000,000 of funds under management at that point ahead of our IPO.

10:22 Just in terms of the discrete pools of capital that we manage, and I think this is quite an important slide to put a a fine point on where we see growth coming from. We've got retail, which is EIS and VCT, and each year approximately 1,600,000,000 in EIS and 1,100,000,000 in VCT is raised nationally. And put that in context, our VCT operation raised circa 40 and our EIS circa twenty twenty five in the last year. And based on our track record of delivery, we would expect to take a significant portion of those annual fundraisers going forwards. The second pool of capital, British Business Bank, we currently manage approximately 40% of the regional venture and debt funds across The UK.

11:10 Recently, 1,600,000,000 commitment was made to the next generation of these regional venture and equity funds coming through, and we expect to secure a meaningful part of those going forwards too, greatly facilitated by FTC.

11:25 We don't have, for instance, a debt competence in The Midlands. We do now. So we would like to think we're well placed going forwards in that regard. And then finally, the institutional capital, that discrete pool of capital, we see this through our private equity and our legacy debt operation. This And is predominantly through pension funds. And these pension funds are typically allocating capital to MERCIA through their impact allocations as a regional investor, and we believe that while our strong track record now combined with FTC places us in a strong position for future organic fundraising. And to the point on the MERCIA 2020 at this midpoint, just to remind you, we've set two really broad strategic goals of, on average, over three years, 20,000,000 pretax profits, and, again, on average, over three years growth in AUM by 20% per annum. And that drives towards the NAV per share growth as well as our progressive dividend policy.

12:27 And on the table on the right, you can see the progress at this midpoint as we drive towards 1,600,000,000 AUM in total over the three year period. We're at 1,400,000,000 there and 60,000,000 collectively over that three year period in terms of the pretax profits over the three years, and we're approximately 35, 36,000,000 there. So strong progress against both those elements of the strategic goals. And then finally, from me, and I mentioned about, the impact allocations from the regional pension funds, MERCIA is very much seen as a responsible impact investor, which is particularly pertinent and relevant for all three pools of capital we manage, both in terms of retail, British business bank, and those regional pension funds.

13:15 And these results and our previous results demonstrate that actually responsible investment works. A regional investor with the hybrid model that we've got delivering delivers returns against the expectations of both investees and investors. We have a dedicated responsible investment team within MERCIA. I'm part of that team. A little while ago, we launched our first knowledge intensive impact EIS fund, and that closed much faster than we were expecting and hit its targets, and we've launched recently our second version of that. With the combination of FDC and the announcement today, we have a 144 employees, nine regional offices, and 19 university partnerships. And those regional university partnerships, I think, will become increasingly valuable over time. When you look at the team, 41% of the total employees, 21 of the investment team, and two of our five NEDs are women. And this very much reflects our focus as a responsible investment team looking at both diversity and inclusion.

14:16 Martin? Thank you, Mark. Our first half, results are shown here in this slide, and they are strong results notwithstanding the macroeconomic backdrop and the general sentiment currently towards the tech sector overall. Headline revenues were £12,200,000 but that did include £1,300,000 of revenues relating to the VCT fundraising April 2022. So the underlying like for like growth was in fact 8%. We've had another strong progress in our adjusted operating profit in part from further interest coming from our balance sheet portfolio in the finance income line. And together with positive fair value movements in the first half, we've achieved profit before tax of 7,400,000.

15:03 If you plow through the interim statement, you'll see towards the end, an interim audit report from our auditors BDO. Although we don't have to, we do subject our half year fair values and our income statement to scrutiny by our auditors. We believe that that adds credibility to our half year results and also transparency, for our shareholders. As Lars mentioned, we have strong liquidity on the balance sheet at the half year at 56,100,000. And as a result of the positive first half performance overall, our NAV per share has grown to 46.8p.

15:41 This next slide shows the movement, first half movement in our assets under management by asset class. And in the first half, we generated new investor inflows of 54,000,000, being predominantly the VCT fundraiser of 41,000,000 in April, including the dividend reinvestment scheme, and 13,000,000 from two successful EIS fundraisers, one of which was our first knowledge intensive impact fund.

16:08 As is true with the the general market, our asset classes have suffered some performance reductions in terms of fair value movements, predominantly those few investments that we have that are on the public markets in the VCT portfolio. And we've also continued to sell investments and return capital to our investors and also pay dividends to our VCT shareholders and our own PLC shareholders. And overall, therefore, at the end of September, our total assets under management were 979,000,000. And then, of course, post year end, we've increased our assets under management by 415,000,000 from the acquisition last yesterday evening of FTC, and we've just recently been awarded an additional 12,000,000 from the British business bank, Midland's engine investment fund. So still further good progress there too.

17:03 On an international financial reporting standards basis, this slide shows our income statement for the first half. And you can see there the significant fair value positive fair value movements of 5,600,000, which Julian will talk to in much more detail in a moment. As I mentioned, the strong finance income line, And as we are now sustainably a profitable group, we've used up our historic tax losses and are now tax paid.

17:34 Over the eight years since our IPO, we've built an incredibly strong balance sheet, which is debt free. And you can see there the balance sheet portfolio that Julian will talk to is now up to a 132,000,000 from a circa 10,000,000 standing start. And you can also see the 56,000,000 of unencumbered cash sitting on the balance sheet at the half year. And finally, from a cash flow perspective in the first half, we had positive operating cash inflow. And the largest number in our cash flow statement was the £6,400,000 invested into the balance sheet portfolio. Thank you. Thanks, Martin. Thanks, Martin. So as always, some key stats from across the group to kick off. I think the message really is is steady as we go at this point.

18:25 So the top box here shows our deployment levels in h one, and they are very similar to the corresponding period a year ago. And what it does show is our deal origination activities continue to deliver us around 200 opportunities per month, which is very strong. And that's enabled us to deploy 56,000,000 across 80 businesses, of which 35 were new to us. The lower box also shows that our performance continues to be solid solid, another £25,000,000 returned across the equity side of the business. Now we have undertaken some specific portfolio consolidation, I guess, across our funds,

19:16 kind of weeding out some of the older or underperforming assets. And this perhaps is why we've got a slightly greater volume and lower multiple on the exits this time around. But those realizations have continued. They're now up to 33, 34,000,000, with that multiple closer to two. And we are seeing some processes, exit processes slowing or indeed pausing in in the current environment. So I think we're unlikely to see the record 155,000,000 of of realizations that we saw in the year to March. So on to our direct portfolio. So we have recently added three companies to our balance sheet.

20:05 So one was in the first half, two in October, just post the period end. So in the period was Unifi, which is deep tech asset, and this really is working at the human machine interface. So this technology allows any surface or any form of surface to become smart. So if you think about kind of controls for appliances or in vehicles with now no need for moving parts. So it's an exciting one we think. AXIS Spine is a 10,000,000 deal where we put a syndicate together to include a new sector specific US investor but also money from our own VCTs and EIS funds and this is an FDA cleared spinal implant cage system.

21:06 And, again, this this is already doing surgery surgeries, sorry, in in The US, and we are we are excited about this one. Nova is a deal from the Northern Powerhouse region, and it comes from our Northern Powerhouse equity fund. Excuse me. And it is a business that uses some process technology that converts biomass woody materials into bioethanol and carbon residue. And and again, some some interesting uses for for for this in sustainable aviation fuel. So, we have significant what we call our proprietary deal flow that comes out of our funds.

21:54 So we will be looking to add further new investments over the course of time. So this is our balance sheet in in numbers. So if you were to look at the first column on the left hand side, our brought forward carrying value of a 120,000,000, to which we added 6,400,000 of new cash. And then that 5,600,000 of fair value movements that Martin talked about leaves us with a 132,000,000

22:28 carrying value at the end of September. So in terms of the fair value movement column, we have two large equivalent numbers of 12,200,000, and this is the result of a business that we had still have, in fact, called Intechnica, which split in April into two businesses. The old, if you like, original consulting business, but also a new business that was formed a few years ago few years ago called Netasea, which is a product business in security bot management. In terms of the positive movements, we have two uplifts at games businesses, Invincibles and Vert Trade, and that really is the result of revenues growing across the period.

23:23 We also saw significant progress at Warwick

23:28 as OEM engagement continues, but we also put together another third party funding round back in the summer. Now those are balanced by lower growth software businesses w two and Tom UK, which is also called intelligent positioning, where we've applied lower sales or ARR multiples to those to those businesses. We also got a downward movement on Edgecase Games, which really is a holding company now for a future royalty stream from a game which is being developed by Wargaming, which we believe is likely to be later in terms of its release times.

24:19 So overall, I think our portfolio though is in good shape. Yes, so so this last slide for me shows our record to date of realizing on average 50% above carrying value for our direct assets on exit. So what does this say? It it it says either our valuations are conservative or or more so probably that many of our assets are actually quite hard to value, But it certainly does say that I think these some of our assets are are very attractive strategic buying opportunities to to corporates who are willing to pay over perhaps the normal kind of valuations you get by applying valuation metrics.

25:14 So, you know, we've seen this very recently with a £100,000,000 exits from both Fraudian and Oxygen. Thanks, Mark. Thank you. So just bringing this presentation to a close, actually, as I hope you agree with us that the acquisition has been highly complementary. Lot of advantages now, but also for scaling funds going forwards. It's an earnings enhancing acquisition and also provides a broader debt footprint. And back to the point on scalable distribution, we think with opportunities such as the British Business Bank regional funds, it places us well in terms of securing future opportunities there. The acquisition itself moves us closer to the 2020 strategic vision at this midpoint, and it's another long dated managed fund operation that we've added to the managed fund stable.

26:12 And that's really important as we plan capital deployment over the long term, both in terms of preserving value as well as growing value within the portfolio. The funds portfolio and importantly, the direct investment portfolio are well funded, diversified portfolio companies, which actually have quite modest capital needs. And I know we've said this over the years, but now more than ever as capital retrenches, it's really important to be able to preserve value within those investments. The 2% fee margin remains intact in terms of our scaling fund management funds after this acquisition, and importantly, strong liquidity across the group. Now assume no EIS, no VCT, no top ups to the existing BBB funds, no not securing the next generation or regional funds or indeed additional institutional funds, we still have well in excess of two years cash to invest across our portfolio and our balance sheet. However, we do expect most, if not all, of those different pools of capital I just talked about to deliver further organic fundraising in the near term.

27:17 So thank you very much for all of your attention. We've got a whole load of questions which I've just been grouping and will answer in the course of time. That's great, Mark. Thank you very much indeed. And just to give you guys just a couple of moments to look at those questions, I'd like to remind investors on the call that a copy of the slides along with the published Q and A and the recording will be available via the Investor Meet company dashboard, and we'll notify you when that's ready for your review. Mark, I've given you absolutely no time, so I'm not quite sure why I jumped in. But but either way, hopefully, you've got one question to to to ping out, but you received a number of questions. So firstly, thank you to everybody on the call for today's for your engagement today. And maybe if I may, Mark, just ask you to read out those questions where it's appropriate to do so, and then I'll pick up from you at the end. Absolutely. Absolutely. So I've grouped a number as that was going on, and I'll take you through those groupings. And then there's a few at the end, and please do add additional ones because we do have time to take your questions.

28:11 So the first lot I've grouped together are to do with the direct investments. The first question, which actually I'll take because it's a quick answer, which is will the because we can write checks of up to sort of 20,000,000 with the Frontier Development with the FTC acquisition. Does that mean our direct investments will be larger as well? And the short answer to that is no. And that's because, actually, if you look at our balance sheet portfolio, they comprise almost exclusively of businesses that we've coinvested with our venture funds. So it'll be unusual if never really in terms of debt funds being coinvestments. So that does not influence the direct investment strategy. It doesn't change that at all. The next question in regard to the direct investments, Julian, if I can pass to you. Well, there's two questions here. The first one is Axis, which is mentioned as a, you know, a nice looking business. What what is the size of our equity holding in that? And are there other co investors, and in which case, who are the other co investors with us on that?

29:15 Yeah. So I'm I'm gonna get slightly caught out here, Mark, I'm afraid. But so in terms of access, our our percentage holding from memory is is somewhere between 1015%. But our funds also hold another sizable chunk, you know, perhaps 30%. I can get the I can publish the exact details at some point. But, yes, it is I think as I said, we we we do have a a US strategic investor in in that syndicate now, and it is a sub a substantial opportunity, many hundreds of millions of dollars. The company does also have the ability to do slightly adjacent surgeries as well.

30:04 So, yes, we are very excited about it. It's a big opportunity. And another question was that they were under the belief that Warwick acoustics WA had gone into insolvency, which it clearly hasn't. But I wondered if you wanted to just broaden out, reassure them about Warwick acoustics and perhaps shed some light on which one not aware which one that is, but which one that could be alluded to. Yeah. That so Warwick acoustics is is certainly not in in insolvency. It's it's doing really well, actually. It's it's a it's again, it's a deep tech asset looking at it's kind of flat speaker technology, which are which are very high quality, very lightweight, flexible, that they can they can go in vehicle headrests or above above drivers and and create sound pods. So it's it's a it's a really interesting opportunity for us, particularly in the kind of cabins of the future and and lightweighting arguments.

31:09 And, you know, we we are currently undergoing four four different kind of partnerships with with different OEMs at the minute. So some some exciting times for Warrick, actually. Thank you. Thank you. So the next questions relate to the interplay, Julian, between the funds and the balance sheet. So one question is, you know, how do the returns broadly of the funds compare to the returns broadly of the balance sheet? Is there a comparison that come out to there? Yeah. So so given that the funds go in earlier than than the balance sheet, you know, on successful exits, particular, For example, we we we we if if you look at oxygen, and again, I'm not gonna quote the exact numbers, but, you know, the funds would have made substantial multiples of of of returns, so 10 to 14 times, I believe.

32:18 And the balance sheet would have would have also made significant returns, but but lower because they they the the balance sheet would have gone in later. And that and that is very much the model. So, you know, when both the funds and it's right that the funds take higher returns because they typically take take higher risks. So, you know, it is our model and and key intent that both the funds and the balance sheet makes those very solid returns when we invest in a in in in in in any asset. Thank you, Julian. And then another question sort of relating to that asks Sue, I think, very kindly says about the net asset value of our direct investments has been preserved and is in good shape. However, if you compare that to what's happened with the northern VCTs, they seem to have had a degree of NAV erosion.

33:13 Is that because we have a different valuation policy between the Northern VCTs and the balance sheet, or is this just a result really of the balance sheet selectively investing in fund assets rather than in all assets? I mean, I think I think that I mean, it it it's almost neither of those because we we certainly don't have any different valuation policies. The the fundamental reason for for the declines in the VCTs is is really down to particular exposures. We've got a a small number of exposures to listed assets within our VCT operation, and and it's and it's that that has caused the relative or, if you like, relatively larger, falls in the VCTs versus our our balance sheet.

34:06 Yeah. So actually, you make a very good point there. We have just one listed investment, only a small one in My Yep. Health Check on the balance sheet. And and then the final question to you, Julian, and then, Martin, I'm coming over to you, is to do with the investees themselves that we support. So do we play an active role with the investees? And if we are playing an active role, do we think that that track record helps us secure additional opportunities going forwards? Yeah. I think I think I think that's right. So so, yes, we do play an active role and and we we we typically take take board seats on on every asset, certainly all the balance sheet assets.

34:52 That clearly involves a monthly meeting with with the business. That's that's clearly not it not it either. You know, we're we're we're typically on the on the phone or or the the Zoom at least every week with with our with our businesses. But I guess, in many ways, importantly, we have the ability to to help those businesses when they are looking at recruiting, be it key non exec directors or or or chair or adding to the the financial capability of those businesses. So we have what we call a talent network, which lease award heads heads up for us. So we have over a thousand non executive and executive directors within our database.

35:46 So we can we can choose and and and introduce those, you know, experienced entrepreneurs, and operators to to our businesses. And in fact, also, what we are doing a lot more of recently is is adding, again, perhaps for for more shorter term assignments, some operating partners in where, you know, if if we need a tweak to the business model or we'd like them to look at the, you know, the route to market or or the marketing collateral or processes or whatever it might be, then we can find individuals that we can add in to help in that way. So on top of that, we also have portfolio seminars where we we introduce CEOs and and chairs together.

36:36 We provide information across the portfolio. We do newsletters, and we have a whole group of kind of shared services that that our portfolios can can access, which which typically saves them money as well. So, yeah, I would I would say that we do provide, quite significant, other levels of of support to our businesses. Thank you. Thank you, Julian. And, actually, it's not a a question, but a a comment that somebody made in respect to what you were saying about listed securities, etcetera, with the VCTs is that Entertainment Magpie clearly has had a a negative impact as well in that regard. Yeah. And and that and that is, you know, if if if you consider that the the business was was listed at, I think it was one one pound eight eighty or £1.90, you know, its share price has suffered very significantly and is now at $20.25 or so p.

37:39 You you can you can tell that that's had a significant effect on on the VCT's NAV. So, yes. Absolutely. Thank you. So, Martin, a number of questions relating to the finance and to FDC in particular. So is there sort of property exposure in respect of the FDC portfolio? And in terms of the debt, if there is, is there a sort of debt stack in which they sit in? Yeah. Thank you, Mark. I think the first fundamental point to make, if I may, is that FTC is not lending from its own balance sheet. It has therefore no risk of any losses on any loans. These it is a fund manager of third party funds.

38:25 So that's quite a fundamental point. In terms of the 415,000,000 of funds under management, approximately 210,000,000 of that are are property facilities. And there is no there's no dominant borrower in the in the portfolio. There are approximately across the whole 415,000,000 of funds under management, approximately a 100 borrowers, of which probably 25 are are property companies. But as I just mentioned, there is no sort of dominant borrower. And typically, even if there is a, say, a £10,000,000 facility that's been made available, at any one moment in time, the amount drawn down is more likely to be between 2 and 5,000,000 rather than the full 10,000,000.

39:12 So FTC and therefore, MERCIA is not exposed to any any risks in terms of the peep the businesses to whom it is lent in the property sector. And that is why, to answer perhaps the second question I can see, why the deferred consideration is linked to revenue and not profitability. And the reason for that is if you link deferred consideration to property to to profits, it's much harder to make any changes that you wish to make to the business during the earn out period because understandably, the vendors, if their earn out is linked to profits, don't want the acquirer to really to be meddling in their business. However, in this case, by linking the deferred consideration to revenue, FTC's vendors who are the management of the business and are all staying with the business are very keen for MERCIA to help support the revenue targets by obviously bringing to bear all of our own networks and introducers that we can bring to help them achieve those targets. Because, you know, for them to achieve their revenue targets over the next two years, that will will obviously help MERCIA achieve its own targets.

40:23 Perfect. Thank you. Thank you very much for that. And then, another question relates actually to the sort of fee as a percentage of the funds, and there's an observation that it may be lower in the FTC funds than it is across the group and whether we see an opportunity to adjust that fee level. I I don't personally see an opportunity to adjust the fee level. I I think we're very appreciative of the support that particularly the West Midlands funds give to to FTC. And, yes, they are the fund management fees as a percentage of the funds under management are lower than one might typically receive from say a British business bank fund. However, with the British business bank funds, one one is allowed to charge a a base fund management fee, but no fees in relation to the deployment of the capital in that fund.

41:17 Whereas with FTC, it is allowed, generally speaking, it is allowed to charge arrangement fees when it makes a loan and also on occasions to charge a monitoring fee during the period that the loan is outstanding. An additional question has just come in is relating to the level of bad debt provisions on FDC. And do we see these developing considering The UK and the headwind and the predicted recession, etcetera. Yes. And and at the moment, say, this is not FTC is not lending from its own balance sheet at the moment. It's funds and the loans that it's made from the funds under management are performing very well indeed. They aren't just simple straightforward loans. They often attract an equity warrant in certain circumstances, and they are secured. So these are not high risk loans made to start up companies. The the businesses with which FTC chooses to trade and lend from its funds under management are well established, typically, Midlands based property companies. Thank you.

42:22 And what we have we have spoken about the organic fundraising options and opportunities for the FTC based operation. But perhaps you could tell us the number of funds they're managing Yeah. The nature of the investors in those funds and therefore give confidence to those listening today that these are strong credible institution investors. Absolutely. So there are approximately nine funds under management at various stages of deployment with with various end dates. Some of the funds are recyclable, and some of the funds run into the two thousand and thirties. So in general, these are long dated, funds. In terms of who are the limited partners or who are the providers of the funds, it's a combination of, Birmingham City Council pension fund, West Midlands combined authority, and other regional pension funds that that, FTC, is working on behalf of. In terms of future fundraising, they are beginning to now to start to talk to potential third party limited partners in new funds, and they they hope to broaden their reach outside of the West Midlands further afield to other regional pension funds.

43:34 Fabulous. Thank you very much. The next one relates to the progressive dividend policy and there's a question here about why are we confident that we can continue with the progressive dividend policy and is it necessary for balance sheet realizations to carry on with that progressive dividend policy? Yes. And when we first announced our progressive dividend policy, we were very clear that we were not linking future dividends to a cover ratio in relation to adjusted operating profit, or to to any other aspect of our income statement because of the two sides of our model, which is our cash generative fund management operations and, of course, periodic realizations from our balance sheet portfolio.

44:21 So again, we're not anchored to one or the other, and we believe that the maturing continuing maturity of the balance sheet portfolio will over time provide realization proceeds to help support the dividend, but also the cash generative nature of our growing funds under management will also continue to support our progressive dividend policy. Excellent. And the last question, if we please, Martin, is considering the gap that we have on a NAV per share to share price basis, is a share buyback a strategy we should be pursuing? Yes. And that's, again, a question that we quite understandably received with our March preliminary results, and it's something that we never rule out forever. However, sophisticated investors such as Terry Smith, for example, have previously said on a number of occasions that the idea of share buybacks is only a good idea if a company has no better use for those funds.

45:19 And we certainly believe that we do, and we believe that this acquisition is the demonstration of that. However, if one was to actually run the maths on, say, a £10,000,000 share buyback at, say, 30p, this would enable 33,300,000 MERCIA shares to be bought back, which would represent, based on our March cash position of 60,000,000, that would represent 16% of our cash gone from our balance sheet against a somewhat uncertain economic backdrop, whilst the only benefit in NAV per share to shareholders will only be 1.3p from a £10,000,000 share buyback. And if you were looking at it from an increase in dividend per share, that would be naught 0.6 of a penny. So actually, for us, because of the belief that we do have better things to do with our cash, we don't believe that a share buyback would be in the best interest of shareholders.

46:11 Thank you. Thank you, Martin. That's great. Mark, Martin, Julian, you've taken every question from investors, this afternoon. So thank you once again to everybody for their engagement. Mark, I, know investor feedback is important to you and to the company, and I'll shortly redirect those on the call to give you their feedback. But I wondered if I may, before doing so, just ask you for a few closing comments, and then I'll redirect the investors. Thank you. Thank you, Mark. And once again, thank you for allowing us to use this portal, which we think is a magnificent way of reaching to our many and valued retail investors, whom are also very often within our EIS funds and our VCT funds. So I'd like to thank you all for your support and actually end on a note of optimism because I think there's very limited amount of that in the current climate, which is that we have developed a strong business operating across the regions and very much open for business. We're looking for private equity, for venture, and for debt deals, and are pleased to say that we are in an unprecedented times of busyness, which is great, but we will always be open for business going forward. So thank you everybody, and we look forward to sharing our prelims with you in the fullness of time. That's great, Mark. Thank you very much indeed, and thank you, Julian and Martin, for your time this afternoon. Can I please ask investors on the call not to close this session as we now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations?

47:32 This might take a few moments to complete, but I'm sure we'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. I wish you all a very good afternoon. Thank you.