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

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

0:31 Good morning, everyone. Thank you for joining our regular quarterly update. This morning, we have George Enzo presenting on the RIVER UK MICRO CAP. George has been managing the fund since 2018. A couple of highlights of the recent quarter. We released a trading statement at the end of September for the year end numbers. We were top decile

0:56 in the AIC UK smaller category. We were actually second from top, so great performance. And we perform... Outperformed the benchmark by around 14%, so it's been a really good year. But on that note, over to George to kick off. Thank you, Lucy, and good morning, everyone. So kind of as Lucy just suggested, we think it's a really interesting point. We've started to deliver some good performance. We have been through a period where UK small and micro caps have been very out of love, contrarian trades. I think that continues, but there is evidence that things are getting better. So I'm gonna run through a quick intro, go through the top holdings, try and bring out some detail in terms of the growth we're seeing in the underlying portfolio, go through performance attribution, what we've been buying and selling, and then a bit of an update on the market, and then we'll we'll turn over to questions. So, hopefully, wrap up the presentation in in about twenty minutes.

2:01 Quick reminder of what we're doing. So we've got a closed end investment trust. We need that because we're running a high conviction portfolio of MICRO CAPs. So broadly 35 stocks, we're looking to have about half of the NAV in the top 10. And the way we retain our capacity is by forcing capital back to shareholders when the NAV gets too large. And so we have historically returned capital when the NAV is in excess of a 110,000,000, but less than 130,000,000. And we've done that five times. We've returned 77,000,000, which compares to the 70,000,000 that we've raised across 2014 and 2015. So the only tweak, we made an announcement this summer, and we've kind of finessed this capital return proposal.

2:52 And that's with a view that we have had this large discount for a long time. So we've had a kind of mid to high teens discount for a number of years now. And to give people confidence, investors confidence that that the board and and RIVER are serious about returns to shareholders. We've committed to return capital one way or the other by June 2028. And so if we haven't built up the NAV by enough to return capital to shareholders by June 2028, then we will wind up the company and return all capital to shareholders. And so we think that gives people some security on the kind of downside. We are very confident that we will deliver a capital return by June 2028, but this is essentially an insurance policy.

3:44 We think the market that we're looking to invest in is fantastic. We've typically had quite a big skew to growth companies, and that's point I'll come back to on the next slide when I go through some of the growth attributes. But, actually, recently, we have seen a lot of opportunities in what we call recovery opportunities. So these are typically cyclically depressed businesses. They trade cheaply. They're contrarian investment opportunities. And so quite a few companies that have come down from perhaps being small caps over the last few years because they've underperformed, we've been picking up. And so, actually, the the the the skew, the the bias in the portfolio to recovery is quite a bit higher now than it has been. It's about 40%, close to 40% from probably 25%. And so that's partly a function of quite a few of our growth investment cases being acquired. We've had five businesses acquired over the last year and us allocating where we see opportunity, which has been in those those recovery stocks.

4:43 So I've I've previously used this slide to go through and talk about how we look at companies being either growth, quality, or recovery investment cases. But I'm gonna do something a little bit different this time, and I'm just gonna go through one by one and bring out a few details just to illustrate the growth opportunity. Some of these are UK businesses. So DF Capital is entirely UK. Keystone Law is entirely UK. Investax, entirely UK. But most of these businesses also have international earnings. And I just wanna demonstrate that what is essentially half of our NAV has predominantly shown or is showing fantastic growth. So DF Capital, they've grown their loan book over the last three years at a at a annual rate of 20%.

5:32 They've moved over the last two years from being breakeven to delivering 19,000,000 of PBT. To put that in context, the market cap is is a 100,000,000, and the business is well capitalized to to continue growing its loan book. They've just up... Provided their q three update, which shows loan book growth of 26% year on year and have recently upgraded their medium term NIM, so net interest margin, which is the key kind of value driver for banks from six to 7%. So this is a business that's making high NIM and growing its loan book, and it's trading at a 25% discount to book. Shares trade around 53 p, books 70.

6:20 They're compounding that book at double digits now. We don't think that business should trade at a discount to to book value. ActiveOps usefully had a trading update this morning. They have demonstrated in the first half 58% constant currency recurring revenue growth. There is an acquisition in there. However, on an organic constant currency basis, that's still 27% recurring revenue growth. To add to that, this time last year, they announced they'd lost a major customer that was worth 5% of ARR. It was one of the large UK banks. They announced in September, not only they rewon that contract, so that's been switched back on, having only actually lost half of half of the contract.

7:07 So not only has that been switched on, but they're in discussions to significantly expand that contract. Venture Life is a is a buy and build of self care brands, so we do see quite a lot of inorganic growth coming through this business. Recent results showed revenue up 43% for the continuing business, of which 12% is organic. Why I caveated that with continuing is because they've disposed of their manufacturing business. They have received the proceeds of that manufacturing business, and so more than 50% of the market cap is now in net cash. They will use that net cash to go off and buy, other, self care brands, valuation wise trading on about three or four times EBITDA.

7:53 Capital drilling hasn't demonstrated the same level of growth. In fact, this year, they'll probably see... Well, they will see revenue and profitability decline. They're a business that provides drilling and other mine services predominantly to gold E and P businesses. And, again, predominantly, but not entirely in in Africa. The backdrop for that business is is rapidly improving. It trades at a discount to book. We think that business is capable of delivering probably high single digit or double digit top line growth. Margin can recover, so you're looking at double digit profit growth. And that is before you start assuming that you go into a a kind of tight pricing cycle.

8:39 And if we see gold prices hold up anywhere near kind of the levels they are at the moment, then I would expect to see some pricing come into the business as utilization moves up towards very high levels. So that looks well set. Supreme is a manufacturing distributor of branded value staples, the largest of which is is vape products, but they do various other ones in terms of sports nutrition, drinks, light bulbs, batteries. They recently bought typhoon tea out of administration. That business has grown revenue at 20% per annum over the last three years. They've taken margin. Profit's grown 30% per annum. And while some of that is acquired, they haven't issued any equities. That's all been self funded out of the cash that the business has generated.

9:29 Keystone Law has got a fantastic track record of growth. Last five years, they've grown profit organically at 20% per annum. Business trades on a 5% free cash flow yield. It's a business we've had in the fund for a long time. It's been a fantastic compound of growth. There's also very little capital employed in that business, so it returns a lot of capital. Sylvania Platinum is, I guess, another way we're getting exposure to precious metals. Part of the growth in that business has been through the recovery of the PGM basket price, which is up about 50% since we bought this... The the position. But they have also been expanding production in their core assets and also investing in some some new some new drivers of production growth.

10:21 So that leaves SigmaRock and and Investec, which I I kinda jumped over. They're both buy and build. SigmaRock is focusing on the quarrying and supply of lime across Europe. Investec is a a consolidator of SIP businesses. So both of those, expect to make material value, so create value from acquisitions. Investec's just going through the purchase of AJ Bell's SIP business. SigmaRock's just kind of coming out of the acquisition of CRH's LIMITED business in Europe. We think there's material synergies to come through for SigmaRock. Investec recently reported, I think, 20% organic plan growth. So these businesses, it is important that underneath you, we can track organic growth.

11:10 SigmaRock volumes have actually been pretty soft, geared into European construction and industrial activity, but certainly scope for recovery there. And NetCall is a business transformation business. Recurring revenues have grown in excess of 20% over the last two years. So just... You can see, you know, that it it would be true for the rest of the portfolio in the main. There's... There aren't actually that many recovery stocks in the top 10. DF Capital is massive backed recovery stock. I'm just trying to give you... You know, we are not investing in The UK economy. We are not investing in what we would call GDP plus plus businesses. We... We've got high growth businesses that currently are trading on unbelievable valuations, cheap valuations.

12:01 And and just to finish, I mean, ActiveOps provided their trading update this morning. Last day, I saw the shares were up just over 20% this morning on the back of that trading update. So performance, Lucy touched on the one year performance. We've had a really good year. We've started to see interest coming back in. Interestingly, where where we get bid for for companies, it is tends to be long only international buyers coming in. So we we don't get given names, but when we ask who's bidding for stock, it is ex UK long only international buyers. And they're coming right down to $60.70, 80,000,000 market cap companies. We've had a good quarter as well. This is quarterly update, the the quarterly performance is in there. Also, I'll come back to the three and five year performance, you know, from September 21 when small cap market topped out until about early mid twenty twenty four. We had a pretty tough time with with small caps underperforming, but our since inception performance remains good.

13:04 We've nearly doubled the small cap market performance since then. I'd have thought we'd probably have doubled the AIM's performance, but long term performance that we're we're very pleased with. What's driven that performance over the last three months and twelve months? There's some names on there I've already mentioned. I would pull out Windward and Reynolds on the twelve month performance as two companies that got acquired. We also had Aquas acquired. Alpha was acquired, and science and sport was acquired. So those five combined were 15% of our NAV at the 09/30/2024, so at the start of that financial year. Three of those got acquired at a premium to our our fair value view.

13:53 Two of them were actually at a discount to our view of fair value, albeit within, I think, twelve or 13 for for both of those, and that was Science and Sport and and Reynolds, where we thought the premium could have been a bit higher. Focusing some of the negatives, our health care stocks haven't performed well. So on the twelve month view, AOTI, HVivo, and. We've also got MaxSight, which hasn't made it into the bottom performers, but but hasn't been a great performer. The the political backdrop hasn't helped for some of those names, particularly HVivo. Execution hasn't been great for some of those names. But, you know, we... There is there is a lot of potential in some of those businesses that are extremely cheap now.

14:42 Litigation capital management, we exited just after the end of September. So we we finished... We were selling it through September and finished on the October 1. So that is out of the portfolio as is Manalay, which was our other litigation funding business. So we've got no litigation funding businesses left in the portfolio now. Three month underperformers, IG Design Group came out with some, I would describe, very cautious medium to margin guidance. So there's been a margin reset in there. We hope that that sets the business up to start outperforming expectations. MPAC has seen order intake drop away or saw order intake drop away pretty rapidly through the second quarter of this year.

15:32 And so I had to guide lower on expectations for this year. They seem to have stabilized. So that's a business that that probably, well, hopefully, has bottomed out on expectations. Moving on to what we've bought recently. So NetCall Capital and Flowtech were actually positions that we've had previously that we've added to. So Netcore, we added two post there, recent trading update given strong cloud ACV growth. Capital, we've built our position given few points trading at discounts book.

16:09 They have a portfolio of gold companies, which you can track. It's disclosed in their annual report, and you can see the performance of those gold companies. And so we we know that the investment book has been performing very well. And and third, the gold price is very supportive for their core business where we expect them to, one, take utilization up and, two, start taking price. And then Flotek is a recovery... Self help recovery investment case we've had for some time. We're starting to see we're starting to see that margin improvement coming through. There's there's a lot of margins go for in that business medium term. Margin guidance is for mid teens. They're operating low single digit. So scope there, and so we've taken that up from what we had as a as a minimum conviction position to a to a kind of about a 1% position.

17:01 Dialyte and Trifast are the two new positions in the in the fund in the quarter. Both are self help recovery investment cases. Dialyte sells LEDs into industry. New management team... In fact, both of these companies have new management teams. They're both deleveraging. They've both shown sequential and year on year improvement in operating margins. They both have sensible medium term margin guidance from management, which hasn't been put into consensus expectations. So that is the setup that we are looking for for those recovery investment cases. And both of those performed relatively well since we acquired them.

17:46 In fact, if we look at all of the positions we've bought, the new positions we've bought in the last twelve months, on average, we're up 24% in those five businesses that we've acquired. So where where have we raised capital? This is just for the quarter. So Reynolds, we exited post the post the bid. Aquas and science and sports. I think Aquas would have been earlier, but those have been acquired. I mentioned Manalay and Litigation Capital. We didn't lose a lot of money on litigation capital management having held it for a long time, but the opportunity cross... Cost was significant. Manly, we bought in COVID. We thought it would benefit from the recovery in litigation post post COVID.

18:39 And to be honest, that never really came through. So both of those were were exited, you know, haven't haven't been a disaster, but opportunity cost has been pretty high. And then Serabi Gold has been a great performer, obviously benefited from the high gold price. DF Capital is an actual valuation. We think valuation on on DF Capital is still very cheap.

19:01 However, we have a limit of having 10% of the fund in any one position, and that actually went up through that on the last trading update. And so we had to we had to trim that position a little bit. And we've got about nine, nine and a half as things stand. So a couple of slides on the cycle, and then I'll I'll just come back to our our long term performance and some concluding comments before q and a. So this is an update of a slide we've shown before. So we have these cycles in in small cap. These are the the the the big small cap kind of bear markets over the last thirty five years. And what we've shown here is the performance of the various cycles relative to UK large cap on a total return basis.

19:48 And so the the the line finishes when that cycle gets back to parity. So when it gets back to its its relative high point of the prior cycle. And so you can see going back at the last thirty five years, all these cycles have recovered. And so perhaps just against the detail of the of the GFC cycle, which is in yellow, you can see that, you know, essentially in May 2007, small caps topped topped out. They underperformed for 20% by 20% for for a year and a bit. They then had a very steep, sharp period of underperformance through the GFC, very steep, sharp recovery, and then a pretty long drawn out. We have the European debt crisis in here. We have Brexit in here. Drawn out recovery and eventually gets back to parity. And that that cycle from here, from the from the low point in 2,009 to twenty twenty sixteen, 2017 to get back to that rose to the point was a fantastic cycle for small cap performance.

20:51 And indeed, we launched our MICRO CAP trust probably around three or four years into that cycle. You know, we are we are tracking. The red line is is the current cycle. We are tracking to be, you know, in line with the worst cycle that we've seen in the last thirty five years, which is the cycle of small cap... Smaller companies' performance into into the dot com crisis. And, actually, in here, I mean, this starts in 09/04, and there's there's really a cycle around a recession in the early nineties, which almost recovered in '96. So if you play that this cycle from '96 to to 2000 and the recovery, we would actually be worse off where we are today than we were in in the in the '90... In the in the dot com crisis.

21:41 So it just... I think it... You know, whilst small caps have recovered and the the absolute low of the small cap cycle is October 2023, what we've seen since then is is is much better outperformance, much better performance, massive outperformance of large caps versus small caps. Not specific to The UK. In fact, actually, if you go back to... I think it's October 23. I think small cap in The UK is up 13% since then. Large caps are up 56. In The US, the S and P 500 is up about 60 or 63%, and US small caps are up 14 or 15%. It's a very similar performance to to what we've seen in The UK. So this is around the the small cap cycle and the opportunity. This this data just shows those same cycles in absolute terms.

22:31 So, again, you can see we're now actually underperforming the absolute share price performance of the worst cycle in the last thirty five years, which in absolute terms was was the GFC. So we have spent the last couple of years trying to position the fund for a market recovery, and that's one of the reasons why our kind of exposure to those higher beta recovery investment cases has has increased. So this chart shows our financial year performance. We've got a September year end for the trust, so we'll have an annual report coming out in December. We also do quarterlies, which are on our website, which are quite detailed. They go through investment cases, performance attribution.

23:19 And this slide shows the annual NAV performance across the top. There's then a section on the kind of various characteristics within the market. I... Have we been in a value or a growth market? Have interest rates been going up or down? Is... Has GDP growth been above or below trend? And have small caps been outperforming or underperforming in The UK? And so this is the most important one for us. We we do well where there is a positive small cap premium. So you can see double plus means small caps outperformed by more than 10%. So 20... The year to September 20 and September 2021, we outperformed the small cap market by 1214%.

24:08 We were first decile in our AIC UK small cap peer group. We actually underperformed AIM in in 2020. That was the, obviously, the COVID recovery where long duration growth stocks did very well, but materially outperformed AIM in in the in the the in the next twelve months. So we've been through this period over the last three or four years of negative small cap premium. So materially negative small cap premium for the year to September twenty through two and September 23, we materially underperformed our benchmark and then have have have performed in line with our benchmark in the... In in in the two years to to 2023 and 2024. I think that's quite a good result given that we've got a massive small cap bet. We're benchmarked against a benchmark, which kind of goes up to 3,000,000,000.

25:02 That's the cost of our of our strategy. I think the year that we've just completed is is a is a really good result because there hasn't been a positive small gap premium, and we have delivered some good performance. The one thing I would just add to what was clearly a very poor year of performance in the year to September 2022 is that in 2021, we returned 35,000,000 of capital because we did two of our capital returns, one of 10... Sorry. One of 20 and one of 15,000,000. So this is why we talk about the IRR of the fund. So the IRR of the fund to September 2025 has been just below 13% because it takes into account the timing and the quantum of the capital returns that we've made to to shareholders.

25:53 And that's... It's it's an important kind of procyclical, you know, way of returning capital to shareholders, and it's also meant that we haven't had to go into our portfolio and raise capital in the last two or three years. I mentioned AIM there, so I'm I'm just trying to show that that that this dynamic between small cap performance and large cap performance over the over the last few years. So this goes to to June 2021. Since then, for '2 100 in total return is up 56%. Numis small cap, excluding AIM, is up 13%. That's about in line with the S and P 600, which is The US small cap benchmark. And AIM is down 33%. So part of this dynamic is that, you know, growth equity capital markets have been closed.

26:43 Companies haven't been able to access growth capital easily, and, clearly, the companies that are most dependent on growth capital are the smaller end of of AIM. There hasn't been a lot of issuance to go off and do m and a, and and that's why companies are listed. But the other driver of this has just been that the smallest end of small cap has massively underperformed, and that's why we've shown these average market caps of the of the... Of AIM versus small cap. And what has happened is you've had a... An open ended small cap pay group that has been in outflow to the order of about 100,000,000 per month going back to September 2021. Funds have been shrinking, and what happens when funds shrink is people don't want to take on more illegal...

27:29 Illiquidity risk. And so they exit the smaller positions in their fund, and that has driven this this huge dispersion between, you know, even 500,000,000 market cap companies and a 100,000,000 market cap companies. And that... That's the part of the market we're operating in. That has provided us to to build into some brilliant investment cases. Gear for Music is one we initiated on in January 2024. The shares have gone down 90%. They had some leverage. They hadn't been growing quickly, but that is a business we've doubled our money in over the last two years, and they're now demonstrating fantastic growth. Another company recently updated numbers to, you know, delivering 30% top line growth, expanding the gross margin, and we think there's there's still plenty to go for in that investment case as well. So this this is the the opportunity if if the bottom end of small cap can start outperforming, then the trust is is very well placed.

28:30 So I'll just run through a few concluding comments, and then we'll we'll open up q and a. So we're we're we're very pleased with the year we've just we've just had. There's there's plenty of m and a going on, and we've benefited from that. We would expect that to continue if the current valuation multiples on small caps prevail. Where we've put new capital to work. We have, you know, in the short term, been successful with that, and we've made some good acquisitions. You know, I think on The UK, whilst we're not massively geared into The UK economy, we are geared into the sentiments towards UK listed companies. And I think that is extremely depressed. Any press you read around the budget or Rachel Reeves is talking about, you know, how much kind of tax is gonna have to increase and the impact that will have on growth and the impact that will have on inflation expectations.

29:26 Labor markets have softened. I just... If if you look at the number of rate cuts that are implied in The UK today versus either The US or Europe, we are absolutely an outlier. And I think that provides scope for more rate cuts to be priced into the market next year. I think that provides scope for our borrowing costs to come down next year. And I think that's a pretty good backdrop for potentially flows, but certainly for companies' performance in in The UK domestics. And there's a huge dispersion of valuation between international businesses and and UK domestics. We've we've broadly hedged on on that split. So fifty fifty domestic international, we've been adding a bit more to the domestic side of the portfolio. Recently, we've touched on the growth in the in the portfolio, but if you look at our entire portfolio to the end of September, then our revenue growth across the portfolio has been 25% per annum for the last three years. So that just shows us in a... In an economy which has clearly struggled and been operating below trends GDP growth, we've still delivered very high revenue growth. That won't be entirely organic, but but nevertheless, very high revenue growth.

30:43 The vast majority of our companies are free cash flow positive. There's three that aren't, and those three are well capitalized. In general, our portfolio is very well capitalized. Most most companies are net cash. 75% of our companies are net cash. And I'll just reiterate that the portfolio is is very cheap. Our free cash flow yield of 7%, which when you take into account the growth we're delivering is very cheap. And if you adjust that free cash flow yield for our our discount to NAV, then it moves up to about eight and a half percent. So I'll stop there and, open up to some q and a. George, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard.

31:38 As you can see, we have received a number of questions throughout today's presentation. Please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thank you. Thank you, George. So just starting with our first question. In July, you talked highly of gear for music. However, it is no longer in the top 10. Why have you been a seller?

32:06 We haven't been a seller. I think we've actually added to our position. And I think probably it will be in our top 10 right now. But I think there's there's not a lot of

32:23 value delta between positions eight and fifteen, I would say. So stuff can move in and out of the top 10 quite easily. We've taken up our position. We we bought some just ahead of the most recent trading update, which was yesterday or the day before. That was another beat on revenue growth. So revenue growth accelerated from mid twenties to to just over 30%. Gross profit margin also improved, which was a bit of information we didn't have prior to that trading update. So I think 1.2, 1.3% percentage point increase in the gross margin, which is absolutely what we want to see. The business trades on about five and a half times EV EV EBITDA, limited leverage now.

33:10 The post IPO average is eight. That's probably not a bad kind of guide to what's a sensible multiple. We use a DCF, but it it kinda comes out with a similar multiple. The peak multiple is 18 times. So, you know, what's driven that improvement recently is two very disruptive competitors coming out within The UK and European b to c ecommerce mus... Musical instruments industries. They were they were causing a lot of challenges, And Give Music's taken a chunk of that share and has immediately shown that it can take a bit of price as well. So I I I think it probably is in our top 10, but we've we've certainly haven't sold

33:57 any of that. No. Thank you. And are there any sectors that are off limits for you?

34:03 No. I think as soon as you make a rule that something's off limits, then you, you know, you open yourself up to missing sensible opportunities that sit on the other side of that rule. But there there are there are absolutely guidelines for where we will and won't invest. We don't love free cash flow loss making businesses. We've got, I said, three, but, you know, we we treat those with a a pretty high high bar, and we need those businesses to be well capitalized. You know, that we we recognize that there are absolutely areas that are outside of our expertise. And so, again, we we treat those pretty cautiously. But we're very open minded to looking at ideas.

34:49 However, as I think lots of investors will know, we we we use a quant screen to identify new ideas. So we're not exclusively looking at those for new ideas. But if a new idea comes in from another source, we'll typically go into our screen and and have a look at how it screens. And so that concept of thinking about shareholder value creation, valuation, and earnings momentum is absolutely consistent across any company that we will we will consider. So... Yeah. Okay. And how do you manage the redeployment of capital post the takeover in the portfolio? Does liquidity in these situations impact selection? Liquidity less so. I mean, what we we are...

35:34 You know, we're trying to exploit illiquidity. What we're trying to do is buy illiquid companies, get the fundamentals right, so buy them cheaply and buy them with improving return on capital at attractive levels of growth and own them as they become more liquid and therefore rerate. So we're trying to exploit the cost of equity, if you like, between a 30,000,000 market cap company, which might have a 15 or 18% cost of equity and a £200,000,000 small cap, which might have a 9% cost focus. I just made those numbers up. But that's that's what we're trying to do. And then on top of that, exploit the the the underlying growth. So not liquidity so much, but, clearly, we need to be able to get the capital in.

36:22 And, you know, there's a big universe. We track 300 companies that have got free float between 20 and 100,000,000. So we're not short of ideas, but it's not always that easy to to build the positions. But we're we're happy to be patient. We can run cash. I think at the end of September, we had quite a high cash level, but we've actually bought that down pretty rapidly. We've we've put two new positions in in September. Great. Thanks. And then I think you touched on Flotek earlier in the presentation, but Flotek Fluid Power looks very cheap. Why is it so lowly rated, and what's your outlook for this stock? Yeah. So in a similar way to how I spoke about Trifast and Dialyte, these are what we call self help margin recovery investment cases. And so what we're looking for is typically new management teams that probably come with some kind of updated strategy.

37:19 We're looking for deleveraging, and then that can be recapitalization through a through a place placing equity, or it can just be organic deleveraging. And we're looking for management to put out sensible medium term margin guidance that you can look back and say... Or look at peers and say that's a sensible kind of ambition to get to, but that those margins aren't one in consensus expectations or two priced into the shares. And so flow... Flowtech, FlowPower would absolutely tick all of those boxes. We have a relatively low conviction position, so we've actually just taken it up. It was one of the ones on the on the trading. We've taken it up from a minimum weight to about one, 1.2%, I think.

38:09 And that's just because it's quite early on in that recovery phase. I think probably we've we've passed the trough of margins. But until you've actually seen two six month periods of margin improvement, we can't be sure of that. And so sequentially, margins were up in h one twenty twenty five, and forecast margins are gonna be up second half twenty twenty five on second half twenty twenty four, but they need to deliver that. So that will be a proof point for us if they deliver margin improvement in the second half year on year. Medium term margin guidance is for mid teens EBITDA margin. We think that's sensible. The business has previously delivered that. We can look and and understand why that's a sensible ambition, and that's absolutely not in guidance.

38:59 They haven't really started on the deleveraging piece yet. So because of the The UK business, the the market is still pretty soft. That's evident in some of the acquisitions that Flotek have been doing, which have been very accretive. But they haven't really started the deleveraging bit. And so that's actually the most geared company we've got in the portfolio. It's over two times net debt to EBITDA. We've got two. One is Sigma Rock, which is a a big company now, is two point o four times net debt to EBITDA. So just over that threshold, and the other is float at for... Fluid Power. Great. And one last question. What's your investment case on Cooth?

39:41 So Cooth is one of our underperformers. It was on that attribution slide. They are The UK leader in the provision of digital mental health services. So they do that in partnership with the NHS, paid for by the NHS, free to access for children and young people in The UK with the the broad concept, which I think is difficult to argue with being that early intervention will save

40:11 more costly intervention further down the line. And so it's it's kind of free to access service that should have a pretty attractive ROI. They've always had plans to internationalize the offering, and they won California, which is basically the same size as The UK or same size as England. And they have been delivering against that project. The market is now looking out to the end of that four year term, I think it was, which is, I think, mid twenty twenty seven. And the challenge the the company has to do is demonstrate strong enough progress that California are getting value for money for what they've paid and move the contract from kind of special one off funding that has been provided by the governor because it was his big kind of thing to help mental health in children and young people

41:08 into business as usual funding. And I think they've got a good relationship in California. I think they're delivering the KPIs that California have requested. And so you could look at that and say, well, why would California spend that amount of money and then not renew it if they're if they're doing what they said they were gonna do?

41:29 But there is that risk. And so we would look at the investment case today and say, broadly, there is very little in the shares for that contract to be renewed. It's a very low probability implied in the share price.

41:45 And, you know, we think the the management team are in contracts to extend that contract. But until that is is done, I think the shares are gonna probably be in a bit of a bit of a holding pattern. Lucy, George, thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the investor meet company platform. Just before redirecting investors to provide you their feedback, which I know is particularly important to the company, George, could I please just ask you for a few closing comments? Yeah. Absolutely. Thank you. So, you know, we're really excited about the opportunity we've got. We think we've got a fantastic portfolio. It's cheap. It's growing. We're starting to see some really big moves in some of our high conviction positions. Active ops today would be a perfect example of that.

42:33 So we think what we've been talking about for the last couple of years about the opportunities we're having in building big stakes in these good businesses is starting to come through. That's not evident in our discount, I don't think, because we trade at a kind of 17 or 18% discount to NAV despite having started to deliver some good performance and despite having a very clear strategy of returning capital to shareholders either way, you know, either through the the the the usual return of capital or through a full return of capital if if the concept of micro cap performance is is broken, which I absolutely don't believe. But if that is the case, then we're committed to to not carrying on and and returning capital to shareholders. So,

43:22 you know, I think, hopefully, we'll we'll have another good year. We we would like to see rate cuts in The UK and borrowing costs come down. But as we've shown over the last year, that is not critical to to performance.

43:34 Lucy, George, thank you for updating investors today. Can I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of RIVER UK MICRO CAP LIMITED, we'd like to thank you for attending today's presentation, and good morning to you all.