River UK Micro Cap (LSE:RMMC) — Quarterly Investor Update

0:00 Good morning and welcome to the RIVER UK MICRO CAP investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time by the Q and A tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you up to Lucy Draper, direct investment trust sales. Good morning.

0:33 Good morning. Thank you everyone for joining us today. Today, we're here to talk about the RIVER UK MICRO CAP investment company. Quick refresh. It's a LSE listed currency domiciled investment company investing in UK companies with a market cap below a 100,000,000. We believe we are in, a a generational opportunity to buy UK equities at the moment given cheap valuations and increased pressure on the dollar. I will pass you over to George Ensor, who's been the the portfolio manager on the fund for seven years. It was and,

1:10 yeah, over to George. Any questions, we'll we'll take at the end. Thank you. Thanks, Lucy. Good morning, everyone. Thank you very much for your time. So just to to add to that introduction background, I joined RIVER in 2014, March 2014, so I've been here for eleven years. We launched this trust in December 2014. So I've worked on this trust for over ten years. Took on the lead PM role in February 2018, and I'm also lead on our open ended small cap fund. So between myself and two very experienced PMs that also sit on both those strategies, Manu Deokumar and Anna Pugh, we run this trust, closed ended trust, and then an open ended smaller companies fund.

2:00 So the plan for today is keen to... This is our first investor meet company presentation. So I give the background, what we're trying to do, what we're trying to achieve, bring that to life with some kind of examples, dig into the portfolio a bit, what we've been doing recently. I'm very keen to spend some time on what's going on in The UK small cap universe. It's... We've got some pretty extreme charts to kind of illustrate what's happened over the last few years and kind of point to to the opportunity. And then I'll finish on performance, and we'll we'll open up for for q and a. So as I said, launch... We launched this investment trust in 2014. The the concept is that we believe that the very bottom end of the market, so that's sub 100,000,000 market cap, is overlooked by lots of investors, but but specifically institutional investors.

2:57 There's about 450 stocks that sit below 100,000,000. It's the bottom 7% of the bottom 10%. People talk about small UK smaller companies being the bottom 10% of The UK market with the bottom 77% of that. So the, you know, the the bottom 1% of of UK listed companies, and there's 400,450 companies down there. So we believe there's a brilliant opportunity to go into that part of the market and identify high growth companies that we can own for a long period of time, benefit as they both grow and improve their return on capital, but also rerate as they move up through the market cap thresholds and become investable to the wider small cap universe. So that's the theory, and absolutely that worked, I would say, from 2014 almost consistently through to 2021, perhaps with a glitch in 2019 when there was too big aversion to illiquidity in the market. It's been very tough from 2021 to, I'd say, 2024, and we're starting to see signs of life return to the market.

4:02 Have a very high conviction approach. 35 stocks, about half of the NAV is in our top 10 positions typically. And to be able to access these very small ideas... And and so it is... It's very important to flag that we invest sub a 100, but we run our winners as they go through a 100, one fifty, 200, and and all the way up. So to to to to enable both the conviction, but also the liquidity profile that we're taking on and have a very long term approach to owning these companies, We need to be closed ended. The other reason that we need to be closed ended is that we... To to remain small ourselves, we return excess capital to shareholders. So this is a unique mechanism that this trust has.

4:49 We... When the NAV gets above a 110,000,000 and up to a 130,000,000, we return that excess capital to shareholders through a capital redemption. We've done that five times. We originally raised 70,000,000 in 2014 and a subsequent placing in 2015. We raised a total of 70,000,000. In total, we've returned 77,000,000 to shareholders, and we've got an investment trust with a NAV of approximately $7.70 70,000,000 today. So that is very important to just flag that that that capital is returned so that we can retain the right size for us to invest in these micro cap companies.

5:33 I'm not gonna go into a lot of detail on our investment philosophy, but it's very important to understand our kind of guiding principle, which is that we're life cycle investors. And by that, I mean, we believe there are broadly three parts of the company life cycle where we can make good investments. So our investments are either growth investments, quality investments, recovery investments. In growth, we're looking for high revenue and profit growth. For quality investments, we're looking for high and improving return on capital. Recovery, we're looking for businesses that have previously been attractive franchises. They've gone through a period of decline. Don't wanna win the businesses in that stage of the company life cycle, and we look for catalysts for why those businesses might return to a similar level of margin or return on capital that they've previously delivered.

6:22 Within each of those categories, we are valuation disciplined, and we are momentum seeking. So we... We've got a fundamental... When we talk about quality growth and recovery, those are the fundamentals we're looking for. We are value disciplined, and we and we absolutely want to take advantage of momentum. This enables us... This approach enables us to do two things. The first is we don't think that we need to diversify our portfolio across sectors. We diversify our portfolio across where companies are in the company life cycle, and we think that's that's much more important. Admittedly, for this trust, this is a team philosophy. For this investment company, there is a bias to growth. And that's because if you're starting with a 30 or 40,000,000 market cap, growth needs to be quite a big part of the investment case. And so we do have a bias to growth.

7:13 The second thing... Aspect that our philosophy enables us to do is to be very focused in our research. And so we treat a growth company as a growth company, and we have a lens at which we analyze that company. And we have valuation metrics that we use for growth companies that wouldn't be appropriate for quality or recovery companies. And so we're very targeted in in the way that we approach these different investment cases. And, actually, when we get an investment case wrong and we lose money on it, it's usually because we've we've categorized the company at the... We've been wrong in how we've categorized the company's stage of the company life cycle. So that leaves us with what we call our our portfolio SKU, which is the allocation to growth, quality, and recovery.

7:58 This has been pretty consistent over the last five years, I would say. We've got this bias to growth, but we've also got some diversification coming in through quality and recovery companies. You can think of recovery as being more contrarian. So companies that have been up in small caps that have dropped down because something's gone wrong tend to buy them quite cheaply. We tend to put quite small positions in. They tend to be quite high risk positions. Quality tend to be your quality compounders. The growth has probably fallen, reduced, but very high return on capital in those businesses can use that that cash generation to reinvest in either inorganic growth or organic growth or return cash to shareholders. And then growth is the is the kind of mainstay, and we're looking for high, preferably organic growth, but it it often can come through through inorganic as well. And you can see on the right hand side how the portfolio is invested in free float market cap.

8:52 You know, we we always do run our winners, and so there will be parts of the portfolio that sits above 100,000,000. Probably a little bit less today than we've seen over the last five years. We've been... We spent quite a lot of time, and the market's helped us quite frankly over the last few years reallocating capital below 50,000,000, which is really our sweet spot for for investing capital. Our top 10 is here. I'm not gonna go into all of these in in loads of detail. Very happy to take questions on them. I would flag that Windward was acquired late last year. So that was a business company we put into the portfolio the prior year. So fourth quarter of twenty twenty three, we bought that business about 95 p. It's been acquired at the end of March twenty twenty five for 215.

9:41 So we've made an excellent return on that business. Serabi Gold is a gold mining business, clearly doing particularly well at the moment. Science and Sport disclosed yesterday through an RNS that they had received a bid. That's a business we've had in the portfolio for a long time that's starting to see see some interest. Investat would be another one I'd flag. That was one of the businesses we bought last year. It's actually a quality investment case. They're doing a buy and build of complex complex SIP providers, and they've just recently announced they've bought AJ Bell's SIP and SaaS business. So that's a buy and build of, obviously, very long term recurring revenues. And so just to reiterate the point I've already made, high conviction portfolio tend to have 50% of the portfolio in the top 10 and a total of 35 holdings.

10:36 And then what what have we been doing recently? So the only one on there that's actually a new position is Traxxas, which we've put in. So these are the... Our kind of major trades so far this year. Traxxas is a new position. It's a company we've we've watched for a long time. It's always been too expensive for us. The company digitizes. It's it's digitizing both UK and US rail industries. It's got a pretty dominant position in The UK. There's clearly concerns about how UK rail operators are gonna change, and the company's had some earnings momentum challenges. We think that's created a really good opportunity for us to start building a position. It currently is quite a low conviction position. There is short term earnings earnings risk, timing risk as we see it.

11:23 But we've put in an initial position in in that business with a... With what we see as a dominant market position in The UK and a very strong balance sheet. Sylvania Platinum was a business we put into the portfolio in the back end of last year, and we've added to it this year. Low cost producer of of platinum group metals, which are starting to see some more interest having been through a tough cycle. And indeed, if we see a slowdown in the move to EVs, which is is is what's coming through at the moment, then the demand from platinum is is gonna stay around for longer. And then maybe just flagging MaxSight and Keystone Law. So these are two businesses that we've actually owned since IPO. 2016 for MaxSight, so nine years. 2017 for Keystone Law. And if I just move over to the next slide, you can see that we've owned these businesses for a long time. The the the green...

12:16 The first green triangle is where we initiated our position at IPO. You can see how we run these growth stocks, and then at at a point, and then it took a while for MaxSight, they start rerating as they become more attractive to the to the larger small cap investable universe. And that is our opportunity to start taking capital off the table. And so, you know, we have traded out of these businesses, not entirely. We've we've we've retained positions because the fundamentals and the valuation of... Particularly of of Keystone Law valuation for did get very stretched. Liquidity... This is... The the point here is we're we're trying to exploit liquidity premium. So these companies move from being kind of well bid by the small cap market to then earnings might roll or something happens and all of a sudden they're they're not as popular as they were before, and they rapidly de rate.

13:11 And the example I give here would be Keystone Law. Keystone Law went from £1.60 up to £9 and back to £4. And that's just buying and selling demand. The business fundamentals have not changed. COVID created some opportunities. It also created some challenges with with hiring new people. But the fundamentals of the business, the return on capital, the growth they've they've delivered has actually been remarkably consistent. The earnings momentum they've delivered has been remarkably consistent. That business, a 160 at IPO, the the market cap at at IPO was 50,000,000. The free float at IPO was 30%. So there was $15.01 £5,000,000 offered to the market at IPO. And that's just a very good example of why we need to stay small because these businesses are inaccessible to most funds.

14:02 And, actually, for Keystone losses, phenomenal track record of of organic revenue and profit growth, nine year, 30% top line revenue CAGR. Sorry. 20% top line revenue CAGR. Nine year, 30% profit CAGR. They've actually returned a lot of the cash that they raised to IPO. So of the 160 p share price at IPO, they've actually returned a 100p of that through dividends. And so you can see where we've bought back into these names, and often where we're buying back in, we're clearing out sellers, and so you see quite a quite a rapid reversal in the short term in the share price. So I think that's a good introduction to to the fund. I'm gonna move on to what's happening in the small cap market.

14:48 So this slide, I think, is probably the most important slide in the deck. This shows you the relative performance of small caps in The UK to large caps for all the big small cap cycles over the last thirty five years. And so to give a a clear example, the yellow line is the run into and the very rapid underperformance through the financial crisis. So the duration of the cycle is is left to right, and the relative underperformance is is top to bottom. So you can see, you know, the underperformance started. There was then a very rapid sell off, a very rapid recovery, and we've played out all of these cycles to the point that they get back to relative total return parity with where they started. And so you can see for the GFC cycle, it took six and a half years for small caps to get back to the...

15:37 What what we would refer to as their their high watermark. The 1994 cycle was a a... An extremely painful cycle, and that was the run into .com. Massive, massive smaller companies under performance, and the and the entire cycle was was just short of ten years. You can see where we are today with the with the red line. So, theoretically, we're probably in the second worst small cap cycle in the last thirty five years, very close to our relative lows. We've recently bounced, as you can see, but very close to our relative relative lows in terms of underperformance. But if we if we plot those same cycles in absolute terms, we get this chart. And you can actually see in the 1990 cycle, everyone was making money. You were just making much more money in large gaps than you were making in small gaps.

16:27 And interestingly, you can see here the GFC drawdown was much more aggressive in terms of absolute returns, but the recovery was also much more aggressive. And so we've just crossed over that point where we came out of the GFC. And so this, in absolute terms, is the worst small cap cycle that we've been through in thirty five years. And this is a trust because we're investing in a very bottom end of small cap, and we are, to a certain extent, beholden to flows in small cap funds because we're looking to benefit from these companies growing, but also rerating. Keystone's a great great example. IPO at 24 times. It's currently trading at about 15 times. So despite growing and improving their liquidity, that business is trading today on a lower rating than it did when it IPO ed. And that's because the small cap universe has been an outflow.

17:19 And so that has been a headwind for our performance over the last three or four years. We think it will become an opportunity when when small cap performance starts to pick up. Just to flag the the the dynamic that we've been through in The UK despite how we like to think that that that, that, you know, The UK is the worst place for all of this stuff. You know, it's it's happened globally. This is European small and mid versus large, very similar profile in terms of big drawdown in in the in the nineties another very aggressive cycle since 2021. It's also happened in The US. It's actually... There are very few countries which have seen small caps outperform large caps over the last five years.

18:02 And the driver of this... Well, the driver of smaller companies outperformance in general is is earnings growth. So these two lines show EBIT star for the FTSE two fifty and the FTSE one hundred going back for the last twenty years, I think. And so the the the support for small cap over large cap, and we don't have this data for the for the numerous small cap benchmark, but it is that ability to grow more quickly. And so the FTSE two fifty has delivered 5.6% EBITDA growth against the FTSE one hundred's 3%. However, if you look at this peak here, that is 07/01/2020. This is trailing EBITDA. So small caps went into a relative earnings downgrade cycle to large caps. They materially underperformed large cap earnings in this in this period from due July 2020 until actually the end of twenty twenty three.

18:58 And so we would say that that reversion of small caps starting to grow more quickly than large caps should be the catalyst for smaller companies to start to outperform. That hasn't happened. And so we've had a good year, a year and a quarter of of outperformance of small cap earnings, partly partly boosted recently by by the weakness in the dollar. We haven't started to see smaller companies outperform yet. And that is because smaller companies have massively derated. And so this is a long term chart of EVEBITDA multiples for FTSE one hundred, two fifty, AIM, and the the FTSE small cap. And you can see AIM was almost certainly far too expensive in the height of COVID, but AIM's come back from just short of 16 times to about seven times The FTSE small cap, which is a lower growth, more traditional small cap benchmark, has come back from just below 10 times to about five times.

19:59 And so we've seen this massive relative derating of smaller companies to... For for both of those indices about as low as as low as they've been in the last ten years or so. And that... We we can't be definitive on the timing, but there is a huge opportunity. These companies are now very cheap. And I take the point that earnings downgrades from what's happened in The US in the last few meet... Weeks haven't been put into consensus yet, but they probably don't impact small caps all that much more than they impact large caps. So that's not a relative relative argument. And, again, this point about valuation and and smaller companies underperforming is not a UK specific point. This chart shows for developed markets, the ratio of large cap versus small cap price to cash flow multiple.

20:52 And you can see in January, this was in its its ninety sixth percentile. So extremely elevated. Again, paints the same point about this under performance globally of smaller companies, which we see as a as a massive opportunity that this trust is ex... Extremely geared to. And and the driver in The UK has been outflows. So if you just go back to September 2021, these bars here show the monthly outflows as a percentage of starting AUM for the open ended small cap peer group. Remember that is a peer group that we are somewhat reliant on to rerate the the holdings we have as they go up through those market cap thresholds. We've had consistent every single month since September 2021. We've had outflows from UK smaller companies.

21:42 Since September 2021, we've lost 25% of starting AUM through outflows. And if you pull that data back to January 2018, then you're you're down at 34%. So this this is an unprecedented amount of of capital to come out from a peer group to put those... Put that into numbers. If men had peer group in September 2021 was was about 21,000,000,000. It's now 9,000,000,000, and you've seen 6,000,000,000 come out from flows and 6,000,000,000 come out through through performance. So the the the the the universe is more than halved, and that has what's driven that derating of of smaller companies. And then the final point, I think this chart is is is fairly fairly remarkable. You know, we we are actually very exposed to AIM. AIM is where most of the sub 100,000,000 market cap companies are listed.

22:34 I've mentioned the the the way we return capital. So we actually did two capital returns in 2021. We returned 35,000,000 in twenty twenty twenty twenty one, which is currently half of our our NAV. So I've started this chart from when we last made a capital return. Since that point, the 3,100 is up 38 in total return, and AIM is down 44% in total return. And that is predominantly driven as we've seen on the earnings charts, if not entirely driven by a derating of AIM versus 3,100 companies. And a lot of companies are now volunteering while they're either getting taken out as we touched on in the top 10, or they're they're moving AIM to main. And I think that creates an opportunity because those IHT funds that benefit from the from the tax breaks have a shrinking pool of companies for which they can they can allocate capital to.

23:32 So I'll just touch on performance, and then we'll we'll open up for q and a. So our since inception performance remains very good. We've nearly doubled the return of the benchmark. It's a... It's an NAV CAGR of about 7%, which, to be honest, probably isn't high enough for the for the kind of small cap plus illiquidity premium that that we're looking to achieve. But we are we are where we are in the cycle, and we've we've we've delivered strong strong relative performance and and performance relative to our peers. The last year has been pretty good. We've had some high conviction positions get get acquired, and so we're doing well on a relative basis on a one year one year view. We have got this very tricky point in the middle where we are very exposed to the performance of broadly those smaller smaller companies on AIM.

24:24 And so our relative performance is poor essentially based on on our 2020... Our FY 2022 year. And so to to go into that in a bit more detail, if we were to report... We are reporting here our financial year performance. So this is each of the years. Our our financial year is September. So NAV performance on an annual basis for for the funds. I'm not sure why September 2022 is in blue because that should obviously be a a gray box. But you can see our NAV performance, and we had that very, very tough year. We had an amazing 2021 and then a very, very tough year in September 2022 where there was just a huge aversion to illiquidity. Similar thing happened in the... In in 2019...

25:13 2018, 2019. And the point of this slide is to show you that we are just very geared to the small cap premium. So the fifth row down is whether or not in The UK, small caps outperformed or underperformed. We've been through this extended period of smaller companies' underperformance. I ran the numbers for for '20... 2006, 2018, and I think in that twelve year period, small caps only underperformed for two years, and they've they've outperformed for for four of the of the last 12, I think. So the the the years where we have this negative small cap premium, we are gonna struggle against what is a much larger benchmark. Our benchmark goes up to 2,500,000,000. We've got a portfolio weighted average market cap of about 120,000,000.

26:01 And so when that liquidity comes out of the market, the bottom end of the market gets cheaper and cheaper, and the... And PMs who run open ended funds move into more liquid companies, and they take less risk. And so we go through this period of the of of the liquidity premium expanding, and that's what we went through in in in the in the... From September 21 to September 2022. NFE down 50% underperformance of of 21%, an absolutely fourth quarter. What I would say for the three years since then is given the backdrop of poor risk sentiment, access to growth capital, and smaller companies underperforming in The UK, the fact that we have just marginally outperformed that much larger benchmark is actually a a pretty good result.

26:52 And then the final way to think about performance is is for an IRR. We return capital. So I mentioned our NAVs compounded at 7%. If you do that on a... On an IRR basis, then our IRR to to... Yes. Sorry. It's in March 31. This is cash on cash back to investors. So all all fees are in this this calculation of 12%. When we ran this analysis in September 2021, so right at the top of the the small cap cycle, our IRR was was 20%. So we're somewhere between 1020% IRR depending on where we are in the cycle. We think, we hope that we're coming through the end of this small cap cycle, and and, hence, we can deliver some some some fantastic returns going forward.

27:40 So I'll just conclude on on on essentially that point. You know, the mac... The macro is improving. Sterling's strong. Gas prices are coming down. Consumers are starting to spend. We've had an additional rate cut priced in by the market in the last two or three weeks. And there is, you know, a small potential that we get some reform either through local authority pension funds buying in small caps or ISO reform or or or pension reform. And we've got an excellent portfolio. So we're we're we're fully invested. The portfolio we do have has grown earnings 25% per annum for the last two years, trades on a 9% free cash flow yield with the exception of one company. They're all free cash flow positive. Less than five percent of the of the of the portfolio has has net debt to EBITDA of more than two times. So we're we're, you know, well capitalized, profitable, growing quickly, cheap.

28:33 And then if you allow for the discount on the on the NAV, which is about 18%, that that free cash flow yield that the portfolio has moves moves up to 11%. So, again, you've got a you've got a discount on the on the NAV on what is a very cheap portfolio and what is, quite frankly, a very, very cheap market. So with that, I'll I'll pass over to to questions. Perfect, George. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do so just by using the Q and A tab that's situated on the top right hand corner of your screen. Just for the company to take a few moments to read the questions that have been submitted today, I'd like to remind you that the recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard. As you can see, we have received a number of questions throughout today's presentation. Lucy, at this point, if I could hand over to you to chair the Q and A, that'd be great. And then I'll pick up from you at the end.

29:23 Thanks, Alessandro. Yep. We've we've got a few questions coming in, and unsurprisingly, there's one on tariffs. So, George, will the changes in tariffs affect you?

29:32 How you assess your risk or opportunity in new investments? Yeah. So I I guess the the first thing we can do is we can look at what we call first order impact. So how much of the portfolio is ex... Is exposed to companies that have US revenue and where that revenue is in some way dependent on goods coming into the country. And so our exposure there is quite low at 7%. It's across five companies.

30:02 To actually gauge the impact on those companies is quite hard. So if I just run back to our top 10, Reynolds is is one of our top 10 companies. We've actually been adding to it. They supply chain, highly engineered chain to people like Amazon. They have onshore US manufacturing. They also import chain from Europe into The US to to sell to those clients. A lot of chain... Most chain is imported into The US, and a lot of it comes from the Far East. So you could say, well, there's a relative there's a relative argument that they're better off. A lot of the tariff is on steel. They have a higher price point because they're more highly engineered, so the steel's a smaller part of their chain. And so, again, you could argue there's a benefit.

30:52 You could also argue that, you know, what's going to happen is companies might reshor production to The US. And if they do that, there's going to be a greater for chain. So just in that one example of a company that's got, you know, 50% of its sales in The US, we we can see that there are gonna be challenges. We're not clear that it's necessarily negative. And I'll put Impact, which is another company we've got in a in a similar point. Look. We've got IG Design and Pebble Group in the portfolio as well. They're probably more clearly negatively exposed to it than positively exposed to it, but they're both net cash. Quite frankly, IG Design's trading close to cash, so there's very little in the... In for the operating business anyway.

31:41 And they do have some onshore US manufacturing. So I think first order impacts, we can see, but it's very hard to be definitive. Yes. Absolutely. It's gotta change the way you allocate capital. I think it is a... It's a it's a material change. I think the interesting thing is what I've already said, which is we've had an extra rate cut priced into The UK. If UK small cap investors were to get one thing that they asked for or three things they asked for, it'd be stronger sterling, weaker gas price, and more rate cuts. And that's what we have had. Very high level, I think it challenges the huge consensus that there's only one game in town for investing. You know, a huge amount of capital has been invested into The US.

32:25 I've I've just written my quarterly and, you know, Microsoft, Nvidia, and Apple are all larger on their own than the whole of The UK listed market. So, hopefully, it's a tipping point for US versus rest of world equities. If that's the case, you know, hopefully, you start to see a a turnaround in flows for small caps. If we turn around... If we see a turnaround in flows for small caps, you're gonna see it'd be a big rerating of of of small cap market.

32:55 Thanks, George. What differentiates the RIVER UK MICRO CAP from other small cap peers? So I think, you know, the the peer group has struggled because of this backdrop we've been against. So Downing had a trust that's that's been wound up. Gervais Williams and Maiton had a trust that's been wound up. I would say them... They were they were both more value. Downing in a very concentrated way, might in a less concentrated way, but but more value when we are more growthy than those guys. And then probably, you know, the other ones would be Richard Stable's trust, Rockwood strategic. Very different. He's more value and more engagement, more turnaround. He's more our recovery. Interestingly, he actually start... He he he so our recovery screen kinda comes from Hugh and Richard who were... Hugh Sargent's still here.

33:53 Richard's... Richard Stavley was one of the founding partners of RIVER. So that mentality of what he's taken into that trust starts with our... Or or kinda comes through our our recovery screen.

34:04 So I think we are more... We tend to be more growthy than those guys. We... I think we train on a wider discount than than all of them, so that's another point of differentiation.

34:17 To that point, is the consolidation of wealth managers and the size of this trust a challenge for demand, including the NAV? It... Yeah. It is. I mean, if we go back to when we IPO ed, and I was at Smith and Williamson before, so I I kind of understand a little bit that that side of the industry. We got a brilliant book of private client investors and and institutional investors into the trust. And I think it is increasingly a challenge for them. And so part of our role is to broaden out the ownership. I think there's been quite a lot of commentary recently that retail is now the dominant shareholder in in investment trusts. And we've tried over the years to improve retail ownership, and I guess this is the the start of us kind of reiterating that strategy. You know, we we we definitely want our retail ownership to go up. I do think we wanna keep, you know, a balance to the register.

35:18 And we've got, you know, some very long term supporters. We've got one investor who hasn't sold a share since the IPO in in 2014. So it's about balance, but at the moment, you know, wealth... The the wholesale wealth managers are not allocating a lot of capital to The UK. And where they do, they're doing it to to more liquid to more liquid vehicles. So that is a challenge for us. It is also the opportunity on the shares. That's why the shares are trading at a at a big discount.

35:45 Thanks. And do you see any catalyst for small cap outperformance being driven by changes in government policy? Yeah. We... We've spoken a lot to clients about this probably over the last six months or so. I mean, the... I read Torsten Bell's book, who's who's our new pension minister, and he... He's he's pretty clear. He was at the Resolution Foundation before before going into the labor party. He... He's pretty clear that pensions should be used for the greater good as well as the individual beneficiaries. He's... They've started talking about ISO reform. So there is potential for it. I don't think they'd need to do a lot. I know everyone wants them to get rid of stamp. I I don't think they'll do stamp. I think it's too expensive. I think if they did do stamp, it might be for for kind of footsie two fifty and below, and that would obviously be helpful.

36:38 ISO reform would be helpful.

36:41 So let let... Let's see. I think a small signal from them that they were taking it seriously, the market would actually do the rest of the moving for them. I don't know if it's government incentivized or or just off their own backs, but we've seen a pickup in the local authority pension funds interest to smaller companies. And there's one there's one

37:05 public tender that's recently been awarded to several small cap managers that funds this year. So we're starting to see allocation back... New money allocation back into to UK small caps from the LGPSs. Thanks. And you've talked about your exposure to AIM. Have you ever looked at investing via other platforms like Aquis? I know you owned Aquis. But Yes. We we owned Aquis from IPO, actually, and that was one of our other businesses that got taken out in q four of last year. So I think we have Windwood and and Aquis q four of last year. Aquis was a was a proper premium because a a strategic shareholder came in and and bought that. We actually very recently looked at a business that was actually interested in moving from Aquis to AIM. So we're not we're not averse to investing in Aquis. It's just a... It's a smaller pot to go after.

37:58 The way we actually invest is we use a screen. So the 450 companies I mentioned, we screen those for quality growth recovery on fundamentals, valuation, and timing. And that screen is indifferent to whether or not they're Aquis, AIM, or main listed. We don't benefit from the tax benefits on AIM, so we've never we've never specifically targeted AIM.

38:19 We're outright fundamental led. We then go and do all our work on the build the models, meet the management team, and where they're listed doesn't really come into it. The liquidity is important. You know, we need to be able to get in. We need to have a thought process about how we might exit those those companies as well.

38:37 And so on the back of that, when we say we we invest sub a 100, you know, we're really cutting the... We probably we probably put a cap at the bottom of $2,020,000,000 because, you know, we're probably gonna take a £2,000,000 position if it's... You know, we're a high conviction fund. We've got 35 stocks. 2,000,000 is the kind of minimum. We don't wanna be owning more than 10% of companies. We've got about 9.9% of DF Capital, which is a very high conviction position for us. I think it's a a fantastic business that's that's totally mispriced, and hence why we've got it as as a as a as a high conviction position. So now the... We have looked at the other exchanges. We don't have anything on Aquis at the moment. We've got a couple of main list small caps, and and the rest is Investec, actually, which is number nine on there, I think, is main list.

39:31 Great. Thanks. And one final question. Is the extent of share buybacks by smaller company UK Trust into a market with ongoing net outflows from The UK restraining performance?

39:46 I don't think it's restraining performance. I understand the motivation for those investment trusts to buy back stock. We've got a very clear approach to returning capital to shareholders, and that is a pro cyclical one. And so if we think back to 2021, MICRO CAP, small CAPs very well bid. Retail participation in the market was high. Small cap funds were getting inflows. The market was on a strong rating. We raised £35,000,000 in eight weeks and returned it to shareholders. If we had to do that today, it would take us... Well, one, it would take us a long time, and two, it cause a lot of damage to our underlying investments. So we're big fans of our procyclical capital return. I don't think it's undermining the performance of the market. I think the bigger problem is the mentality of PMs that are running open ended funds.

40:41 And I say that as someone who runs an open ended fund. Until people start getting inflows, they're gonna be very cautious about allocating to the bottom end of their market. And that's what's driven the the the the extreme underperformance of the bottom cohorts in terms of market cap.

41:00 And so it's that willingness... It's it's liquidity management versus maximizing alpha, and and that sounds like an argument that you shouldn't have to have when you're running a fund. But when you're open ended and, you know, flows, you have to demonstrate to one internally. But if it's a material flow, so if it's over 5%, we have to demonstrate to the FCA that we've taken a clean liquidity cut of our portfolio, and it's more liquid after that flow than it was before. So I think that for me is the is the main challenge at the moment. It's open ended flows and the mentality that drives for allocating capital, but within those funds. Perfect. Thanks very much. I think that's us for today. Can I pass back to you, Alessandro?

41:42 Yes. Of course, George, Lucy. Thank you very much for answering those questions from investors. Of course, company can review all the questions submitted today, and we will publish those responses out on the investor meet company platform. Just before redirecting investors, provide with their feedback, which is particularly important to you. George, could I just ask you for a few closing comments? Yeah. Absolutely. So I think this is a fantastic trust. It serves a brilliant purpose. It's it's very targeted in what it does. The market it is is... It is exposed to has been for a really tough four years, essentially unprecedented four years. I think we will... That will turn at some point. That chart that I showed with the with the different small cap cycles, they've all recovered. I don't think this is gonna be the first one that doesn't recover. When that recovery comes through, this trust is is brilliantly positioned to benefit from that. The the the companies within it are cheap. They're growing. They're well capitalized,

42:41 and we're trading on a... On an 18% discount as as well. So, yeah, I'll I'll conclude that. And thank you all for your time, and have a have a lovely Easter. George, Lucy, thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? On behalf of the management team of RIVER UK MICRO CAP, we'd like to thank you for attending today's presentation, and good morning to you all.