Mercia Asset Management (LSE:MERC) — Interim Results Investor Presentation

0:02 Good afternoon, ladies and gentlemen, and welcome to the MERCIA ASSET MANAGEMENT PLC Interim Results Investor Presentation. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today, and these will be published where it's appropriate to do so via your Investor Meet company dashboard.

0:33 This presentation is scheduled to last for around forty five minutes with time for Q and A. Before we begin, we would like to submit the following poll. And I'd also like to remind you that this presentation is being recorded. I'd now like to hand over to Mark Payton, CEO Martin Glanfield, CFO and Julian Viegas, CIO of MERCIA ASSET MANAGEMENT. Good afternoon to you all. Thank you, Mark. Good afternoon, and welcome, everybody.

1:05 My name is Mark Payton, chief executive of MERCIA. I've got something like twenty years in capital deployment and commercialization of predominantly tech businesses and most of that within venture and also the cofounder of MERCIA.

1:19 Yes. Good afternoon. I'm Martin Glamfield, the chief financial officer. I joined MERCIA just over six years ago to float the business with MERCIA. And my my career background is as a CFO of mainly publicly traded and private equity backed businesses mostly in the tech space.

1:36 Thanks, Martin. Good afternoon, everyone. My name is Julian Biggers. I'm the chief investment officer, and I oversee all the group's equity investment activities. So I've been a fund manager with MERCIA since 2004. I've seen 10 IPOs, multiple trade sales. One of those was Blue Prism. Where we're the first investor back in 2004. After its 2016 IPO, where we still held significant stake, we subsequently sold our entire stake down, generating returns of 95,000,000 for our LPs against our $9,900,000 investment cost. Thank you, Julian. This first half of this financial year has evidently been a very strong half for us, and that's driven in large part by the growth in assets under management. And they've grown approximately 78% compared to this time last year to $872,000,000.

2:39 And with that growth comes a strong growth in revenue, up 51% compared to this time last year, reaching GBP 8,400,000 for the six month period. The growth in revenue has led now to an operating profit, an adjusted operating profit of GBP 1,100,000, and that's up from a loss of GBP 600,000 again this time last year. And that growth has been predominantly driven by the third party funds that we manage. We manage funds across debt, private equity and venture. And those funds have grown over the period this time last year by a 100% to £722,000,000. And I think an important point here to note is the strong liquidity across all of those funds, £255,000,000 in unrestricted free cash to invest in the coming period.

3:29 Coupled with that growth in the funds has been strong performance from the balance sheet investment, our proprietary capital, and I'll talk a little bit more about that model in a moment. We've seen positive fair value movements of £6,700,000 over this period. And when you couple that with the investment activity that we've made from our balance sheet, that's an increase in the portfolio valuation of 16.2% for this period. Also important to note is we've had two full cash realizations in this period and just post period end, a further one. And what that means is that in addition to that 255,000,000 in our funds, we've got 25,000,000 on our balance sheet cash in hand, and that is up from this period compared to last year by 40%.

4:15 So the the model is delivering. It's a resilient, scalable business model that we've developed combining third party funds with proprietary capital, And that's reflected in the fact that we've used no government support schemes at all, no furlough schemes, no seed oil schemes and strong positive growth against our three year objectives. We're at the midpoint at that point, eighteen months into that. And that strong growth is driven by the high quality revenue we generate from our fund management business, which has got a recurring fee model and a smooth 2% management fee across that. And that's why we're at this point today, which is very much a landmark point for us, where we declare our maiden dividend of 0.1p per share. But important to note, this is a progressive dividend policy. This is where we start to return back to our shareholders capital we've generated.

5:08 And that shareholder value creation that we've been developing at MERCIA over the years has two parts to it. It's the fund management part, which is generating the income that serves the dividend, and there's a capital growth, which is our direct investment. And we have good fee income visibility from our funds because these are typically ten year funds or evergreen funds. So we can see for some time the income coming from those, and it is the profits from the fund management element that serves our progressive dividend policy while we are confident in the continuation of that. We see also growth in our net asset value from our direct investment activities, and Julian will talk a little bit more to that in a moment. But that's the maturity reflective of the maturity of those assets that we've been investing in over the years. And you combine the fund management business with the proprietary capital and the significant advantages of being a regional investor, and we have developed what we believe to be a sustainable and highly competitive advantage, which is highly scalable too as evident from these results as we look to grow the business further because we have a very talented investment team within MERCIA and support infrastructure for that team and couple that with a very well capitalized business across our funds and our balance sheet means we're well placed to take advantage of opportunities as they present in the coming period.

6:27 And the business model I alluded to a moment ago is reflected nicely within this slide, which has the combination of our third party funds and our balance sheet capital. So within the third party funds, we are typically investing in younger businesses and supporting them over time. As they mature, we then look selectively to co invest with our proprietary capital, our balance sheet capital. We also look to invest on a selective basis into a number of our managed funds as an LP minority investor. The table below shows how our assets are spread across the various asset classes, venture, private equity, and debt. And venture is very much coming into the fore at the moment with structural changes that we've witnessed during this pandemic driving ten years of change in as little as ten months of development through it. And venture is something that we see as a great opportunity going forward with a portfolio heavily weighted towards digital software and life sciences. And that defines the nature of MERCIA as a proactive specialist asset manager. We support boards, we support strategy, and we drive strategy in our businesses and focus very much on the regions.

7:36 And why the regions? Well, as you see in this schematic in the top left, what you've got there, our big blue dot, is London. So approximately half of all equity investments in 2019 took place in London. Below it is the important piece that we look for. We're looking to back businesses, what they call high growth firms that are growing at about 20% per annum. And what you'll notice here is almost 80%, 80% of those are based outside of London and in the regions. Central schematic there has where we're located. So Julian, Martin, and I are talking from our Henley and Arden office in just outside of Birmingham today. We have eight offices across the regions. We have 19 university partners within the regions and account for about 15% of the deal flow that we do. And our regional funds, the funds under management, you can see there are spread across the regions too.

8:28 The box on the right of us is is really important because it sort of defines the types of businesses that MERCIA supports. We typically look at businesses that have quite modest capital needs, and what I mean by that is they typically need less than 20,000,000 in their entire journey going forwards. And we look to sell businesses, have enterprise values of typically 20 to 200,000,000. And if you look at the IPOs and trade sales that we've had historically, you'll see that they fit nicely within that. And when you look at that market, that addressable market within The UK regions, approximately 1,000,000,000 per annum is invested there, and we expect to invest about 80,000,000 in this period. So that's a large addressable market that we are making inroads to and expect to take much more going forward as we hunt for these SMEs, these small to medium sized enterprise ventures across venture, across private equity, and across the debt markets.

9:20 And the final point here, I think, is really pertinent, and this is that traditionally exit routes, and this is a model that looks for good businesses and exits them profitably. Exit routes have traditionally been majority majority, excuse me, trade sales, some IPOs, but what's now come through are secondary events. There are large pools of capital in private equity and in venture, and those pools of capital are looking to make positions in businesses and buy shareholders out. And we're seeing more and more activity in secondaries, and we expect that to continue to grow into 2021.

9:54 In terms of our strategic objectives, when we set these out eighteen months ago, we wanted to move the group, the asset management group, into becoming a profitable basis on the basis of adjusted operating profit. From these results, you'll see we've moved considerably into that, and now it's about over the coming eighteen months and for and following that, it's about growing that adjusted operating profit. The second point was to grow assets under management. Eighteen months ago, we had approximately 500,000,000 in assets under management. We're at 870,000,000 now, and we are confident that we will exceed the billion as we go forward. The next point is to evergreen the balance sheet. This is about building a sustainable model, and we are very confident. We've had the three exits that I've mentioned that within the next eighteen months, that balance sheet will evergreen.

10:45 And by evergreen, what I mean there are the exits that we make, the cash returns we make exceed the investment activity that the balance sheet makes. And the final objective here is to become the number one provider of capital in that target market, that addressable market I just described. We are one of the leading investors in the regions. We expect in the next eighteen months as we continue to scale to be the number one provider of capital. Martin? Great. Thank you, Mark. Notwithstanding the extremely challenging and uncertain economic backdrop of the past six months, these results demonstrate both the tangible progress that MERCIA has made and the resilience of our business model. And perhaps if I just give you a couple of statistics around our revenues, this will demonstrate what we mean by the resilience of our business model.

11:32 Of our total revenues in the first half, 93% came from our fund management operations. And of course, those those funds under management are either evergreen or they are very long dated, typically ten year funds under management. And secondly, of our total revenues, approximately 83%, we self build as the manager of those funds. So not only do we not have to worry too much about where our customers are going to come from nor do we have to worry too much about credit risk. Mark's rightly mentioned the movement adjusted operating loss last year to an adjusted operating profit of GBP 1,100,000, and that, again, is significant progress and has led in part to our Board's decision to announce our maiden dividend.

12:16 Julian will talk more about the realized gain and the fair value increases shortly. But it is good to see that our net assets have recovered to GBP 150,000,000, and that in itself has led to the beginning of a recovery in our net assets per share of GBP 34.1. And we obviously expect more to come in the second half and beyond. And within our net assets, that GBP 25,000,000 of liquidity and no debt on our balance sheet places us in a very strong, as I said earlier, resilient position.

12:49 This next slide is shows you the movements in the assets under management during the six month period. So we started the six month period with approximately 800,000,000 of assets under management spread across our four asset classes of venture, private equity, debt, and our balance sheet proprietary capital. And during the period, you'll see that the majority of the growth has been from the recovery in asset values in our funds under management as well as obviously in our balance sheet as well. And that's really encouraging as we look to the second six months of the year. The small net inflows and outflows during the period are really partly as a consequence of our focus during this period on our existing portfolios and the existing funds under management because preserving those businesses as much as possible and making sure they are properly funded has been the key focus.

13:37 We've raised a small EIS fund in the period. We've had a private equity distribution to the limited partners in one of our funds. And one of our debt funds has has finished its investment phase, but we have also successfully raised a new debt fund. The income statement consolidated income statement on this slide demonstrates a couple of things. Firstly, apart from that strong revenue growth that MERCIA mentioned at 51, what you can also see there is, in fact, our our total costs have only increased by 17% in comparison. And what that demonstrates is the beginnings of the operating leverage of the scale of the business that that we've created. During the six month period, it's been quite challenging to hire people remotely.

14:23 So And some of the people that we would normally have expected to hire in the first half year, we are actually hiring in the second half of the year. So we do see our costs increase in the second half to fulfill some of the mandates that have been won over the last twelve months or so. However, as asset prices are recovering and where those asset prices are linked to our fund management revenues, we will also see expect to see an improvement further in our second half revenues. I think it's finally worth noting on this slide that the profit after tax is almost four times what it was one year earlier. And moving on to the balance sheet, it's good to see that the direct investment portfolio is back above GBP 100,000,000 in fair value. And again, Julian will go into that in detail in a moment, and you can also see that 25,000,000 of unrestricted cash.

15:11 We have had a question, which is a very good one, about the deferred tax balance, and I'll very happily come back to that and answer that when we get to the Q and A section.

15:22 Our business model is about generating operating cash flow as much as it is about generating operating profits. And what's pleasing to see in the first half is that we generated net cash operating inflow of £2,000,000. And what you can also see in the cash flow statement is the 10,900,000 net that we invested into the direct investment portfolio in theory. Thank you. Thank you, Martin. Okay. Thanks, Martin. So across the six months, within our business, we saw, 1,200 deal inquiries, an expected significant drop off in activity in April and May. And our deal flow in the past run rate of around 3,500 per annum, so we're below that. Well, I guess that is industry wide, and no surprise given that some of the channels that we did see, deals from in the past, you know, kind of face to face meetings, events, conferences have paused.

16:24 So since the summer, we've really focused on deal originations. So, we've done a number of things. We've comprehensively ramped up our, digital engagement across social media, and virtual events. We've also undertaken some direct outreach. So we do track and and profile a number of businesses that we have contacted directly, and we've used our nonexecutive directors. So we have circa 600 nonexecutive directors in our wider group, and we've we've used those to help us source deals as well. So we have invested £42,000,000 across the business in the period, supporting 50 plus existing portfolio companies with with circa two thirds of that 42,000,000.

17:17 We've also invested in 26 new deals, and those are mainly across our venture and debt divisions. We do now have three offers out on our PE funds, and one deal from the funds did transfer across the balance sheet. And that was a business called MIP MIP Diagnostics, which was a co investment with BGF. So now 400 companies across the portfolio, and and we are seeing, again, increasing deal

17:49 flow numbers. Thanks, Mark. So into our third party funds. So having worked through a number sorry. Certainly, the the last two periods post 2000 and then 2008, we we knew it was critically important how we acted during this last period. So in March and April, we assessed very quickly our existing portfolios, each company, their prospects, where they sit in the market, supply chains, etcetera, And we've taken a a a longer term view against those assets, but conscious that we have also provided some very, shorter term, both advice, access to our networks and venture partners, and also funds.

18:42 We've been decisive, straight, and transparent with our investors and our investors. And we know that,

18:50 in the eyes of our LP clients, we are performing strongly. So in our regional funds where British Business Bank is a key investor, across the Northern Powerhouse venture funds, we've continued to invest across the period. And also, in our Northern Powerhouse debt fund in July, we very quickly attained CBIL's accredited status. And since July, we've invested £8,000,000 and 32 deals, in our debt, area. So in during sorry. Last week's spending

19:28 review, it was announced that another £100,000,000 was going to be allocated to the m to the MPIF region and funds, and we do currently manage sort of 40% of the current £400,000,000 in that in that part. So another key client for us is the Greater Manchester Pension Fund. As Martin said, we have, again, with their support raised another debt fund in the summer. And going on to our private investors, these are, in our VCTs and EIS funds. So our VCTs have also, recovered, in terms of their net asset values over the period from March.

20:14 And in our EIAAS funds, we are benefiting from a stronger pipeline due to the deal origination activities that we've, been undertaking and also the cash returns back to those investors. So that's enabling us to raise bigger, larger amounts of EIS capital. So we're making good progress across our third party funds.

20:37 Thanks, Mark. So on to our direct investments, our proprietary capital. So we are continuing with the theme from six month six months ago where we're concentrating our effort on the top 10 assets. So we are strengthening the boards, acting with our coinvestors. So we've added two new CFOs and are actively looking to appoint new chair across two of those assets. And and now a significant proportion of our companies are funded through 2021.

21:16 So we have invested, just shy of £11,000,000 into 14 companies, six of those alongside our funds, a number of others alongside the future fund.

21:29 And within that is one new deal, as I've said, MIP Diagnostics in the period and one further, new investment from our balance sheet post the period end. So in the period, we sold, the Native Antigen company, delivering strong returns and a £1,700,000 realized gain. And after the period end, also, ClearReview was sold, returning twice our cost, in a in a short period of time. So we've seen,

22:03 no significant additional co COVID, sorry, COVID related effects. In fact, we've seen, resilience in our portfolios and the general recovery since March. That's really reflected in the 6,700,000 of positive fair value movements.

22:24 Okay. So we can see this in this chart. So we start the period with £88,000,000 portfolio value. To that, we added the 11,000,000, saw the effect of of the native antigen sale, and there you have the 6,700,000 of fair value movements. You can see that split largely across five five assets to leave us with a portfolio value of 102,000,000 at the period end.

22:58 So a little bit more detail around our top assets. So just to reiterate, we do hold significant stakes in these assets, and we do expect to hold these assets for between three and seven years. Now we're about, on average, across the portfolio three years in. We are very active investors. We sit on the boards of of all of our assets. And as you can see, these assets are all growing, and that's their revenues, in terms of their product portfolios. We're seeing some interesting and and and very relevant third third party reports. In the case of MEDHARANT, some, three new pharma collaborations in the period.

23:47 So just a little bit more, detail on End Dreams. So, as you may know, the the Phantom game was launched, very successfully in June to great reviews, very strong sales, continued promotion we've seen, from Oculus, especially during, the last few days and and, onwards at Christmas. We've also ported one of our older games onto onto Quest,

24:17 and we are expecting the next game will come out in the first half of next year on a different platform. We've also seen some pretty favorable market dynamics across the last six months or so.

24:34 So we know that preorders of of of the the latest Oculus Quest headset were five times the level of of previous the previous Quest, which is great. And also Sony and Facebook have both both been inquiring VR capability. So elsewhere in the top five, Oxygen and BoxPop Me, both growing strongly, as is Intechnica. I guess no surprise really for Intechnica given its consultancy and product businesses both sit in the ecommerce world, both ecommerce ecommerce efficiency and security. PLC So the the NetSET product business is is looking at the problems of bot management, account takeover, and indeed ecommerce queuing.

25:26 So happy with the progress of the top the top five there.

25:31 Thanks, Mark. So into the the next five. So you'll see now that in our top 10 is is LOCATE bio. So that is in place of the native antigen company. So Locate are developing new bone substitute that's safer, delivered more accurately, and at lower doses than current market products. We've also acquired a suite of complementary bone growth products recently and are strengthening the team at LOCATE. On ImpressionTech and Warrick, both of those investments are developing and selling their innovations into, ultimately, auto sector end users.

26:19 And in the first quarter post lockdown, we saw all of the engagement really did pause in that in that sector. But now we're seeing reengagement, which is great, from the likes of JLR, Polestar, and and Porsche Audi against those assets. For Adyen, which is our sodium ion battery technology business, that continues to see strong interest. And on intelligent positioning, we've taken, a small additional impairment given some of the churn issues that we saw, across the summer, but we are now thankfully stabilized. So, again, across these assets, we're making, good progress.

27:05 Next one. Thank you, Julian. So in in summary, I mean, these are strong results. We're very pleased with these results. You know, looking at the income generation and the revenue growth from assets under management Klein, 8,400,000 up up a material amount from year on year. The the important point here, what I wanna really bring out in this bullet point is the the degree of contracted recurring revenue. So 87% of our income that comes in is on a contracted recurring basis. So we can look out with with some confidence and model what was coming through as we look to scale those funds. And those funds are not these are private funds, so they're not public funds that are subjected to redemption calls, etcetera. These are long dated funds, typically ten year funds or evergreen funds.

27:56 So again, back to the confidence of that recurring fee and capital to deploy. But importantly as well, a number of those funds, be it an EIS, be it an VCT, as Julian just talked about the MPIF funds across the region, but we also manage the Midland's engine investment funds across the Midland. Those are having additional capital allocated as the government looks to grow the regions as part of the economic recovery. So there's a lot of organic scaling and hence our confidence on the billion being achieved. And importantly, these are well capitalized. The funds, 255,000,000, 25,000,000 on the balance sheet. We have substantial dry powder to be investing going forwards. And in terms of the balance sheet evergreening, what we have here is a diversified portfolio in terms of sector. Majority are in the life sciences, digital or in software, but also diversified in terms of stage of growth. So these are young businesses, new businesses added to the balance sheet, but also maturing and high revenue growth businesses as well.

28:55 I think finally, these are good set of H1 results, but the three of us here looking into H2 are confident that, that will continue and then will continue to the following year. And that's why, as I said, it's a landmark event in terms of the declaration of the maiden dividend, but we're also very confident in the progressive dividend policy that we're developing. Thank you very much for your time and thank you very much for attending today. That's brilliant. Thank you, Mark, Martin and Julian. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your submitted today. I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard.

29:41 I'd also like to remind you that your feedback is important to the company. Immediately after the presentation has been ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations, and we'd be very grateful if you could do so. Mark, Martin, Julian, we had a number of presubmitted questions, And I am mindful of, obviously, time. I know you've got a number of institutional meetings scheduled. So perhaps if I start off with these pre submitted questions ahead of looking at the questions that have come in through the Q and A tab. The first question reads, how would you compare your life science activity to those of Cycona? And does this help explain the relatively relative difference in price versus NAV? Yeah. I'll take that one.

30:29 Yeah. So so Sincona typically invests in in more capital intensive therapeutics businesses, I think, and and a number of those are, in fact, listed on on on significantly higher rated US markets, Nasdaq, for example. So I think that does really explain that difference. The the the following question that we had, and and this was one of the two questions. It's slightly long winded, but I've just cut out a bit. It said, can you give investors an update on SENSE biodetection's rapid molecular test for COVID-nineteen? Yes, I can. So SENSE is looking at developing a new class of of ultra rapid, which is which is calling true POC testing.

31:22 So they are currently refining their manufacturing scale up plans for a FDA emergency submission order to enter The US in q one twenty twenty one. Alongside that, obviously, we've we've announced, our, co investment alongside US investors in a a significant fundraising, $25,000,000, just recently. Okay. Well, thank you very much indeed. So that that deals with those that, received pre event. If I could just ask you just to click, on the q and a tab, if I could ask you, if we start at the top and I can follow you down, there's obviously, a number of questions that come in. If I could ask you please, if it's possible, just to read out the question and where appropriate, just give your response. And to all investors today, if we don't get around to your question, obviously, what we'll do is we'll review this post the event and publish again on the website where it's appropriate to do so. So perhaps, Mark, I could hand back to you, if that's okay. You can see the Q and A. I'll hand back to you, sir.

32:31 No, no. Perfect. Thank you, Mark. And thank you for the questions that have come through. And hopefully, we've got enough time to address, if not all of them, a majority of them. The first question, which says, can we have as much detail as possible about the 3,500,000 deferred tax liability, please? What has caused it to arise? When might it fall due? Also, which direct investment are you most excited about? So that that last question about the direct investment, that that that's always a bit like like asking which is your favorite child. So it's a little unfair, but I will pass you to Julian and perhaps he can pick a few of his favorite children. But the first one in terms of the tax, I'd like to pass it to you, Martin. Yes. Absolutely. And and I'll apologies in advance for giving a very boring answer to a very good question around tax. But if we could go to mark on slide 13, if that's possible. What you'll see on the balance sheet is a deferred tax balance at the end of September of 3,600,000.

33:23 And the question is really how does that arise and when is it payable? And the the good news is it probably won't be payable. So if I may, I'll briefly explain. So when one makes an acquisition, the the current accounting rules require you to assess the purchase price and break it down between tangible assets. We bought a business with Plant and Machinery, for example, or intangible assets, which would be future revenue streams that could be predicted with a degree of certainty, and then the remaining balances these days is called goodwill. So when we acquired, the three VCT fund management contracts for a total consideration of up to £25,000,000, we had to assess and allocate that 25,000,000 across those three asset categories. There were no tangible assets. So therefore, was a question of looking at the future predicted revenue streams likely to be derived from those three contracts, apply a DCF to those, and then that ends up being the intangible asset, which is sitting on our balance sheet, which we then are writing off across through the p and l account over a ten year period.

34:28 At the same time as one assesses the likely future cash flows or profits of a particular fund management contract, one will make the assumption that one will pay corporation tax on those profits in the future. And so when one creates the asset on the balance sheet, one also creates, if you want, the the deferred tax balance, which is the likely tax you will pay in the future on those profits. Now, of course, you will only pay tax in the future on those profits if you have taxable profits and you have no taxable losses to offset against your future taxable profits. If you then go back one further slide and you go back to slide 12, what you'll see on the tax line at the bottom is not a tax charge, but it's a tax credit.

35:15 And so what that is is a six month write off, back to the P and L account of that deferred tax liability and where normally one would expect to see that matched with a corporation tax charge. However, in MERCIA's case, we've spent, you know, five to six years building this business and during the course of that period, we've accumulated significant tax losses. So we are in the fortunate position that we have no tax to pay on our profits for the next few years. And therefore, that deferred tax balance, as I said just now, is, is something that once we write it back to the p and l, we don't actually have to pay any corporation tax for the next few years. Excellent. Thank you. And, Julian, just in terms of favorite children. Yeah. As you rightly point that, Mark, that's that's a very difficult difficult question and and and one that that that I can't I can't begin to answer. I mean, the reason that that we've we've made the investments we have is because we see each one as having significant and and strong prospects.

36:20 So, you know, I've I've outlined the top top five and and some within that, and they are growing strongly, which is which is a great sign. And we are seeing, you know, some some of the structural effects in the market really coming towards some of these assets as well, which is which is great. Brilliant. Thank you. Next question is who are the third party fund providers? What what I'm hoping that you will have picked up from the presentation is actually just as our portfolio is diversified, so are our clients and investors in our funds. So we have tax efficient funds such as enterprise investment scheme, EIS, and venture capital trust, BCT funds, which are either retail or high net worth. We also have institutional funds, investors such as Greater Manchester Pension Fund that you've heard, West Yorkshire Pension Fund, if you like, really valuable institutional investors such as British Business Bank. So really diversified mix of institutional investors as well. And those are funds that we're delivering against. And there is a question later on about delivery, I'll I'll bring that up again in that regard in terms of performance.

37:31 The next question asks, how do you source the new investment targets, Julian? Yeah. I covered that in our presentation some somewhat, and that that certainly has has changed to to a degree over over the period. So historically, we we would have been very active out pounding the streets conferences and events and and and the like. Clearly, that's not been possible. So, you know, we have we have done a lot of stuff on online. But, crucially, what what we have done a lot of, and we we always have actually, is is is look at our existing networks our nonexecutive directors because what we find is is it's those individuals that good companies typically flock towards. So that's a great source of deal flow for us.

38:25 Thank you, Julian. There there are, Mark, there are a number of questions that relate to the discount to NAV in terms of our share price. So rather than reading them all out, if I can just bring them all together, think that's probably the best way of dealing with it. So so, you know, we've got a as Martin showed, we have a NAV per share of just over 34p, and we have a net asset value of about a 150,000,000. But both M plus one and Canaccord brought out research notes on valuation metrics for asset managers, specialist asset managers MANAGEMENT such as what MERCIA And there, what they do is they combine PLC a multiple on operating profit and multiple typically on this adjusted operating profit of between ten and twenty five times and combine that with an asset value to arrive at a valuation per business. Of course, the challenge has been MERCIA moving into that profitable position, which we have done now.

39:15 So the NAV per share is what it is. The net asset value is what it is and so is the operating profit. Our expectation is that the share price will find us now that there is a clear metric to measure us against. And so I think it's always you know, I'm sure every chief exec that ever presents to anybody here will say their business is undervalued. What our faith is is that the market will find the value and that we've now got clear demonstration on what those metrics are for that value determination. There is then questions, and again, Mark, forgive me for grouping these together, but there are questions on fund performance and performance fees. There's several questions on that. So our funds are private equity, venture, and debt. In terms of their performance, they're they're performing very, very well, I have to say. In terms of our venture funds, one of our oldest venture funds has been one of the leading performance funds, and that was driven, and Julian talked about it, by Blue Prism, which was an investment in that fund and returned something like 5.7 times its money back to the investors, which is exceptional for a venture fund, an early stage venture fund. Our EIS funds are performing well and have now moved into performance fee territory.

40:27 That venture fund I talked about was in a carried interest territory, and our private equity funds are also performing well with two of our our oldest private equity funds also in carried interest. And carried interest or performance fees are a metric to measure a successful manager against because, of course, that's the point when the clients, the limited partners believe that their expectations of success have been exceeded and they're sharing those returns with the manager. It's also fair to say that we don't budget for those those sort of one off fees, and we don't build them into our forecast. The next question is when will dividends be paid? Yes. And I'm pleased to say that the dividend will be paid on the December 30 to shareholders on the register at close of business on the December 11.

41:15 Another question is, as a potential investor, I am concerned by your track record of making NAV diluted equity raises. Should I be concerned about this going forward? So so 17% of the outstanding shares in MERCIA are held by the board, across the executive team and the board. We have, as an executive team, invested in the business at a number of occasions, and dilution is something that is keenly felt by us. Now what we've built is a business now that is generating cash through its fund management activity and one which we are confident will evergreen itself through the balance sheet activity. This is a sustainable, profitable business that's now been built. Now say for any kind of corporate opportunity or something in the future that is planned and it isn't planned at the moment, we do not envisage going back to the city to raise further funds.

42:05 There are several questions on the assets under management target of 1,000,000,000 asking, a, is it achievable, or, b, can you beat it? We are very, very confident that it's achievable. And we believe actually by a significant margin and one question asked in the next five years, what will you do? That we do believe in the next five years, we will substantially grow assets under management. But you'll have to forgive me. It's not the sort of thing that we can declare in a public forum like that. But we do we have made a commitment over a three year period of which there are eighteen months remaining to grow that to at least GBP 1,000,000,000. And of course, we are building as a group how we will exceed that target over the coming years as well. Mark, I'm obviously mindful of time. We're coming up to the forty five minutes, and I and I do know that you've got back to back meeting. So I I just wanted just to perhaps ask you just to scour through, you know, if there are any one or two last questions that you can perhaps pick up, and then we can review those ones that aren't post post event. Thank you.

43:04 Yeah. There there there's a question that's been asked about the deferred consideration, and if I can pass it to Martin, about when does the deferred consideration fall? Yes. So the the deferred consideration is in several parts. It's cash and share. So for the first three years post completion, so we're coming out for the first anniversary, the cash deferred consideration is 2,100,000 per annum. And the trigger for that is that the none of the VCTs have given notice under the VCT contracts. And always touching wood, I'm pleased to say that so far, that is not the case. And then the second aspect of deferred consideration, which is the share element, is relates more to the quantum of VCT funds that are raised over the three year period post acquisition and also the level of fund management fees which MERCIA receives during that three year period.

43:56 Thank you, Martin. And the final question as we draw to an end here is, what has been your experience on the uplift in percentage value on disposal of assets compared to previous fair value on balance sheet? Perhaps you can answer that from Mac and clear review, I guess. Hey. Yeah. So so certainly both both of those investments were were sold at at values which were ahead of the previous carrying value. So in terms of you can see that NAP was sold for a value of 1,700,000 above, clear review was broadly double the previous carrying value. So I mean, just concluding, in our experience, typically, we've been we certainly sell assets above the holding value, and that range has been anything from about 20% above the holding value to double so far.

44:52 But that's part of making sure you get the valuation right. That's brilliant. Thank you very much indeed, Mark. Well, thank you. I think, obviously, from a timing point of view, know we're there. But just to reassure all investors that all the questions that you've submitted today will be available for the company if we haven't got through them today. Mark, perhaps I could just ask you to just to wrap up. I know investor feedback is important to you. Obviously, what we'll do is we'll redirect investors perhaps after you've just concluded. Absolutely. This sort of platform, Mark, is excellent, and it's something that we've been looking forward to sort of connect, if you like, to our retail investors. So you should be applauded on that. Any questions or comments, please direct them to any three of us. We will address them. All of these questions as Martin just pointed out to me, on discounted cash flow, and I apologize for missing that one. We will address that as well, and we will feedback those answers to everybody. I hope everybody agrees with us.

45:43 It's been a strong first half for MERCIA. We expect that to continue going forward, and we look forward to reconnecting with many of you over the coming period. Thank you very much. Thank you, Mark, indeed. And thank you to Martin and Julian also for including investors as part of your results roadshow. Thank you very much once again. Could I please ask investors not to close the session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting from our website, the feedback page will appear. If you access via the link sent to you by email, you'll simply be asked to log in to then formally give your feedback. On behalf of the management team of MERCIA ASSET MANAGEMENT, I'd like to thank you very much for attending today's presentation. That now concludes today's session. Good afternoon to you all.