Augmentum Fintech PLC (AUGM.L) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for taking time to join this Friday afternoon. So as Neil said, I'll try and give you a whistle-stop tour through the last 6 months and also talk about what we think is ahead as well and why we think the portfolio presents exceptional value at current discounts but also in terms of the future growth opportunities ahead. So without further ado, if I can get the actual presentation working. So where are we in terms of the last 6 months? It's been, from an overall performance from kind of one-dimensional view on NAV kind of quite a flat period, and there's been quite a lot of activity under the hood, and we'll try and shine a light on some of that. I think what has stayed constant has been that very kind of stubborn discount, and we'll talk about what the current discount really kind of represents in terms of the implied portfolio value, but also kind of touch on the growth opportunity a bit more tangibly as well in some of those kind of more established assets. Important to note that we're still well capitalized. There's no debt in the structure at all. So that's really important. It gives us the capital to be able to kind of lean in and support the growth of the existing portfolio, but also to really identify those kind of exceptional opportunities ahead for us to really invest in and kind of expand the portfolio as well. We have actually invested in 33 companies since IPO, have had 7 exits, and you can see to the right there some of the highlights. And this is a portfolio that's still growing on the whole really strongly and I think that's really very important. And the true measure over time is that kind of realized IRR. This is kind of the IRR and the invested capital, we'll talk about the difference between realized and unrealized. But as you start to have those kind of succession of exits over a longer period, then I think that realized number becomes more substantive, I mean it's significantly higher than our target of 20%, 38%; we'd love that to be sustained. I think that's a stretch. But if we deliver 20% IRR, then I think we're very much doing what we hope and expect to do. So where are we now? How should you really view the portfolio? When we invest, we typically invest at the early stage. What do we mean by that kind of Series A businesses that often would have a product market fit. In most cases, we'll be generating some revenue, but about to go on a pretty kind of extraordinary journey, full of ups and downs, but ultimately hope end with a pretty significant kind of outsized result. But we are in the business of taking calculated risk. And when you're building a portfolio at the stage in which you invest, you've got to make sure you've got enough under the hood in order to be able to kind of unlock some of those winners. And what we've really been doing and we'll talk a little bit later on, is about the maturity profile as well. Those kind of early-stage investments that we made 4, 5 years ago, really, in some cases, starting to break through and become more established, more mature but still growing nicely and on that path to exit. But what we really tried to create is that kind of strong diversification across those subsectors, predominantly across Europe. I mean that's really kind of our bread and butter. We do kind of stretch an arm or dip a toe when we see something kind of exceptional or it's in a space where we feel there's a center of excellent digital assets, if we're honest, we see more innovation in the Valley. But fundamentally, the heart of fintech is very much in the U.K. and the U.K. still accounts for about half of all invested capital in fintech in Europe. But at the same time, we are very active across the whole European ecosystem. And that's really kind of been reflected now in a number of areas where we've had strong conviction. And in some cases, you wouldn't have seen this time last year much of a slither of the pie in insurance, and we're starting to kind of build that out as we feel Insurtech 1.0, the first kind of wave of digital transformation insurance, pretty disappointing, if we're honest, in terms of the innovation that we're seeing and the cut through. We weren't seeing material exits. We saw lots of inflated valuations, but we feel kind of insurance 2.0 is where we've started to kind of start to see what we think our teams that have really learned from some of the challenges that the previous generation have had and the likes of Artificial Labs in Germany, a cyber insurance platform artificial really kind of what we would regard digitizing and transforming the Lloyd's market as well kind of post-COVID, there's been kind of a much greater embracing of digital transformation in markets such as Lloyd's as well. So that B2B, the infrastructure piece, has been an area which we've been really looking to build over the last 2 to 3 years, and you're starting to see that become a more established part. But of course, those early investments that we made are really starting to come through in terms of scale. But this will ebb and flow in terms of size, in terms of adding new segments. But I think this is a pretty good representation of where we've got conviction and where we'll be looking to kind of increase our exposure over time. I'll touch a little bit more on kind of the direction of travel, but this just gives you a little bit more granular detail of the kind of the growth and where the shift has been in recent periods. And as you can see, it's largely been from both realizations addition, valuation change pretty kind of flat period. But under the hood, there's a lot going on and as always there's kind of positive things and less positive things. I think across the board, we've certainly had more ups and downs. I think kind of the big delta on the downside has been us taking a pretty significant view on kind of Grover and taking a significant write-down really to kind of reflect what's going on in the business, where we would say in venture when you have businesses that grow in many cases, I can point to, Tide, Zopa, Grover, Iwoca in particular, you have businesses that have all kind of gone from a few million when we first invested to well north of GBP 200 million. So pretty kind of incredible kind of growth stories. All sorts of hyper growth can kind of mask in efficiencies. And I think it's been really important for us over the last 2 years to work collaboratively with our portfolio companies where they're really at scale to say can we drive to profitability if it makes sense, can we be reinvesting some of that profitability into growth, but it's got to be sustainable growth. How is your cash burn? What are your unit economics like? And I think Grover has been one where we've talked about it to this kind of group. I recognize many of the names on the list today about the importance of not having top line growth at all costs, there has to be that part to profitability. And I think in many cases, our businesses that have kind of reached that scale have kind of gone about moving to profitability or breakeven and then making sure that we're reinvesting that profit back into growth in a really effective way. And I think we're still on that journey with Grover. So our COO, Richard Matthews, has kind of moved on to the Board. We've made some changes internally, and there have been some changes within the business where the founder has stepped away and brought in a new COO as well. So I think what they've built is a very strong new category in the German kind of consumer rental markets, an alternative to Klarna in Germany, buy now pay later or you can rent it and stay through Grover, that's very much kind of a different dynamic to what we see in, I guess, the U.K. where in Germany and Austria, they're embedded with some of the largest retailers, the likes the equivalent to of [indiscernible] So I think they've got a strong embedded position. It's a well-loved brand in German market, but one in which we want to see continued improvement in overall of those unit economics. And I think the write-down that just reflected the direction of travel and where we see it today. But as I said, we've had businesses that have gone through some pretty big challenges in the past. I can point to Iwoca and Zopa that both have some significant challenges 2, 3 years ago and have just done an extraordinary job turning around their businesses, navigating in many cases, just very difficult macro headwinds, I mean, situations outside of their control and have both become high-growth, really profitable businesses and with a lot of exciting prospects ahead. So this is not unusual on the venture journey, but as I said, it's important for us to tackle these challenges head-on, and that's what we do. We take an active role in our businesses. And we've been there and done it before. We've built these businesses, types of businesses ourselves, and we have plenty of challenges along the way, and hopefully, kind of our involvement and our engagement and contribution to these businesses allows them to kind of navigate some of these challenges effectively as well. But we talked about the ultimate, what is going to be the test of this portfolio over time in terms of performance. And for us, what the flat NAV, frankly, doesn't tell you is that strong underlying growth across the portfolio. And as valuation multiples have really come down as our basket of comparables have shifted. What we haven't seen, despite that strong underlying growth in the last couple of years, we haven't seen kind of valuation maintain in that regard. But fundamentally, as we look, what is a good time period to really measure, I would say, 10 years, no more than halfway through, the early indications are really encouraging. We've delivered GBP 100 million or so of exits. The IRR of those 7 exits has been 38%, well ahead of where we think we will get in the long term, but still encouraging. So this is kind of a measure to watch for sure, but as the portfolio becomes more established as that cohort of exited companies grows, then that realized IRR is going to be an important number to keep tabs on, and that kind of very much holds us into -- holds us to account and something we're very kind of conscious of. But what have we been doing from a deployment point of view? Well, yes, it's been a busy kind of period in terms of supporting the growth of the existing portfolio as well as investing and capitalizing on new opportunities, new investments as well as one that we've done post period end as well in addition to seeing kind of another exit. So you'll see kind of if you break that down quite a lot going on under the hood, a couple of exits, a couple of new investments, a number of kind of follow-ons into the portfolio. And we're often asked kind of if cash was not a barrier, how much could you invest in any 1 year, and you'll see kind of the average over the last 5 to 6 years has been about GBP 30 million a year. We would say the market we're going into really presents quite an exciting opportunity to deploy far more capital than we could. I mean we've got 1 eye, of course, on the balance sheet. And when you got GBP 34 million of cash, you want to make sure your arm to be able to kind of lean in and support and capitalize on those opportunities within the portfolio, further growth, but also kind of double down on your kind of access to the next generation of exciting fintech businesses and make sure you can keep refreshing the portfolio as well. So in any 1 year, if cash was no object, we could be investing GBP 50 million to GBP 100 million, but we're very much going to focus on ensuring we've got enough firepower on our balance sheet. So that will kind of ebb as and when more capital comes in, but I would say there's far more opportunity coming through than we are able to kind of deploy but I'd rather that than the other way around. So what about -- we've talked about the sector diversification. And this is really important for us, and we've always kind of shared this slide. since the early days because it really kind of demonstrates the kind of emerging maturity of the portfolio equally to make sure that we're recycling back into that early stage. So you see kind of 6 companies in the later stage 1- to 3-year period where we think there'll be some pretty interesting exit opportunities still growing really nicely you'll see to the right. But we've got 20 companies in that kind of early stage. Some are starting to produce and are quite exciting, but we hope we got to give them time over the next kind of couple of years to really kind of scale and establish themselves. And of course, you have made some calculated bets in companies where they had what we would regard as a good amount of time to demonstrate that they can deliver or be on a part to deliver that venture outcome. And in some cases, that hasn't happened. And I think the question always is what do you do with those companies. I think the cynic in the market will look at the tail of any portfolio and say, well, that's worth zero. And I think our portfolio, I would say, is the antithesis of that where I talk about this being a really strategic asset class, and I think that's really demonstrated in some of those assets that haven't shot the lights out, haven't delivered on the early promise or the thesis that we've had, but have exited and often have exited at a premium to our holding value. So they've gone on a journey and that journey hasn't kind of ultimately delivered what we hoped but there's still residual value, and there is a strategic buyer out there that will take on that asset, and they will often pay a premium to what we're holding on. So I think there is enough proof points demonstrable exits in the portfolio that show that you shouldn't be cynical even about those companies that perhaps aren't delivering the growth that we would want, but also there are a number of really exciting early-stage businesses. And many of you will have heard me talk very excitedly many years ago about the likes of Tide and the likes of Iwoca and Zopa said, "Look, hold firm, these companies are going to come through and scale," and I think it's fantastic to see them really kind of proving -- proving out their business case and still showing a lot of growth ahead of the curve as well. But of course, everyone does focus on what's in the rearview mirror rather than the jam for tomorrow, and I kind of fully recognize that, hence, why portfolio construction is so important. And so when you look at your top 5, you've got 3 businesses here that are really established from a profitability point of view. We've talked about Grover and Volt as an account-to-account payments orchestration, still growing really nicely, but still quite early, raised a good amount of capital, got a long kind of runway of capital but still kind of very much in that growth phase. But the likes of Tide and Zopa and BullionVault now paying dividends. Zopa has publicly come out with its profit numbers and growing nicely and Tide as well very significant growth ambitions growing very nicely in the U.K., strong business, really profitable business in the U.K., reinvesting that now in its international with incredible growth in India, launching in German -- has launched in Germany, and we'll be launching across Europe in the coming year as well. So there's a lot to look forward to as well. But I think these kind of companies do kind of represent the at north of half of the NAV, you can really kind of get under the hood and start to kind of see the kind of the value opportunity that the discount, frankly, is unwarranted. And you've got a lot of companies coming down the pipe as well that are demonstrating both growth and the path to realization in the shorter term as well. So it's important for me to make sure we get that message out to the market and also shine a light on some of our companies that really do have aspirations in the next 2 to 3 years or if not sooner to IPO potentially and they're becoming more engaged and more public in their approach with the analyst and institutional investor community as well. But over the last 2 years, it has been a path with our companies, especially those businesses that we're scaling to say, look, the market is not looking at the top line as the only parameter in fact, growth at all costs is frowned upon. Can you grow at a healthy clip north of 50%, but can you also demonstrate improving gross margins? Can you demonstrate that you can get to profitability? And so this top 10 as we look at it today, 4 of them are profitable; 2 or 3 are very, very close to kind of breakeven, if not. And so that's really important for us that we continue to demonstrate that there is good growth. Yes, they do represent a significant percentage of the NAV, 70 -- 75%. So they're really kind of good indication of the director and travel. And as we look at it today, there are a number of them that are really kind of going in the right direction and those that are kind of need some work. We are working kind of very actively with them. And I would say there's a lot of optimism from us but also a lot of pragmatism as well in terms of what we feel the market wants to see, what we think future growth investors might want to see in these -- to invest further in these businesses or what the exit market is looking at both strategics private equity but also the IPO market as well. So we are looking kind of 12 to 36 months ahead in terms of kind of direction of travel there. But let's talk about discount because I don't think you can avoid it and I think it's a huge source of frustration. I think we're limited in what we can do, and I'm spending a lot more time over the last 18 to 24 months trying to get the message out to the market to those that aren't investors that we are being fairly in our view, priced that the market hasn't taken into account a significant amount of growth that we'll share some benchmarks. But when you really strip it out, you take the NAV, you take the discount, you have the market cap, you take out the cash and you have your implied value of GBP 134 million and you look at the -- where we are, it's really a 50% discount and then you kind of do that bottom up and say, what does that mean in practice? When your top 5 trade at a 16% discount and then your top 10 at 37%, you've got another 16 assets on top of that as well. So there is a lot of opportunity there. And when we look at where we are and the direction of travel, that underlying growth, the track record, we really feel that there is a long way to go in terms of just not just looking at the value today, but also looking at the next 2 years. And how we think about our kind of ongoing valuation model, our exit model, we're always looking on a 12-month period of what do we think we'll exit and where do we think the growth rates are, what are we going to be able to recycle. And we've kind of shine a light here in this slide where you've just got your top 3. We go under the hood into our internal target valuation model where you're seeing that our model is saying well, we're going to halve the growth for these businesses. So the last 2 years growth, these businesses are becoming more established off a bigger base. They've grown really nicely. But if we kind of cut growth in half, they're still growing at healthy double digits. We maintain this kind of today's multiple where, again, it's significantly discounted to kind of historic numbers and it's a significant discount to the public markets, which we will show you shortly. And you can see even on those top 3 assets, when you run it through our internal model, you see a significant amount of kind of future upside from a valuation point of view. Of course, valuation is one thing, delivering realizations is another. But hopefully kind of -- it does shine a light of what we're building internally and why we're so kind of strong in our conviction and optimism as to what's ahead as an overall in the portfolio. And so we're always looking at this. And we remain kind of frustrated and somewhat mystified when we look at that listed fintech index, which went through a pretty significant dip, but it has kind of recovered well since the last period. If you look at this period since January '23, you've got the NASDAQ, you've got the NASDAQ without the Magnificent Seven. And you can see in the last kind of year, largely the fintech index has kind of mirrored that Magnificent Seven exclusive NASDAQ index. And for us, we have businesses on average growing 3x the pace. And so despite that growth, it has been going in the opposite direction. It hasn't been reflective of what else we're seeing in the market. So from our point of view, not having any credit for growing at 3x, frankly, our listed peers, it certainly demonstrates that from our point of view, a re-rating is long overdue and the fundamentals really do show that I think people, analysts, investors do need to take a good look under the hood of what the portfolio has been doing and really ask the question as to why we haven't seen that reflected in share price. And I think we recognize lots of external factors that are outside our control, but we really want to continue to shine a light on what we've been doing relative to our market peers and how they've seen kind of growth and been rewarded and why we think there's a lot of opportunity from this point in terms of demonstrating that to the market. And when you kind of strip out, we've done quite a lot of work under the hood here. We've got 270 companies globally listed fintech businesses. And only those that grow at north of 30% we include in any 1 year. So in the last year or 2, that cohort has been smaller as the kind of cohort has seen lower growth but fundamentally, our portfolio still kind of grows pretty strongly. So you can see in that period that always the very best in that cohort from a growth point of view, growing on average about north of 30%, trading at 5.5x our cohort of the top 10, which accounts for north of 70%, 4.5x when you apply that discount now, you're seeing at 2.8x. So businesses on average 50% growth year-on-year and the next 12 months, 2.5x -- just over 2.5x, 50% discount to your peers certainly kind of presents an opportunity. And what has really changed in the last kind of 3 years has been the public to private. Now if we sat here 3, 4 years ago, the argument would have been, well, the private markets are well ahead of the public markets in terms of kind of valuation expectations. And here is kind of a cohort of the very best known darlings in the listed fintech space and the equivalent in the private markets of companies that aren't augmented. So we strip them out of the cohort. And you can see you've got 4 global fintech businesses, next 12 months projected sub-20% growth, trading at about 10x next 12 months EV to revenue. You see 4 of the darlings Revolut, which you'll be aware of global business based in the U.K., Klarna due to be listed next year. It's muted. In the U.S., Swedish-based Quanto, the equivalent of Tide in France and Stripe, originally Irish-based but very much kind of U.S.-based payments businesses. And that's about an average 50% growth. 6.5x. And then you kind of look at the Augmentum top 10 growing at faster than both these cohorts. And then when you apply the discount, 2.8. So you can see a pretty significant delta despite the fact that there's kind of a lot of underlying growth in the portfolio and a real progression in getting these businesses to profitability where it made sense and improving those unit economics as well. And why is that? Why is valuation? I was just on a retail investor call, Investor Meet Company, and we had a 150-odd retail investors and a lot of questions at the end on the valuation, why are your valuations as they are? I mean, at the end of the day, we don't control that. We work with our auditors. We take the market approach where you're using a basket of public comparables. Historically, you would have used when there had been a price of a recent transaction. But as the market has softened, our focus with our portfolio companies has been, look, if you don't need to raise money, why raise money in the external market. You're generating cash or you can take money internally. We can hold valuations steady. Let's focus on deliver on execution and not be distracted by spending 6 months on a fundraise. And as such, you've seen that real shift to using that kind of market approach. But as I said, I think in any which way when you apply the discount, we do very much trade at a very significantly lower multiple. And we would feel that we are on the side of conservative alongside when you look at this kind of downside protection, which I talked about with most of you in the past where we do have that preferred share structure if we're the last money in with the first money out. And then if there is a round where there is a significant down round where valuation does come down, then we are issued more stock through anti-dilution as well. And that kind of just gives us that bit of downside protection. And when things don't go to plan, we have more leverage in those negotiations. It could be a restructure. There could be kind of other approaches, but it is important that if you're going to come in and be that first institutional money and kind of, in some cases, pay a higher headline price, you want to make sure that you are protected on the downside where that comes into play, and we have used that to our advantage in the past. And we talk about using that advantage in the past. And that's often the case of businesses where there haven't been great outcomes from a multiple point of view, but it has allowed us to kind of -- if somebody has wanted to come in, we had the class of share that the incoming investors wanted. And that was the case in [ CDs, ] and that was the case in INDXX as well. where these were businesses where we felt actually the direction of travel wasn't where we wanted, but we could take our money off the table. And we've kind of taken haircuts on valuation and these exiting at an average of 33% to the last reported valuation is really important as well because you want to provide confidence and comfort in those underlying valuations. And as I've said now, if we deployed about GBP 200 million in the last 6 years, delivered about GBP 100 million in realizations, I would say the direction of travel relative to similar vintage funds, 2018, 2019 funds in the kind of private market, the more traditional GP/LP structure, we're well ahead of schedule in kind of half 0.5 DPI, if you were looking at as a traditional fund as well. So fundamentally, if you'd have asked me 4, 5 years ago, one, what did I think we could deliver in that first 5 years and where did I hope that realization percentage would be in terms of kind of an uplift to the last reported. I would have said if we're doing 25%, 30%, that would be a pretty good thing. And I think, again, we're on track there. So hopefully, this provides further comfort that the valuations are robust, and we're not pricing them for tomorrow. We're pricing from where we think we would be able to exit them today. So what about the market before I kind of wrap up in 5 minutes. Well, direction of travel is positive in terms of number of companies, the kind of heady days of '21 and the first half of '22 are gone and actually, it's a good thing. There was too much money at the wrong prices. It was very hard to deploy capital effectively. But it is competitive. I mean we focus, as I've said, on the earlier stage on that Series A, and there's a lot of smart money there. And so we need to really differentiate and demonstrate both our approach, our track record, our access, and we need to move quick as and when those opportunity presents itself. And the reason it's so competitive is because investors recognize this is a huge market opportunity. There is a long way still to go. We are incredibly well positioned in this market with a strong brand, much, much stronger than we had 4, 5 years ago. So our ability to access the very best deals and actually get them over the line is much higher. And we expect there will be significant numbers of businesses built in our space over the next 5 years. So there is a big cohort to come. And although I think we've done well to build a good portfolio in the last 5 years, I think we can build an even better one over the next 5 years as well. And that's what really excites us in terms of what's ahead of us as well. And there's been a real shift and continued shift, and we would have talked about this trend 3, 4 years ago. The trend is real now where we're seeing the incumbents continue to invest very heavily on their own balance sheet and their own R&D, building tech. But boy, are they becoming acquisitive alongside working with B2B fintechs, many of our portfolio companies to help them build the technology that they're challenging to build themselves. And of course, they're investing on balance sheet. So we partner with the likes of JPMorgan and some of the large insurers and -- as you would have seen, we've sold assets to the likes of NatWest and Aberdeen and others. So there's a real shift and a recognition from both the software players and the financial services incumbents that they can't solve the problems on their own, and they can continue to collaborate and compete with our businesses and work alongside and be customers of them as well. And I think that's a really encouraging trend as well. And from an M&A point of view, the market is getting better. I think it will continue to improve. I think we've seen the volume of deals clearly improve. The multiples are clearly down, significantly down from '21 in the first half of '22. But when there's a strategic imperative, software businesses and financial services incumbents are buying, and they will continue to do so as their balance sheets continue to swell. And I think where they see a threat of someone else coming in and when you have a quiet IPO market, that there isn't that same imperative, even though the vast majority of fintechs do exit through M&A. I think it's something like 98% over the last 5 years. So the M&A market is important for sentiment, but ultimately, these businesses are most likely to exit through M&A, and that's a trend that we expect to continue. And as I wrap up, just talk about why building the platform that we've built is really important and staying differentiated and ahead of the curve is critical because we aren't the only show in town. We are, yes, the only publicly listed fintech fund, but the vast majority of our competition are not listed. They are more traditional GP/LP, VC funds. We co-invest, we collaborate, but also we compete. And it's important that we continue to invest in our own technology in-house. And you can see here all the inputs that we're having, whether it's on the data side, whether it's using AI, making us more efficient in automations. And that all feeds into our centralized workflow platform called ADA, where we use Infinity to underpin that. And this is kind of what it looks like from an output point of view. So we have 5,000 leads -- leads for us our fintechs. Last 12 months, we've looked to 1,000. That translates to some 13,000 people in our ecosystem and network. And what's really important is because there is so much volume coming through, because we are taking so many meetings, we need to come to a decision really, really quickly because you can see tiny, tiny conversion rate. But both our experience and I haven't quite appreciated how many years we have, 75 years between a few of the more senior members. We really know this market. And every year goes by in venture often feels like dog years, you learn a hell of a lot along the way. But it does give us the ability when we see exceptional businesses, whether it's the likes of Loop or Pemo, which is our first opportunity kind of in MENA, where we've been tracking the segment corporate expense management cards. We felt the European market overheated in 2020 and '21, rounds were crazy. We like the thesis. We didn't like the prices. And so we were tracking a number of people that left that space and went to build equivalents in other geographies. And this one, gave us the ability to track this team early on. And then at the point in which we felt they had real product market fit and scale, we could lean in straight away, where it was a sector we understood well. It was a team that we could reference very quickly, and we could act by kind of accessing all the due diligence, getting real expertise and getting under the hood of who these teams -- who the team were and reference them pretty quickly. And both of these processes in the loop, which we talked about in our last results and Pemo with the result of highly competitive -- I would say, a cohort of really high-quality funds around the table, but they chose us, one because we understood the proposition; two, we've been building a relationship with them; and three, I think what we could demonstrate in terms of the value that we can bring, move the access that we have and the cross-pollination and learning from our portfolio and the association with the Augmentum portfolio, I think, really kind of resonated with them as well. So what does that mean from a pipeline? What's coming down the pipe, you can see it's been a busy period, 22% increase in terms of those really kind of advanced DD. So you can see the pipeline. There's a lot of stuff coming through. Much of it is noise and stuff we dismiss immediately will then kind of qualify. And that's often when we would have meetings, not with all 500 of them, but we kind of do one wave of analysis and then we start to dig in. And once we've got to advanced DD, that's really where it's being -- the light is being shown in our weekly investment team meeting where one of the investment team will socialize, will start to kind of share the thesis, the approach, and we will start to dig in. And really, those meetings are to try and unpick it, the job of the IC is to tear it a bit and then build it back up again as well. But when you're in the business of saying, no, 99.8% of the time, you have to have that kind of healthy dose of cynicism. But at the same time, you are looking for that kind of exceptional opportunity where somebody can bring or a team can build a business that can deliver an outsized return. And as you can see in that period, there were a fair few that we really dug under the hood of. So I'm going to pause there and make sure we've got a good amount of time for questions. As I said, I know many of you have heard the story before. Hopefully, you feel that there's real progress and it's demonstrable progress as well, not just in growth, but also in the exit horizon, but also kind of really recognizing, I think Neil alluded to it in his preamble that the U.K. government has highlighted fintech as one of their kind of 5 areas of focus and growth. And that's because they just see what's going on under the hood. They hear from the regulator, they hear from the Central Bank. We're very close to both the regulator, the Central Bank and the government in terms of engaging with them in terms of the opportunity ahead. And I think they see us as a kind of core part of that ecosystem, which is great. We would like to see more capital flow into our sector. I think the pension funds, U.K. pension funds have been significantly underweight venture. They significantly underweight the U.K. plc as well. And I think there is a lot of talk and a lot of initiatives about unlocking that capital. We'd like to see less talk and more action and for that money to flow. And we'd love to see that come into our sector, but also into the public markets as well because there's a huge growth opportunity over the next 10 years. I think the U.K. wants to remain the dominant country in fintech and leading the way in Europe, where the 50% of every piece of investment, 50% of it happens in the U.K. So the market is growing. The track record is developing, but also we as a team are getting better. I think we've learned a lot in the period. I think we've done a lot of good things. I think we've done some things that haven't delivered, and I think we've learned from them. Team is evolving, developing in parts changing. And that's been important too, where you can start to really look at those next generation that are becoming -- are showing positive signs of being exceptional investors, but also kind of scrutinizing where we haven't got it right and why that is and what we can do to get better. And I think we're really well positioned now. And I'm really excited about what's ahead. So I'm going to pause there, Neil. I'm going to stop sharing my screen so we can answer some questions if there are any.

There are. There are some questions coming through. I have a couple on e-mail. We've got a couple in the system. The first one is in regards to costs actually. And asking about operating expenses that have gone up over the period. just opened up the half year accounts, actually, it looks like they've gone up from GBP 1.769 million at the end of September last year to GBP 2.681 million at the end of September this year. And asking about the reason why those costs have gone up and what measures do you have in place to control costs?

Yes. I'm not 100% familiar with that as -- I mean in terms of our cost ratio, so the fee for the manager is a 1.5% fee on the first GBP 250 million and then 1% above. And that's been the case all the way through. So there hasn't been any shift there. So I'm going to plead the fifth on that, and maybe I can come back specifically on that, and I'll get Richard, our COO. So I just want to make sure I've got the -- I understand the question correctly. What we're not doing is changing our cost base as a team. So cost control is we have a finite pot that runs the team, and that's what we have. So there's no kind of growth in that. So I think our cost ratio, if you look at it, has stayed steady as it should. So I'm going to come back specifically on that. But just to rest assured that there is no issue on cost control from a manager point of view.

Okay. Well, we'll come back to you on that particular question. Second question is in regard -- which I've had on e-mail actually is in regard to the potential impact that AI may have on companies in your sector and whether you see this overall as more of a threat or an opportunity for the fund.

Yes, huge opportunity. I spent yesterday at Tide's Board Annual Strategy Day. So if you don't mind, Neil, I'm going to bring up this presentation again, even though I said I'd finished it because it's a good question. And so I've got something in the appendix. So here's what I prepared earlier. I'm going to hope I'm going to find it. Here we go. So what's happening in the portfolio. And I said yesterday I spent Strategy Day of which a large part of the Tide Strategy Day was speaking to their team in data and AI and some of the stuff that they're building and working with is incredibly exciting. You can have a look on the right here, and this isn't a really interesting stat. So this is just looking at the last 7 years and companies generally who are working with AI. And you can see a pretty kind of transformative shift. So most companies are working in some respects with AI. So -- but a lot of the big established businesses are, let's say they're dabbling. There is a huge amount going on under the hood in the Augmentum portfolio in AI. And it's not just Gen AI. It's not just large language models. I mean our businesses have been working with them for years and in some cases, our pure-play AI-driven propositions. Intellis in Switzerland is a great example of that. Maybe we don't make a big enough deal of what's happening in the portfolio with AI. But I think we're quite careful not to kind of overpromise and underdeliver. And when it comes from a pure investment point of view, we are taking a watching brief. Are we excited about AI? We are extremely excited about some of the use cases. We believe, as a technology, it will be on an equivalent with the Internet and smartphones, no question in our view. Of course, how long and in what way and to what extent? And is it a threat? Is it an opportunity? I think it's both. I would say that businesses that are innovative, fast-moving embrace technology quicker. They can hire the next generation of talent. I think incumbents find it hard to hire the next generation of talent with respect to some of the biggest banks and insurers, it's much more interesting and exciting for a lot of what we regard as the highest quality of talent, whether it's in engineering or AI, machine learning. They want to come work in some of our businesses because you could really have a deliberate impact, and we're seeing that. So whether it's in credit writer -- underwriting or insurance underwriting, detection of fraud, trading decisions, workflows, customer support, I threw in wealth management in that only because we're looking at so many next-generation wealth management plays, both on the B2B and on the B2B2C as well as the B2C side, AI copilots -- yes, some fascinating and really exciting technologies being developed. It's early. And I think I said it earlier in this presentation, if not in the previous presentation, we don't want to be right too soon. So the cost of being right too early can be expensive because businesses just take too long. And I've seen that firsthand in the past where you're frustrated because 10 years later, someone comes out and said, that's exactly what we've invested in, but we're way too early. But I think for investors looking at what is this portfolio doing with AI, Well, I would say it's innovating, but it's also working with those stand-alone AI providers as well. And you see it even with Augmentum, we're looking really hard at ourselves saying how can we be more efficient? What tools should we be using? What are the table stakes? And I would say, when we talk about table stakes, what is -- what should everyone be doing -- and if you're not doing it, you're behind the curve. And then what should you be pushing the boundaries on and then what can you be building yourself in developing your own IP. And I would like to think that a lot of companies in our portfolio are really pushing the envelope on that. And hopefully, the benefits will come through in the next 12 to 24 months. So we will continue to look at both AI-specific opportunities, obviously, with the financial services angle. We will continue to work very closely with the portfolio to understand what they're doing, how we can learn and what they can do to help our other portfolios learn and then what we can be doing as a team internally to be more efficient to be able to spend more time on the alpha. And that's something where we're constantly kind of looking at ourselves, and we'll continue to invest in time. So hopefully, that answered the question.

Very thorough. Thank you. Yes. On to the next question. I mean you talked about the discount, Tim, and that's clearly locking you out of the market to a certain extent. But a question here as to whether you're considering raising private funds to take advantage of the pipeline of opportunities that you're seeing at this time?

Yes. I mean we still sit on a good amount of cash, GBP 34 million. We want to make sure we're armed with the right amount of cash to be able to support and follow into our companies. So what's your base level, you don't really want to drop much below GBP 15 million, GBP 20 million of cash. So there's capital to support. But of course, in a situation where we saw 2 or 3 very compelling opportunities, and we were at a point in which we felt we're fully invested and there were no immediate realizations on the horizon, but there were 2 or 3 incredible opportunities, then that would certainly be something for us to consider. I think what's quite interesting and something we've talked about with many investors and a number on the call before is where do we see a gap? And because we invest at the Series A and Series A plus, there's this kind of seed part of the market that doesn't make sense sitting in the listed fund. It's too early, clearly that the risk profile is a little too high. So could we launch a more traditional GP/LP structure there? And then the listed fund can -- I might use the word cherry pick, but I can't think of a better word. But at the point in which the winners start to come through in that seed fund to the listed fund. I think that's a really kind of compelling proposition. It's not something we've done, but certainly something we would consider and frankly, have considered. So I think that's something to reflect on because if I look at where we'd like to be across the whole fintech spectrum. And I think you're always looking at where do we feel there is a strategic hole or a gap or we're at a competitive disadvantage. And I think you have a lot of multistage funds. You don't have a lot of multistage fintech funds, but you do have a lot of multistage funds. And if they've got a C fund and they have an A fund and a growth fund, are you getting to see that A round? Or frankly, will the A fund lean in and take the very best company. So it's something we're conscious of and something we kind of spend a lot of time anyway as a team building relationships with the companies often a year or 2 before we can invest because we want to track them. We want to monitor their progress. We want to get to know the team because that allows us to develop our priority watch list for the year ahead. So we're always looking 6 months, 12 months, 18 months, what are the companies that are likely to come into fundraising mode, where have we got early conviction, where is our thesis evolving? And we're building out that cohort of a couple of hundred businesses, and we're really trying to kind of prioritize our time to lean into them. So I think it's -- yes, it's an interesting question, and it's one where I think you've always got to keep an open mind. We want to grow. We see huge amounts of opportunity. We want to see the listed fund grow. Of course, trading at a 40% discount makes that quite difficult from an issuing new capital point of view. But hopefully, we can get back to that premium in time. But in the meantime, yes, the ambition is still continue to invest and support the portfolio and then think creatively about how we can make sure that we can capitalize on other parts of the market where we don't have a presence.

Just very quickly. Last question to throw into the mix is I would ask on Klarna actually. And I wonder if you could just very quickly talk about the status of the Klarna IPO and what the read across may be for the sector and for the fund, if any, from your perspective?

Yes. Look, I think it's interesting because the market always wants benchmarks. They want to see high-profile, highly regarded fintechs come to the market and everybody will be looking under the hood at the growth rate, the gross margin, the multiple that they list that. I think the muted valuation is somewhere between 15 and 20. We want them to list and list well because that's just an encouraging sign to investors that there's appetite for these propositions. We want the very best businesses to list. What we've seen in the past is -- and the data shows you that the vast majority of fintechs will never list and then be taken out. And I think that in itself is kind of the motivation for us building Augmentum because we see this as one of the most compelling and exciting asset classes over the next decade and the vast majority of that growth is not going to be seen in the public market. So how do you as a public market investor get exposure to a huge emerging asset class. So hopefully, we can be one route for investors there. But you still want to see a cohort of high-quality fintechs go to the public markets because I think that gives investors real confidence. So you want to make sure that cohort is high quality. You want to make sure that they go at the right type of price. I think there have been some in the past that have gone at too high a multiple. And when they haven't kind of fulfilled that high expectation of growth, both on the top line and the bottom line, the market has kind of really rerated them and created quite a cynical view. So yes, we're really looking closely at Klarna and hopefully others that will come over the next 12 months. I think there's quite a healthy pipeline. We'd love them to list at the right price and demonstrate to the market that they can kind of put the runs on the board. And it's easy for me to say, maybe go a little bit lower, so you can just prove on the upside -- so -- but clearly, we're not in control of that. But yes, we're watching it closely. I think as a lending proposition, which Klarna basically is, you can call it buy now, pay later or whatever, and you look at that multiple, I mean we've got a couple of very profitable lending propositions that are at a significant discount to what their multiple will go at. So I would say that might rerate some of those kind of high-quality, high-growth, digitally led data-led AI-led lending propositions where the market really looks at them differently, which they should. But for now, the cohort of our comparables is limited. And as such, you see the more perhaps that's part of a driver of why they are from a multiple point of view on such a low multiple despite their growth and from our perspective, have a huge amount of kind of tech IP and AI IP as well.

Great. Well, I think we'll all be watching that with interest. We're getting close to 1:00, and I'm thinking it's probably lunch time for a number of us. So Tim, thank you very much for today, for the useful update on the phone. And ladies and gentlemen, I really appreciate your time also for listening in. A couple of points of summary. The NAV has obviously been flat as it was described, but that masks significant growth under the hood going on the whole time. The balance sheet remains strong. We've got cash on the balance sheet of GBP 34.8 million, no debt whatsoever. And of course, the share price, just not recognizing the growth that's going on within the portfolio. So a really interesting time to consider an investment. Financial sector is going to continue to see huge disruption in the coming years. And I think the fund under the stewardship of Tim and his team is positioned well to be a leading beneficiary of that trend and opportunity for its shareholders. So I would urge you to have a look at it for 2025. Obviously, this is a key growth sector as identified by the U.K. government. The ticker is AUGM for Matthew, and it's available to purchase through the company's brokers who are Peel Hunt and Singers. So I said my piece. Thank you very much. Enjoy your lunch and look forward to the next webinar.