Mercia Asset Management (LSE:MERC) — Interim Results for the six months ended 30 September 2021

0:00 Good afternoon, ladies and gentlemen, and welcome to the MERCIA ASSET MANAGEMENT INTERM RESULTS INVESTOR PRESENTATION. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and will be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Simply type in your question and press send. The company may not be in a position to ask every question it receives during the meeting itself. However, the company will review all questions submitted today and publish response to publish responses where it is appropriate to do so. These will be available via your investment company dashboard, and we'll notify you by email when it's ready for your review. I'd also like to remind you that this

0:31 presentation is being recorded. Before we begin, I'd like to submit the following poll. And I'd now like to hand over to Mark Payton, CEO. Good afternoon. Good afternoon, and thank you, and welcome everybody to MERCIA's interim results for the financial year 2022. Just by way of introduction, my name is Mark Payton, chief executive officer for MERCIA. Approximately twenty years of experience in venture investing specifically within life sciences, I've had the good fortune of seeing a number of businesses from beginning all the way through to exit, the most recent of which being, OXGEMENT. Yes. Good afternoon, everyone. I'm Martin Glanfield. I joined MERCIA just over seven years ago as the employee number seven to help Mark float the business on AIM in December 2014.

1:19 And my background is as the CFO of publicly traded and private equity backed technology enabled businesses.

1:27 Good afternoon, everyone. I'm Julian Viggers, chief investment officer. I joined MERCIA in 2016 when MERCIA acquired Enterprise Ventures. Been a fund manager across MERCIA's venture funds for the last fifteen years or so. In that time, I've seen many exits and IPOs.

1:48 One of those being the investment into Blue Prism, which we did from one of our early managed funds investing 900,000 back in 2004, and since returning over a 100 times that back to our investors, since the business floated. Thanks, Julian.

2:10 So this slide, slide four, I think, really captures, if you like, the spirit of this presentation in terms of the positive momentum that the group is building. Revenues is increased by 21%, grown to 10,000,000, and that 21% is compared to this time last year. And that 10,000,000, of course, is for this six month interim period. In addition, we've seen a growth in profit after tax that's grown again 35% compared to this time last year to 11,200,000, and a strong balance sheet, a very strong balance sheet, circa 52,000,000 cash on hand, free cash, and debt free. And that liquidity sort of speaks to the whole group. The total liquidity is circa 284,000,000 across our funds as well as onto our balance sheet, and that's a significant part of our assets under management, our AUM. So nearly, you know, just over a quarter of our AUM is in cash, AUM being at 948,000,000, again, up from 872,000,000 this time last year. And that positive progress across the group, and the strong prospects across the group means that the board has set that interim dividend for this period of naught 0.3p per share. Again, that is up from this time last year with our maiden dividend, which was at naught 0.1p per share, where we declared not only the dividend, but a progressive dividend policy. And this is part of that journey as we move forward with that.

3:33 In terms of performance and in terms of exit performance across the group, we've seen nine profitable exits in this six month period. And put that into context, in the previous year, we had 10 over the full year, and that was a record year for MERCIA. So this positive progress continues as we go forwards as well as coupled with our positive investment activity. And that positive investment activity is now translated into MERCIA being the fourth most active venture investor in The UK and the number one within our heartlands of The Midlands and the North as a regional investor. Responsible investment is very much at the core of our activities, certainly against the ESG principles that we operate on and with a specific focus on diversity and net zero, and I'll talk a little bit about that in a moment. So there are three phases really to the continued progress and prosperity, if you like, of MERCIA. The first one is find value. So finding value that is, you know, get we get over a thousand business plans, that we've received over this six month and, of course, winning those deals. So that's translated into 74 deals that we've invested in over this six month period, 38 of which are new portfolio companies. What I mean by that is we've got over 400 companies now across venture, private equity, and debt. We've added 38 more in this period, and we will continue to build that portfolio size and diversity.

4:54 But it's not just about finding deals and winning deals. It's about adding value. We take board seats on a majority of our venture investments and our private equity investments, and we use that portal into the business as a way of really supporting management to grow and add value to them. We've helped lead nine syndicated deals within those, new businesses we just talked about and actually placed from our own internal resource. So at our cost, not at the portfolio cost, 18 NEDs within those businesses. Just to remind you for those that new to us today, the addressable market that MERCIA exclusively looks into is the small to medium sized enterprises, the SMEs, which are predominantly private businesses where we will invest from 300,000 approximately up to 10,000,000 across our suites of funds that we manage into businesses that typically need less than 20,000,000 in total finance.

5:47 And that's because at exit, the enterprise values of our portfolio companies are typically between 20,000,000 and 200,000,000. And when you look at that market, we are exclusively a domestic investor. We only invest within The UK. That market will have invested about a 100,000,000, we estimate, by the end of this financial year. Compare that to the previous financial year where we invested 70,000,000. You can see the pace of our growth, and we estimate to take about 5% of that addressable market in this financial year, and that's up from 3%. So that's a growing addressable market, and we are growing our stake into that market with much more to go after.

6:24 In terms of MERCIA's investment model, it's a sort of combination of third party managed funds on the left in the light blue and our proprietary capital in the dark blue. Now in terms of our proprietary capital, it really has three functions. It's investing into businesses coming through the third party funds or alongside the third party funds. We are a selective investor into funds that we manage. So we will selectively invest as a limited partner either into asset classes we're trying to grow or into new areas that we're trying to grow into new asset classes. And the final point point part of that capital is is for corporate activities. We've made two acquisitions to date, and that capital there is for that function as well. As I said, we're a domestic investor, so The UK is where our addressable market resides and what we have very deep knowledge of.

7:13 And these are, to the left numbers from Bohurst, actually, for investment activity in 2020. And what you see is 70% of all UK venture investment took place in London.

7:26 But within The UK, these high growth businesses that we're all looking for, there's 25% of those located in London. So on the middle section, you can see where our offices are. We have an office in London. London is an important place to be investing. But clearly outside of London, there are disproportionately more opportunities for those physically based there. And as we look to continue our growth through The United Kingdom, we've recently opened an office in Bristol as we start to move into the Southwest and continue to grow our position as one of the most active investors in The UK. The final bullet point to the right just talks about that exit environment that we sit in. With the sorts of businesses that we manage, IPOs can be important, but are infrequently that so. Actually, the majority of our exits come through trade sales, and more importantly, just recently, an active and growing secondary market where larger venture funds are looking at actually acquiring positions into businesses by taking out existing investors.

8:22 Indeed, private equity funds are now moving into venture and providing that that exit as well as moving into private equity backed businesses. So that active secondary market is becoming an increasingly important exit environment for us. Beginning of this financial year, MERCIA set out its 2020 vision, and that is split into two parts as its name implies. The first part being growing assets under management by 20% per annum on average over three years. Another way of looking at that is basically taking circa 1,000,000,000 where we are today in AUM and growing that to 1,600,000,000 over the next three years, average backwards over those three years. And if you look historically, 50% of our AUM growth has been through organic means, and 50% have been through two acquisitions that we've made over the last seven years. In terms of the balance sheet performance and its contribution to that AUM, we have that performing at a 14% IRR since IPO, so strongly performing.

9:21 And then the second part of that 2020 vision is to do with the profit before tax performance of the group. So there, we've set 20,000,000 on average over three years per annum. And another way of looking at that is perhaps saying 60,000,000 in three years' time average backwards. So that's part of that 2020 dynamic. Supporting that 20,000,000 on average per annum profitability is a very profitable fund management group that's contributing to that. And as I alluded to in terms of the balance sheet, the fair value movements and realizations of the balance sheet activity. Thank you. As Mark mentioned at the start of the presentation, our revenues increased by just under 21% to 10,100,000 during the period.

10:08 And this increase in revenues was twice the rate of our cost base increase. And the cost base slower increase is in part a reflection of the scale of the business now and therefore the benefits of operational leverage. We also received during the period net performance fees of 1,600,000, mainly from the Northern VCTs.

10:30 Profit after tax increased 35% to 11,200,000, and net assets increased to a 186,400,000. And with it, net asset per share increased to 42.4p. As Mark's mentioned, we have significant available liquidity on our balance sheet. And combined, this positive performance and the confidence of the group's board in the future performance of the business enables us to declare the interim dividend of 0.3p

11:00 per share. I think it's also worth mentioning that 88% of that revenue is recurring income. It's contracted and recurring income and a very resilient bedrock of our business model. This next slide shows the sequential movements in our assets under management for the six month period. And in the net fund flows column, the 11,000,000 in venture raised during the period was represented by one new EIS fund raised and also an additional small allocation by the British business bank to our Midland's engine investment fund. One of the ironies of our model in a sense is that distributions, which is money back to investors, is actually a very good sign of performance rather than just being seen as a reduction in our assets under management.

11:48 And in the period, 39,000,000 was returned to our investors, and the largest element of that was the dividends paid by the Northern VCTs to their shareholders. Performance is a very key part of our business model, and that is a reflection of the increase in the asset values of the portfolios that we are managing. And as you can see here again, during the six month period, overall, our assets under management increased by 36,000,000 as a result of performance. And again, the largest performing aspect of this 36,000,000 was the increase in the values of the VCT portfolios.

12:29 We move on to the consolidated income statement, which is our profit loss account reported under IFRS, International Financial Reporting Standards. You'll see here that the revenue number is larger than the 10,100,000, and that is because the gross performance fee is included on this line of 2,600,000. And similarly, accrued bonuses and employers, national insurance is included on the administrative expenses line. I think another interesting point in this income statement is the finance income number of 238,000 compared with a year earlier. And what this is is interest that we've received from convertible loans that we've made to our balance sheet investments and where those loans convert into equity, we're entitled to receive the interest on those loans. I think it's also worth noting the fair value movements there of 8,700,000, which Julian will go into in much more detail shortly.

13:22 And at the moment, we are still not tax paying.

13:28 In our balance sheet, we've reached a small milestone, which is that our total assets have now, for the first time, exceeded £200,000,000, and it's both remembering seven years ago when we started, our opening balance sheet on the day before our IPO was £10,000,000.

13:47 And finally, in our cash flow statement, you can see that our adjusted operating profit does turn into cash, and we generated in that first six month period 2,600,000 of net cash inflow from operating activities. And the cash deployed from the balance sheet into the balance sheet portfolio during this first six months period was 5,400,000.

14:13 Okay. Thanks, Martin. So my first slide is a is a new one. It does show the depth that we have within our investment teams and also the divisional leaders across our business. Now we have 65 investment professionals now across our equity and debt teams. Many of these very highly experienced with ten plus years investing or lending under their belts. On top of this, we have our portfolio resourcing and legal functions with another four very important team members. So in terms of, highlights here, our national VCT and EIS. So the logos you see under this section are all assets that we've either fully or partially exited from in the period.

15:01 More about that in a minute. On the regional venture, our funds are progressing very well. Some very interesting companies growing sharply within them. And again, just to pick a couple, so Innovus is a surgical training aid using VR. Again, very innovative, growing very rapidly. And Azure is a Microsoft reseller and integrator, also growing very rapidly. Wayne, who heads up PE funds, has done the two deals he was projecting for, this year, one just prior to the period end, one just after. And our debt division, we've worked very hard for British Business Bank, and deployed loans through the CBILLS and then the RLS scheme subsequently.

15:55 And our proprietary capital, again, just post the period end, we've added two more deals, Forensic Analytics and Pimberly. A little bit more about those as well in a minute. Thanks, Mark. So this next slide is is a little bit busy, but it does show where and how we invested 55,000,000. And as you can see from row three, the bulk of that is across the venture parts of the business, some 38,000,000, but we invested also in 74 companies. 38 of those were new with the volume coming from our debt division with 26 new companies. And, again, perhaps to to to answer a a question whilst we go from Michael.

16:41 So we have continued to work on our origination activities, and and that's both digitally. So and we put on a lot of webinars, meet the funder, digital outreach, a lot of social media, which does attract incoming opportunities. But also, we're back out in the communities face to face working with advisers. A lot of deals come from from that. And also our own networks, I mentioned 65 staff, but also our, non executive director network, very active as well sourcing, deals for us. So this also slide here captures the split of our AUM

17:25 of $948,000,000, and I'm very pleased to also say that we have significant liquidity to continue to invest right across the business. Thanks, Mark. So this slide shows the geographic split of those 74 investments that we made. As you can see, spread across the regions, but concentrated in the North And Midlands, which is MERCIA's heartlands.

17:52 And the bottom of the triangle there, Yorkshire And Humber reflects the larger volumes from our MPIF debt funds. So following the theme of the last couple of slides in terms of deployment, Bohirst and others have, recognized that we are now the second most active venture investor outside London and the fourth overall in The UK now. Now that's very interesting, but but perhaps more interesting for me is the performance that accompanies, that activity. So as Mark has already said, in the year to March, we transacted 10 exits across the group returning a 100,000,000.

18:38 And in this six month period, that performance has continued with a further nine exits returning another 55,000,000. So on the left hand side of this slide here, these businesses were, start ups at very early stage when we were first invested. In the middle, this is our VCTs and continue continuing to show some really good performance. Five more exits. And I think there's more to come here as well given that in Magpie and Oddbox, we still hold significant stakes in these businesses. And again, more to come in terms of the pipeline for h two, in terms of exits across the business I think as well.

19:24 So this next slide shows the summary performance across our asset classes. Again, bear in mind, we operate over 40 funds, various different ages, sizes, remits, geography. We use TVPI as a measure. We expect these percentages to be increasing over time.

19:48 If I can just point out the current institutional funds, both venture and PE, are now creeping above par, which is given they're relatively early in their life is great given the the renowned j curve effects. In terms of our VCTs, we look at the right hand side column, which is the total returns, and that includes cumulative dividends paid over the life of those funds. Again, some top quartile performance. And as you can see, those return numbers have increased significantly, circa 20% over the course of the last year. So I'm very pleased with the performance. Just gonna pass you back to Martin very briefly for the next slide.

20:33 Thanks, Julian. This is a just a brief snapshot of the progress since we acquired the Northern VCTs two years ago. It's our second acquisition since IPO, and it has been going well. And it's been delivering on all of the promise that we we hoped it would at the time of the acquisition.

20:50 We've successfully integrated the investment team that came across to us from NBN, and we've, built out that team and added additional support functions. And so far, there have been eight cross referrals to the VCT team from, the rest of the MERCIA portfolios. And the VCT team have achieved since the acquisition 13 successful exits to the 09/30/2021. So you can see there that the bringing together of the VCT contracts and investment team and the existing MERCIA business has really really come together well. So far, the VCTs under our ownership of or under our management have raised 32,000,000 just before the first lockdown in 2020, March 2020, and they have announced a new 40,000,000 target fundraise, which will commence early in the New Year.

21:40 And as we mentioned earlier, we've we've been fortunate to receive so far gross 6,100,000 of performance fees, and that has reduced the overall purchase price multiple for the VCT fund management business from an entry multiple of 6.4 times earnings that has now reduced to five times earnings.

22:02 K. Thank you, Martin. So into our proprietary capital. So '25 now direct investments, including, as I mentioned, two new added post the period end, producing circa 9,000,000 in in fair value movements in this period. Importantly, on target for IRR 14 just over 14% now.

22:27 So what is our balance sheet capital used for? So it's it's two things. Investment. So we invest in in broadly four areas, as you can see on the on the slide there. But also, we will we are and we will certainly in the future be using our balance sheet capital also to see new ten year funds for us to expand our funds under management. And of course, the other reason for our balance sheet capital is is corporate activity, and and we've also talked about the the acquisitions that we've already made. So we believe we have a very clear balance sheet strategy, and we have made some refinements to that over the course of the last eighteen months.

23:16 So focusing on those enabling technologies that I've just mentioned, taking advance advantage of regional strengths. So for example, the Sheffield region is is very strong in in deep tech engineering manufacturing. So we would like to increase the portfolio size from the 25 up to 30. Our average holding period is in the middle of that, three to seven years currently. And as many of you all know, we do build our stakes over time, and we look to take between 1030% equity stakes in the assets that we put onto our balance sheet.

23:59 One tweak that we've made is is to invest now in some later stage investments, and we've done one of those alongside our VCTs just post the period end. And I guess a new class of deal where we've invested in new to MERCIA deals alongside our VCTs. So we see a lot of deals that require secondary capital. So that's perhaps to incentivize founders or clear up a part of the cap

24:31 table, and we can provide a very compelling offering now as one MERCIA alongside our VCTs, and we won a very recent deal, Forensic Analytics, against stiff competition in the market because we we could enable that deal to be done. Our internal portfolio resource, again, does add and provide significant value add. Lisa's team made over a 100 non exec and venture partner

25:01 inputs now over the course of the last couple of years across the business. And as you'd expect, with the funds that we have, we've got a significant shadow whip that we can call upon for our direct investments.

25:18 So this slide shows the current portfolio inside the oval, nicely diversified across those four sector areas, focus areas, but also now increasingly by maturity. Outside the oval in pink is a number of businesses that we were shadowing as of September 30. So just to to call out a few of those around the around the clock. So forensic analytics is this business I've just talked about where we invested some secondary capital. So these this company provides looks at the efficiency of forensic analysis using AI, datasets on cellular and Wi Fi data, working with 43 of the 45 UK police forces and also expanding into US and Europe now.

26:11 Pimberly was the second deal that we've done post period end software business growing rapidly again in The US. Moving around the clock player lands enables gamers to trade virtual goods within games. Further around still, Tribasonics uses sensor tech and software to measure real time wear and tear in bearings and and moving parts. And DX Cover is a really interesting business up in Scotland, which uses blood cancer serum, various spectroscopy techniques to to detect cancer from a very early stage. So very interesting business there too. So this is the the period in in terms of numbers.

27:03 So starting off the period with 96,000,000 of carrying value on our balance sheet, adding 5,400,000 of of new cash. The next column shows the fair value movements there. Quite nicely spread across the portfolio, but you can see some larger numbers from and Technica soccer manager, some going the other way. My Health checked as it was mark to market on AIM and LM Tech where the turnaround that we've started has slowed down given some of the the supply chain issues that we've seen coming out of out of China. But importantly, ending up with a portfolio of now a 110,000,000. So just to counter through our top 10 assets.

27:55 So just to reiterate as well, we hold significant stakes in these assets and are represented on the board of all these assets. We can see the the general progress in valuations across the the the piece here. So Endreams is our largest asset. It's a virtual reality developer games company. So revenues are growing. Market, we think, is opening, particularly from some of the announcements from Facebook around the metaverse. We're seeing some some longer term partnership opportunities coming towards us. A new game for Sony was was launched in the year in in August called Frat, which has gone down very well.

28:41 And we are due to release our first third party published game in the early part of twenty twenty two. Faradion, big moment for this business in the summer where large Chinese battery business, CATL, announced its move into sodium ion technology, which has really shone a light right around this sector. In terms of Faradion continuing to increase their production of battery packs and getting them out into the market through their Australian joint venture dealing with a number of OEMs and some significant increased inbound from potential licensors and and and funders.

29:30 In Technica, which is our ecommerce efficiency web security business, two businesses in one here for us, a consultancy business, which is showing 20% year on year growth, 20 EBITDA margins as well. And a couple of years back, we split out what we thought was a really interesting product business called Netasir, which is looking at the really thorny problem of bot management, scrapers on websites, etcetera, and security around that. Again, some really, really strong growth, 170% year on year. Some really strong net retention figures at a 107%. Lot of revenues now coming from The US, including now a top five global retailer and some significant interest coming from the financial services sector.

30:18 MedHerint, also showing progress in its clinical developments and regulatory progress. And VoxPop. Me showing revenue growth up to around $8,000,000 of ARR now, growing strongly and very good progress. Thanks, Mark. And for the second half of our top 10, impression tech, which is our aluminums pressings business. So what we're seeing here is, again, much more interest in terms of the licensing of this technology. So we have four license licensees currently covering US, China, and Europe. Six more in in in discussions. But interestingly, those licenses are now starting to to invest quite heavily in the in the significant plants that's required to service the end customers.

31:14 So significant inbound from aerospace and also bikes coming through. Intelligent positioning, again, we're happy with the effectively the turnaround that we've we've we've helped in this business where we're seeing some significant 30% or so growth from a low point following some churn through COVID. Locate Bio, the high points in the period was a 10,000,000 series a, which we invited BGF into the round with us, enabling the company to progress through 2022 and '23, its clinical development. Warwick acoustics, flat speaker technology, And, again, some some really interesting progress with its OEM partners passing key application milestones, and we're hoping to see some nominations onto some auto models perhaps late in next year.

32:18 Last on the list here, top 10 is soccer manager, where we launched the new game, soccer Manager 20 two, in the series this year. And we are seeing growth in that and and some new games two new games, in fact, to come out during the course of 2022. So good progress. Thanks, Mark. Thank you, Julian. I mean, one of our, you know, the vision that MERCIA states is to be the first choice for investees, investors, and employees. We passionately believe in get it right for your employees and everything else flows through that. We have a responsible investment team that we've had for some time led by Jill. Jill Williams, I'm part of that responsible investment team, following very closely the UN principles of responsible investing. But, actually, this word cloud on the right, I think, really summarize the spirit within MERCIA as we continue to grow as a business. We had an away day just recently, and I'm prompted in terms of manage. We we asked people when they came into the room to give us, just send in the first three things that they would use, words they would use to describe MERCIA.

33:29 Ambitious, fun, frankly, professional, connected, collaborative. These are, I think, really really positive sentiment to receive from what are a 106 employees now across eight regional offices, and I spoke to the Bristol office that we're opening up to move into the Southwest. We have 19 university partnerships as well, which we work closely with and account for about 10% in terms of investment activity into new and existing deals. And as I said at the very beginning, diversity and net zero are key focuses within MERCIA. The idea being that we've got over 400 companies, if you heard from Julian, across the portfolio. We set the standard, and then we look to bring our portfolio with with us, and that have a tremendous impact certainly on a domestic basis. And on the diversity front, just in terms of gender, 41% of our staff, 31% of the investment team, and two of the five main board NEDs are women. So it's work in progress, but, you know, positive positive progress in that respect.

34:28 And then just just finally bringing this together. This has been a positive period. It's been a positive eighteen months, and we think that positivity will continue going forwards. The the acquisition of the fund management contracts for the three northern VCTs was the right thing in terms of fit, fully integrated because of it, and these numbers show that that is delivering. In terms of fee income, it's the quality as well as the growth. The management fee income, a majority of our income is from our third party managed funds. 88% of that is contracted and recurring. Assets under management continue to scale. We remain optimistic in meeting and hopefully beating that 1,600,000,000 target in AUM in the next three years. The group is well capitalized.

35:14 Tremendous free cash across our funds and across our balance sheet critical both in terms of supporting existing portfolio, but making new investments and assessing the market for corporate opportunities as they as they come through. The portfolio, as you've just heard from Julian, is maturing absolutely highly diversified in terms of sectors that we invest against, but also in terms of stage of development for those businesses. And that's really important because we are not looking to go back out into the market to raise more money to support that portfolio. We have taken that balance sheet to an evergreen position, and we intend to build that in a sustainable fashion. And bring that all together, this is why the board declared the, interim dividend at naught 0.3p per share up from the initiated dividend this time last year of naught 0.1p per share because the positivity within the group supports that continued progressive dividend policy.

36:10 So I'd like to thank you for your attention, but we have had questions come through, and I've just been noting those down. So what I'm gonna do is I'm not gonna say the names of the people that have asked them, but we'll put them into themes, and, we'll address those questions. We will go through all of them. The first one was to do, and this is I'm sort of theming it around a corporate basis here, was to do with dividends and whether the dividends, will be actually underwritten by performance fees or realizations from the balance sheet. If I can pass that to you, MERCIA. Yeah. Thanks, Mark. So the first first question to to answer is no. We don't see performance fees as playing any part in our dividend policy. And the simple reason for that is that they are unpredictable and and often can be one offs. And we also understand why some listed asset managers would have a a dividend policy linked to adjusted operating profit because, you know, a cover ratio makes sense when that is their single business model, which is asset management.

37:11 However, for us, of course, there's two sides to our business model. There is the asset management side, which is profitable, but then there is also the balance sheet investing model. And if, Mark, if you're able to go to perhaps slide 12, you can see here that for the year ending 03/31/2021, so the far right hand column, we actually generated realized gains, and that is cash realized gains of 20,300,000. And we wish to share part of those those cash gains from time to time with our shareholders. And if we were if we anchored our dividend policy only to adjusted operating profit, then that would be denying shareholders the opportunity to to share in these periodic these periodic gains. And we have considered whether or we would do special dividends, but I think a progressive dividend policy, over time is, more reliable. It's more predictable, and, you know, we seek to move towards a yield of approximately 2%.

38:08 Thank you. And and just keeping with you, Martin. We say we we've obviously made two, I think, very successful acquisitions. One question is, do we see many opportunities to acquire other fund managers? And if so, can we hint at a timing, etcetera? Well, I think the first thing to say, of course, one of the key aspects of any acquisition is that it compresses time, so it enables you to execute your organic growth strategy much quicker. And the specialist asset management sector is a consolidating sector. And we have executed two successful acquisitions so far, and so we would like to we'd like to do so again. The way that we look at acquisitions is is from the people perspective and from the culture perspective and geography and asset class. So those are our most important priorities because the businesses that we do acquire, we wish to expand once they become part of MERCIA, and we don't we're not a slash and burn m and a organization.

39:09 So it is a consolidating sector. There are some high class management teams out there performing extremely well, and one would hope perhaps to be able to invite one or two of those to join us over the next three years. Thank you. Thank you, Martin. Another question which I'll I'll I'll take at you is, you know, what percentage of the company is owned by employees? It's approximately 15%, I think, across the board and management team and employees, and also every employee is an option holder. We think it's very important for alignment not just in terms of investment investment returns, but corporate activity as well. So there is a definite sense of ownership across the group. I'm just gonna move to the next section, which is on sort of investees. And, Julian, if I can go to you. You you you answered one question on on investees, but there's another question here about prices seem to be hot in the market. How do we ensure we get get caught up in that trap? How do we price these businesses when we want to get into them?

40:07 Yeah. There's there's many there's many tools we we can use in terms of the pricing. Clearly, we we we have to look at what what the market is paying and and and, critically, what on on the on the on the endpoint, what is the market paying in terms of exits for these sorts of businesses. So, you know, if if perhaps both the the entry prices and the and the exit prices are going up, and that's one consideration for us. We we can use various different forms of structuring, when we invest, so we don't have to just go in, plain, vanilla ordinary shares. So that's another tool we can use, and we're seeing that, coming through in into the market. And, course, you know, we don't, you know, we don't have to invest if we don't if we don't feel that the returns are right.

40:55 So so there are a number of tools in our armory available to us. Thank you. And and then just talking about exits, another question is, you know, do do are the businesses that we're exiting driven by trade acquirers, buyer interest reaching out to us, or is there a managed process, a proactive process in terms of getting those exits? Yeah. And the the answer is both, as you know, Mark. So so we do have a lot of inbound inquiries for for various different companies in our portfolios. Sometimes we we respond to those. Sometimes we don't. We do certainly organize formal processes when we think the time is right to exit a business.

41:41 And and we are looking all the time at at at at the markets that these businesses are are playing in to see whether there are some strategic prices available for those assets, you know, perhaps looking at tomorrow's price, today. So so I guess all of those, techniques we are using all the time. And and another question relating actually to valuations, and I've just put up slide 33 to do that, is one of how how, Julian, do you value with your team the portfolio? A question was, is it by revenue multiple? Is it profit multiple? What are the valuation metrics? Yeah. Well, maybe maybe we can do that this one together with with with Martin. But, I mean, you know, fundamentally, we follow the I the the the international private equity guidelines.

42:31 We which now kind of looks at the concept of fair value in terms of our portfolios that that is typically benchmarked against some third party input, be it another investor in a round, perhaps a market event. But but also, we we calibrate those investments, and in some cases, we do value our investments on a profit or a revenue type multiple, but but fundamentally in a in a in a prudent fashion and and following the appropriate guidelines. Anything to add, MERCIA? Yeah. No. I think the one other thing to add is that well, two things, actually. First of all, if you looked at this pie chart, probably four or five years ago, you would have seen that the majority of the investments are valued at cost because we it was a very early stage portfolio.

43:27 And then probably, secondly, it would have been the price of recent investment round where we brought in a third party syndicate investor. And what's great about this pie chart now is you see the the 43% of the portfolio is valued at an enterprise value, which shows that that these young fledgling businesses do now have revenues or profits or other other metrics by which you can apply an enterprise value. And the second point I was just gonna make was that under these guidelines now, one has to calibrate. In other words, you can't just use one valuation methodology when you're considering the the carrying values of your investment at each six month period end. And so when Julian and his investment team are considering the the fair values for these investments, they're using more than just one investment valuation methodology. Thank you. Thank you, Mark. And I guess the to just reassure those listening today is if you look at the exits that the balance sheet's made, they've all been for above holding value.

44:17 So I don't think we can be criticized for overvaluing these businesses in in that respect. Another question on investees, which Julian, I'll take because I'm in the life sciences team was about Sense. Now somebody's pointed out that Sense is Julian pointed out is the one to watch business or one of the ones to watch. It's a very exciting business, and the question was, you know, we've got COVID upon us with Omicron, etcetera. You know, business like that has got a great product. What, you know, what's delaying it get to market? Actually, it's always about preparing for success very often with venture. And at the moment, this business isn't thinking about producing hundreds or thousands. It's thinking about producing hundreds of thousands of units. And therefore, at the moment, what it's focused on is its ability to scale up manufacture. It has a product and a platform that works. Now it's about scaling it up. So that's where the effort is focused on that team and an exceptional management team within that company.

45:09 There was questions in respect to funds. So so one question that was asked, we talk about ways of growing the funds under management organically. And I think if I can just take that one, if if one splits the sources of capital into three pots, so we have retail, we have institutional, and what we would describe as pseudo public sector. So on retail, we have the VCT funds that we've talked about and EIS funds. Both of those funds are performing well. They can grow organically. What we don't want to do is raise too much money. We want money to match the opportunities to what Julian was saying that we can actually get in a sensible valuation. We know we can scale both of those, much more, in terms of EIS and in terms of VCT.

45:59 In addition to that, as well as just scaling what we already do, we're looking at new initiatives. So in January, we'll be launching, an EIS impact fund on a preapproved knowledge intensive EIS fund, and that will very much focus on purpose led impactful impact businesses. We expect that, as I said, launch in January and be investing actually into the new tax year. That is our sort of, foray into that area. We think we're very good at that. If you look at our portfolio, there's a tremendous amount of businesses applicable to that. If that is successful and we deploy successfully, we'll look to scale that part of it up as well. So that's one area in retail. The next area, institutional, relates really to venture and to our private equity. That latter first, the private equity, we have a number of legacy private equity funds. We have one that's into its final year now of primary investments performing extremely well. All of those have performed well, and we're looking actually, within the next twelve to eighteen months to go out and, and actually launch a larger PE fund, but still focused on that same market, but broadening out from not just across the North Of England, but across The UK through our enlarged footprint that we developed over the years.

47:09 The other one is within venture, and we're looking at so the regions are strongly play into what we call enabling tech. And what we mean by enabling tech is is a technology that can actually greatly accelerate the value of a third party one. So if we could use Oxygen as an example, I think it's a really good example showing enabling tech. That was a platform developed which can enable the upscale and manufacturing of biologics. They very successfully developed that at Oxygene to a sort of 10 to a 100 times improvement in terms of fold improvement. Of course, OXGEMENT was then leftly sold to to Wuxi. But great example of enabling tech. The question was, surely you can look to do specialist funds? And absolutely. So we're looking at whether we can do an enabling tech fund that's focused on the verticals that we've got discrete expertise in within MERCIA and have that as a venture fund going through. And if you look at the internal fundraising capability and capacity within MERCIA, These fund initiatives are things that we would like to offer to all of our investment groups. So if there were people in retail that wanted to get into that ten year VC fund and the impact fund, etcetera, we will make sure that these fund opportunities are shared across that distribution platform.

48:19 And then the final piece, and I'm gonna ask Julian to comment on this, is within what we sort of term loosely pseudo public sector. And what we mean here is British Business Bank. We have a number of British Business Bank funds. We have a very good and productive relationship with British Business Bank, and we think we're doing well with their funds under management. There's a new generation of those coming through. And if I could pass that to you, Julian. Yeah. So the current the current structural funds have been extended to the end of twenty twenty three. And between now and the end of twenty twenty three, British Business Bank has said that new fund mandates will be in play, and they will be bigger and cover a wider part of The UK.

49:10 So we we think we are in a in a great position given that we currently manage circa 40% of the existing British business bank backed funds. We think we're we'll be in a good position to help, again, the bank to to deploy and return capital in the new generation. So we'll be, we'll be preparing, very strongly over the course of the next two years for for those. Thank you, Julian. And then the final question, which I'm I'm gonna pass on to Martin, which is to do with, further future fundraising, on the market in terms of will we be raising money at a discount to NAV? And, mean, just to remind everybody, early on, we said, you know, the balance sheet is in an evergreen status, so we don't anticipate raising money for the balance sheet investment activity.

50:02 But I'll pass that broader question on to Martin if I could. Yes. Thank you, Mark. And I think there were actually there were two two aspects of that fundraising in December 2019, which understandably upset some of our shareholders. And one was the discount size of the discount. And secondly was the fact that there was no open offer, and that's something that I think we've said publicly since then that we we've regretted that it were there to be a fundraising in the future that would definitely be an open offer element for all shareholders. I would stress at this stage that we have no plans at all to raise any money for any come back to the markets. I would reflect on where we've where we've arrived at two years on. So the share price before that placing was 32p. The placing price was 25.

50:48 The share price, I think, back is today is is above where it was before the placing, I'm pleased to say. And the NAV per share before the diluting placing is lower than where we are today. We are back at where we were two years ago. So I would like to think that now that we have fully proven ourselves and also, of course, we weren't actually profitable back then two years ago. We weren't generating any adjusted operating profit. So I would like to think that were we ever to come back to the market at some point to raise money for an acquisition that were there to be any discount to the prevailing share price, it would be considerably smaller than the discount on the 2,019 placing. Thank you, Martin. Mark, Julian, Martin, that's perfect. Thank you very much. I think you've addressed all those questions you have from investors. And of course, the company review all questions submitted by investors today, and we'll publish those answered on the Investor Me company platform.

51:41 Mark, perhaps I could ask you for a few closing comments before I redirect investors to give you some feedback. Thank you very much, and thank you, everybody, for taking the time to listen to what we think are very promising results going forward. The model is one that is using a rather unique combination of managed funds and proprietary capital looking to take capital predominantly out into The UK regions. And what these numbers show is that the regions deliver value and that we're our aim of delivering value to our shareholders, which is one of capital growth and yield, is starting to come through fruition as we see share price climb we and see a progressive dividend policy go forward. So I'd like to thank all our shareholders for the support and also the fact that we expect this positive momentum to continue going forward and look forward very much to updating you on our next set of results in due course.

52:28 That's perfect. Thanks for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order that the company the management company can better ups understand your views and expectations. This will only take a few moments to complete, and it's greatly valued by the company. On behalf of the management team of MERCIA ASSET MANAGEMENT, we'd like to thank you for attending today's presentation. That now concludes today's session. Good afternoon to you all.