11
June 2024
ODYSSEAN INVESTMENT TRUST
PLC
Annual Report and Financial
Statements
for the year ended 31 March
2024
This announcement contains
regulated information
Odyssean Investment Trust plc
(the "Company" or "OIT") today announces
audited results for the year
ended 31 March 2024
Investment Policy
The
Company primarily invests in smaller company equities quoted on
markets operated by the London Stock Exchange, where the Portfolio
Manager believes the securities are trading below intrinsic value
and where this value can be increased through strategic,
operational, management and/or financial initiatives. Where the
Company owns an influencing stake, it will engage with other
stakeholders to help improve value. The Company may, at times,
invest in securities quoted on other recognised exchanges and/or
unquoted securities.
It is expected that the majority of
the Portfolio by value will be invested in companies too small to
be considered for inclusion in the FTSE 250 Index, although there
are no specific restrictions on the market capitalisation of
issuers into which the Company may invest.
The portfolio will typically consist
of up to 25 holdings, with the top 10 holdings accounting for the
majority of the Company's aggregate Net Asset Value ("NAV") across
a range of industries. The Company will adhere to an
exclusion-based investment approach to avoid investment in
companies involved in activities the Company deems unethical and/or
unsustainable.
The Company may hold cash in the
Portfolio from time to time to maintain investment flexibility.
There is no limit on the amount of cash which may be held by the
Company from time to time.
Investment restrictions
- No exposure to
any investee company will exceed 15 per cent. of Net Asset Value at
the time of investment.
- The Company may
invest up to 20 per cent. of Gross Assets at the time of investment
in unquoted securities where the issuer has its principal place of
business in the UK.
- The Company may
invest up to 20 per cent. of Gross Assets at the time of investment
in quoted securities not traded on the London Stock
Exchange.
- The Company will
not invest more than 10 per cent., in aggregate, of Gross Assets at
the time of investment in other listed closed-end investment
funds.
Ethical and sustainability investment
restrictions
The Company will not
invest1 in companies which derive any revenue from, or
are engaged in:
- the production or
direct distribution of pornography;
- the manufacture,
production or retail of controversial weapons2 (e.g.
chemical, biological or nuclear weapons, cluster munitions,
landmines), civilian firearms and ammunition;
- the manufacture of
alcohol and tobacco products;
- the ownership or
operation of gambling facilities;
- sub-prime and/or
predatory lending;
- oil and gas
production (both conventional and unconventional, including shale
oil and gas, coal seam gas, coal bed methane, thermal coal, tar
sands, Arctic onshore/offshore deepwater, shallow water and other
onshore/offshore) extraction and refining;
- animal
experimentation or animal testing, (a) where there is a proven
alternative and/or where testing is not mandated by regulation; or
(b) where there is no proven alternative and/or the experimentation
or testing is mandated by regulation, but where the investee
company is not adhering to the "three Rs" ethics of Replacement,
Reduction and Refinement.
The Company will not invest more
than 10 per cent., in aggregate, of Gross Assets at the time of
investment in companies involved in distributing, licensing,
retailing or supplying tobacco and/or alcohol beverage
products.
1
The Company will base its analysis of an investee
company's revenues and activities on publicly available
information, and will exclude revenues and activities that are
considered to be de-minimis, being those that represent less than
1% of the investee company's revenue.
2
Controversial weapons are those that have an
indiscriminate and disproportional humanitarian impact on civilian
populations, the effects of which can be felt long after military
conflicts have ended.
Borrowings
As a Small Registered AIFM, the
Company may not employ borrowings .
Derivatives and Hedging
The Company will not use derivatives
for investment purposes. It is expected that the Company's assets
will be predominantly denominated in Sterling and, as such, the
Company does not intend to engage in hedging arrangements, however,
the Company may do so if the Board deems it appropriate for
efficient portfolio management purposes.
General
The Company will not be required to
dispose of any asset or to rebalance the Portfolio as a result of a
change in the respective valuations of its assets.
The Company intends to conduct its
affairs so as to qualify as an investment trust for the purposes of
section 1158 of the Corporation Tax Act 2010.
Any material change to the Company's
investment policy set out above will require the approval of
shareholders by way of an ordinary resolution at a general meeting
and the approval of the Financial Conduct Authority (the "FCA").
Non-material changes to the investment policy may be approved by
the Board.
Financial Summary
Company performance
|
As at 31 March
2024
|
As at 31
March 2023
|
Change
|
Shareholders' funds
|
£187.6m
|
£181.2m
|
3.5%
|
NAV per share
|
154.4p
|
160.4p
|
(3.7)%
|
Share price per share
|
155.5p
|
164.0p
|
(5.2)%
|
Share price premium to NAV per
share#
|
0.7%
|
2.2%
|
|
|
Year ended
|
Year
ended
|
|
|
31 March
2024
|
31 March
2023
|
|
Revenue return per share
|
(0.4)p
|
0.2p
|
|
Capital return per share
|
(5.3)p
|
(4.1)p
|
|
Total return per
share#
|
(5.7)p
|
(3.9)p
|
|
NAV total return per
share#
|
(3.7)%
|
(2.2)%
|
|
DNSC (formerly NSCI) ex IC plus AIM
Total Return Index*
|
3.0%
|
(13.4)%
|
|
|
|
|
|
|
Year ended
|
Year
ended
|
|
Cost of running the Company
|
31 March
2024
|
31 March
2023
|
|
Ongoing charges
ratio#
|
1.48%
|
1.45%
|
|
# Alternative
Performance Measures (see Glossary).
* Used by the
Company as comparator, not a Benchmark. Source:
Bloomberg.
Past performance is not a guide to future
performance.
Chairman's Statement
Introduction
I am pleased to present the
Company's Annual Report and Financial statements for the year ended
31 March 2024. This is my first report as Chairman of the Company
following Jane Tufnell's retirement from the Board on 31 March
2024. Jane was Chairman from the launch of the Company.
Performance
Over the year, the net asset value
per share ('NAV per share') of your Company fell by 3.7%, in a year
where the NAV per share was more volatile than normal. The
Company's performance reflected markets and volatility driven by
stock specific issues, but was below the broader market return of
c.3%. Unlike in previous years, none of the portfolio companies
benefited from takeover activity, which in a concentrated portfolio
can make a significant difference to returns.
Equity markets have been coping with
considerable uncertainties - geopolitical, monetary policy,
asymmetric economic growth around the world, as well as entering a
period where political change is likely. Equity returns were
dominated by the performance of the largest US tech stocks. US
equities as a whole have remained favoured by investors, with
capital continue to flow into that region such that US equities
account for c.70% of global equities by market value.
The net assets of your Company
increased modestly during the year due to a small number of new
shares being issued. It is encouraging to continue to see support
for the Company and its differentiated investment strategy even
during times of uncertainty.
Discount and Premium Management
The share price has tracked in line
with the NAV per share over the period, albeit with continued
volatility. The Company's shares ended the period trading
around its NAV.
In response to buying demand
exceeding selling demand over the period, the Company issued a
total of 8,507,000 shares at a premium to NAV, which meant that
there was no dilution to existing shareholders. Since the year end
and up to 10 June 2024, the latest practicable date prior to the
publication of this report, a further 2,075,000 shares have been
issued at a premium to NAV.
The Company's average discount since
IPO has been 0.1%. The Board believes that the Company's strong
absolute and relative rating is driven by a number of factors
including good performance, a differentiated strategy (only
accessible to investors via the Company), effective communication
with existing and potential investors, a clear discount control
policy (including a periodic redemption facility), a well-balanced
register of long-term shareholders and (multiple) features which
align the interests of all stakeholders.
Dividend
The Directors expect that returns
for shareholders will be driven primarily by capital growth of the
shares rather than dividend income. No dividend is proposed for the
year ended 31 March 2024.
Board of Directors
As I mentioned earlier, Jane Tufnell
had been Chairman of the Company since its inception in 2018. In
her Chairman's Statement at the half-year stage Jane mentioned that
it was appropriate to identify a new Chairman at an early stage as,
in addition to Board succession, the Company was also moving
towards the period when it would be honouring its commitment to
provide an exit opportunity for shareholders. This has allowed me
to be in a position to take the Company through the exit
opportunity and, prior to making any election, investors now also
know who the Chairman would be for the next investment
period.
On behalf of the Board, I would like
to thank Jane for her leadership and wise counsel during her time
on the Board, a period during which the Company achieved strong
performance for shareholders.
Company Strategy
In April 2024 the Board reviewed the
Company's strategy against the assumptions and proposition
presented to shareholders in the IPO Prospectus. It is pleasing to
note that, with the exception of unsupportive markets and a
de‑rating of UK equities, many of the assumptions have been proven
and the proposition allowed the Company to navigate six years of
quite extraordinary events.
As well as the Board review, I have
taken the opportunity to meet with a number of the Company's
largest shareholders to hear their views on the Company and its
prospects.
The concentrated investment strategy
of the Company is less impacted than much more diversified peers.
As a result, whilst the well-publicised shrinkage of the UK equity
market reduced choice for all investors, it has much less impact on
the Company's investment strategy. Moreover, the Board remains of
the view that the addressable market is substantial and the
Portfolio Manager's investment approach should continue to deliver
attractive differentiated returns.
After careful consideration and in
light of the feedback from major shareholders, the Board concluded
that the purpose and strategy of the Company remained highly
relevant, the prospects for future returns remain attractive, and
that little or no change to the key features was necessary.
However, the Board will continue to review the strategy
regularly.
Redemption Event
The Board believes that the
Redemption facility set out in the IPO Prospectus has been one of
the key factors in helping the Company's shares trade at or around
NAV. On 21 May the Company announced that it was running the first
periodic Tender Offer enabling shareholders to exit their
investment.
On 5 June the Company announced that
785,596 shares had been tendered by shareholders, representing 0.6%
of the Company's issued share capital. On 7 June, the Company
announced that all of these shares had been resold to institutional
shareholders. As a result, the share count of the Company has
remained flat.
The Board believes that the low
level of participation in the Tender Offer reflects the performance
delivered by the portfolio management team in a challenging market
since launch as well as a recognition of the Company's unique
investment approach.
The Board shares the views of the
Portfolio Manager and major shareholders that the Redemption
facility is a key positive attribute and differentiator of the
Company. As a result, I am pleased to confirm that the Board
intends to continue to offer this facility every seventh year as
set out in the original prospectus.
Growth of the Company
Since launch, the majority of the
growth in the Company has been organic due to performance delivered
by the Portfolio Manager. However as previously mentioned the
Company has also taken the opportunity to issue new shares at a
premium to net asset value. The growth has been measured and spread
across wealth managers, retail investors and high net worth
individuals. It has also led to the shareholder base continuing to
diversify.
The Board continues to believe that
the growth in the Company provides a number of benefits to
shareholders including greater liquidity in the shares and a lower
ongoing charges ratio as the fixed costs of the Company are spread
over a larger asset base.
Wealth managers represent c.50% of
the shareholder base of the Company. The Board remains mindful of
the continued consolidation of the very large wealth managers,
where some investment managers are restricted to only purchasing
securities approved by a central research team. These tend to be
larger investment companies than the Company. The Company has only
a very limited proportion of its shareholder base which is subject
to such consolidation and therefore potentially subject to this
risk. The Board also continues to believe that organic growth over
the next three to five years alone will help propel the Company to
a size where it is a more attractive prospect for investors from
larger wealth managers.
The Company has found continued
success in attracting shareholders from small and mid-sized wealth
managers, and new startups where the ethos is counter central-buy
lists, as well as retail investors. One of the many advantages of
this shareholder base is that the register is well balanced and the
shares have the potential to be more liquid than a similar sized
investment company with a more concentrated shareholder
base.
The Board is also aware that the
investment strategy is not infinitely scalable. However, it shares
the Portfolio Manager's view that there appears to be considerable
room for the Company to grow before returns from the
investment strategy risk being
diminished.
Annual General Meeting ("AGM")
The sixth AGM of the Company will
take place at 12.00 noon on Wednesday, 4 September 2024. The AGM
will be held at the offices of Odyssean Capital LLP, 6 Stratton
Street, Mayfair, London W1J 8LD. The Notice convening the AGM
together with explanations of the proposed resolutions can be found
in the Notice of Meeting.
Outlook
For much of the period since the
Company launched UK equities, particularly UK Smaller Companies,
have been out of favour, despite the compelling value they have
been offering for the past couple of years. Whilst the Portfolio
Manager and my predecessor must have felt like lone voices at
times, pleasingly over recent months there has been a much broader
recognition of this anomaly and opportunity.
It's impossible to predict the
timing of any reassessment and re-rating of UK equities, nor the
specific catalyst or catalysts driving this. Assuming we are at the
peak of the interest rate cycle, the first interest rate cut might
be one such catalyst. The Board shares the Portfolio Manager's
belief that the Company's portfolio companies should be major
beneficiaries of this change.
Whilst we wait for this
re-evaluation, further M&A activity is possible. The portfolio
was not a major beneficiary of M&A in the year under review,
potentially due to its skew towards industrial companies - a sector
where there was limited M&A during 2023. However, it is notable
that M&A activity among industrial companies has appeared to
re-emerge in 2024, just as trading conditions appear to be on the
cusp of recovering. The recent bid interest for portfolio company
XP Power is more evidence of this emerging trend.
Alongside the potential optionality
from M&A, whilst we wait for sentiment to change, many
portfolio companies have the scope to drive improved operating
profits from strategic and operational initiatives which are in the
control of their management teams. Elementis and Spire are good
examples where the respective executives have announced structural
cost savings and efficiencies to drive an increase in EBIT
(Earnings Before Interest and Taxes) of at least 30%, alongside
initiatives to improve sales growth. Such examples of self help at
these companies, and others in the portfolio, have been masked or
seemingly not reflected in share prices due to depressed sentiment.
This augurs well for future returns as the investment market
improves.
The closed ended fund structure has
been a good match for the investment strategy since the Company
launched, offering the Portfolio Manager certainty of capital in
difficult times, and allowing them the luxury of buying or adding
to stakes in less liquid quoted companies at attractive valuations.
As markets rebound, it also enables the Portfolio Manager to manage
capacity and capital carefully to optimise returns to existing
shareholders.
We are grateful for the ongoing
support and patience shown by shareholders during the
period.
Linda Wilding
Chairman
11 June 2024
Portfolio Manager's Report
Details of the Portfolio Manager
The Company's Portfolio Manager is
Odyssean Capital LLP.
The Portfolio Manager was founded in
2017 by Stuart Widdowson and Harwood Capital Management Limited, an
independently owned investment group, and is jointly owned by both
parties. The Chairman of Odyssean Capital LLP is Ian Armitage,
former CEO and Chairman of HgCapital.
The Portfolio Manager's investment
team, Stuart Widdowson and Ed Wielechowski, identify and undertake
research on potential investee companies as well as managing the
portfolio. They draw on the experience of a three-strong Panel of
Advisers, who have run and invested in multiple quoted and unquoted
smaller companies. In addition, the investment team draws on the
expertise and experience of Mr Armitage and Mr Christopher Mills,
who sits on Odyssean Capital's Board as a Non-Executive JV Partner.
Mr Armitage and Mr Mills have more than 85 years' combined
investment experience in quoted and unquoted smaller
companies.
Stuart Widdowson, Co-fund Manager
Stuart has spent the last 23 years
investing in public and private UK small and mid-size corporates
and a further two years providing investment advisory services in
the same field.
Prior to founding the Portfolio
Manager, Stuart was at GVQ Investment Management ("GVQ"), where he
held the position of fund manager and head of strategic investments
for more than seven years. During his time at GVQ, Stuart led the
transformation of the performance of Strategic Equity Capital plc
("SEC") and significantly improved shareholder value. Stuart led
SEC to win several industry awards and was recognised as Fund
Manager of the Year at both the PLC and QCA awards in
2015.
Stuart began his career as a
strategy consultant undertaking commercial due diligence and
strategy projects for private equity and corporate clients. In
2001, he joined HgCapital and spent five years working on small and
mid-cap leveraged buyouts in the UK and Germany. During this time,
he worked on a number of public to private transactions of UK
quoted companies.
Ed
Wielechowski, Co-fund Manager
Ed joined the Portfolio Manager in
December 2017 as a Fund Manager.
Prior to joining Odyssean Capital,
Ed was a Principal in the technology team at HgCapital. He joined
HgCapital in 2006 and worked on numerous completed deals, including
multiple bolt-on transactions made by portfolio companies. He has
additional quoted market experience, having led the successful IPO
of Manx Telecom plc in 2014, as well as having evaluated and
executed public to private transactions. Ed started his career as
an analyst in the UK mergers and acquisitions department of
JPMorgan in 2004.
The
investment approach
Our investment approach applies the
core elements of the private equity investment philosophy - highly
focused, long-term, engaged 'ownership' style investment - to
public markets. We believe that this approach creates a portfolio
unlike that of many typical public equity funds and that, well
executed, can offer attractive, differentiated, risk-adjusted
returns.
- Highly concentrated portfolio: We look
to build a highly concentrated portfolio of no more than 25
investee companies where we carry out intensive diligence, only
investing behind our highest conviction ideas.
- Narrow
focus: We are focused on
smaller companies typically too small for inclusion in the FTSE 250
index. We believe this market is less efficient, offering more
opportunities to find mis-pricings. Further, we believe the best
investment decisions are made from a base of knowledge and
experience, and we will make the majority of investments in
industry sectors that we and our advisors, know well (TMT,
Services, Industrials and Healthcare).
- Targeting long-term holding periods: We
will evaluate each investment opportunity over a 3 to 5-year
investment horizon. We have structured our business to reflect this
belief and do not intend to run any capital which is redeemable
over short time periods. To think like an 'owner' of a business we
believe your capital should behave like one too.
- Engaged investment style: We are
engaged investors. We like investing in companies which, whilst
good, are underperforming their potential and where we see the
opportunity for constructive corporate engagement to unlock
improved sustainable returns for all stakeholders.
The Company's investment objective
is to deliver long term capital growth rather than outperform a
specific index. Our differentiated investment approach, allied with
our sector focus and the recently revised investment restrictions
approved in January 2021, is likely to lead to periods of NAV per
share performance materially different to those of the broader
market. We fully anticipate this potential short-term performance
variance and will focus on comparative investment performance on a
rolling three-year basis.
The absolute return mentality of the
strategy, allied with the desire to avoid being a forced seller,
may lead to net cash balances being held over the long-term. We
anticipate a core range of 5 to 15% over the long term. Net cash
balances will not be used as an attempt to market time, but to
enable us to invest where blocks of stock are available rather than
being required to sell a less liquid holding on short
notice.
Implementing the investment strategy
There are three key factors we look
for when we analyse a potential investment
1) a valuation
opportunity;
2) in a
higher-quality company; and
3) with improvement
potential.
Our view is that buying at a fair
price and supporting improved performance generates capital growth,
while our quality filters mitigate losses in the event of
unexpected headwinds.
Valuation
We look for two valuation factors in
every investment. Firstly, what we refer to as "static valuation" -
does the company trade at a discount to its current value? This is
not only judged by traditional public market ratios. We also seek
to model every company through the lens of a private equity buyer
(of which we have considerable experience) as well as evaluating
its attractiveness to strategic trade buyers.
Secondly, we are looking for
companies which can grow their value over time - "dynamic
valuation". We particularly look for situations where there are
multiple, independent drivers of value creation present, and where
management actions can unlock these. We believe seeking multiple
value drivers makes an investment case more secure and less exposed
to single areas of uncertainty or misjudgement.
Quality
We assess every potential investment
against qualitative and quantitative quality criteria. The quality
assessment is important to mitigate the risk of permanent capital
destruction from investments which fail to achieve their value
potential. In our experience, higher quality companies are more
likely to maintain a minimum value through difficult times and are
more able to attract high calibre management teams to rectify
underperformance.
Improvement potential and engagement
We particularly like companies that
are in some way underperforming relative to their potential, and
where the current valuation does not price in the potential for
improvement. Once invested, constructive corporate engagement can
help to unlock value. Our mantra is to buy good businesses and sell
excellent businesses. The spectrum of areas which can be improved
is broad and includes operating performance, asset utilisation,
overly complex business structures/organisation, strategic
direction, poor M&A, investor relations, and governance and
pay.
ESG
in our investment process
We have historically focused on
evaluating and engaging on corporate governance ("G") and financial
performance as part of our investment process.
In January 2021, shareholders
approved a change in the investment policy of the Company to
implement negative screening of certain investments, deemed
unethical and or involved in activities which were deemed
unsustainable. These restrictions augment our approach to corporate
engagement and provide clarity and certainty to investors and
largely formalises the approach we have taken since we
launched.
Our partnership with the specialist
ESG data provider for smaller quoted companies, announced in
December 2020, has enabled us to analyse all our portfolio
companies ESG performance. Many of these companies are too small to
have attracted ratings from the major ESG rating agencies. As at
the time of preparation, we have shared these reports with each of
our portfolio companies.
This is in line with the pragmatic
approach to E&S engagement given the more resource-constrained
nature of smaller quoted companies. Our focus is on how boards
approach sustainability, where the scope for improvement is, how
progress is evaluated and how it is reported to investors. Our
belief is that performing ahead of peers and market expectations on
ESG should attract new shareholders, a higher rating and a lower
cost of equity, all things which will drive enhanced returns and
benefit the Company's shareholders.
Progress and performance in the past year
The year to March 2024 was
ultimately a positive one for equity markets, albeit another year
of continued volatility. Markets grappled with coping with the
highly anticipated recession questioning the narrative of whether
economies experiencing a sharp rise and normalisation of interest
rates could genuinely escape with only a soft landing. Whilst the
UK has endured a mild recession, fiscal largesse in the USA led to
the economy continuing to power ahead. As the year progressed,
expectations of the scope of monetary loosening in the US and UK
fell, largely driven by the continued strong US economy.
Geopolitical events in Ukraine and
the Middle East, alongside forthcoming elections (including in the
UK) also continued to drive uncertainty.
UK equities remained unloved, with
UK All Cap and Small and Mid Cap OEICs continuing to see client
redemptions, despite increasing commentary and acknowledgement that
UK equities are trading at considerable discounts to other major
equity markets. M&A picked up materially through the end of
2023, with bid premia being above long-term averages.
M&A activity helped the
performance of the major indices, with mid caps gaining c.10%,
small caps gaining c.11% but with AIM continuing its poor recent
run delivering a decline of c.6%. The DNSCX (formerly NSCI) ex IC
plus AIM Total Return (which we use as a comparator and not a
benchmark) rose by 3.0%.
It was not a vintage year for our
performance, with Company's NAV per share falling 3.7%. As is ever
the case with the concentrated portfolio, individual holdings are
the major determinant of performance rather than the broader
market. Whilst there was no shortage of positive newsflow, this was
more than counterbalanced by negative newsflow. In the short term,
the higher weighting towards the industrials sector, where there
have been short-term destocking issues, has been a dampener on
performance. We believe that the valuations of these companies are
extremely low compared with their strategic value and short term
trading will have little impact on the long-term value creation
potential. Liquidity in these companies is generally low, and in
many cases we have taken a long-term view to facilitate getting the
positions we want to own when liquidity is available. In our
experience it is very hard to catch the bottom, not least because
at this point in such holdings there is often little or no
liquidity.
Unlike in previous years, none of
the Company's holdings were subject to takeover activity, which was
another absence of a positive driver.
The top three positive contributors
to performance were Ascential,
Elementis and NCC, all of which generated
returns in excess of 24% over the year.
Ascential's performance was
driven by the surprise announcement in
October that the group was selling two of its three divisions, with
the Product Design and Digital Commerce businesses being exited for
a combined consideration of £1.2billion. Proceeds from these
disposals would be used to pay down debt and return £850m to
shareholders (c.89% of the group market cap prior to the
announcement). Our original investment in Ascential had been
underpinned by a view that the shares were trading at a material
discount to the sum-of-the-parts value of the group, and it was
pleasing to see this view vindicated. The outcome of the disposal
process was positive in our view and broadly in-line with our
expectations of value despite the challenging market conditions at
the time of the transactions. The shares rose 26% over the
period.
Elementis continued to trade
well, demonstrating its ability to price
effectively in its coatings business, benefit from strong demand
for personal care products and see a recovery in its more
challenged talc operations. During the year, the largest investor
wrote an open letter to the board calling for the business to be
sold. This appears to have catalysed a process of the Company
committing to and communicating substantial opportunities to
improve profitability through $30m structural cost savings and $90m
additional sales through new product launches, which we believe has
the potential to deliver at least a further $30m operating profit.
These initiatives, material given the c.$103m profit base, were
announced at the Capital Markets Day in November 2023. We hold a
long standing view that Elementis was underearning compared with
its potential and look forward to the company delivering on its
promises. Although the improved share price performance (up 25%
over the year to March) is pleasing, we still believe that the
company's shares are undervalued and underowned.
NCC's financial and share price
performance in the period began a multi
year recovery from the profit warning on the last day of the prior
year. The shares rose 27% over the year, as the company
communicated the delivery of cost savings, alongside a
stabilisation of end market demand weakness in US West coast tech
clients, and strong growth of other parts of the cyber security
division (notably the higher quality, recurring managed services
offer). The new management team
demonstrated progress with a recovery of consultant utilisation and
gross margins close to target levels, a new vertical market focused
sales structure put in place and the delivery of an offshore
delivery centre in Manilla ahead of plan. We believe that NCC is
now well placed to drive its cyber consulting business towards a
more diverse, and attractive revenue mix whilst delivering its
services in a more flexible and cost-effective way. Although the
shares have recovered, we believe the company is still valued at a
very material discount to its sum of parts valuation.
The top three negative contributors
to performance were Xaar, XP Power and Videndum,
each of which fell in excess of 40% over
the year.
Xaar released a 2023 full year
trading update in late November that
flagged performance for the year was expected to be
in‑line with
expectations, but also made a material reduction in expectations
for 2024 with performance expected to be effectively flat year on
year. This negative shift in outlook was driven by a combination of
factors largely outside of the company's control with ongoing macro
headwinds in China impacting demand for ceramics printers and
delays to certain OEM (Original Equipment Manufacturer) machine
launches following geopolitical events (notably the situation in
Israel/Gaza) pushing back expected revenue generation. We have
continued our detailed diligence following this update. Whilst
short term timing is uncertain, we remain of the view that there is
significant potential for future value creation.
The group has unique IP which is
challenging and expensive for competitors to replicate. The
turnaround team appointed in 2020 have been successful in
leveraging this IP into new products that will greatly expand
Xaar's addressable market (and create new markets for digital
printing), which will over time reduce its dependency on the
cyclical ceramic tile printing market. Despite the delays impacting
2024, the pipeline of expected new machine launches using Xaar
printheads is strong and growing - delivery of any or all of these
gives the group good runway for significant growth over the next
five years. When this revenue growth comes through, the group's
operating gearing has the potential to lead to exciting bottom line
growth. We believe that little of this upside, or the potential
value of the IP is in the share price today.
As mentioned in our interim
results, XP Power has been through a
challenging period with downgrades initially driven by slowing
demand from semi-conductor customers and more recently de-stocking
in its healthcare and industrials customers. These topline
pressures drove a material drop in profitability and the company
completed an equity raise to strengthen its
balance sheet, a move which we supported. Following these updates,
we spent more time with the business, board and did further work on
the outlook for key end markets notably semi-conductor
manufacturing equipment. On the back of this work, we remain
convinced of the potential opportunity from here. The business is
exposed to attractive end markets, the semi-conductor industry in
particular is exposed to long run growth driven by demand for AI
and the global build out of additional semiconductor manufacturing
capacity as nations look to 'near shore' production of these
critical components. Alongside secular market tailwinds, we see
significant scope for operational improvement at the company. With
the fund raise the group announced a material - £8m-£10m - cost
savings program (now executed), as well as initiatives to reduce
inventory, and beyond this we see significant scope for further
operational improvement through the roll-out of lean manufacturing
across the group. An improvement in end markets allied with these
operational improvements should return operating margins to at
least the 20% seen historically and support strong profit
progression in the coming years. Whilst improved trading is
unlikely to see the valuation recover to the dizzy heights of more
than 4.5x EV/Sales (Enterprise Value-to-Sales) achieved in 2021, we
believe a return to normal end market conditions should see the
EV/Sales improve from the level of 1.5x at the end of the period"
to its long term average of c.2.5x. If the market recovery is as
sudden and material as it has been in previous upswings, there is
upside to this rating. After the end of the period XP Power
announced it had received a number of takeover approaches from an
industry peer at significant premiums to the prevailing share
price. The board has not engaged with these approaches feeling they
do not reflect the intrinsic value in the group. We are supportive
of the board's action, and note the strategic interest further
underpins our view that the market has undervalued the potential
recovery at XPP.
Videndum downgraded
expectations through 2023 as it was hit by the combination of
channel de-stocking and the unprecedentedly long Hollywood writers'
and actors strikes which shut down much of the movie and high-end
TV production ecosystem for a prolonged period. With the business
relatively geared, following historic M&A, the company
completed a material rights issue in December 2023 to strengthen
its balance sheet. We believe that the 'perfect storm' that hit
Videndum in 2023 was a one off and these headwinds should dissipate
through the coming year as de-stocking completes and with the
strikes now ended. The group maintains leading positions in markets
exposed to strong growth drivers (internet usage, vlogging,
subscription TV) and should benefit from significant operational
leverage as its end markets return.
Portfolio development
In the absence of M&A, portfolio
turnover was much lower than prior years.
During the period £49m was invested
into stock purchases. This level of investment was funded through
realisations and investment income of £44m as well as cash inflows
of £13m following the issuance of new shares. Overall net cash
weighting increased from 0.4% to 2.8% over the year and averaged 2%
across the year.
Two new investments totalling £5m
were made across the period. This is a level of new position
investment below our expected trend (typically we would expect
c.4-6 new positions per year), in part reflecting the high number
of new positions initiated in the prior year. Both the new
positions are currently smaller weights, outside of the portfolio
top 10, but we see scope to scale these materially as we continue
our diligence and if market prices remain attractive.
In total c.£44m was invested into
existing positions. Significant further investments were made into
XP Power, NCC, Dialight and Xaar all of which experienced weak
share prices driven by soft ended market demand, which drove
earnings downgrades. Our due diligence suggested market reactions
were overly severe and represented attractive risk/reward
opportunities.
Material additional investments were
also made into Gooch and Housego and
James Fisher which were
built to mid weights as we were able to identify and purchase
significant blocks of stock where trading liquidity is notoriously
poor.
Through the period we realised £43m
from disposals and dividends. Four positions were fully exited
raising c.£23m.
The bulk of proceeds from full
realisations came from RWS
and Wilmington, two
positions we had been invested in since 2018 (in the case of RWS
through our holding in SDL subsequently acquired by RWS in 2020).
Wilmington performed strongly during our investment period, with a
new management team simplifying a complex business, driving
improved growth, raising margins and strengthening cash generation
all of which delivered a 23%+ annualised IRR and 2x cash on our
investment. The market return over this period is negligible. In
comparison, in spite of the weak share price performance and lowly
rating of RWS, we decided to exit the position as we believe that
there were more attractive investment opportunities elsewhere in
the market and within our existing portfolio.
We also continued to take profits
from investments which have performed well. Notable material
realisations were taken from our position in Ascential which
benefited from the announcement of the successful disposal of two
of its three divisions with significant proceeds to come to
shareholders, and Chemring which continued to see strong demand
across its divisions.
Following this investment activity,
industrials remains the largest sector exposure of the portfolio,
with a significant portion of this exposure in the B2B electronics
sector. Whilst this exposure has not helped performance in the
period, we believe that all of these holdings are likely to see
improved market conditions through 2024 and 2025, have substantial
self-help potential, and are valued on the basis that neither
scenario is likely to pass.
We continued to actively engage with
portfolio companies through the year with an ongoing focus on
corporate governance, investor relations and ESG disclosure. We
continue to engage an external consultant to conduct a review of
each of our investments against a proprietary ESG scoring system.
We use this to measure progress of the portfolio against ESG
disclosure over time as well as an entry point for discussions with
boards on these issues where appropriate. It remains pleasing to
see ongoing improvements in these scores over time, something which
we believe will also ultimately flow through to improved
performance.
Portfolio detail
At the end of the period under
review, the portfolio comprised 16 companies.
Key updates through the period for
each of our top 10 positions are detailed below:
Elementis
A
leading producer of specialty chemicals focused on personal care,
talc and coatings markets.
% NAV: 16%
Sector: Industrials
Performance in
period
Elementis delivered a solid
performance through 2023, slightly ahead of expectations
demonstrating strong pricing in its Coatings division offsetting
volume weakness, demand growth in the Personal Care division and
some recovery in the more challenged Talc division. Shareholder
pressure has coincided with the company announcing plans to
substantially increase profits by 2025 through initiatives
independent of end market demand.
Outlook
We see the market as currently
undervaluing the earning potential of Elementis. Alongside the self
help potential, end markets appear to be recovering following a
protracted period of destocking by customers. This augurs well for
future profit growth, due to operational gearing. These levers
support the potential for the group to generate materially higher
earnings than current levels and those expected by the market. We
believe that little of this potential is reflected in the share
price.
NCCGROUP
A
leading independent provider of software escrow services and cyber
security consulting provided through the Assurance
division.
% NAV: 13%
Sector: TMT
Performance in
period
The last year have seen NCC make
solid progress to rehabilitate its cyber security division and
demonstrate the inherent value of the group. Trading updates have
shown that the turn-around instigated by the new management team is
well underway. The stable and lower growth escrow business
continues its recent journey of a return to moderate top line
growth.
Outlook
The company recently held earnings
forecasts despite disposing of a small subsidiary which would have
been earnings dilutive. This is a strong indication that forecasts
are now appropriately set and we believe that the company is in the
early foothills of an earnings upgrade cycle. We believe that the
shares continue to trade at a material discount to the sum of parts
valuation and action will be taken to narrow this
discount.
ASCENTIAL
A
Provider of B2B data, events and digital commerce support
platforms
% NAV: 11%
Sector: TMT
Performance in
period
The key update from Ascential during
the period was the October announcement of the disposals of both
its product design division and its digital commerce division for
total value of c.£1.2bn with £850m to be returned to shareholders
(c.89% of market cap prior to the announcement) through a
combination of tender offer, special dividend and share buyback.
With these disposals Ascential is now a pure play events business
focused on two market leading, scale platforms - Marketing (the
Cannes Lions business) and FinTech (the Money2020
business).
Outlook
The remaining events platform is
high quality with a track record of organic growth, high margins
and strong cash generation. The implied value of this business,
remains in our view, too low at current share prices and we note
significant trade and PE activity in the sector means any
continuing public market under valuation may not be
sustainable.
XP Power
A
leading manufacturer of power supplies and power
converters
% NAV: 9%
Sector: Industrials
Performance in
period
XP's trading and share price
performance was disappointing across the year, driven by a
combination of destocking and weak end markets. Adverse litigation
left the balance sheet in a weaker than ideal position, culminating
in a need to undertake a moderate equity raise in Q4 2023.Whilst
demand from the cyclical semiconductor clients appears to have
bottomed (and is poised in our view to benefit from a multi year
boom period), the company has experienced other customers from its
healthcare and industrial sectors destocking to reduce safety stock
build up in the wake of supply chain issues following
COVID.
Outlook
We expect that the company's order
book will begin to grow in absolute terms through Q3, perhaps with
semiconductor starting to see an improvement through Q2 2024.
Historically when demand comes back on stream, sales have recovered
as quickly as they fell. With shares currently trading on c.1.5x
EV/Sales compared to long run averages of 2.5x, the market is
currently ignoring the potential in such a recovery. The news post
period end of a takeover approach from an industry peer at a
material premium to the prevailing share price, further supports
our view of value in shares at the current price.
We materially grew our position on
the share price weakness during the period.
XAAR
A
leading independent designer and manufacturer of industrial inkjet
print heads
% NAV: 7%
Sector: Industrials
Performance in
period
Xaar delivered full year 2023
performance with profits ahead of expectations but alongside this
downgraded the outlook for 2024 to performance being largely flat
year on year. This downgrade to outlook was driven by a combination
of market factors including ongoing tough macro conditions in end
markets (notably construction in China) and delays to launches of
new print machines by certain OEMs as a result of geo-political
events. These issues were arguably outside of the company's control
and likely represented a delay to, rather than a loss of, future
demand. Despite this, shares fell materially on the
news.
Outlook
The group has built significant IP
over many years which gives Xaar's products fundamental advantages
over competitors, notably in the jetting of highly viscous fluids.
Under the current management team the group has been developing
this IP for use in new products in new applications that will have
the potential to greatly expand the company's addressable market
(as well as create new markets for the application of digital
printing). Whilst enhanced products in its core ceramics market is
likely to see the company gain share, the biggest driver of future
returns will be traction of recently launched and pending new
products addressing non ceramics markets - both existing markets as
well as new applications for Xaar's technology. Over time this will
reduce the group's dependency on the cyclical ceramic tile printing
market, building a more diverse, resilient and significantly larger
business. Successful execution could generate exciting returns over
the next three to five years. The EV/Sales multiple is just above
half of its long term rating.
We materially grew our position on
the share price weakness during the period.
GOOCH &
HOUSEGO
Manufacturer of photonics solutions for a variety of
industrial end markets
% NAV: 5%
Sector: Industrials
Performance in
period
Gooch delivered a strong set of 2023
results with revenues up 13% organically with margins increasing
60bps. Alongside this the company completed small bolt-ons to
strengthen their offer in the growth areas of polymer optics and
optical coatings. The start of 2024 saw the group downgrade
expectations on the back of ongoing de-stocking at industrial and
medical customers and the surprise cancellation of certain defence
programs. The latter activities have subsequently been disposed of,
which unusually was earnings enhancing. Recent announcements have
flagged a stabilisation of demand trends with a more positive
outlook for the second half of the year expecting an improvement in
end market demand.
Outlook
Despite the short-term headwinds
flagged earlier in 2024 we continue to see Gooch as making good
progress. The new CEO's strategic review set out the ambition of
doubling group margins through a mix of self-help actions and
re-shaping of the portfolio. On both counts we can see early signs
of success despite the mixed macro environment. Fundamentally Gooch
has world leading IP in growth sectors, which will recover and
grow. Combined with the margin plan being delivered by management
we see significant value creation to come. The EV/Sales multiple is
around half of its long term average rating.
SPIRE
HEALTHCARE
A
leading provider of private hospitals in the UK
% NAV: 6%
Sector: Healthcare
Performance in
period
Spire delivered a strong 2023 with
revenues up 13% led by growing demand from NHS and insured
customers with self-pay demand maintaining the strong levels seen
in the prior year. Group hospital margins showed improvement as
cost savings and price rises more than offset the reducing impact
of input cost inflation. Alongside the full year results the
company flagged a further £60m of cost savings to come in the next
two years (from an operating profit base of c£130m), supporting
management's ambition to move hospital margins from current levels
of c.17% to a targeted 21% by end of 2026. Through the year the
group completed the bolt-on acquisition of Vita Health, expanding
Spire's offer in mental and occupational health and further
progressing the group's ambition to diversify its revenue streams
into higher ROCE (Return On Capital Employed) areas. Of course,
critically for a business active in healthcare services, it was
particularly pleasing to see Spire maintain its exemplary patient
care quality with 98% of its sites rated 'good' or 'outstanding'
during the year.
Outlook
We believe Spire is well placed for
the medium term. The demand environment for the group's services is
set to remain strong as high NHS waiting lists drive demand from
private patients and from the NHS looking to reduce their backlog
(a trend likely to continue regardless of the party in power in
Westminster). There remains a strong self-help story, the
management team have proven their ability to drive efficiency
through rolling best practices and shared services across a
historically independently run portfolio of sites, with the
recently announced further targeted £60m of offering a material
uplift in profitability. The group's strong cash generation should
support the potential for further, diversifying M&A which will
help the group drive material ROCE uplifts.
Despite this potential and the
strong performance across recent years, shares have remained range
bound. We see good upside when the market realises the significant
changes at the group in recent years. If this does not happen we
note historical trade approaches for Spire at valuations materially
above current levels.
DIALIGHT
Global leader in LED lighting for hazardous and industrial
environments
% NAV: 6%
Sector: Services
Performance in
period
Dialight faced tough end markets
through 2023, with de-stocking and a lower level of large capex
driven orders impacting group revenues, which were down 12% overall
but only 5% in the core lighting business. Against this challenging
backdrop the group took significant steps to drive future value
creation.
During the last year there has been
significant board change with new Chairman, CEO and CFO appointed.
Under the guidance of this new team, a revised strategic plan has
been initiated which will focus the group onto its core lighting
activities with disposals of non-core activities to come. Within
the lighting business significant operational improvement has been
identified through production site consolidation and automation -
this is targeted to move the lighting business back to at least
10%+ EBIT (Earnings Before Interest and Taxes) margins by 2026.
Finally, sales force improvement and product investment are
targeted to drive a return to revenue growth. We have been
supportive of the changes at Dialight and see the new team as
credible and capable. The company undertook a capital raise to help
accelerate the proposed restructuring in which we were happy to
take part.
Outlook
Dialight has been through a period
of significant change in the past 12 months after many years of
what we believe to be suboptimal performance. The new team have a
proven track record of delivering positive change and shareholder
value. With a strategy and execution plan in place we are now
optimistic for the future. The group maintains product leadership
in a market benefiting from secular growth as conversion to LED
lighting continues. Arguably the group has not historically made
the most of this opportunity with poor manufacturing and sales
execution. Their remains work to be done, but the size of the prize
for the company could be considerable if the team executes their
plan.
JAMES
FISHER
A
leading global provider of a range of niche marine services to
renewable, energy and defence sectors
% NAV: 5%
Sector: Services
Performance in
period
James Fisher continued on its
transformation journey through 2023. Underlying performance for the
year was broadly in-line with expectations with strong demand in
the energy and transport markets offsetting slower progress on
larger orders in the defence market.
Under the new management team the
group continued its restructuring. Through the year a review of all
business units led to disposals or shuttering of operations which
either did not fit the go forward strategy, or were seen as unable
to meet the targeted return hurdle - the most significant disposal
being the recent £90m sale of the RMS Pump tools business. The
proceeds of disposals were used to pay down debt, and with the most
recent exit the group has now largely reached its target of 1.5x
leverage, a much more comfortable level for the go forward
business.
Outlook
We view 2023 as a transitional year
at the start of James Fisher's transformation journey. The initial
focus from management on pruning the portfolio and reducing the
balance sheet risk has been sensible and well executed. With this
now complete, we see the focus shifting to delivery of the
self-help opportunity at the group. The company is active in
secularly growing markets where it provides high IP services, but
historically this opportunity has been underexploited in a group
which has been run as a collection of small, independent business
units. Going forward the new management team has a clear plan to
drive synergies across the disparate organisation, focusing on the
most profitable areas of activity, sharing best practices and
increasing efficiency. The initial targets of 10% EBIT margins
would be a material uplift on current levels and we believe are
readily achievable. Delivery of this self-help opportunity will
support potential growth in equity value from here.
BENCHMARK
Leading provider of healthcare, genetics and nutrition
services and products to the global aquaculture
industry
% NAV: 5%
Sector: Healthcare
Performance in
period
Benchmark's trading through the
period was solid with revenues up 7%, driven by a notably strong
performance from its genetics and health businesses offsetting a
decline in the nutrition business which was impacted by a weak
shrimp market. Profit performance came in ahead of expectations and
pleasingly the group generated positive cash flow.
The most important news from the
Benchmark during the period was the announcement in January 2024
that the board was commencing a strategic review, including a
formal sales process for all, or some, of the group's business
units. We support this move by management to crystallise the value
we have long seen in the group.
Outlook
Over the past three years Benchmark
has made great strides to simplify and improve the quality of its
business, delivering strong growth and improving profitability from
its genetics and nutrition divisions and successfully launching its
potentially game changing Cleantreat / Ectosan sea lice treatment
in its health division. These successes have not been reflected in
the price of the company's shares and we welcome management's
pro-active actions to drive value. Although there is no certainty
of any transaction being delivered, we see the group's assets as
worth considerably more than the current share price to the right
buyer or buyers.
The remaining six investments
represent between c.1% and c.5% of NAV each. These are spread
across our core focus sectors and all offer scope to scale, subject
to further due diligence and pricing remaining
attractive.
Outlook
At the time of preparation, there is
growing awareness of the attractive valuation of UK equities and
the low ebb of UK equity markets. We are optimists - such pessimism
tends to be around inflection points - in the words of Mark Twain
"The reports of my death are greatly exaggerated".
During a period of zero interest
rates, private markets have prospered, driven by extremely low
borrowing costs unlikely to be seen again in many people's life
times. Historically what was a private market discount to public
valuations, became a private market premium to public market
valuations. This illiquidity premium seems anomalous and counter
intuitive. Over time, we expect that public market valuations will
probably increase, and private market valuations will probably
fall.
It is difficult to predict what will
drive a re-appraisal of UK equities by the marginal buyer. However,
we believe it will happen.
There are multiple potential
catalysts. Firstly, we believe we are at the peak of the interest
rate cycle. UK inflation is due to ease materially during Q2 2024,
which should support interest rates being cut through the rest of
2024 and 2025. Risk assets such as smaller company equities tend to
re-rate when interest rates fall. UK growth and inflation appear to
be decoupled from North America, so it will be interesting to see
if the Bank of England begins to cut rates before the Federal
Reserve.
Secondly, any positive change in
flows to UK equity open ended funds is likely to transform marginal
selling to marginal buying. The low liquidity of smaller quoted
companies allows the potential of such a change in buying behaviour
to drive a sharp re-rating. The change in flows could be driven
either by a natural change in asset allocators views of the UK,
and/or be prompted or even encouraged by some form of government
intervention.
Asset allocators appear to be more
intrigued by UK equities, particularly small and mid caps, than
they have been for some time. As Tesla has begun to underperform,
there are more voices highlighting how narrow global equity
performance has become, especially in the US. This has yet to
translate into re-allocating capital away from the US, but history
suggests it will happen. The exact catalyst is always difficult to
predict. From an intervention perspective, both the Edinburgh Reforms and Mansion House Compacts demonstrate
awareness at the highest level that change is required to support
UK capital markets. In the absence of a naturally driven rating
recovery for UK equities, further intervention is
likely.
Thirdly there is M&A. The
well-acknowledged UK market discount continues to attract both
trade and private equity bidders for UK quoted companies. Absent a
re-rating, M&A is likely to continue. To date the proceeds of
which have satisfied fund outflows. However if flows neutralise,
capital being returned will need to be re-invested in other quoted
companies.
For OIT holders, we look forward to
a change in sentiment towards the asset class we invest in. Whilst
we are happy to have delivered a decent positive return in the six
years post IPO, the absence of a headwind of de-rating could have
led to improved returns.
As readers of our presentations and
views of our webinars are familiar, we use a valuation tool called
Quest® to help us consider and spot valuation anomalies.
In our experience it is an excellent long term fundamental
valuation tool. Our most recent quarterly presentation shows that
UK Smaller Companies in aggregate trade at >30% discount to
their Quest fair values. This is a material outlier compared with
history and other equity markets. Were these companies in aggregate
to trade at fair value, this would imply a re-rating of more than
40%. But there is even more potential re-rating than this, as
historically UK Smaller Companies have traded at a significant
premium to their Quest fair values. In short, we believe that the
next six years should see markets re-rate, providing a tail wind to
absolute returns that can be generated from the
portfolio.
OIT's absolute performance since IPO
has been delivered we believe through the special situations
approach - of finding decent quality companies, trading at
discounts, which have the potential to improve their performance
through specific management actions, as opposed to just waiting for
a magical re-rating.
After some pockets of disappointing
news in 2023, we see significant scope for value recovery and
growth from current levels. We believe we have built a hard to
replicate portfolio of material positions in companies where
management action and self-help. As we review the portfolio on an
ongoing basis, we are excited to see the number of companies which
are undergoing significant operational improvement programs. As
management drive these efforts over the coming years the companies
in which we are invested should emerge as higher quality, more
profitable and more valuable enterprises regardless of the wider
market.
The positions in our portfolio are
trading at significant discounts to their long run valuations. Any
broader market recovery offers the prospects of significant
portfolio returns - were the portfolio to trade on the long term
average EV/Sales or Price to Book, the average share price upside
across the portfolio would have been in excess of 80% at the end of
the period. Whilst we are not reliant on M&A, if markets do not
re-rate we would not be surprised to see potential takeover
interest in portfolio companies from overseas peers.
Stuart Widdowson | Ed Wielechowski
Odyssean Capital LLP
11 June 2024
Portfolio of Investments
as at 31 March 2024
|
|
Country of
|
Cost
|
Valuation
|
%
of
|
Company
|
Sector
|
Listing
|
£'000
|
£'000
|
Net
Assets
|
Elementis
|
Industrials
|
UK
|
18,839
|
29,072
|
15.5%
|
NCC Group
|
TMT
|
UK
|
30,182
|
24,204
|
12.9%
|
Ascential
|
TMT
|
UK
|
13,863
|
19,747
|
10.5%
|
XP Power
|
Industrials
|
UK
|
23,505
|
16,320
|
8.7%
|
Xaar
|
Industrials
|
UK
|
19,700
|
13,834
|
7.4%
|
Gooch and Housego
|
Industrials
|
UK
|
12,576
|
13,000
|
6.9%
|
Spire Healthcare
|
Healthcare
|
UK
|
9,009
|
11,020
|
5.9%
|
Dialight
|
Industrials
|
UK
|
14,276
|
10,633
|
5.7%
|
James Fisher and Sons
|
Business Services
|
UK
|
9,982
|
9,306
|
5.0%
|
Benchmark holdings
|
Healthcare
|
UK
|
9,832
|
9,036
|
4.8%
|
Top
ten equity investments
|
|
|
161,764
|
156,172
|
83.3%
|
Other equity investments*
|
|
|
30,248
|
26,124
|
13.9%
|
Total equity investments
|
|
|
192,012
|
182,296
|
97.2%
|
Cash and other net current
assets
|
|
|
|
5,261
|
2.8%
|
Net
assets
|
|
|
|
187,557
|
100.0%
|
* Other equity investments
include six investments, each represents between 0.9% and 4.6% of
NAV. These are spread across our core focus sectors and all offer
scope to scale, subject to further due diligence and pricing
remaining attractive.
Business Review
The Strategic Report contains a
review of the Company's business model and strategy, an analysis of
its performance during the financial year ended 31 March 2024 and
its future developments and details of the principal risks and
challenges it faces. In particular, the Chairman's Statement and
the Portfolio Manager's Report concentrate on the outlook for the
current year and the factors likely to affect the position of the
business. The Strategic Report has been prepared solely to provide
information to shareholders to enable them to assess how the
Directors have performed their duty to promote the success of the
Company.
The Strategic Report contains
certain forward-looking statements. These statements are made by
the Directors in good faith based on the information available to
them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information.
Business model
Status of the
Company
The Company was incorporated on 21
December 2017 and the IPO took place on 1 May 2018. It is
registered in England and Wales as a public limited company and is
an investment company within the terms of section 833 of the
Companies Act 2006. The principal activity of the Company is to
carry on business as an investment trust. The Company has been
approved by HM Revenue & Customs as an authorised investment
trust under sections 1158 and 1159 of the Corporation Tax Act 2010,
subject to there being no subsequent serious breaches of
regulations. In the opinion of the Directors, the Company is
directing its affairs so as to enable it to continue to qualify for
such approval.
The Company's shares have a listing
on the premium segment of the Official List of the FCA and trade on
the London Stock Exchange's main market for listed
securities.
The Company is a member of the AIC,
a trade body which promotes investment companies and also develops
best practice for its members.
Strategy for the year ended
31 March 2024 and Strategic Review
Throughout the year ended 31 March
2024, the Company continued to operate as an approved investment
trust, following its investment objective and policy.
During the year, the Board made all
strategic decisions for the Company. Odyssean Capital LLP and
Frostrow Capital LLP undertook all strategic and administrative
activities on behalf of the Board, which retained overall
responsibility.
Purpose
The purpose of the Company is to
achieve predominantly capital growth in our shareholders' wealth
over time. It aims to achieve this by using its closed-ended
structure to invest in a concentrated number of less liquid,
higher-quality smaller quoted companies, which the Portfolio
Manager believes are undervalued and could be generating higher
returns for their shareholders. The long-term nature of the
Company's capital enables the Portfolio Manager to undertake
constructive corporate engagement with the underlying portfolio
companies and their stakeholders, on financial and operating
performance, strategy and sustainability, specifically ESG
practices.
Sustainable improvement in a smaller
quoted company's financial and operational performance, and ESG
practices, not only benefit the shareholders of the Company, but
also the shareholders and stakeholders in the underlying portfolio
companies.
Investment
objective
The investment objective of the
Company is to achieve attractive total returns per share
principally through capital growth over a long-term
period.
Investment
policy
The Company's full investment policy
contains information on the policies which the Company follows,
including in relation to borrowings, derivatives, hedging as well
as ethical and sustainability investment restrictions. The Company
invests primarily in smaller company equities quoted on markets
operated by the London Stock Exchange, where the Portfolio Manager
believes the securities are trading below intrinsic value and where
this value can be increased through strategic, operational,
management and/or financial initiatives.
Any material change to the Company's
investment policy would require the approval of shareholders by way
of an ordinary resolution at a general meeting and the approval of
the FCA. Non-material changes to the investment policy may be
approved by the Board.
Portfolio
analysis
A detailed review of how the
Company's assets have been invested is contained in the Chairman's
Statement and the Portfolio Manager's Report.
Dividend Policy
It is the Company's policy to pursue
attractive total returns principally through growth over the long
term. The Company will comply with the investment trust rules
regarding distributable income, which require investment trusts to
retain no more than 15% of their investment income each year. The
Company will only pay the minimum dividend required to maintain
investment trust status. No dividend will be proposed for the year
ended 31 March 2024.
The
Board
The Board of the Company comprises
Linda Wilding (appointed to the Board on 25 October 2023)
(Chairman), Arabella Cecil, Peter Hewitt, Richard King and Neil
Mahapatra, all of whom are independent non-executive Directors and,
with the exception of Linda Wilding, served during the whole year
under review and up to the date of signing the report. All
Directors will stand for election or re‑election at the forthcoming Annual
General Meeting.
Board Focus and
Responsibilities
With the day to day management of
the Company outsourced to service providers the Board's primary
focus at each Board meeting is reviewing the investment performance
and associated matters, such as, inter
alia, future outlook and strategy,
gearing, asset allocation, investor relations, marketing, and
industry issues.
In line with its primary focus, the
Board retains responsibility for all the key elements of the
Company's strategy and business model, including:
● Investment
Objective and Policy, incorporating the investment guidelines and
limits, and changes to these;
●
whether the Manager should be authorised to gear
the portfolio up to a pre-determined limit;
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review of performance against the Company's key
performance indicators ("KPIs");
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review of the performance and continuing
appointment of service providers; and
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maintenance of an effective system of oversight,
risk management and corporate governance.
Section 172 statement
Overview
The Directors' overarching duty is
to act in good faith and in a way that is the most likely to
promote the success of the Company as set out in Section 172 of the
Companies Act 2006. In doing so, Directors must take into
consideration the interests of the various stakeholders of the
Company, the impact the Company has on the community and the
environment, take a long-term view on consequences of the decisions
they make as well as aim to maintaining a reputation for high
standards of business conduct and fair treatment between the
members of the Company.
Fulfilling this duty naturally
supports the Company in achieving its investment objective and
helps to ensure that all decisions are made in a responsible and
sustainable way. In accordance with the requirements of the
Companies (Miscellaneous Reporting) Regulations 2018, the Company
explains how the Directors have discharged their duty under Section
172 below.
To ensure that the Directors are
aware of, and understand, their duties they are provided with the
pertinent information when they first join the Board as well as
receiving regular and ongoing updates and training on the relevant
matters. Induction and access to training is provided for new
Directors. They also have continued access to the advice and
services of the Company Secretary, and when deemed necessary, the
Directors can seek independent professional advice. The schedule of
Matters Reserved for the Board, as well as the Terms of Reference
of its committees are reviewed on an annual basis and further
describe Directors' responsibilities and obligations and include
any statutory and regulatory duties. The Audit Committee has the
responsibility for the ongoing review of the Company's risk
management systems and internal controls and, to the extent that
they are applicable, risks related to the matters set out in
Section 172 are included in the Company's
risk register and are subject to periodic and regular reviews and
monitoring.
Stakeholders
A company's stakeholders are
normally considered to comprise its shareholders, its employees,
its customers, its suppliers as well as the wider community in
which the company operates and impacts. The Company is different in
that as an investment trust it has no employees and, significantly,
its customers are synonymous with its shareholders. In terms of
suppliers, the Company receives professional services from a number
of different providers, principal among them being the Portfolio
Manager. The Board believes that the wider community in which the
Company operates encompasses its portfolio of investee companies
and the communities in which they operate.
Details of how the Board considers
the needs and priorities of the Company's stakeholders and how
these are taken into account during all its discussions and as part
of its decision-making are detailed below. All discussions involve
careful considerations of the longer- term consequences of any
decisions and their implications for stakeholders.
Stakeholder
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Board Engagement
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Shareholders
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Continued shareholder support and
engagement are critical to existence of the business and the
delivery of the long-term strategy of the Company.
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The Board is committed to
maintaining open channels of communication and to engage with
shareholders in a manner which they find most meaningful, in order
to gain an understanding of the views of shareholders. These
include:
- Annual General Meeting - The Company
welcomes and encourages attendance, voting and participation from
shareholders at the AGM, during which the Directors and the
Portfolio Manager are available to discuss issues affecting the
Company and answer any questions. The Portfolio Manager provides a
presentation at the AGM on the Company's performance and its future
outlook. The Company values any feedback and questions it may
receive from shareholders ahead of and during the AGM.
- Publications - The Annual and Half-Year
Reports of the Company are made available on its website and the
Annual Report is circulated to shareholders. These reports provide
shareholders with a clear understanding of the Company's portfolio
and financial position. This information is supplemented by a
monthly fact sheet and regular presentations which are available on
the website. Feedback and/or questions the Company receives from
the shareholders help the Company evolve its reporting, aiming to
render the reports and updates transparent and
understandable.
- Shareholder meetings - The Portfolio
Manager and the Company's Broker are in regular contact with major
shareholders. The Chairman and the other Directors are available to
meet with shareholders to understand their views on governance and
the Company's performance where they wish to do so. Shareholders
are also able to meet with the Portfolio Manager and the Marketing
Team of Frostrow Capital LLP ("Frostrow") throughout the year,
either in person or via video conference. In advance of the
shareholder Redemption Event, the Chairman and the Company's Broker
met with the Company's principal shareholders to hear their views.
The results from all meetings between the Portfolio Manager,
Frostrow, the Broker and shareholders, and the views of the
shareholders are reported to the Board on a regular
basis.
- Shareholder concerns - In the event
shareholders wish to raise issues or concerns with the Directors,
they are welcome to do so at any time by writing to the Chairman.
Other members of the Board are also available to shareholders if
they have concerns that have not been addressed through the normal
channels. Shareholders wishing to communicate directly with the
Board should contact the Company Secretary at the Company's
registered office address.
- Investor relations updates - At every
Board meeting, the Directors receive updates from the Company's
Broker on the share trading activity, share price performance and
any shareholders' feedback, as well as updates from the Portfolio
Manager and from Frostrow. To gain a deeper understanding of the
views of its shareholders and potential investors, the Portfolio
Manager and Frostrow also meet regularly with shareholders. Any
pertinent feedback is taken into account when Directors discuss the
Company's share capital and any possible fundraisings. The
willingness of the shareholders, including the partners and staff
of the Portfolio Manager, to maintain their holdings over the
long-term period is another way for the Board to gauge how the
Company is meeting its objectives and suggests the presence of a
healthy corporate culture.
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The
Portfolio Manager
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The Portfolio Manager's performance
is critical for the Company to successfully deliver its investment
strategy and meet its objective to provide shareholders with
attractive total return over a long-term period.
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The management of the Company's
portfolio is delegated to the Portfolio Manager, which manages the
assets in accordance with the Company's objectives and policies. At
each Board meeting, representatives from the Portfolio Manager are
in attendance to present reports to the Directors covering the
Company's current and future activities, portfolio of assets and
its investment performance over the preceding period.
Maintaining a close and constructive
working relationship with the Portfolio Manager is crucial as the
Board and Odyssean Capital both aim to continue to achieve
consistent, long-term returns in line with the Company's investment
objective. Important components in the collaboration with the
Portfolio Manager, representative of the Company's culture,
are:
- Operating in a fully
supportive, co-operative and open environment and maintaining
ongoing communication with the Board between formal
meetings;
- Encouraging open
discussion with the Portfolio Manager, allowing time and space for
original and innovative thinking;
- Recognising that the
interests of shareholders and the Portfolio Manager are for the
most part well aligned, adopting a tone of constructive challenge,
balanced with robust negotiation of the Portfolio Manager's terms
of engagement if those interests should not be fully
united;
- Drawing on Board
members' individual experience and knowledge to support the
Portfolio Manager in its monitoring of and engagement with
portfolio companies; and
- Willingness to make
the Board members' experience available to support the Portfolio
Manager in the sound long-term development of its business and
resources, recognising that the long-term health of the Portfolio
Manager is in the interests of shareholders in the
Company.
In addition to the management fee,
the Portfolio Manager also receives a performance fee if certain
circumstances are met. In respect of the year ended 31 March 2024,
no performance fee has been accrued (2023: £nil).
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Portfolio companies
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The Company invests into available
opportunities, allocating capital across different portfolio
companies to meet the Company's investment objectives within the
pre-defined portfolio limits and with a focus on portfolio level
diversification.
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The relationship with the Portfolio
Manager is fundamental to ensuring the Company meets its purpose.
Day-to-day engagement with portfolio companies is undertaken by the
Portfolio Manager. Details of how Odyssean Capital carries out
portfolio management, as well as information on its differentiated
investment approach and the structuring of investments can be found
in the Portfolio Manager's Report. The Board receives updates at
each scheduled Board meeting from the Portfolio Manager on specific
investments including regular valuation reports and detailed
portfolio and returns analyses. Odyssean Capital's engagement with
portfolio companies incorporates recurring due diligence reviews,
active voting at their annual general meetings, discussions with
their stakeholders (including but not limited to executives,
non-executives, other shareholders and corporate advisors) and
on-site visits.
In particular, the Board strongly
supports the Portfolio Manager in engaging with portfolio companies
on ESG issues with the aim of improving operations, ESG standards
and performance as well as company culture.
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Other service providers
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In order to function as an
investment trust with a premium listing on
the London Stock Exchange, the Company relies on a diverse range of
reputable advisers for support in meeting all relevant
obligations.
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The Company's main functions are
delegated to a number of service providers, each engaged under
separate contracts. The Board, together with Frostrow as Company
Secretary, maintains regular contact with its key external
providers and receives regular reporting from them, both through
the Board and committee meetings, as well as outside of the regular
meeting cycle. Their advice and views are routinely taken into
account. This regular interaction provides an environment where
issues and business developments needs can be dealt with
efficiently and collegiately.
The Audit Committee reviews and
evaluates the financial reporting control environments in place at
each service provider.
Through its Management Engagement
Committee, the Board formally assesses their performance, fees and
continuing appointment annually to ensure that the key service
providers continue to function at an acceptable level and are
appropriately remunerated to deliver the expected level of
service.
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The above mechanisms for engaging
with stakeholders are kept under review by the Directors and are
discussed on a regular basis at Board meetings to ensure that they
remain effective.
Key
topics of engagement with stakeholders and
outcomes
Key
topics of engagement with investors
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Actions taken and principal decisions
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● Ongoing dialogue with shareholders concerning the
strategy of the Company, performance, the
portfolio and ESG issues.
● The Company's shareholder Redemption Event.
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● The Portfolio Manager, Frostrow and the Broker meet
regularly with shareholders and potential
investors to discuss the Company's
Strategy, performance, the portfolio and
any ESG issues which might be raised.
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In advance of the shareholder Redemption Event,
the Chairman and the Company's Broker met with the Company's
principal shareholders to hear their views.
● Shareholders are provided with performance updates
via the Company's website as well as the
usual financial reports and monthly fact
sheets.
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Key
topics of engagement with the Portfolio Manager on
an ongoing
basis
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Actions taken and principal decisions
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● Portfolio composition,
performance, outlook and business updates
as well as ESG engagement with portfolio
companies.
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● Updates are received by the Board at every Board
meeting.
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Key
topics of engagement with other service providers
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Actions taken and principal decisions
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The Directors have frequent engagement with
the Company's other service providers
through the annual cycle of reporting and
due diligence meetings and conversations
with the Portfolio Manager. Frostrow, as
Company Secretary, has regular conversations with
all other service providers on behalf of the Board
and the Management Engagement
Committee.
● This engagement is
completed with the aim of maintaining an
effective working relationship and oversight of the services provided.
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During the year, no other specific action was
required in respect of the other service
providers, as the reviews of their services
have been positive and the Directors believe that their continued appointment is in the
best interest of the Company.
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Culture
The Directors agree that
establishing and maintaining a healthy corporate culture among the
Board and in its interaction with the Portfolio Manager,
shareholders and other stakeholders supports the delivery of the
Company's goals. The Board seeks to promote a culture of openness,
debate and integrity through ongoing dialogue and engagement with
its service providers, principally, the Portfolio
Manager.
The Board strives to ensure that its
culture is in line with the Company's purpose, values and strategy.
As detailed in the Corporate Governance Statement, the Company has
a number of policies and procedures in place to assist with
maintaining a culture of good governance including those relating
to diversity, Directors' conflicts of interest and Directors'
dealings in the Company's shares. The Board assesses and monitors
compliance with these policies as well as the general culture of
the Board through Board meetings and in particular, during the
annual evaluation process which is undertaken by each Director (for
more information see the performance evaluation section of the
Annual Report).
The Board is cognisant of the nature
of companies that the Company invests in and notes that their
performance could fluctuate while the Portfolio Manager actively
engages with them. This requires a culture of patience from the
Board, supported by an orderly, disciplined investment management
process by the Portfolio Manager. The Board pays particular
attention to Odyssean Capital's corporate engagement initiatives
and proxy voting policies.
The Board seeks to appoint the best
possible service providers and evaluates their remit, performance
and cost effectiveness on a regular basis. The Board considers the
culture of the Portfolio Manager and other service providers,
including their policies, practices and behaviour, through regular
reporting from these stakeholders and, in particular, during the
annual review of the performance and continuing appointment of all
service providers through its Management Engagement
Committee.
Responsible and Sustainable Investing
It is the Board's view that, in
order to achieve long-term success, companies need to maintain high
standards of corporate governance and corporate responsibility.
More information is given in the Portfolio Manager's
Report.
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Alternative Performance Measures (see Glossary).
Climate Change
The risks associated with climate
change represent an increasingly important issue and the Board and
the Portfolio Manager are aware that the transition to a low-carbon
economy will affect all businesses, irrespective of their size,
sector or geographic location. Therefore, no company's revenues are
immune and the assessment of such risks must be considered within
any effective investment approach.
Key
Performance Indicators ("KPIs")
At each Board meeting, the Directors
consider several performance measures to assess the Company's
success in achieving its objective. The KPIs used to measure the
progress and performance of the Company over time are established
industry measures. These are as follows:
Net asset value total
return*
The NAV per share at 31 March 2024
was 154.4p, compared to 160.4p per share at the end of the previous
year, a decrease of 3.7% (2023: a decrease of 2.2%). The NAV total
return since the launch of the Company on 1 May 2018 to 31 March
2024 was 54.4% (to 31 March 2023: 60.4%). The total return of the
DNSC (formerly NSCI) ex IC plus AIM Total Return Index was +3.0%
(to 31 March 2023: -13.4%) for the same period.
A full description of the Company's
performance for the year ended 31 March 2024 can be found in the
Portfolio Manager's Report.
Share price total
return*
The Company's share price at the
previous year end was 164.0p and decreased to 155.5p as at 31 March
2024, resulting in a return of -5.2% (2023: -1.2%) during the
year.
Share price premium to NAV
per share*
The share price premium to NAV per
share changed from 2.2% at the previous year end to premium of 0.7%
as at 31 March 2024. During the year ended 31 March 2024, the
shares traded at an average premium to NAV per share of 1.4% (2023:
1.1%).
Revenue return per
share
In the year to 31 March 2024, the
Company made a revenue return of -0.4p per share (2023: +0.2p per
share).
Ongoing charges
ratio*
The Company's ongoing charges ratio
for the year ended 31 March 2024 was 1.48% (2023:
1.45%).
Management Arrangements - Portfolio Manager
The Company is an internally managed
investment company for the purposes of the UK's Alternative
Investment Fund Managers Directive and is its own alternative
investment fund manager. The Board is therefore responsible for the
portfolio management and risk management functions of the
Company.
Pursuant to the terms of the
Portfolio Management Agreement, the Board has delegated
responsibility for discretionary portfolio management functions to
Odyssean Capital LLP as Portfolio Manager, subject always to the
overall supervision and control of the Board.
The Company may terminate the
Portfolio Management Agreement by giving the Portfolio Manager not
less than six months' prior written notice. The Portfolio
Manager may terminate the Portfolio Management Agreement by giving
the Company not less than six months' prior written
notice.
Management
Fee
The Portfolio Manager is entitled to
receive an annual management fee equal to the lower of: (i) 1% of
the NAV (calculated before deduction of any accrued but unpaid
management fee and any performance fee) per annum; or (ii) 1%
per annum of the Company's market capitalisation. The annual
management fee is calculated and accrues daily and is payable
quarterly in arrears.
The Portfolio Manager is also
entitled to reimbursement for all costs and expenses properly
incurred by it in the performance of its duties under the Portfolio
Management Agreement.
Performance
Fee
In addition, the Portfolio Manager
is entitled to a performance fee in certain
circumstances.
The Company's performance is
measured over rolling three-year periods ending on 31 March each
year (each a "Performance Period"), by comparing the NAV total
return per ordinary share over a Performance Period against the
total return performance of the DNSC (formerly NSCI) ex IC plus AIM
Total Return Index (the "Comparator Index"). The first
Performance Period ran from IPO to 31 March 2021.
A Performance Fee is payable if the
NAV per ordinary share at the end of the relevant Performance
Period adjusted to: (i) add back the
aggregate value of any dividends per ordinary share paid (or
accounted as paid for the purposes of calculating the NAV) to
shareholders during the relevant Performance Period; and (ii)
exclude any accrual for unpaid Performance Fee accrued in relation
to the relevant Performance Period) (the "NAV Total Return per
Share") exceeds both:
i) the NAV per
ordinary share on the first business day of a Performance Period;
in each case as adjusted by the aggregate amount of (i) the total
return on the Comparator Index (expressed as a percentage); and
(ii) 1% per annum over the relevant Performance Period (the "Target
NAV per Share");
ii) the highest
previously recorded NAV per ordinary share as at the end of the
relevant Performance Period in respect of which a Performance Fee
was last paid (the "High-Water Mark"); and
iii) with any resulting
excess amount being known as the "Excess Amount".
The Portfolio Manager will be
entitled to 10% of the Excess Amount multiplied by the time
weighted average number of ordinary shares in issue during the
relevant Performance Period to which the calculation date relates.
The Performance Fee will accrue daily.
Payment of a Performance Fee that
has been earned will be deferred to the extent that the amount
payable exceeds 1.75% per annum of the NAV at the end of the
relevant Performance Period (amounts deferred will be payable when,
and to the extent that, following any later Performance Period(s)
with respect to which a Performance Fee is payable, it is possible
to pay the deferred amounts without causing that cap to be exceeded
or the relevant NAV total return per share to fall below both the
relevant target NAV per share and the relevant High-Water Mark for
such Performance Period, with any amount not paid being retained
and carried forward).
Subject at all times to compliance
with relevant regulatory and tax requirements, any performance fee
paid or payable shall be satisfied in cash and the Portfolio
Manager shall, as soon as reasonably practicable following receipt
of such payment, use 50% of such performance fee payment to make
market purchases of ordinary shares (rounded down to the nearest
whole number of ordinary shares) within four months of the date of
the performance fee payment as a collective group rather than as
individuals. The collective group includes Ian Armitage,
Harwood Capital Management Limited, Stuart
Widdowson and Ed Wielechowski.
Each such tranche of shares acquired
by the Portfolio Manager will be subject to a lock-up undertaking
for a period of three years post issuance or acquisition (subject
to customary exceptions).
At no time shall the Portfolio
Manager (and/or any persons deemed to be acting in concert with it
for the purposes of the Takeover Code) be obliged, in the absence
of a relevant whitewash resolution having been passed in accordance
with the Takeover Code, to receive, or acquire, further ordinary
shares where to do so would trigger a requirement to make a
mandatory offer pursuant to Rule 9 of the Takeover Code. Where any
restriction exists on the issuance of further ordinary shares to
the Portfolio Manager, the relevant amount of the Performance Fee
may be paid in cash.
Based on the performance of the
Company to 31 March 2024, no performance fee has been accrued in
respect of the year ended 31 March 2024 (2023: no performance
fee).
Administrator, Company Secretary, Investor Relations and
Marketing Adviser
Frostrow Capital LLP ("Frostrow")
has been appointed as the Company's Administrator and Company
Secretary as well as Investor Relations and Marketing Adviser.
Frostrow is an independent provider of services to the investment
companies sector and currently has a total of 15 investment company
clients whose assets totalled approximately £9.7 billion as at the
date of this report.
Administrative, company secretarial
and marketing services are provided by Frostrow under an agreement
dated 23 June 2020. An annual administration and management
services fee of 22.5 basis points of the market capitalisation of
the Company up to (but not including) £150 million, charged monthly
in arrears, is payable. Frostrow's fees will reduce from 22.5 basis
points to 20 basis points on market capitalization of the Company
in excess of £150 million in size up to and including £500
million, and to 17.5 basis points on market capitalisation in
excess of £500 million. The agreement may be terminated by either
party on six months' written notice.
Custodian
RBC Investor Services Trust ("RBC")
was appointed as the Company's Custodian pursuant to an agreement
dated 22 March 2018. RBC was
responsible for, inter
alia, the safekeeping and custody of the Company's assets,
investments and cash, processing transactions and foreign exchange
services, if necessary. On 3 July 2023, CACEIS completed the
acquisition of RBC Investor Services' activities in Europe and
Malaysia, which have been rebranded CACEIS Investor Services Bank
S.A. ("CACEIS"). Subsequently on 23 March 2024, the Company's
client accounts held with RBC were migrated to CACEIS Bank. The
Company and the Custodian may terminate the Custody Agreement with
90 days' written notice.
Portfolio Manager Evaluation and Continuing
Appointment
The Board keeps the ongoing
performance of the Portfolio Manager under continual review and the
Management Engagement Committee conducts an annual appraisal of the
Portfolio Manager's performance and makes a recommendation to the
Board about the continuing appointment of the Portfolio
Manager.
The Management Engagement Committee
has reviewed Odyssean's performance, with respect to their
provision of portfolio management and other services. Due
consideration was given to the quality and continuity of its
personnel, succession planning and investment processes. Alongside
the performance review, the Committee completed an appraisal of the
terms of the Portfolio Management Agreement to ensure that the
terms remained competitive and in the interest of the Company. The
Portfolio Manager has executed the investment strategy according to
the Board's expectations and it is the opinion of the Directors
that the continuing appointment of the Portfolio Manager on the
terms agreed is in the interests of shareholders as a
whole.
Frostrow's Evaluation and Continuing
Appointment
The review of the performance of
Frostrow as Administrator, Company Secretary and Investor Relations
and Marketing Adviser is a continuous process carried out by the
Board and a formal evaluation was undertaken by the Management
Engagement Committee in May 2024. The Board believes that the
continuing appointment of Frostrow Capital LLP under the terms
described above, is in the interests of shareholders. In coming to
this decision, the Board also took into consideration the quality
and depth of experience of the management, administrative and
company secretarial team that Frostrow allocates to the
Company.
Company Promotion
The Company has appointed Frostrow
to promote the Company's shares to professional investors in the UK
and Ireland. As investment company specialists, the Frostrow team
provides a continuous, pro-active marketing, distribution and
investor relations service that aims to promote the Company by
encouraging demand for the shares.
Frostrow actively engages with
professional investors, typically discretionary wealth managers,
some institutions and a range of execution-only platforms. Regular
engagement helps to attract new investors and retain existing
shareholders, and over time results in a stable share register made
up of diverse, long-term holders.
Frostrow arranges and manages a
continuous programme of one-to-one meetings with professional
investors around the UK. These include regular meetings with "gate
keepers", the senior points of contact responsible for their
respective organisations' research output and recommended lists.
The programme of regular meetings also includes autonomous decision
makers within large multi-office groups, as well as small
independent organisations. Some of these meetings involve Odyssean
Capital LLP, but most of the meetings do not, which means the
Company is being actively represented both to existing and
potential investors, while the Portfolio Manager concentrates on
the portfolio.
The Company also benefits from
involvement in the regular professional investor seminars run by
Frostrow in major centres, notably London and Edinburgh, and
webinars which are focused on buyers of investment
companies.
Frostrow produces many key corporate
documents, monthly factsheets, annual and half-yearly reports. All
Company information and invitations to investor events, including
updates from the Portfolio Manager on portfolio and market
developments, are regularly emailed to a growing database, overseen
by Frostrow, consisting of professional investors.
Frostrow maintains close contact
with all the relevant investment trust broker analysts,
particularly those from Winterflood Securities Limited, the
Company's corporate broker, but also others who publish and
distribute research on the Company to their respective professional
investor clients.
The Company further benefits from
regular press coverage, with articles appearing in respected
publications that are widely read by both professional and
self-directed private investors. The latter typically buy their
shares via retail platforms, which account for a significant
proportion of the Company's share register.
Employees, Human Rights, Social and Community
Issues
The Board recognises the requirement
under Companies Act 2006 to detail information about human rights,
employees and community issues, including information about any
policies it has in relation to these matters and the effectiveness
of these policies. These requirements do not apply to the Company
as it has no employees, all the Directors are non-executive and it
has outsourced all its functions to third party service providers.
The Company has therefore not reported further in respect of these
provisions, however, it does expect its service providers and
portfolio companies to respect these requirements.
Integrity and Business Ethics
The Company is committed to carrying
out business in an honest and fair manner with a zero-tolerance
approach to bribery, tax evasion and corruption. As such, policies
and procedures are in place to prevent the above. The Board's
expectations are that its principal service providers have similar
governance policies in place. The Company Secretary, on behalf of
the Board, will seek assurances from service providers on a regular
basis.
Environmental, Social and Governance ("ESG")
issues
The Company has no employees,
property or activities other than investments, so its direct
environmental impact is minimal. In carrying out its activities and
in its relationships with service providers, the Company aims to
conduct itself responsibly, ethically and fairly.
The Board is comprised entirely of
non-executive Directors and the day-to-day management of the
Company's business is delegated to the Portfolio Manager. The
Portfolio Manager aims to be a responsible investor and believes it
is important to invest in companies that act responsibly in respect
of environmental, ethical and social issues.
The Portfolio Manager is
specifically looking to invest in companies which have average or
above average ESG characteristics or practices, but where
improvement potential exists. Being mindful of the smaller company
nature of many of the portfolio companies, the Portfolio Manager
has a pragmatic engagement approach, focused on dialogue with
portfolio companies around their performance, disclosure and
general practices compared with best-in-class peers, and seeking
positive changes in specific areas. The Portfolio Managers will not
invest in non-ethical or unsustainable businesses.
The Directors believe that proxy
voting is an important part of the corporate governance process. It
is the policy of the Company to vote at all shareholder meetings of
investee companies, and the Board has delegated voting activities
to the Portfolio Manager. The Portfolio Manager follows relevant
regulatory requirements with an aim to make voting decisions which
will best support growth in shareholder value and will commonly
take into account best practices regarding corporate governance,
board composition, remuneration and ESG issues. The Portfolio
Manager also provides the Directors with a six-monthly update
regarding the voting decisions made in respect of the investee
companies.
Taskforce for Climate-Related Financial Disclosures
("TCFD")
The Company notes the TCFD
recommendations on climate-related financial disclosures. The
Company is an investment trust with no employees, internal
operations or property and, as such, it is exempt from the Listing
Rules requirement to report against the TCFD framework.
Modern Slavery Act 2015
The Company does not provide goods
or services in the normal course of business, and as a financial
investment vehicle does not have customers. The Directors do not
therefore consider that the Company is required to make a statement
under the Modern Slavery Act 2015 in relation to slavery or human
trafficking.
The Company's suppliers are
typically professional advisers and the Company's supply chains are
considered to be low risk in this regard.
In light of the nature of the
Company's business there are no relevant human rights issues and
the Company does not have a human rights policy.
Risk Management
Principal Risks, Emerging Risks and Risk
Management
The Board considers that the risks
detailed within this report are the principal risks currently
facing the Company to deliver its strategy.
The Board is responsible for the
ongoing identification, evaluation and management of the of the
principal risks faced by the Company and the Audit Committee, on
behalf of the Board, has established a process for the regular
review of these risks and their mitigation. This process accords
with the UK Governance Code and the FRC's Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting.
During the year ended 31 March 2024,
the Audit Committee has again carried out a robust assessment of
the emerging and principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency and liquidity. The Committee also considered the controls
in place to mitigate the inherent risks and whether additional
controls or actions were required to bring the residual risk down
to an acceptable level. The Committee was satisfied with the
controls that are in place.
Internal Control Review
The Board is also responsible for
the internal controls relating to the Company, including the
reliability of the financial reporting process, and for reviewing
their effectiveness.
Key procedures established with a
view to providing effective financial control, have been in place
throughout the year ended 31 March 2024 and up to the date of this
Report. The internal control systems are designed to ensure that
proper accounting records are maintained, that the financial
information on which business decisions are made and which are
issued for publication is reliable and that the assets of the
Company are safeguarded.
The risk management process and
systems of internal control are designed to manage rather than
eliminate the risk of failure to achieve the Company's investment
objective. It should be recognised that such systems can only
provide reasonable, not absolute, assurance against material
misstatement or loss.
The Directors have carried out a
review of the effectiveness of the Company's risk management and
internal control systems as they have operated during the year and
up to the date of approval of this Report. There were no matters
arising from this review that required further investigation and no
significant failings or weaknesses were identified.
Internal Control Assessment
Process
Robust risk assessments and reviews
of internal controls are undertaken regularly in the context of the
Company's overall investment objective. During the year, the Board
- through the Audit Committee and together with Frostrow
- has confirmed its risk management controls under
the key headings of: Corporate Strategy; Accounting, Legal and
Regulatory; Operational; Investment and Business Activities. In
evaluating the risks the Company faces, the Board has considered
the Company's operations in the light of the following
factors:
- the nature and extent
of risks which it regards as acceptable for the Company to bear
within its overall business objective;
- the threat of such
risks becoming reality;
- the Company's ability
to reduce the incidence and impact of risk on its
performance;
- the cost to the
Company and benefits related to the review of risk and associated
controls of the Company; and
- the extent to which
the third parties operate the relevant controls.
A risk matrix helps to monitor the
risks which have been identified and the controls in place to
mitigate those risks. The risks are assessed on the basis of the
likelihood of them happening, the impact on the business if they
were to occur and the effectiveness of the controls in place to
mitigate them. This risk register is reviewed by the Audit
Committee regularly at every meeting.
Most of the day-to-day management
functions of the Company are sub-contracted, and the Directors
therefore obtain regular assurances and information from key third
party suppliers regarding the internal systems and controls
operating in their organisations. In addition, each of the third
parties is requested to provide a copy of its report on internal
controls each year, which is reviewed by the Audit
Committee.
Principal risks and uncertainties
|
|
Key
mitigation
|
Investment performance is not comparable to the
expectations of
investors
|
|
|
Consistently poor performance could
lead to a fall in the share price and a
widening of the discount. The success of the Company depends on the Portfolio Manager's ability
to identify, acquire and realise investments in
accordance with the Company's investment
policy. This, in turn, depends on the
ability of the Portfolio Manager to apply its investment processes and identify suitable
investments.
|
|
The Board reviews and discusses the
Company's performance against its
investment objective and policy, and
assesses performance in comparison to industry peers
and the broader comparative market. The Board also
keeps the performance of the Portfolio
Manager under continual review, along with
a review of significant stock decisions and
the overall rationale for holding the current portfolio.
In addition, the Management Engagement
Committee conducts an annual appraisal of
the Portfolio Manager.
|
Share price performance
|
|
|
The market price of the Company's
shares, like shares in all investment companies, may fluctuate
independently of the NAV and therefore may not reflect the
underlying NAV of the shares. The shares could trade at a discount
or premium to NAV at different times, depending on factors such as
market conditions, investors' perceptions of the merits of the
Company's objective and investment policy, supply and demand for
the shares and the extent investors value the activities of the
Company and/or the Portfolio Manager.
|
|
The Board monitors the relationship
between the share price and the NAV, including regular review of
the level of discount relative to that of companies in the sector.
The Company has taken powers to re-purchase shares and will
consider doing so to reduce the volatility of any share price
discount. The Company has also taken powers to issue shares (only
at a premium to NAV) to provide liquidity to the market to meet
investor demand by way of issue of further shares.
No share buybacks were undertaken
during the year. The Company issued a total of 8,507,000 new shares
through tap issuances.
The Board and the portfolio
management team all own shares in the Company, by way of aligning
their own interests with those of all other shareholders. The
Directors invest their Directors' fees in shares and the Portfolio
Manager invests at least 50% of any performance fee in
shares.
In addition, in the seventh year
following the IPO (and every seventh year thereafter), the Board
has and will continue to provide shareholders with an opportunity
to realise their shares at the applicable NAV.
|
Portfolio Manager - loss of personnel or
reputation
|
|
|
The identification and selection of
investment opportunities and the management
of the day-to-day activities of the Company
depends on the diligence, skill, judgement
and business contacts of the Portfolio Manager's investment professionals and the information
and deal flow they generate during the normal
course of their activities. The Company's
future success depends on the continuing
ability of these individuals to provide services and the Portfolio Manager's ability to
strategically recruit, retain and motivate
new talented personnel as required. The
departure of some or all of the Portfolio Manager's investment professionals could prevent the
Company from achieving its investment objective
and give rise to a significant public
perception risk regarding the potential
performance of the Company.
|
|
The Board maintains a good level of
communication and has a good relationship
with the Portfolio Manager, and regularly
reviews the Portfolio Manager's performance at Board meetings. The Portfolio Manager's Compliance
Officer also reports to the Board regularly and
the Portfolio Manager would report to the
Board immediately in the event of any
change in key personnel.
Odyssean Capital LLP as Portfolio
Manager has appointed an investment team
consisting of Stuart Widdowson and Ed
Wielechowski, both of whom are very experienced in
managing the portfolio in accordance with the
Company's principles and investment
strategy.
|
Material changes within the Portfolio Manager's
organisation
|
|
|
Material changes could occur within
the Portfolio Manager's organisation or its
affiliates which are to the detriment of
the Company's standing in respect of its competitors and its profitability.
|
|
The Portfolio Manager has advance
notice of any material changes within its
organisation and would report to the Board immediately in the event of any such changes, including
within its organisation and affiliates or to its
key personnel.
|
Reliance on the performance of third party service
providers
|
|
|
The Company has no employees and the
Directors have been appointed on a non-executive basis. The Company
is reliant upon the performance of third party service providers
for its executive function. Failure by any service provider to
carry out its obligations to the Company in accordance with the
terms of its appointment could have a material adverse effect on
the operation of the Company.
This encompasses disruption or
failure caused by cyber crime or a pandemic and covers dealing,
trade processing, administrative services, financial and other
operational functions.
|
|
The Board has appointed third party
service providers with relevant experience. Each third party
service provider is monitored by the Board and their roles are
evaluated at least annually by the Management Engagement
Committee.
The Board further receives a monthly
report from Frostrow, which includes details of compliance with
applicable law and regulations; reviews internal control reports
and key policies of its service providers; has considered the
increased risk of cyber-attacks and has received assurances from
its service providers regarding the controls in place; and
maintains a risk matrix with details of risks to which the Company
is exposed, the approach to those risks, key controls relied on and
the frequency of the controls operation.
|
UK
Regulatory Risk
|
|
|
The regulatory environment in which
the Company operates changes materially,
affecting the Company's operations.
|
|
The Board monitors regulatory change
with the assistance of Frostrow and
external professional advisers to ensure that the Board is aware of any likely changes in the
regulatory environment and will be able to
adapt as required.
|
UK
Legal Risk
|
|
|
The Company and/or the Directors
fail to comply with legal requirements in relation to FCA dealing
rules and procedures, the UK AIFMD, the Listing Rules, the
Companies Act 2006, relevant accounting standards, the Bribery Act
2010, the Criminal Finances Act 2017, GDPR, tax regulations or any
other applicable regulations.
|
|
The Board monitors regulatory change
with the assistance of its external professional advisers to ensure
compliance with applicable laws and regulations including the
Companies Act 2006, the UK AIFM Rules, the Corporation Tax Act 2010
("Section 1158"), the Market Abuse Regulation ("MAR"), the
Disclosure Guidance and Transparency Rules ("DTRs") and the FCA's
Listing Rules.
The Board reviews compliance reports
and internal control reports provided by its service providers, as
well as the Company's financial statements and revenue
forecasts.
The Directors attend seminars and
conferences to keep up to date on regulatory changes and receive
industry updates from the Company Secretary. The Company Secretary
also presents a quarterly report on changes in the regulatory
environment, including AIC updates, and how changes have been
addressed.
|
Governance Risk
|
|
|
Poor adherence to corporate
governance best practice or errors or
irregularities in published information could lead to censure and/or result in reputational damage to
the Company.
|
|
The Board reviews all information
supplied to shareholders and Frostrow's
marketing activity at each meeting.
Details of the Company's compliance
with corporate governance best practice,
including information on relationships with
shareholders, are set out in the Corporate Governance Report in the Annual Report.
|
ESG
and Climate Change Risk
|
|
|
Risks related to the environment,
social issues and governance such as the
impact of climate change or bad governance
of portfolio companies could have an adverse impact on the portfolio companies' operational
performance.
|
|
At every Board meeting, the Board
receives ESG updates, which include
information on any climate change and governance related engagement, from the Portfolio
Manager together with monthly portfolio updates.
The Board challenges the Investment Manager
on ESG matters to ensure that the portfolio
companies are acting in accordance with the
Board's ESG approach.
The Portfolio Manager supports the
UK Stewardship Code and actively engages
with portfolio companies on ESG matters
including climate change.
Details of the Portfolio Manager's
ESG approach can be found in the Portfolio
Manager's Report and on the Company's
website at www.oitplc.com.
Furthermore, the Board has decided
to hold some of its meetings, when
possible, not in person but via video conference, to save on travel and reduce the Directors'
carbon footprints on behalf of the
Company.
|
Emerging Risks
The Company has carried out a
detailed assessment of its emerging and principal risks. The
International Risk Governance Council's definition of an "emerging"
risk is one that is new, or is a familiar risk in a new or
unfamiliar context or under new context conditions (re-emerging).
Failure to identify emerging risks may cause reactive actions
rather than being proactive and, in a worst case scenario, could
cause the Company to become unviable or otherwise fail or force the
Company to change its structure, objective or strategy.
The Audit Committee reviews the
Company's risk register at its half-yearly meetings. Emerging risks
are discussed in detail as part of this process to try to ensure
that emerging as well as well-known risks are identified and
mitigated as far as possible.
Any emerging risks and mitigations
are added to the risk register, an example being conflict in the
Middle East, which may result in supply emergencies, distribution
problems and price increases ensued and the Board and all its
advisers continue to keep developments under close
review.
The experience and knowledge of the
Directors is useful in these discussions, as are update papers and
advice received from the Board's key service providers such as the
Portfolio Manager, Frostrow and the Company's brokers. In addition,
the Company is a member of the AIC, which provides regular
technical updates, draws members' attention to forthcoming industry
and regulatory issues and advises on compliance
obligations.
Going Concern
The content of the Company's
portfolio, trading activity, the Company's cash balances and
revenue forecasts, and the trends and factors likely to affect the
Company's performance are reviewed and discussed at each Board
meeting.
The Company's financial statements
for the year ended 31 March 2024 have been prepared on a going
concern basis.
In reaching this conclusion, the
Board has considered a detailed assessment of the Company's ability
to meet its liabilities as they fall due, including tests which
modelled the effects of substantial falls in markets and
significant reductions in market liquidity, on the Company's NAV,
its cash flows and expenses. The assessments also factored in the
Company's Redemption Event, and the ongoing and potential further
risks arising from the conflicts in Ukraine and the Middle East.
Further information is also provided in the Audit Committee
Report.
Based on the information available
to the Directors at the date of this report, including the results
of these stress tests, the conclusions drawn in the Viability
Statement, the Company's cash balances, and the liquidity of the
Company's listed investments, the Directors are satisfied that the
Company has adequate financial resources to continue in operation
for at least the next 12 months and that, accordingly, it is
appropriate to continue to adopt the going concern basis in
preparing the financial statements.
Longer-Term Viability Statement
In accordance with the UK Corporate
Governance Code, the Directors have carefully assessed the
Company's position and prospects as well as the principal risks and
have formed a reasonable expectation that the Company will be able
to continue in operation and meet its liabilities as they fall due
over the next three financial years. The Board has chosen a
three-year horizon in view of the long-term nature and outlook
adopted by the Investment Manager when making investment
decisions.
To make this assessment and in
reaching this conclusion, the Audit Committee has considered the
Company's financial position and its ability to liquidate its
portfolio and meet its liabilities as they fall due:
- the portfolio is
principally comprised of investments listed and traded on stock
exchanges. These are actively traded and, whilst perhaps less
liquid than larger quoted companies, the portfolio is well
diversified;
- the portfolio is
typically run with a net cash position and as a result there is
ample liquidity on a day-to-day basis for the Company to meet its
obligations;
- the expenses of the
Company are predictable and modest in comparison with the assets
and there are no capital commitments foreseen which would alter
that position; and
- the Company has no
employees, only its non-executive Directors. Consequently, it does
not have redundancy or other employment related liabilities or
responsibilities.
Redemption Event
As set out in the Company's
Prospectus, the Board has committed to provide shareholders with an
opportunity to elect to realise the value of their ordinary shares
at close to NAV during the seventh year following the initial
admission of the Company's shares. The details of the first
realisation opportunity were published on 21 May 2024.
The Board noted that the Company's
share price has frequently traded at premium to NAV per share, and
demand for its shares remains strong. This is demonstrated by the
issuance of 8.5 million ordinary shares in the year ended
31 March 2024, and nearly 29 million shares since the Annual
General Meeting in September 2021.
Following an extensive programme of
meetings with the Company's major shareholders, it was the Board's
expectation that the number of shares that would be elected for
realisation would be small and would not impact the Company in any
material way. This was proved correct as on 5 June the Company
announced that 785,596 shares had been tendered by shareholders,
representing 0.6% of the Company's issued share capital. On 7 June,
the Company announced that all of these shares had been resold to
institutional shareholders. As a result, the share count of the
Company has remained flat.
The Audit Committee, as well as
considering the potential impact of the Company's principal risks
and various severe but plausible downside scenarios, has also
considered the following assumptions in considering the Company's
longer-term viability:
- there will continue
to be demand for investment trusts;
- the Board and the
Portfolio Manager will continue to adopt a long-term view when
making investments;
- the Company
invests principally in the securities of UK listed companies to
which investors will wish to continue to have exposure;
- regulation will not
increase to a level that makes running the Company uneconomical;
and
- the performance of
the Company will continue to be satisfactory.
The ongoing and potential further
risks arising from the conflicts in Ukraine and the Middle East
were also factored into the key assumptions made by assessing its
impact on the Company's key risks and whether they had increased in
their potential to affect the normal, favourable and stressed
market conditions.
Looking to the Future
The Board concentrates its attention
on the Company's investment performance and Odyssean Capital LLP's
investment approach and on factors that may have an effect on this
approach.
The Board is regularly updated by
Frostrow Capital LLP on wider investment trust industry issues and
regular discussions are held concerning the Company's future
development and strategy.
A review of the Company's year ended
31 March 2024, its performance and the outlook for the Company can
be found in the Chairman's Statement and in the Portfolio Manager's
Review.
The Company's overall strategy
remains unchanged.
Approval
This Strategic Report has been
approved by the Board of Directors and signed on its behalf
by:
Linda Wilding
Chairman
11 June 2024
Statement of Directors' Responsibilities
The Directors are responsible for
preparing the Annual Report and Financial Statements in accordance
with applicable law and regulation.
Company law requires the Directors
to prepare financial statements for each financial period.
Accordingly, the Directors have prepared the Financial Statements
in accordance with IFRS as adopted by the United Kingdom. Under
company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period.
In preparing the Financial
Statements, the Directors are required to:
- select suitable
accounting policies in accordance with IAS 8: "Accounting Policies,
Changes in Accounting Estimates and Errors" and then apply them
consistently;
- present information,
including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information;
- provide additional
disclosures when compliance with specific requirements in IFRS is
insufficient to enable users to understand the impact of
particular transactions, other events and
conditions on the Company's financial position and financial
performance;
- state whether
applicable IFRS have been followed, subject to any material
departures disclosed and explained in the Financial
Statements;
- make judgements and
accounting estimates that are reasonable and prudent;
and
- prepare the Financial
Statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Company's transactions and disclose with reasonable
accuracy at any time the financial position of the Company and
enable them to ensure that the Financial Statements comply with
Companies Act 2006 and Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Under applicable law and
regulations, the Directors are also responsible for preparing a
Strategic Report, Directors' Report, Directors' Remuneration Report
and Corporate Governance Statement that comply with that law and
those regulations, and for ensuring that the Annual Report includes
information required by the Listing Rules of the FCA.
The Financial Statements are
published on the Company's website, www.oitplc.com, which is
maintained on behalf of the Company by Frostrow Capital LLP. The
work carried out by the Auditor does not involve consideration of
the maintenance and integrity of this website and accordingly, the
Auditor accepts no responsibility for any changes that have
occurred to the Financial Statements since they were initially
presented on the website.
Under the Portfolio Management
Agreement, the Portfolio Manager is responsible for the maintenance
and integrity of the corporate and financial information included
on the Company's website. Visitors to the website need to be aware
that legislation in the United Kingdom covering the preparation and
dissemination of the financial statements may differ from
legislation in their jurisdiction.
We confirm that to the best of our
knowledge:
- the Financial
Statements, which have been prepared in accordance with IFRS as
adopted by the United Kingdom, give a true and fair view of the
assets, liabilities, financial position and loss of the Company;
and
- the Annual Report
includes a fair review of the development and performance of the
business and the position of the Company, together with a
description of the principal risks and uncertainties that it
faces.
The Directors consider that the
Annual Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance,
business model and strategy.
On behalf of the Board
Linda Wilding
Chairman
11 June 2024
Statement of Comprehensive Income
for the year ended 31 March
2024
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Income
|
2
|
2,194
|
-
|
2,194
|
2,720
|
-
|
2,720
|
Losses on investments at fair
value
|
7
|
-
|
(6,247)
|
(6,247)
|
-
|
(4,295)
|
(4,295)
|
Gross return
|
|
2,194
|
(6,247)
|
(4,053)
|
2,720
|
(4,295)
|
(1,575)
|
Portfolio management fee
|
3
|
(1,801)
|
-
|
(1,801)
|
(1,718)
|
-
|
(1,718)
|
Other expenses
|
4
|
(854)
|
-
|
(854)
|
(785)
|
-
|
(785)
|
Total expenses
|
|
(2,655)
|
-
|
(2,655)
|
(2,503)
|
-
|
(2,503)
|
Net
return before taxation
|
|
(461)
|
(6,247)
|
(6,708)
|
217
|
(4,295)
|
(4,078)
|
Taxation
|
5
|
(11)
|
-
|
(11)
|
(12)
|
-
|
(12)
|
Net
return for the period
|
|
(472)
|
(6,247)
|
(6,719)
|
205
|
(4,295)
|
(4,090)
|
Basic and diluted return per share (pence)
|
6
|
(0.4)
|
(5.3)
|
(5.7)
|
0.2
|
(4.1)
|
(3.9)
|
The total column of this statement
is the Income Statement of the Company prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by
the United Kingdom. The supplementary revenue and capital columns
are presented in accordance with the Statement of Recommended
Practice issued by the AIC ("AIC SORP").
All revenue and capital items in the
above statement derive from continuing operations. No operations
were acquired or discontinued during the period.
There is no other comprehensive
income, and therefore the net return for the period is also the
total comprehensive income.
The accompanying notes are an
integral part of these financial statements.
Statement of Changes in Equity
for the year ended 31 March
2024
|
|
|
Share
|
Special
|
|
|
|
|
|
Share
|
premium
|
distributable
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Year ended 31 March 2024
|
|
|
|
|
|
|
|
Opening balance as at 1 April
2023
|
|
1,129
|
40,556
|
85,475
|
53,968
|
77
|
181,205
|
Net return for the year
|
|
-
|
-
|
-
|
(6,247)
|
(472)
|
(6,719)
|
Net proceeds from share
issuance
|
10
|
85
|
12,986
|
-
|
-
|
-
|
13,071
|
As
at 31 March 2024
|
|
1,214
|
53,542
|
85,475
|
47,721
|
(395)
|
187,557
|
|
|
|
Share
|
Special
|
|
|
|
|
|
Share
|
premium
|
distributable
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
Notes
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Year ended 31 March 2023
|
|
|
|
|
|
|
|
Opening balance as at 1 April
2022
|
|
962
|
13,244
|
85,475
|
58,263
|
(128)
|
157,816
|
Net return for the year
|
|
-
|
-
|
-
|
(4,295)
|
205
|
(4,090)
|
Net proceeds from share
issuance
|
10
|
167
|
27,312
|
-
|
-
|
-
|
27,479
|
As
at 31 March 2023
|
|
1,129
|
40,556
|
85,475
|
53,968
|
77
|
181,205
|
The accompanying notes are an
integral part of these financial statements.
Statement of Financial Position
as at 31 March 2024
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
Notes
|
£'000
|
£'000
|
Non
current assets
|
|
|
|
Investments at fair value through
profit or loss
|
7
|
182,296
|
180,394
|
Current assets
|
|
|
|
Trade and other
receivables
|
8
|
1,937
|
1,146
|
Cash
|
|
4,935
|
1,370
|
|
|
6,872
|
2,516
|
Total assets
|
|
189,168
|
182,910
|
Current liabilities
|
|
|
|
Trade and other payables
|
9
|
(1,611)
|
(1,705)
|
Total liabilities
|
|
(1,611)
|
(1,705)
|
Total assets less current liabilities
|
|
187,557
|
181,205
|
Net
assets
|
|
187,557
|
181,205
|
Represented by:
|
|
|
|
Share capital
|
10
|
1,214
|
1,129
|
Share premium account
|
|
53,542
|
40,556
|
Special distributable
reserve
|
10
|
85,475
|
85,475
|
Capital reserve
|
|
47,721
|
53,968
|
Revenue reserve
|
|
(395)
|
77
|
Total equity attributable to equity holders of the
Company
|
|
187,557
|
181,205
|
Basic and diluted NAV per ordinary share
(pence)
|
11
|
154.4
|
160.4
|
The accompanying notes are an
integral part of these financial statements.
These statements were approved and
authorised for issue by the Board on 11 June 2024 and signed on its
behalf by:
Linda Wilding
Chairman
Company Registered Number:
11121934
Cash Flow Statement
for the year ended 31 March
2024
|
Year ended
|
Year
ended
|
|
31 March
2024
|
31 March
2023
|
|
£'000
|
£'000
|
Reconciliation of net return before taxation to net cash
outflow from operating activities
|
|
|
Net return before
taxation
|
(6,708)
|
(4,078)
|
Losses on investments held at fair
value through profit and loss
|
6,247
|
4,295
|
Decrease/(increase) in
receivables
|
267
|
(282)
|
Increase/(decrease) in
payables
|
32
|
(2,337)
|
Taxation paid
|
(11)
|
(12)
|
Net
cash outflow from operating activities
|
(173)
|
(2,414)
|
Investing activities
|
|
|
Purchases of investments
|
(49,680)
|
(107,939)
|
Sales of investments
|
40,346
|
79,067
|
Net
cash outflow from investing activities
|
(9,334)
|
(28,872)
|
Financing activities
|
|
|
Net proceeds from share
issuance
|
13,071
|
27,479
|
Net
cash inflow from financing activities
|
13,071
|
27,479
|
Increase/(decrease) in cash
|
3,564
|
(3,807)
|
Cash at the beginning of the
year
|
1,370
|
5,197
|
Exchange rate movements
|
1
|
(20)
|
Increase/(decrease) in
cash
|
3,564
|
(3,807)
|
Cash at end of the year
|
4,935
|
1,370
|
The accompanying notes are an
integral part of these financial statements.
Notes to the Financial Statements
for the year ended 31 March
2024
1. Material Accounting
Policies
Odyssean Investment Trust PLC is a
listed public company incorporated and registered in England and
Wales. The registered office of the Company is 25 Southampton
Buildings, London WC2A 1AL. The principal activity of the Company
is that of an investment trust company within the meaning of
sections 1158/1159 of the Corporation Tax Act 2010 and its
investment approach is detailed in the Strategic Report.
a) Basis of preparation
The financial statements of the
Company have been prepared in accordance with IFRS as adopted by
the United Kingdom which comprise standards and interpretations
approved by the International Accounting Standards Board ("IASB"),
and as applied in accordance with the provisions of the Companies
Act 2006. The annual financial statements have also been prepared
in accordance with the AIC SORP for the financial statements of
investment trust companies and venture capital trusts, except to
any extent where it is not consistent with the requirements of
IFRS.
In order to better reflect the
activities of an investment trust company and in accordance with
guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a
revenue and capital nature has been prepared alongside the
Statement of Comprehensive Income.
The functional currency of the
Company is Sterling because this is the currency of the primary
economic environment in which the Company operates. The financial
statements are also presented in Sterling rounded to the nearest
thousand, except where otherwise indicated.
b) Going concern
The financial statements have been
prepared on a going concern basis that approval as an investment
trust company will continue to be met.
The Directors have made an
assessment of the Company's ability to continue as a going concern
and are satisfied that the Company has the resources to continue in
business for the foreseeable future, being a period of at least 12
months from the date these financial statements were approved. In
making the assessment, the Directors have considered the likely
impacts of the ongoing and potential further risks arising from the
conflicts in Ukraine and the Middle East on the Company, operations
and the investment portfolio.
The Directors noted the net cash
balance exceeds any short-term liabilities, the Company has no debt
and the Company holds a portfolio of investments listed on the
London Stock Exchange. The Company is a closed end fund, where
assets are not required to be liquidated to meet redemptions.
Whilst the economic future is uncertain, and the Directors believe
it is possible the Company could experience further reductions in
income and/or market value this should not be to a level which
would threaten the Company's ability to continue as a going
concern. The Directors, the Portfolio Manager and other service
providers have put in place contingency plans to minimise
disruption. Furthermore, the Directors are not aware of any
material uncertainties that may cast doubt upon the Company's
ability to continue as a going concern, having taken into account
the liquidity of the Company's investment portfolio and the
Company's financial position in respect of its cash flows, debt and
investment commitments. Therefore, the financial statements have
been prepared on a going concern basis.
c) Segmental reporting
The Directors are of the opinion
that the Company is engaged in a single segment of the business,
being investment business in accordance with its Investment
Objective and Policy.
d) Accounting developments
In the current year, the Company has
applied a number of amendments to IFRS, issued by the IASB. These
include annual improvements to IFRS, changes in standards,
legislative and regulatory amendments, changes in disclosure and
presentation requirements.
The adoption of the changes has had
no material impact on the current or prior years' financial
statements.
e) Critical accounting judgements and key sources
of estimation uncertainty
The preparation of financial
statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application
of policies and the reported amounts in the Statement of Financial
Position, the Statement of Comprehensive Income and the disclosure
of contingent assets and liabilities at the date of the financial
statements. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
No critical accounting judgments or
significant estimations were made by the Company in the preparation
of its financial statements for the year ended 31 March
2024.
f )
Investments
The Company's business is investing
in financial assets with a view to profiting from their total
return in the form of income and capital growth. This portfolio of
financial assets is managed and its performance evaluated on a fair
value basis in accordance with the documented investment strategy
and information is provided internally on that basis to the
Company's Board of Directors and other key management
personnel.
All investments are designated upon
initial recognition as held at fair value through profit or loss,
and are measured at subsequent reporting dates at fair value, which
is bid price for investments traded in active markets. The Company
derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. On derecognition of a
financial asset, the difference between the asset's carrying amount
and the sum of consideration received and receivable and the
cumulative gain or loss that had been accumulated is recognised in
profit or loss.
All gains and losses are allocated
to the capital return within the Statement of Comprehensive Income.
Also included within this heading are transaction costs in relation
to the purchase or sale of investments. When a sale or purchase is
made under a contract, the terms of which require delivery within
the timeframe of the relevant market, the investments concerned are
recognised or derecognised on the trade date.
Fair values for unquoted investments
are established by using various valuation techniques in accordance
with the International Private Equity and Venture Capital Valuation
(the "IPEV") guidelines. These may include recent arm's length
market transactions, earnings multiples and the net asset basis.
The Company held no unquoted investments as at 31 March 2024 (2023:
none).
All investments for which a fair
value is measured or disclosed in the financial statements are
categorised within the fair value hierarchy levels set out in note
7.
g) Income
Dividends receivable on quoted
equity shares are taken to revenue on an ex-dividend basis.
Dividends receivable on equity shares where no ex-dividend date is
quoted are brought into account when the Company's right to receive
payment is established. Dividends from overseas companies are shown
gross of any withholding taxes which are disclosed separately in
the Statement of Comprehensive Income.
Special dividends are taken to the
revenue or capital account depending on their nature. In deciding
whether a dividend should be regarded as capital or revenue
receipt, the Board reviews all relevant information as to the
sources of the dividend on a case-by-case basis.
When the Company has elected to
receive scrip dividends in the form of additional shares rather
than in cash, the amount of the cash dividend foregone is
recognised as income. Any excess in the value of the cash dividend
is recognised in the capital column.
All other income is accounted on a
time-apportioned accruals basis and is recognised in the Statement
of Comprehensive Income.
h) Expenses
All expenses are accounted on an
accruals basis and are allocated wholly to revenue with the
exception of the Performance Fees and transaction costs which are
allocated wholly to capital, as the fee payable by reference to the
capital performance of the Company.
i) Share capital and
reserves
The share capital represents the
nominal value of equity shares.
The share premium account represents
the accumulated premium paid for shares issued above their nominal
value less issue expenses. This reserve is not
distributable.
The special distributable reserve
was created on 8August 2018 following approval of the Court to
cancel the Company's share premium account, accumulated through
initial placing and subsequent issuance of the Company's ordinary
shares over the period between 1 May 2018 and 27 June 2018.. This
reserve may be used for the costs of share buybacks, the
cancellation of shares, and distribution by way of
dividends.
The capital reserve represents
realised and unrealised capital and exchange gains and losses on
the disposal and revaluation of investments and of foreign currency
items. In addition, performance fee costs are allocated to the
capital reserve. The amount within the capital reserve less
unrealised gains is available for distribution. The realised gains
within the capital reserve amounted to £57,437,000 as at 31 March
2024 (2023: £56,516,000). The Company does not intend to make
distributions out of its capital reserve.
The revenue reserve represents the
surplus of accumulated revenue profits being the excess of income
derived from holding investments less the costs associated with
running the Company. This reserve may be distributed by way of
dividends, to the extent realised.
2.
Income
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Income
|
Capital
|
Total
|
Income
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Income from investments
|
|
|
|
|
|
|
|
UK dividends
|
1,825
|
-
|
1,825
|
2,170
|
-
|
2,170
|
|
Overseas dividends
|
200
|
-
|
200
|
420
|
-
|
420
|
|
|
2,025
|
-
|
2,025
|
2,590
|
-
|
2,590
|
|
Other income
|
|
|
|
|
|
|
|
Bank Interest
|
169
|
-
|
169
|
130
|
-
|
130
|
|
Total income
|
2,194
|
-
|
2,194
|
2,720
|
-
|
2,720
|
3. Portfolio management
fee
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Portfolio management fee
|
1,801
|
-
|
1,801
|
1,718
|
-
|
1,718
|
|
Performance fee
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
1,801
|
-
|
1,801
|
1,718
|
-
|
1,718
|
The Company may be liable to pay a
performance fee depending on the performance of the Company over a
rolling three- year period. Based on the performance of the Company
to 31 March 2024, no performance fee has been accrued (2023:
£nil).
Further details of the Company's
management fee and performance fee arrangements can be found in
Business Review.
4. Other
expenses
|
|
Year to
|
Year
to
|
|
|
31 March
2024
|
31 March
2023
|
|
|
£'000
|
£'000
|
|
Frostrow Capital
|
404
|
385
|
|
Directors' fees*
|
135
|
92
|
|
Broker fees
|
60
|
60
|
|
Auditor fees**
|
63
|
52
|
|
Depositary and Custody
fees
|
29
|
29
|
|
Registrar fees
|
19
|
21
|
|
Other expenses
|
144
|
146
|
|
|
854
|
785
|
* Peter Hewitt does not
receive a Director fee in respect of his services to the Company,
owing to his employment as a Director of Global Equities at
Columbia Threadneedle. The increase in total Directors' fees from
2023 is mainly due to the addition of two Directors to the Board
during the current year. Further details can be found in the
Directors' Remuneration Report on page 60 of the Company's Annual
Report.
** Exclusive
of VAT. The Company's auditor provided no non-audit services (2023:
none) during the year.
5. Taxation
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Analysis of charge in
year
|
|
|
|
|
|
|
|
Current tax:
|
|
|
|
|
|
|
|
Overseas withholding tax
suffered
|
11
|
-
|
11
|
12
|
-
|
12
|
|
|
11
|
-
|
11
|
12
|
-
|
12
|
The tax charged for the period is
lower than the standard rate of corporation tax in the UK of 25%
(2023: 19%). The differences are explained below:
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Net return before
taxation
|
(461)
|
(6,247)
|
(6,708)
|
217
|
(4,295)
|
(4,078)
|
|
Theoretical tax at UK corporation
tax rate of 25% (2023: 19%)
|
(115)
|
(1,562)
|
(1,677)
|
41
|
(816)
|
(775)
|
|
Effects of:
|
|
|
|
|
|
|
|
UK dividends that are not
taxable
|
(506)
|
-
|
(506)
|
(517)
|
-
|
(517)
|
|
Non-taxable investment
losses
|
-
|
1,562
|
1,562
|
-
|
816
|
816
|
|
Irrecoverable overseas withholding
tax
|
11
|
-
|
11
|
12
|
-
|
12
|
|
Unrelieved excess management
expenses
|
621
|
-
|
621
|
476
|
-
|
476
|
|
|
11
|
-
|
11
|
12
|
-
|
12
|
Factors that may affect future tax charges
At 31 March 2024, the Company had no
unprovided deferred tax liabilities (2023: £nil). At that date,
based on current estimates and including the accumulation of net
allowable losses, the Company had unrelieved losses of £15,244,000
(2023: £12,759,000) that are available to offset future taxable
revenue. A deferred tax asset of £3,811,000 (2023: £3,190,000) has
not been recognised because the Company is not expected to generate
sufficient taxable income in future periods in excess of the
available deductible expenses and accordingly, the Company is
unlikely to be able to reduce future tax liabilities through the
use of existing surplus losses
Deferred tax is not provided on
capital gains and losses arising on the revaluation or disposal of
investments because the Company meets (and intends to continue for
the foreseeable future to meet) the conditions for approval as an
Investment Trust company.
6. Return per ordinary
share
The capital, revenue and total
return per ordinary share are based on the net return for the
period shown in the Statement of Comprehensive Income and the
weighted average number of ordinary shares during the period of
116,957,728 (2023: 104,414,502).
There are no dilutive instruments
issued by the Company.
7. Investments held at fair
value through profit or loss
|
|
As at
|
As
at
|
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Opening book cost
|
182,942
|
128,482
|
|
Opening unrealised investment
holding (losses)/gains
|
(2,548)
|
26,866
|
|
Opening fair value
|
180,394
|
155,348
|
|
Analysis of transactions made during the
year
|
|
|
|
Purchases at cost
|
49,550
|
108,859
|
|
Sales proceeds received
|
(41,404)
|
(79,511)
|
|
Gains on sales of
investments
|
924
|
25,112
|
|
Unrealised losses on investment
holding
|
(7,168)
|
(29,414)
|
|
Closing fair value
|
182,296
|
180,394
|
|
Closing book cost
|
192,012
|
182,942
|
|
Closing unrealised investment
holding losses
|
(9,716)
|
(2,548)
|
|
Closing fair value
|
182,296
|
180,394
|
|
Transaction costs
|
246
|
645
|
The Company is required to classify
fair value measurements using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements. The
fair value hierarchy consists of the following three
levels:
-
Level 1 - Quoted prices
(unadjusted) in active markets for identical assets or
liabilities.
An active market is a market in
which transactions for the asset or liability occur with sufficient
frequency and volume on an ongoing basis such that quoted prices
reflect prices at which an orderly transaction would take place
between market participants at the measurement date. Quoted prices
provided by external pricing services, brokers and vendors are
included in Level 1, if they reflect actual and regularly occurring
market transactions on an arms length basis.
-
Level 2 - Inputs other
than quoted prices included within Level 1 that are observable for
the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices).
-
Level 3 - Inputs for
the asset or liability that are not based on observable market data
(unobservable inputs).
The level in the fair value
hierarchy within which the fair value measurement is categorised in
its entirety is determined on the basis of the lowest level input
that is significant to the fair value measurement in its entirety.
For this purpose, the significance of an input is assessed against
the fair value measurement in its entirety. If a fair value
measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a
Level 3 measurement. Assessing the significance of a particular
input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or
liability.
|
|
As at 31 March
2024
|
As at 31
March 2023
|
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level
1
|
Level
2
|
Level
3
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Quoted at fair value
|
182,296
|
182,296
|
-
|
-
|
180,394
|
174,832
|
5,562
|
-
|
|
Total
|
182,296
|
182,296
|
-
|
-
|
180,394
|
174,832
|
5,562
|
-
|
During the year ended 31 March 2024,
£8,685,000 of level 2 investments were transferred to level 1
(2023: £5,562,000) of level 1 investments were transferred to level
2.
8. Trade and other
receivables
|
|
As at
|
As
at
|
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Due from brokers
|
1,807
|
749
|
|
Dividend income
receivable
|
62
|
337
|
|
Other receivables
|
68
|
60
|
|
|
1,937
|
1,146
|
9. Trade and other payables
|
|
As at
|
As
at
|
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Due to brokers
|
975
|
1,101
|
|
Portfolio management fees
|
463
|
483
|
|
Other payables
|
173
|
121
|
|
|
1,611
|
1,705
|
10.
Share capital
|
|
Year ended 31 March
2024
|
Year
ended 31 March 2023
|
|
|
Number of
|
|
Number
of
|
|
|
|
Shares
|
£'000
|
Shares
|
£'000
|
|
Issued and fully paid:
|
|
|
|
|
|
Ordinary shares of 1p:
|
|
|
|
|
|
Balance at beginning of the
period
|
112,945,053
|
1,129
|
96,248,053
|
962
|
|
Shares issued during the
year
|
8,507,000
|
85
|
16,697,000
|
167
|
|
Balance at end of the period
|
121,452,053
|
1,214
|
112,945,053
|
1,129
|
The Company currently has no shares
in treasury. During the year, the Company issued 8,507,000 new
ordinary shares (2023: 16,697,000).
11.
Net asset value per ordinary share
The basic net asset value per
ordinary share is based on net assets of £187,557,000 (2023:
£181,205,000) and the number of ordinary shares in issue of
121,452,053 (2023: 112,945,053).
There are no dilutive instruments
issued by the Company.
12.
Financial Instruments
The Company's financial instruments
include its investment portfolios, cash balances, trade receivables
and trade payables that arise directly from its operations.
Adherence to the Company's investment policy is key to mitigating
risk.
Risks
The Portfolio Manager monitors the
financial risks affecting the Company on an ongoing basis and the
Board regularly receives financial information, which is used to
identify and monitor risk. All risks are actively reviewed and
managed by the Board.
The risks identified arising from
the Company's financial instruments are:
(i) market risk,
including market price risk, interest rate risk and currency
risk;
(ii) liquidity
risk;
(iii) credit and counterparty
risk
(i)
Market risk
Market risk is the risk of loss
arising from movements in observable market variables. The fair
value of future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. The
Portfolio Manager assesses the exposure to market risk when making
each investment decision and these risks are monitored by the
Portfolio Manager on a regular basis and the Board at meetings with
the Portfolio Manager.
Market price risk
The Company is exposed to market
price risk (i.e. changes in market prices other than those arising
from currency or interest rate risk) which may affect the value of
investments whose future prices are uncertain. The Company's
exposure to market price risk comprises movements in the value of
the Company's investments. If the fair value of the Company's
investments at the year-end increased or decreased by 10%, then it
would have had an impact on the Company's capital return and equity
of £18,230,000 (2023: £18,039,000).
The Portfolio Manager manages this
risk by following the investment objective and policy as set out in
the prospectus. The Portfolio Manager assesses the exposure to
market price risk when making each investment decision and monitors
the overall level of market price risk on the whole investment
portfolio on an ongoing basis. The Portfolio Manager maintains a
net cash position and intends to maintain this for the foreseeable
future.
Currency risk
Currency risk is the risk that fair
values of future cash flows of a financial instrument fluctuate
because of changes in foreign exchange rates. The Company held one
investment in foreign currencies as at 31 March 2024 (2023: two).
Whilst the Company's other investments are denominated in sterling,
the Company may have currency exposure through the trading
activities of its investee companies.
The Portfolio Manager does not hedge
underlying portfolio companies.
Foreign currency exposures
Fair values of the Company's
investments denominated in foreign currencies are shown below. The
Company has no other foreign currency denominated assets or
liabilities.
|
|
As at
|
As
at
|
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Euro
|
7,609
|
2,839
|
|
Norwegian krone
|
-
|
5,563
|
|
|
7,609
|
8,402
|
Foreign currency sensitivity
The table below shows the impact on
the Company's net loss after taxation for the year ended and net
assets, if sterling had strengthened/weakened by 10% against the
Euro and Norwegian krone.
|
|
As at
|
As
at
|
|
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
|
£'000
|
£'000
|
|
Euro
|
(692)/845
|
(258)/315
|
|
Norwegian krone
|
-
|
(506)/618
|
|
|
(692)/845
|
(764)/933
|
Interest rate risk
Interest rate risk is the risk that
fair value of future cash flows of a financial instrument will
fluctuate because of changes in market interest rates. Interest
rate movements may potentially affect future cash flows from the
level of income receivable on cash deposits.
The Company's bank balances are
subject to a variable rate of interest, it does not generate
significant income from interest and the Portfolio Manager does not
hedge against this. The Company has no gearing and therefore there
is limited downside risk from increasing interest costs on
borrowings.
Based on the Company's cash balance
as at 31 March 2024 of £4,935,000 (2023: £1,370,000), a 1% increase
in interest rates would increase the revenue return and net assets
by £49,000 (2023: £14,000) and a fall of 1% in interest rates would
have the opposite effect on the Company's revenue return and net
assets.
The Portfolio Manager actively
manages the cash positions of the Company.
(ii) Liquidity risk
The Company's assets mainly comprise
readily realisable securities which can be easily sold to meet
funding commitments and obligations. Liquidity risk is mitigated by
the fact that the Company has £4,935,000 (2023: £ 1,370,000)
cash at bank and the assets are readily realisable. The Company is
a closed-end fund and assets do not need to be liquidated to meet
redemptions.
The Portfolio Manager maintains a
net cash position and intends to maintain this for the foreseeable
future. The Portfolio Manager will manage the portfolio to
maintain sufficient cash balances to meet its obligations or
liabilities as they fall due.
(iii) Credit risk
This is the risk a counterparty of
the Company will not meet their obligations to the
Company.
The Company does not have any
significant exposure to credit risk arising from one individual
party. Credit risk is spread across a number of counterparties,
each having an immaterial effect on the Company's cash flows,
should a default happen. The credit standing of all counterparties
is reviewed periodically and assesses the debtors to ensure they
are neither past due or impaired.
All the investments of the Company
which are traded on a recognised exchange are held by the Company's
custodian, CACEIS Investor Services Bank S.A. (London Branch). All
the Company's cash is also held by CACEIS. The Portfolio Manager
and the Board actively monitor the relationship with CACEIS and
review its internal control report.
13.
Related party transactions
The amount incurred in respect of
Portfolio Management fees during the period to 31 March 2024 was
£1,801,000 (2023: 1,718,000), of which £463,000 (2023: £483,000)
was outstanding at 31 March 2024.
Fees paid to the Company's Directors
and Directors' shareholdings, are disclosed in the Directors'
Remuneration Report. At the year end, there were no outstanding
fees payable to Directors (2023: £nil).
14.
Subsequent events
On 3 June 2024, the Company received
a special dividend of £7.7m from Ascential PLC, one of the
investments in the Company's portfolio, following the disposal of
Ascential's product design and digital commerce divisions. The
ex-dividend date was 20 May 2024.
On 5 June the Company announced that
785,596 shares had been tendered by shareholders, representing 0.6%
of the Company's issued share capital. On 7 June, the Company
announced that all of these shares had been resold to institutional
shareholders. As a result, the share count of the Company has
remained flat. Further details can be found in the Chairman's
Statement.
Glossary
AGM
Annual General Meeting
AIC
Association of Investment
Companies
Alternative Performance Measure ('APM')
An APM is a numerical measure of the
Company's current, historical or future financial performance,
financial position or cash flows, other than a financial measure
defined or specified in the applicable financial
framework.
Comparator Index Total Return
The Company's Comparator Index is
the DNSC (formerly NSCI) (Deutsche Numis Smaller Companies Index)
ex IC plus AIM Total Return Index. The benchmark is used only as a
yard stick to compare investment performance.
|
|
|
1
May
|
|
|
Year to
|
Year
to
|
2018
to
|
|
|
31 March
|
31
March
|
31
March
|
|
|
2024
|
2023
|
2024
|
|
Closing index
|
15,636
|
15,187
|
15,636
|
a
|
Opening index
|
15,187
|
17,530
|
14,955
|
b
|
Index total return
|
3.0%
|
(13.4%)
|
4.6%
|
c=(a-b)/b
|
Cost
The book cost of each investment is
the total acquisition value, including transaction costs, less the
value of any disposals or capitalised distributions allocated on a
weighted average cost basis.
ESG
Environmental, social and
governance
Gearing
Gearing refers to the ratio of the
Company's debt to its equity capital. The Company may borrow money
to invest in additional investments for its portfolio. If the
Company's assets grow, the shareholders' assets grow
proportionately more because the debt remains the same. If the
Company's assets fall, the situation is reversed. Gearing can
therefore enhance performance in rising markets but can adversely
impact performance in falling markets. The Company had no
borrowings during the year (2023: nil).
IPO
Initial public offering
M&A
Mergers and acquisitions
NAV
Total Return (APM)
NAV total return is the closing NAV
per share including any cumulative dividends paid as a percentage
over the opening NAV. NAV total return is an alternative way of
measuring investment management performance of investment trusts
which is not affected by movements in the share price.
|
|
|
Inception
|
|
|
Year to
|
Year
to
|
to
|
|
|
31 March
|
31
March
|
31
March
|
|
|
2024
|
2023
|
2024
|
|
Closing NAV per share (p)
|
154.4
|
160.4
|
154.4
|
a
|
Opening NAV per share (p)
|
160.4
|
164.0
|
100.0
|
b
|
Dividend reinvested (p)
|
-
|
-
|
-
|
|
NAV total return
|
(3.7%)
|
(2.2%)
|
54.4%
|
c=(a-b)/b
|
Ongoing Charges Ratio (APM)
As recommended by the AIC in its
guidance, ongoing charges are the Company's annualised expenses
(excluding finance costs and certain non-recurring items) expressed
as a percentage of the average monthly net assets of the Company
during the year as disclosed to the London Stock Exchange.
Performance fees are excluded from the calculation.
|
31 March
|
31
March
|
|
|
2024
|
2023
|
|
Ongoing charges per Note 3 and
4
|
2,655,000
|
2,503,000
|
a
|
Average net asset value
|
179,954,000
|
172,320,000
|
b
|
Ongoing charges ratio
|
1.48%
|
1.45%
|
c=a/b
|
P/E
Price earnings ratio
R&D
Research and development
TMT
Technology, media and
telecom
Share price premium/discount to NAV per share
(APM)
A description of the difference
between the share price and the net asset value per share. The size
of the premium/ discount is calculated by subtracting the share
price from the NAV per share and is usually expressed as a
percentage of the NAV per share. If the share price is higher than
the net asset value per share the result is a premium. If the share
price is lower than the net asset value per share, the shares are
trading at a discount.
|
31 March
|
31
March
|
|
Premium/(Discount) Calculation
|
2024
|
2023
|
|
Closing NAV per share (p)
|
154.4
|
160.4
|
a
|
Closing share price (p)
|
155.5
|
164.0
|
b
|
Premium
|
0.7%
|
2.2%
|
c=(b-a)/a
|
The premium/discount is calculated
in accordance with guidelines issued by the AIC.
Share Price Total Return (APM)
Total return statistics enable the
investor to make performance comparisons between investment trusts
with different dividend policies. The combined effect of any
dividends paid, together with the rise or fall in the share price.
This is calculated by the movement in the share price plus dividend
income reinvested by the Company at the prevailing share
price.
|
31 March
|
31
March
|
|
Share Price Total Return
|
2024
|
2023
|
|
Closing share price (p)
|
155.5
|
164.0
|
a
|
Opening share price (p)
|
164.0
|
166.0
|
b
|
Dividend reinvested (p)
|
-
|
-
|
|
Share price total return
|
(5.2%)
|
(1.2%)
|
c=(a-b)/b
|
UCITS
Undertakings for the Collective Investment in Transferable
Securities
Volatility
The term volatility describes how
much and how quickly the share price or net asset value has tended
to change in the past. Those investments with the greatest movement
in their share prices are known as having high volatility, whereas
those with a narrow range of change are known as having low
volatility.
The
Annual Report, which includes the notice of
the Company's forthcoming Annual General Meeting, will be posted to
shareholders on or around 18 June 2024.
The
Annual General Meeting will be held on Wednesday, 4 September
2024.
Further copies may be obtained from the Company Secretary:
Frostrow Capital LLP, 25 Southampton Buildings, London WC2A
1AL.
A
copy of the Annual Report will be submitted to the National Storage
Mechanism and will shortly be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The
Annual Report will also be available on the Company's website
at www.oitplc.com
where up-to-date
information on the Company, including daily NAV, share prices and
fact sheets, can also be found.
- END -
Neither the contents of the Company's
website nor the contents of any website accessible from hyperlinks
on the Company's website (or any other website) is incorporated
into, or forms part of, this announcement.
For Further Information please
contact
Mark Pope
Frostrow Capital LLP
Company Secretary
0203 008 4913