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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Oakley Capital Investments Limited | LSE:OCI | London | Ordinary Share | BMG670131058 | ORD 1P (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.50 | 0.11% | 475.50 | 473.00 | 478.00 | 476.50 | 475.50 | 475.50 | 295,454 | 11:17:42 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 57.09M | 47.49M | 0.2692 | 17.66 | 838.87M |
From May 2019 to May 2024
TIDMOCI
RNS Number : 7741H
Oakley Capital Investments Limited
15 March 2018
15 March 2018
Oakley Capital Investments Limited
Annual Results for the Year Ended 31 December 2017
Oakley Capital Investments Limited(1) ("the Company" or "OCI"), which provides investors with access to the investment strategy being pursued by the Oakley Funds(2) , today announces its annual results for the year ended 31 December 2017.
FINANCIAL HIGHLIGHTS
-- NAV per share of GBP2.45 at 31 December 2017, up 6% (2016: GBP2.31), recently agreed sales post year end add a further 5 pence
-- Year end NAV of GBP502.0 million representing a 17% CAGR over 5 years
-- A 2017 final dividend of 2.25 pence per share will be paid on 26 April 2018, taking the full year 2017 dividend to 4.5 pence
-- In total, GBP201.5 million of capital was deployed and GBP175.0 million cash was returned to the Company within the year
PORTFOLIO HIGHLIGHTS
-- PERFORMANCE: The fair value of the underlying portfolio companies grew by 17% (like for like) in the period, primarily driven by earnings growth of 27% in a strongly performing portfolio.
-- INVESTMENTS: Six investments have been made since January 2017, in Oakley Fund III. The acquired businesses span across Oakley's core sectors: TMT, Digital Consumer and Education and Oakley's relationship-led approach to sourcing has resulted in an average entry EV/EBITDA multiple 9.4x. The Company's look through cost of investment for these assets is GBP118 million.
-- CO-INVESTMENT: OCI took a direct stake in Inspired, when Oakley Fund I fully realised its stake. The Company is pleased to be able to support Inspired in its next phase of growth and believes it will continue to create significant value for shareholders.
-- REALISATIONS/DISTRIBUTIONS:
o Host Europe Group - realised at a 48% premium to its carried value, with OCI receiving proceeds of GBP12.0 million.
o Facile and TechInsights - undertook refinancings during the year resulting in GBP22.8 million of cash returned to the Company.
o Inspired - The combination of TA Associates investment, and a holdco refinancing resulted in GBP52.7 million of proceeds for OCI.
o Parship Elite Group and Verivox - sales agreed post period end, representing a 26% premium to the 31 December 2017 carrying value with the Company expecting to receive GBP51.1 million upon completion.
Christopher Wetherhill, Chairman, Oakley Capital Investments Limited
"2017 marked the 10 year anniversary of Oakley Capital Investments, a decade of progress in which we have benefitted from the strong performance of the Oakley portfolio companies. It is with significant optimism that we now look forward to 2018 and the years ahead. We are already encouraged by the significant premium to carrying value generated from final exits from Parship Elite and Verivox and also by the potential for further sales in this attractive pricing environment. Despite prevailing valuations Oakley continues to prove its sourcing model, unearthing attractive companies at equally attractive multiples."
Peter Dubens, Managing Partner, Oakley Capital Limited
"Impressive profit growth demonstrates the ongoing strength of our portfolio companies and the success of our focus on Digital Consumer, TMT and Education. Oakley now has the luxury of participating in a strong pricing environment with Fund II in its realisation phase. We are a reluctant seller of stakes in great companies, although we may only be parting with the investment, as we often remain in partnership with management. We look forward to continuing to work with our talented group of serial entrepreneurs. A network that has already led to the investment of over 50% of Fund III which closed in September."
- This announcement contains inside information -
Please refer to the Company's website for the Annual Report and Accounts http://oakleycapitalinvestments.com/investor-relations/publications
For further information please contact:
Oakley Capital Investments Limited
+44 20 7766 6900
Steven Tredget, Investor Relations
Oakley Capital Private Equity
+44 20 7766 6900
Peter Dubens, Managing Partner
FTI Consulting LLP
+44 20 3727 1000
Edward Bridges / Stephanie Ellis
Liberum Capital Limited (Nominated Adviser & Broker)
+44 20 3100 2000
Steve Pearce / Henry Freeman / Jill Li
(1) About Oakley Capital Investments Limited ("OCI")
Oakley Capital Investments Limited is a Bermudian company listed on AIM. OCI seeks to provide investors with long term capital appreciation through its investment in Oakley Capital Private Equity L.P., Oakley Capital Private Equity II, Oakley Capital Private Equity III and through co-investment opportunities.
LEI Number: 213800KW6MZUK12CQ815
(2) About Oakley Capital Private Equity L.P. ("Fund I"), Oakley Capital Private Equity II ("Fund II") and Oakley Capital Private Equity III ("Fund III")
Oakley Capital Private Equity L.P. and its successor funds, Oakley Capital Private Equity II and Oakley Capital Private Equity III, are unlisted mid-market private equity funds with the aim of providing investors with significant long term capital appreciation. The investment strategy of the funds is to focus on buy-out opportunities in industries with the potential for growth, consolidation and performance improvement.
Chairman's Statement
Overview
OCI has demonstrated solid performance in 2017 and is set to benefit from a year of considerable activity in the underlying portfolio of investments. Driven by the continued growth of the underlying portfolio companies, the Net Asset Value ("NAV") per share grew 6% year-on-year. The Company is well positioned for 2018, with 70% of investments in maturing businesses held for nearly 3 years or more. We look forward to increasing realisations and are excited by new investments, as 22% of the NAV was deployed via Fund III in the last 12 months.
Oakley Fund III closed at EUR800 million in September 2017 and we are pleased to have made a meaningful commitment to the Fund, representing an interest of 40.7%.
For our shareholders, OCI provides the opportunity to participate in the growth of a range of businesses across attractive sectors and geographies. Investors are able to benefit from the profound partnerships Oakley forges with founders and managers, as well as the deep knowledge and expertise that have been built in core sectors over the last decade and beyond.
We are pleased that the Investment Adviser continues to leverage its network-driven sourcing approach to find highly attractive deals. With Oakley Fund III already invested in six companies, we look forward to seeing these businesses grow and develop under Oakley's ownership.
Return of Capital
We have also seen, over the course of the year, capital being returned to the Company, with proceeds totalling GBP175.0 million, of which GBP88.2 million was received from the Oakley Funds and the equity co-investment. GBP12.0 million was received in April, following the successful exit of Host Europe Group. For Oakley Fund II this represented gross returns of 2.1x MM and 40% IRR and marked another successful realisation of an asset in the hosting space.
During the summer, OCI took the opportunity to take a direct stake in Inspired, the premium private schools business, when Oakley Fund I fully realised its stake (gross returns: 3.0x MM and 36% IRR). The size and funding power of OCI allows it to gain direct exposure, through its capacity to make co-investments to Oakley Funds' portfolio companies that either require capital beyond the reach of the Oakley Funds, or outgrow the Funds' lifetime.
In August 2017, Inspired also received a significant growth investment from TA Associates. To facilitate the transaction OCI and Oakley Fund II agreed to sell down part of their respective holdings and OCI received total proceeds of GBP30.8 million from this transaction. In December a holdco refinancing returned further capital to the Company of GBP21.3 million. The Board is pleased to be able to support Inspired and be part of its future growth and expansion.
In recent news, following the year end, Oakley Fund II has agreed the sale of two of its portfolio companies in the digital consumer space, Parship Elite Group and Verivox, to NuCom Group, ProSiebenSat.1's commerce unit. Approximate Fund II gross returns for Parship Elite Group are 4.7x MM, 119% IRR and for Verivox are 2.5x MM, 43% IRR. In aggregate the Company expects to receive GBP51.1 million from these transactions, which value the companies at enterprise values of EUR440 million (Parship Elite Group) and EUR530 million (Verivox). These valuations represent a 26% premium to the 31 December 2017 carrying value of these assets.
This further demonstrated Oakley's ability to return significant amounts of capital to the Company and capitalise on the success it has seen in the digital consumer space. We are pleased that this sector will remain an area of focus with investments remaining in Facile (Oakley Fund II) and Casa & atHome (Oakley Fund III).
Performance
In reaching its tenth year since incorporation, the Company has consistently outperformed the FTSE All-Share Index. The GBP2.45 NAV per share represents a 6% uplift from the previous year and has been driven both by earnings growth in the underlying portfolio, including uplifts in three of Oakley Fund III's investments. These uplifts have resulted from strong performances in these businesses and the achievement of key strategic initiatives since acquisition.
The Board recognises that the share price has lagged the NAV per share for a prolonged period and is committed to closing this discount. Communication is at the forefront of these efforts via greater disclosure within the pages of this report, more regular announcements, extensive investor engagement and providing a clearer understanding of Oakley's investment strategy and the Oakley Fund's prospects.
The Board upholds a high standard of corporate governance and ensures the Company operates in the best interest of its shareholders. Demonstrating its alignment of interest, board members held over 1% of the Company's shares in 2017.
Progress is being made, with share volume increasing 22% over the year, leading to 18% of the register changing hands. We remain confident that this improved IR activity, combined with the fast growth of the portfolio companies, the prospect of realisations unlocking further value and a progressive dividend will result in the share price better reflecting the value of underlying assets.
Funding and Commitments
In the year, the Company invested a further EUR142.2 million (GBP124.6 million) in the Oakley Funds. Of this, EUR14.1 million (GBP12.3 million) was called by Oakley Fund I, EUR14.0 million (GBP12.3 million) by Oakley Fund II and EUR114.0 million (GBP100.0 million) by Oakley Fund III. The Company's remaining unfunded commitments are EUR2.6 million (GBP2.3 million) for Oakley Fund I, EUR31.4 million (GBP27.9 million) for Oakley Fund II and EUR202.0 million (GBP179.6 million) for Oakley Fund III. It is expected that these outstanding commitments will be partly financed by future cashflows from Oakley Fund II portfolio realisations.
Dividend
In December 2016 the Company announced that the Board would adopt a dividend policy to pay a dividend of 2.25 pence per share half-yearly. Accordingly, the Board paid an interim dividend of 2.25 pence per share on 26 October 2017 and we are pleased to confirm, that the Board has resolved to declare and pay a final dividend for 2017 of 2.25 pence per share, payable on 26 April 2018.
Outlook
Whilst it seems that uncertainty will continue to dominate over the coming year, the outlook is generally good for 2018. Although the outcome is not yet known, we should start to see some clarity over the UK's position as the Brexit deal begins to take shape. Valuations continue to be high, facilitating a strong exit environment, however the question still remains amongst investors whether returns will be affected in the long run if premiums are being paid for quality assets. The Board is confident that the Investment Adviser will continue to remain disciplined in its investment approach and we have seen this demonstrated by the quality of the six new acquisitions made to date by Oakley Fund III.
The underlying portfolio continues to perform despite macroeconomic factors, and the Company is strongly positioned to deliver meaningful growth to shareholders over the next twelve months.
Post Balance Sheet Events
As well as the Parship Elite Group and Verivox disposal, Oakley Fund III completed its sixth investment, purchasing Career Partner Group ("CPG") from its previous owner in January 2018. CPG is a leading private provider of higher education and personnel development in Germany. The Company's indirect contribution to the equity investment, through its interest in Oakley Fund III is approximately GBP30.6 million.
Christopher Wetherhill
Chairman
Market Overview and Outlook
Exercising caution whilst enjoying private equity outperformance
For the first time since 2010, the world economy is outperforming most predictions. Global output is estimated to have grown by 3.7% in 2017, with Europe being a notable upside surprise and forecasts for 2018 and 2019 have since been revised upward.
Private equity continues to perform well, sustaining its outperformance over other asset classes. Pertinent to OCI is the recent AIC report that confirms that UK listed private equity investment companies have outperformed the FTSE all-share over one, three, five and ten years, delivering total returns of 12%, 57%, 98% and 112% respectively.
This outperformance attracted a record $453 billion to the global private equity industry in 2017 (source: Preqin) and with $1 trillion to invest, it is no surprise that 2018 has so far been the busiest start to a year for private equity in over a decade. According to Dealogic, the value of sponsor-backed deals to mid-February soared to $40.5 billion, up from $23.7 billion in the same period in 2017, with some 11 deals worth over $1 billion signed in January alone.
It is also no surprise that buyout valuations have reached new highs, with average enterprise valuation multiples paid for European companies approaching 12x, compared to the previous high of 10x in 2016.
Oakley has taken advantage of the strong pricing environment with sales in 2017 of HEG and the recently announced sales of Parship and Verivox in Q1 of 2018. Realisations are unlikely to stop here with a number of additional exit processes underway.
There are growing concerns that high valuations are making it increasingly difficult to buy high quality assets at reasonable valuations and this could affect future returns. The Investment Adviser however, remains disciplined in its approach to investing and its strategy of pursuing entrepreneur-led, non-competitive, proprietary deals has been advantageous to OCI. 76% of all Oakley's investments have been uncontested deals. Reliance is not on the intermediated market, rather Oakley's strong founder/manager relationships, wide network and reputation for sector expertise.
OCI continues to enjoy a strong pipeline from this sourcing model and has deployed GBP118 million in six companies since the beginning of 2017. These acquisitions have been made at an average EV/EBITDA multiple below 10x in contrast to sector averages in mid-teen multiples.
2018 presents plenty of sources of uncertainty and we foresee many factors that could impact economic prosperity. The bigger risks to outlook are likely political; struggling NAFTA negotiations, the impact of power change in Italy, the journey to Brexit, escalating tensions around North Korea and ongoing instability in the Middle East, all at the very least present uncertainty and all with important consequences for the global economy.
The portfolio companies reflect this caution, demonstrating business models that are resilient, operating in niches within sectors that enjoy high growth dynamics and fragmented participation. The portfolio continues to broaden its Western European footprint with a shift from the highly intermediated UK market to a greater focus in mainland Europe where Oakley has a strong track record.
OCI NAV Overview
During the year, OCI's NAV increased by GBP63.6 million to GBP502.0 million, an increase of 15% since 31 December 2016.
Hot Features
Premium
31 Dec 2016 31 Dec 2017
GBPm GBPm
--------------------------------------- ------------ ------------
Opening net asset value at the start
of the year 382.2 438.4
--------------------------------------- ------------ ------------
Gross revenue 11.7 7.7
--------------------------------------- ------------ ------------
Net expenses (4.5) (6.2)
--------------------------------------- ------------ ------------
Net foreign currency gains/(losses) 4.7 (0.8)
--------------------------------------- ------------ ------------
Realised gains on investments 8.5 23.9
--------------------------------------- ------------ ------------
Net change in unrealised appreciation
on investments 46.2 20.3
--------------------------------------- ------------ ------------
Treasury shares bought (1.9) -
--------------------------------------- ------------ ------------
Treasury shares sold - 23.3
--------------------------------------- ------------ ------------
Dividend expense (8.5) (4.6)
--------------------------------------- ------------ ------------
Closing net asset value at the end
of the year 438.4 502.0
--------------------------------------- ------------ ------------
Number of shares in issue 189.8 204.8
--------------------------------------- ------------ ------------
NAV per share GBP2.31 GBP2.45
--------------------------------------- ------------ ------------
Net earnings were GBP44.9 million for the year, comprising:
-- Gross revenue of GBP7.7 million arising from interest income earned on the debt facilities provided by the Company.
-- Net expenses of GBP6.2 million (offset by GBP0.3 million of other income earned by the Company) and
GBP0.8 million of foreign exchange losses. Expenses includes fees paid to the Administrative Agent and the Investment Adviser.
-- Realised gains of GBP23.9 million earned from the realisations that occurred in the Oakley Funds. Net change in unrealised gains of GBP20.3 million, driven predominantly by the uplift in the valuations of the portfolio companies in the Oakley Funds.
GBP23.3 million was received by the Company from the sale of the treasury shares in January. The Company now holds no treasury shares.
An interim dividend of 2.25 pence per share, totalling GBP4.6 million, was paid to shareholders in October 2017.
Outstanding Commitments of OCI
Outstanding commitments to the Oakley Funds as at 31 December 2017 were GBP209.8 million. The Investment Adviser anticipates the majority of these will be drawn over the next 36 months as Oakley Fund III continues to deploy capital. The Board has concluded that as Oakley Fund II has now entered its realisation phase and in the light of the expected distributions to be received, it is satisfied that OCI will be able to meet its unfunded commitments in the normal course. The table below illustrates the Company's outstanding commitments to the Oakley Funds, and their respective percentage of the NAV of the Company at 31 December 2017.
Outstanding Outstanding
Current at at
Fund commitment 31 Dec 2017 31 Dec 2017 % of
Fund vintage (EURm) (EURm) (GBPm) NAV
------------------- ----------- ------------- -------------- ------------- -----
Oakley Fund I 2007 188.4 2.6 2.3 0
------------------- ----------- ------------- -------------- ------------- -----
Oakley Fund II 2013 190.0 31.4 27.9 6
------------------- ----------- ------------- -------------- ------------- -----
Oakley Fund III 2016 325.8 202.0 179.6 36
------------------- ----------- ------------- -------------- ------------- -----
236.0 209.8 42
------------------------------- ------------- -------------- ------------- -----
Cash and cash equivalents (net of capital call paid
post year end) (83.3)
--------------------------------------------------------------- ------------- -----
Net outstanding commitments unfunded by cash resources 126.5 25
--------------------------------------------------------------- ------------- -----
OCI Investment Activity
The transactional activity for the Company's investment portfolio for the year is summarised below:
31 Dec 2016 31 Dec 2017
Fair Value Fair Value
Investment GBPm GBPm
============================= =========== ===========
Investment in Oakley Funds 211.3 282.7
============================= =========== ===========
211.3 282.7
============================= =========== ===========
Co-Investments
============================= =========== ===========
Equity securities - quoted 43.9 41.2
============================= =========== ===========
Equity securities - unquoted - 26.2
============================= =========== ===========
Debt securities - unquoted 85.8 69.5
============================= =========== ===========
129.6 136.9
============================= =========== ===========
Total investments 340.9 419.6
============================= =========== ===========
The following pages explain movements in the underlying portfolios and their respective investments.
Overview of OCI's underlying investments
Residual
Year of Cost Fair value
Fund Investments Sector Location investment GBPm GBPm
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund I Time Out Consumer Global 2010 44.9 37.5
---------------- ------------------- ----------- ------------- ------------- --------- -----------
OCI's proportionate allocation of Fund I investments (on
a look-through basis) 37.5
------------------------------------------------------------------------------------------- -----------
Other assets and liabilities (0.9)
------------------------------------------------------------------------------------------- -----------
OCI's investment in Oakley Fund I 36.6
------------------------------------------------------------------------------------------- -----------
Fund II North Sails Consumer Global 2014 32.7 34.2
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund II Inspired Education Global 2014 12.4 19.8
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund II Facile Consumer Italy 2014 2.2 33.1
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund II Damovo TMT Germany 2015 2.9 13.7
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Parship
Fund II Elite Group Consumer Germany 2015 0.0 29.5
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund II Daisy TMT UK 2015 10.2 16.8
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund II Verivox Consumer Germany 2015 5.8 11.0
---------------- ------------------- ----------- ------------- ------------- --------- -----------
OCI's proportionate allocation of Fund II investments (on
a look-through basis) 158.1
------------------------------------------------------------------------------------------- -----------
Other assets and liabilities (21.1)
------------------------------------------------------------------------------------------- -----------
OCI's investment in Oakley Fund II 137.0
------------------------------------------------------------------------------------------- -----------
Italy /
Fund III Casa & atHome Consumer Luxembourg 2017 36.4 49.6
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund III Schülerhilfe Education Germany 2017 30.8 30.8
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund III Plesk TMT Switzerland 2017 9.4 14.1
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund III TechInsights TMT Canada 2017 4.3 11.4
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Fund III AMOS Education France 2017 6.5 6.5
---------------- ------------------- ----------- ------------- ------------- --------- -----------
OCI's proportionate allocation of Fund III investments (on
a look-through basis) 112.4
------------------------------------------------------------------------------------------- -----------
Other assets and liabilities (3.3)
------------------------------------------------------------------------------------------- -----------
OCI's investment in Oakley Fund III 109.1
------------------------------------------------------------------------------------------- -----------
Co-investment:
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Equity Time Out Consumer Global 2014 47.2 41.2
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Equity Inspired Education Global 2017 1.4 26.2
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Debt Daisy TMT UK 2015 28.2 28.2
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Debt North Sails Consumer Global 2014 25.0 27.8
---------------- ------------------- ----------- ------------- ------------- --------- -----------
Debt Fund Facilities n/a n/a n/a 13.5
---------------- ------------------- ----------- ---------------------------- --------- -----------
OCI's co-investments (both equity
and debt) 136.9 -------------------------------------------------- --------------------------- --------- ----------- Total OCI investments 419.6 -------------------------------------------------------------------------------- --------- -----------
The OCI look-through values are calculated using the OCI attributable proportion (determined as the ratio which OCI's commitments to the respective Fund bear to total commitments to that Fund) applied to each investment's fair value as held in the relevant Oakley Fund, net of any accrued performance fees relating to that investment, and converted using the year end EUR:GBP exchange rate.
Portfolio Review: Oakley Fund I Investment Activity
The investment portfolio of Oakley Fund I is summarised in the table below. Oakley Fund I is denominated in euros, and the year end exchange rate was used, where applicable. The Company holds a 65.5% interest in Oakley Fund I.
31 Dec 2016 31 Dec 2017
Fair value Fair value
OAKLEY FUND I EURm EURm
========================== =========== =============
Time Out 60.5 64.3
========================== =========== =============
Broadstone 0.7 0.6
========================== =========== =============
Inspired 64.3 -
========================== =========== =============
Total current investments 125.5 64.9
========================== =========== =============
Distributions during
2017: Distributions
========================== =========== =============
Inspired 69.7
========================== =========== =============
Total 69.7
========================== =========== =============
With Oakley Fund I approaching the end of its life-cycle, OCI made an offer to buy Oakley Fund I's stake in Inspired. Prior to Oakley Fund I selling its interest to OCI, it offered its Limited Partners the option of receiving a cash distribution or to retain their proportionate interest in Inspired through the specific investment vehicle OCPE Education Feeder L.P. ("OCPEE Feeder"). OCI and a small number of other Limited Partners elected to receive their proportionate interests in kind, being EUR46.2 million, through OCPEE Feeder. The remaining Limited Partners received a cash distribution of EUR23.5 million, taking the aggregate fair value of the in-kind interest and cash distribution to the Limited Partners to EUR69.7 million. It is due to this realisation that the portfolio of Oakley Fund I had an overall fair value decrease of EUR60.6 million during the year.
Time Out is listed on AIM of the London Stock Exchange, and its fair value is determined by a mark-to-market valuation, based on the 31 December 2017 share price of GBP1.31. Time Out released its trading update for the year end, reporting that revenue is expected to increase year-on-year with Time Out Digital revenue showing strong growth. E-commerce and Time Out Markets are also performing well. During the year, Oakley Fund I injected a further EUR11.2 million into Time Out (Bermuda) Limited in order to repay the OCI mezzanine loan.
As at 31 December 2017, Oakley Fund I had called EUR198.8 million (GBP176.7 million) from the Company, including recycling of EUR13.0 million (GBP11.4 million).
Portfolio Review: Oakley Fund II Investment Activity
The investment portfolio of Oakley Fund II is summarised in the table below. Oakley Fund II is denominated in euros, and the year end exchange rate was used, where applicable. The Company holds a 36.2% interest in Oakley Fund II.
31 Dec 2016 31 Dec 2017
Fair value Fair value
OAKLEY FUND II EURm EURm
---------------------- ------------ --------------
Facile 137.0 123.7
---------------------- ------------ --------------
Parship Elite Group 84.4 111.9
---------------------- ------------ --------------
North Sails 101.9 106.1
---------------------- ------------ --------------
Inspired 109.8 67.3
---------------------- ------------ --------------
Daisy 33.9 55.5
---------------------- ------------ --------------
Damovo 18.4 49.6
---------------------- ------------ --------------
Verivox 32.0 36.8
---------------------- ------------ --------------
Host Europe Group 41.4 -
---------------------- ------------ --------------
Total investments 558.8 550.9
---------------------- ------------ --------------
Distributions during
2017: Distributions
---------------------- ------------ --------------
Host Europe Group 42.3
---------------------- ------------ --------------
Inspired 52.4
---------------------- ------------ --------------
Facile 33.4
---------------------- ------------ --------------
Parship Elite Group 2.2
---------------------- ------------ --------------
Other 0.6
---------------------- ------------ --------------
Total 130.9
---------------------- ------------ --------------
Oakley Fund II had an active year with one investment exit, distributions of EUR130.9 million, and a number of follow-on investments.
There was an increase in the fair value of the majority of the investments. The uplift was driven primarily by the portfolio companies Damovo and Parship Elite Group. Both of these companies had strong performances in 2017, with Damovo expanding its presence to Switzerland through the acquisition of Voice and Data Network AG, and further strong performances from Parship from its integration with Elite Partner.
There was further capital of EUR26.4 million invested by Oakley Fund II; EUR22.1 million in North Sails to fund the development of North Sails Apparel and for M&A activities; EUR3.7 million in Inspired to facilitate the further development in school acquisitions; and EUR0.6 million in Facile for working capital purposes.
In April 2017, Oakley Fund II completed the sale of Host Europe Group and returned proceeds of EUR42.3 million, representing a gross money multiple of 2.1x and gross IRR of 40%. OCI received proceeds of EUR14.6 million (GBP12.0 million) from this transaction.
Distributions of EUR135.7 million were received by Oakley Fund II over the course of 2017 of which EUR130.9 million of this was distributed to Limited Partners, with OCI receiving a total of EUR47.6 million (GBP41.4 million).
In July 2017, Inspired received a significant growth investment from TA Associates. Oakley Fund II elected to sell a portion of its interest in Inspired resulting in a total distribution of EUR22.1 million (GBP7.5 million received by OCI). Deferred consideration for its stake in Educas Europe was included in this distribution. As part of a restructuring of the Inspired entities, EUR45.0 million of debt refinancing was obtained through a wholly owned subsidiary of OCPEE LP, OCPE Education Finco. From this, Oakley Fund II received a distribution of EUR30.3 million (GBP11.0 million received by OCI).
In August 2017, Facile Topco secured debt financing of EUR35.0 million, resulting in a distribution to Oakley Fund II of EUR33.4 million, and to OCI of EUR12.8 million (GBP11.4 million). Parship Elite Group repurchased a number of shares from Oakley Fund II. This was distributed to Limited Partners with OCI receiving EUR0.7 million (GBP0.6 million).
Deferred consideration of EUR0.6 million was received from the sale of intergenia in December 2017, which was distributed to Limited Partners, with OCI receiving EUR0.2 million (GBP0.1 million).
In October 2017, OCI sold 5.0% of its interest in Oakley Fund II, reducing its stake to 36.2% (2016: 38.1%). OCI received GBP7.3 million from this transaction. As at 31 December 2017, Oakley Fund II had called EUR158.7 million (GBP141.0 million) from OCI, representing 83.5% of its total capital commitments.
Portfolio Review: Oakley Fund III Investment Activity
The investment portfolio of Oakley Fund III is summarised in the table below. Oakley Fund III is denominated in euros, and the year end exchange rate was used, where applicable. The Company held a 40.7% interest in Oakley Fund III.
31 Dec 2017
Fair value
OAKLEY FUND III EURm
---------------------------- --------------
Casa & atHome 140.4
---------------------------- --------------
Schülerhilfe 85.9
---------------------------- --------------
Plesk 40.7
---------------------------- --------------
TechInsights 33.4
---------------------------- --------------
AMOS 17.4
---------------------------- --------------
Total investments 317.8
---------------------------- --------------
Distributions during 2017: Distributions
---------------------------- --------------
TechInsights 30.7
---------------------------- --------------
Total 30.7
---------------------------- --------------
Oakley Fund III had an active investment year, completing five acquisitions, with a sixth acquisition completed in January 2018.
Casa & atHome and TechInsights secured debt financing subsequent to Oakley Fund III's initial investment. EUR32.8 million was received from the Casa & atHome refinancing which was used to repay debt obligations. EUR30.7 million was received from the TechInsights refinancing which was distributed back to Limited Partners with OCI receiving proceeds of EUR12.5 million (GBP11.4 million).
There was an overall fair value uplift of EUR73.1 million from the original invested cost, due to strong performances and growth since acquisition in Casa & atHome, Plesk and TechInsights. Schülerhilfe and AMOS were acquired in the second half of 2017 and are held at fair values approximate to their total cost invested.
Oakley Fund III held its final close on 29 September 2017, bringing total committed capital to EUR800.0 million. OCI's final commitment to Oakley Fund III was diluted to 40.7% (2016: 47.4%) at this time.
Oakley Fund III has called EUR123.8 million (GBP110.1 million) to date from the Company, representing 38% of the Company's total committed capital.
In January 2018, Oakley Fund III completed the acquisition of Career Partner Group ("CPG") from its previous owner Apollo Education Group Inc. CPG is a leading provider of private higher education and personnel development in Germany. Oakley Fund III invested EUR84.6 million in this acquisition obtaining a 66.7% stake in the business.
Directors' Report
The Directors present their report and financial statements for the year ended 31 December 2017. The results for the year are set out in the attached financial statements and have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
Directors
The Board currently comprises the Chairman and four other non-executive Directors. All Directors served on the Board throughout the year under review. There were no changes to the composition of the Board.
All Directors, other than Peter Dubens, are considered to be independent. The Company is not aware of any other potential conflicts of interest between any duty of any of the Directors owed to it and their respective private interests.
Directors' Interests in Shares
As at 14 March 2018, Directors who are beneficial owners of shares in the Company are:
Director No. of Shares ======================= ============= Peter Dubens 2,138,167 ======================= ============= Laurence Blackall 200,000 ======================= ============= Christopher Wetherhill 200,000 ======================= ============= Caroline Foulger 122,000 ======================= ============= James Keyes 30,000 ======================= =============
Save as disclosed above, none of the Directors nor any member of their respective immediate families, nor any person connected with a Director, has any interest whether beneficial or non-beneficial in the share capital of the Company.
Relations with Shareholders
The Board recognises that it is important to maintain appropriate contact with major shareholders in order to understand their issues and concerns. Members of the Board have had the opportunity to attend meetings with major shareholders, and the Board receives major shareholders' views of the Company via direct face-to-face contact, analyst and broker briefings.
In addition, the Investment Adviser maintains dialogue with institutional shareholders, the feedback from which is reported to the Board. The Board monitors the Company's trading activity on a regular basis.
The Company reports formally to shareholders twice a year. In addition, current information is provided to shareholders on an ongoing basis through the Company's website.
Substantial Shareholdings
As at 14 March 2018, the Company has received the following notifications of interest of 3% or more in the voting rights attached to the Company's ordinary shares:
Shareholder % of voting rights -------------------------------- ------------------- Invesco Perpetual 20.4 -------------------------------- ------------------- Woodford Investment Management 19.8 -------------------------------- ------------------- Ruffer LLP 15.0 -------------------------------- ------------------- Sarasin & Partners 7.8 -------------------------------- ------------------- Fidelity International 6.3 -------------------------------- ------------------- Rothschild Private Management 4.0 -------------------------------- -------------------
Corporate Responsibility
The Board considers the ongoing interests of shareholders on the basis of open and regular dialogue with the Investment Adviser. The Board receives regular updates outlining regulatory and statutory developments and responds as appropriate.
Administrative Agent
On 1 April 2017, the Company entered into an Operational Services Agreement appointing Oakley Capital Manager Limited as its Administrative Agent. Prior to this, the Company had appointed Oakley Capital (Bermuda) Limited to provide certain management services. On 31 March 2017, the management agreement was terminated and the Operational Services Agreement was entered into. Under this agreement, the Administrative Agent provides operational assistance and administrative support to the Board with respect to the Company's investments and its general administration for a fee.
The Administrative Agent has entered into an Investment Advisory Agreement with Oakley Capital Limited (the "Investment Adviser") to advise on the investments of the Company.
Investment Adviser
The Investment Adviser, Oakley Capital Limited, was incorporated in England and Wales on 12 October 2000 under the Companies Act 1985. The Investment Adviser serves as investment adviser to Oakley Capital Manager Limited with respect to the Company, and the Oakley Funds.
The Investment Adviser is authorised and regulated by the Financial Conduct Authority. It is not registered as an "investment adviser" under the US Investment Advisers Act, but may in the future seek to register.
Peter Dubens and David Till (both Directors of the Investment Adviser), with a team of twenty-three professionals, are together primarily responsible for performing investment advisory obligations with respect to the Company and the Oakley Funds.
Peter Dubens is a Director of both the Investment Adviser and the Company, and cannot vote on any Board decision relating to the Investment Advisory Agreement whilst he has an interest.
Delegation of Responsibilities
Under the Operational Services Agreement the Board has delegated to the Administrative Agent substantial authority for carrying out the day-to-day administrative functions of the Company. The Board has the ultimate decision to invest (or take any other action) in the Oakley Funds or as a co-investment. In the ordinary course it makes decisions after reviewing the recommendations provided by the Investment Adviser on behalf of the Administrative Agent.
Board Responsibilities
The Board meets at least quarterly and between these scheduled meetings there is regular contact between Directors and the Investment Adviser as otherwise required for the purpose of considering key investment decisions of the Company.
The Directors are kept fully informed of investments and other matters that are relevant to the business of the Company. Such information is brought to the attention of the Board by the Investment Adviser and by the Administrator in their periodic reports detailing the Company's performance. The Board also receives other information as may, from time to time, be reasonably required by the Directors for the purpose of such meetings from the Administrative Agent and other service providers.
For the avoidance of doubt, the Directors do not make investment decisions on behalf of the Oakley Funds, nor do they have any role or involvement in selecting or implementing transactions by the Oakley Funds or in the management of the Oakley Funds.
Dividends and Distributions
A maiden dividend was announced in December 2016 of 4.5 pence per share in respect of the 2016 financial year. The Company has continued with this policy and declared an interim dividend of 2.25 pence per share in respect of the 30 June 2017 interim period. This was paid in October 2017. A final dividend of 2.25 pence per share was approved on 14 March 2018 by the Board in respect of the six months to 31 December 2017. This is due to be paid on 26 April 2018, to shareholders registered on or before 12 April 2018 .
The decision to introduce a dividend was based on the consistent income generated from debt co-investments and increased cash returns from realisations by the Oakley Funds. The Company has experienced strong NAV growth in 2017 due to growth in the Oakley Funds' underlying portfolio companies. The Board has adopted a dividend policy which takes into account the profitability and underlying performance of the Company in addition to capital requirements, cash flows and distributable reserves.
Directors' Remuneration
There are no long-term incentive schemes provided by the Company and no performance fees are paid to Directors.
No Director has a service contract with the Company and each Director is appointed by a letter of appointment setting out the terms of their appointment.
Directors are remunerated in the form of fees, payable annually in advance, to the Director personally. The table below details the fees paid to each Director of the Company for the year ended 31 December 2017.
The Director fees below do not include reimbursed expenses or other fees paid to the Director.
Director Fees GBP ------------------------ --------- Christopher Wetherhill 65,000 ------------------------ --------- James Keyes 45,000 ------------------------ --------- Caroline Foulger 50,000 ------------------------ --------- Peter Dubens - ------------------------ --------- Laurence Blackall 45,000 ------------------------ ---------
Signed on behalf of the Board by:
Christopher Wetherhill
Chairman
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.
Bermuda company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Under Bermuda 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 those Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgments and estimates that are reasonable and prudent;
-- state whether applicable IFRS as adopted by the European Union have been followed subject to any material departures disclosed and explained in the Financial Statements; and
-- prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business.
The Consolidated Financial Statements are published on www.oakleycapitalinvestments.com. The responsibility for the maintenance and integrity of the website, so far as it relates to the Company, has been delegated to the Investment Adviser. 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. Visitors to the website need to be aware that legislation in Bermuda governing the preparation and dissemination of the Consolidated Financial Statements may differ from legislation in other jurisdictions. The Directors are responsible for keeping proper 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 the Bermuda Companies Act (1981 (as amended)). 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.
Each of the Directors, whose names and functions are listed in the Board of Directors section of the Annual Report, confirms that, to the best of his/her knowledge:
-- The Consolidated Financial Statements, which have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company;
-- So far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware;
-- They have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's Auditor is aware of that information; and
-- The Consolidated Financial Statements, are fair, balanced and understandable, and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
Audit Committee Report
The Board is supported by the Audit Committee, which comprises two non-executive Directors, James Keyes and Laurence Blackall. We are pleased to report to you on the range of matters which the Audit Committee has considered during 2017, the key risks and judgment areas and the decisions applied.
The principal role of the Audit Committee is to consider the following matters and make appropriate recommendations to the Board to ensure that:
-- the accounting and internal control systems of the service providers are adequate;
-- the integrity of the Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy;
-- the independence, objectivity and effectiveness of the appointed Auditor is monitored and reviewed;
-- the Company's policy on the provision of non-audit services by the Auditor is developed and implemented; and
-- recommendations are made to the Board that the audit is put out to tender as appropriate in accordance with applicable law, rules, regulation and best practice, and initiate and oversee as required fair tendering and selection processes.
The Audit Committee met six times during the year under review and has continued to support the Board in fulfilling its oversight responsibilities.
Review of Accounting Policies and Areas of Judgment or Estimation
The most significant risk in the Company's accounts is the valuation of the Oakley Funds and the co-investments and whether its investments are fairly and consistently valued. This issue is considered carefully when the Audit Committee reviews the Company's Annual and Interim Report and Accounts. The Investment Adviser provides detailed explanations of the rationale for the valuation of each investment. These are discussed in detail by the Committee and with the Auditor.
The key area of focus of the Committee is the valuation methodology and underlying business performance of the Oakley Funds' portfolio companies.
The valuations are independently reviewed by a professional valuation firm who report on their procedures and the conclusions of their work. The Audit Committee concluded that the year-end valuation process had been effectively carried out and that the investments have been fairly valued.
The Audit Committee reports to the Board after each Audit Committee meeting on the main matters discussed at the meeting.
Audit
OCI's Auditor, KPMG Audit Limited ("KPMG" or "the Auditor"), located in Hamilton, Bermuda, has been Auditor since 2007 and the Audit Committee reviews their performance annually. The Audit Committee considers a range of factors including the quality of service, the Auditor's specialist expertise and the level of audit fee. The Audit Committee remains satisfied with KPMG's effectiveness and therefore, has not considered it necessary to date, to require the Auditor to re-tender for the audit work. The Auditor is required to rotate the audit partner every five years. For the year ended 31 December 2017, a new audit partner managed the engagement.
The Audit Committee has reviewed the provision of non-audit services by KPMG, and believes it to be cost-effective and not an impediment to the Auditor's objectivity and independence. This is assessed by ensuring that KPMG has appropriate measures in place to safeguard its independence. Such measures include ensuring that separate engagement teams provide audit and non-audit services.
It has been agreed that the Audit Committee must approve in advance all non-audit work to be carried out by the Auditor for the Company.
On behalf of the Audit Committee
Laurence Blackall
Chairman of the Audit Committee
Corporate Governance Report
The Board recognises the importance of sound corporate governance and has adopted policies and procedures that reflect those principles of the UK Corporate Governance Code (formerly known as the "Combined Code") as are appropriate to the Company's size and AIM listing. The Directors note that Bermuda, the country of incorporation of the Company, has no specific corporate governance regulatory regime.
This report describes the Company's corporate governance practices that were in place throughout the financial year ended 31 December 2017.
Chairman's Introduction to Corporate Governance
Good corporate governance is a key component of the Company's activities. Governance and oversight of these activities form an integral part of the Company's operations and it is as important as ever to monitor these to create and deliver value to the Company's shareholders. The primary function of the Board is to provide leadership and strategic direction and it is responsible for the overall management and control of the Company. It is through these functions that the Board creates and delivers value and growth for its shareholders.
The Board
The Board was comprised of the Chairman, Christopher Wetherhill, and four other non-executive Directors at 31 December 2017. All Directors are considered independent, with the exception of Peter Dubens, who is founder and Managing Partner of the Oakley Capital Group. Christopher Wetherhill, James Keyes, Laurence Blackall and Caroline Foulger remain independent despite their individual length of service on the Board, as they are free from any business or other relationship that could materially interfere with their exercise of judgment. Peter Dubens does not vote on matters in respect of which he is deemed to have a conflict of interest.
It is the Board's responsibility to ensure that the Company has a clear strategy and vision, and to oversee the overall management and oversight of the Company, and for its growing success. In particular, the Board is responsible for monitoring financial performance, setting and monitoring the Company's risk appetite and ensuring that obligations to shareholders are understood and met.
The Directors believe that the Board has an appropriate balance of skills and experience, independence and knowledge of the Company to enable it to provide effective strategic leadership and proper governance of the Company. Information about the Directors, including their relevant experience is summarised in their respective biographies.
Directors' Terms of Appointment
In accordance with best practice, Directors retire on a rotational basis, and are then subject to re-election. In accordance with the appointment and rotation policy included in the Bye-Laws of the Company, James Keyes retired and was re-elected at the Annual General Meeting on 14 June 2017.
Board Meetings
The Board met formally ten times during 2017 with regular contact amongst the Directors between these meetings. Where necessary, the Directors may seek independent professional advice at the expense of the Company to aid their duties.
Director Board Attendance ------------------------ ----------------- Total meetings held: 10 ------------------------ ----------------- Number attended: ------------------------ ----------------- Christopher Wetherhill 8 ------------------------ ----------------- James Keyes 10 ------------------------ ----------------- Laurence Blackall 5 ------------------------ ----------------- Caroline Foulger 8 ------------------------ ----------------- Peter Dubens(*) 6 ------------------------ -----------------
*David Till attended three Board meetings as an Alternate Director to Peter Dubens.
The principal matters considered by the Board during 2017 included:
-- Regular reports from the General Partners of the Oakley Funds;
-- Regular reports and updates from the Investment Adviser on the co-investments and debt facilities held by the Company;
-- Co-investment opportunities; -- Reports and updates from the Administrative Agent; -- Consideration of the Company's share price and net asset value; -- Regular reports from the Board's committees; -- The Annual Report and Accounts and half-yearly Report; -- Reports from external consultants on market and regulatory updates; and -- Corporate matters including dividend policy, share buy-backs and treasury shares.
The Board receives information that it considers to be sufficient and appropriate to enable it to discharge its duties. Directors receive Board papers in advance of Board meetings and are able to consider in detail the Company's performance and any issues to be discussed at the relevant meeting.
Board Training
New Directors are provided with an induction programme tailored to the particular circumstances of the appointee and which includes being briefed fully about the Company by the Chairman and Senior Executives of the Investment Adviser. The Chairman regularly reviews and agrees with Directors their training and development needs as necessary to enable them to discharge their duties.
Board Committees
The Board has delegated a number of areas of responsibility to its committees. Laurence Blackall is Chair of the Audit Committee and Caroline Foulger is Chair of the Risk Committee. Nomination and Remuneration decisions are taken by the whole Board.
The Board discontinued its Remuneration Committee. The work previously undertaken by this Committee is considered core to the Company and that it is more appropriate to be dealt with by the full Board. It is noted that no Director determines their own remuneration.
Audit Committee
OCI has an Audit Committee with formal delegated duties and responsibilities. It currently comprises Laurence Blackall (Chair) and James Keyes.
In consultation with the Auditor, the Audit Committee determines the terms of engagement and the scope of the audit. It continuously monitors the external Auditor's independence and objectivity, and has unrestricted access to oversee the relationship with the Auditor. The Audit Committee receives and reviews reports from both the Investment Adviser and the Auditor relating to the annual accounts and the accounting and internal control systems of the Company.
For more information, please find the full Audit Committee report.
Audit
Director Committee
---------------------- -----------
Total meetings held: 6
---------------------- -----------
Number attended:
---------------------- -----------
Laurence Blackall 6
---------------------- -----------
James Keyes 6
---------------------- -----------
Risk Committee
OCI's Risk Committee oversees the adequacy and effectiveness of the Company's risk management framework and policies. The Risk Committee is responsible for the oversight of the Company's current and emerging material risks and for the monitoring of the procedures and policies performed in mitigation of those risks. It currently comprises Caroline Foulger (Chair) and Christopher Wetherhill.
Attendance at the Risk Committee meetings in 2017 was as follows:
Risk
Director Committee
------------------------ -----------
Total meetings held: 4
------------------------ -----------
Number attended:
------------------------ -----------
Caroline Foulger 4
------------------------ -----------
Christopher Wetherhill 4
------------------------ -----------
Risk is an integral part of business and the effective identification and management of risks is central to operating a successful business and to the Company achieving its strategic objectives. Having a clear and well understood risk management strategy assists the Board to ensure the Company achieves an appropriate balance between generating returns for its investors and taking proportionate and managed risks. In that respect, the Board has established the Risk Committee to have oversight of those identified risks.
The principal risks and uncertainties faced by the Company are described below and Note 5 to the Consolidated Financial Statements provides detailed explanations of the risks associated with the Company's financial instruments.
-- Regulatory: the risk that a change in the laws and regulations will materially impact the business if the Company is not in compliance. The laws and regulations include the AIM listing rules, AIFMD requirements, FCA requirements, Bermuda legal and corporate governance requirements. This risk also relates to the quality of the Company's relationship with its regulators.
-- External: relates to losses that could be incurred due to changes in external market factors (i.e. prices, volatilities, correlations, foreign exchange, political risk and event risk). The Company may face market risks from its exposures through investing into the Oakley Funds and through any bridging loans or co-investments pursued alongside the Oakley Funds.
-- Counterparty: relates to losses that could be incurred due to declines in the creditworthiness of entities in which the Company either directly or through the Oakley Funds invests. From time-to-time the Company may provide bridging or debt finance to other entities, such as the Oakley Funds or underlying portfolio companies. The credit risk of lending to these entities is considered on a case-by-case basis by the Board and Risk Committee.
-- Financial: relates to inadequate controls by the Investment Adviser or other third party service providers which could lead to misappropriation of assets or incorrect financial reporting. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.
-- Operational: relates to risks associated with, and supporting the operating environment of, the Company. The operating environment includes middle and back-office functions such as accounting, administration, valuation and reporting, many of which are performed by service providers. Valuation is particularly judgmental. The Company is dependent on the Administrative Agent, its Investment Adviser and its professionals. The Investment Adviser's employees, on behalf of the Administrative Agent, play key roles in the operation of the Company. The departure or reassignment of some or all of these professionals could limit the Company's ability to achieve its investment objectives.
-- Liquidity: relates to the risk that the Company's commitments to either meet the capital calls from its investments in the Oakley Funds or to pay its regular dividend will not be met from available cash resources. The Investment Adviser has regard to the liquidity and life-cycle phase of the Oakley Funds when making investment decisions, and the Company manages its liquid resources to ensure sufficient cash is available to meet its contractual commitments. At certain points in the investment cycle, the Company may hold substantial amounts of cash awaiting investment, which it may invest in government or corporate securities, or in bank deposits.
Through the Risk Committee, the Board has an ongoing process in place for the identification, evaluation and management of these risks.
Shareholder Communications
Board Oversight
The Company places great importance on communication with its shareholders and endeavours to provide clear information, as well as maintaining a regular dialogue with shareholders.
The Investment Adviser briefs the Board on a regular basis with regard to any feedback received from analysts and investors. Any significant concern raised by shareholders in relation to the Company is also communicated to the Board. The Company's Nominated Broker (Liberum Capital Limited) regularly reports directly to the Board at their meetings. In addition, research reports published by financial institutions on the Company are circulated to the Board.
AGM
An Annual General Meeting is held each year, where a separate resolution is proposed on each substantially separate issue along with the presentation of the Annual Report and Accounts. All proxy votes are counted and, except where a poll is called, the level of proxies lodged for each resolution is announced at the Meeting and is published on the Company's website. The notice of the Annual General Meeting and related papers are sent to shareholders at least 20 working days before the Meeting.
The Chairman and the Directors can be contacted through the Company Secretary, Mayflower Corporate Services Limited, 3rd Floor, Mintflower Place, 8 Par-la-Ville Road, Hamilton HM08, Bermuda.
Capital Markets Day
An annual Capital Markets Day consists of a presentation to shareholders and analysts by senior Partners of the Investment Adviser and management teams from a selection of Oakley Funds' portfolio companies. The event is held in London. The presentations are focused on the performance of the underlying Oakley Funds' investment portfolio.
Public Reporting
The Company's Annual Report and Accounts, along with the half-year Financial Statements and other RNS releases are prepared in accordance with applicable regulatory requirements.
Alternative Investment Fund Managers' Directive
Status and Legal Form
The Company is a self-managed non-EU Alternative Investment Fund. It is a closed-ended investment company incorporated in Bermuda and listed on AIM of the London Stock Exchange. The Company's registered office is 3rd Floor, Mintflower Place, 8 Par-la-Ville Road, Hamilton HM08, Bermuda.
Remuneration Disclosure
The total amount of remuneration paid by the Company, to its Directors was GBP229,694. This comprised solely of fixed remuneration, no variable remuneration was paid. Fixed remuneration was composed of agreed fixed fees and any other expenses paid. There were four beneficiaries of this remuneration.
Independent Auditor's Report
Opinion
We have audited the consolidated financial statements of Oakley Capital Investments Limited (the "Company"), which comprise the consolidated balance sheet as at 31 December 2017 and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at 31 December 2017 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Consolidated Financial Statements" section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Bermuda and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
The key audit matter that arose is as follows:
Valuation of the unquoted investment portfolio
As discussed in the Audit Committee Report, the Accounting Policies and in Notes 6 and 8 to the consolidated financial statements, the Company holds investments in private equity partnerships (the Funds) and unquoted debt securities at 31 December 2017 of GBP378.4million, where quoted prices do not exist. Such unquoted equity investments and debt securities are carried at their estimated fair values based upon the principles of the International Private Equity and Venture Capital Association ("IPEV") valuation guidelines.
The valuation of the unquoted private equity partnerships and debt securities held in the Company's investment portfolio is the key driver of its net asset value and total return to shareholders.
The private equity partnerships hold equity investments in unquoted portfolio companies. The valuation of these portfolio companies is complex and requires the application of judgment by the Investment Adviser.
The fair values are based upon the income approach, where estimated future cash flows are discounted at an appropriate interest rate, or the market approach which estimates the enterprise value of the investee using a comparable multiple of revenues or EBITDA, information from recent comparable transactions, or the underlying net asset value.
The risk
The significance of the unquoted investments to the Company's consolidated financial statements, combined with the judgment required in estimating their fair values means this was an area of focus during our audit.
Our response to the risk
We performed the following procedures:
-- We selected a sample of the unquoted debt securities held by the Company and unquoted equity investments held by the private equity partnerships and performed the following audit procedures:
-- Obtained independent confirmations of the existence and accuracy of the unquoted equity investments and debt securities or agreed them to loan agreements;
-- Obtained the Investment Adviser's models for valuing the unquoted equity investments and debt securities;
-- Determined that the valuation specialists engaged by the Investment Adviser are qualified and independent of the Company;
-- Challenged the Investment Adviser on the methodologies followed and key assumptions used in determining the valuations of the unquoted equity investments and debt securities in the context of the IPEV valuation guidelines;
-- Obtained management information, including budgets and forecasts for revenues and EBITDA, which are the key inputs used in the valuation models by the Investment Adviser and compared this information to that used in the models;
-- Independently sourced multiples for comparable companies used by the Investment Adviser, considered whether those companies are comparable to the investee and compared them to the multiples used in the valuations;
-- Tested the mathematical accuracy of the valuation models;
-- Tested the disclosures made about the unquoted equity investments and debt securities in the notes to the consolidated financial statements for compliance with IFRS; and
-- Monitored any events that emerged in the post balance sheet period (up to the date of signing the Company's consolidated financial statements) that would have a potential impact on the value of the unquoted equity investments and debt securities held at the year end.
Other Information in the Annual Report
Management is responsible for the other information contained within the Annual Report. The other information comprises the Overview, Strategic Report by the Investment Adviser, and Governance sections.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
-- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
-- Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's report is James Berry.
KPMG Audit Limited
Chartered Professional Accountants
Hamilton, Bermuda
14 March 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
======================================================= ===== ======== ========
Income
======================================================= ===== ======== ========
Interest income 13 7,722 11,637
======================================================= ===== ======== ========
Net realised gains/(losses) on investments at
fair value through profit and loss 6, 7 23,991 8,545
======================================================= ===== ======== ========
Net change in unrealised gains/(losses) on investments
at fair value through profit and loss 6, 7 20,316 46,196
======================================================= ===== ======== ========
Net foreign currency gains/(losses) (839) 4,733
======================================================= ===== ======== ========
Other income 306 140
======================================================= ===== ======== ========
Total income 51,496 71,251
======================================================= ===== ======== ========
Expenses 14 (6,529) (4,519)
======================================================= ===== ======== ========
Operating profit 44,967 66,732
======================================================= ===== ======== ========
Interest expense (42) (55)
======================================================= ===== ======== ========
Profit attributable to equity shareholders/
total comprehensive income 44,925 66,677
======================================================= ===== ======== ========
Earnings per share
======================================================= ===== ======== ========
Basic and diluted earnings per share 22 0.22 0.35
======================================================= ===== ======== ========
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
Consolidated Balance Sheet
As at 31 December 2017
2017 2016
Notes GBP'000 GBP'000
======================================== ===== ======== ========
Assets
======================================== ===== ======== ========
Non-current assets
======================================== ===== ======== ========
Investments 6,8 419,627 340,869
======================================== ===== ======== ========
419,627 340,869
======================================== ===== ======== ========
Current assets
======================================== ===== ======== ========
Trade and other receivables 11 668 673
======================================== ===== ======== ========
Cash and cash equivalents 10 117,836 106,509
======================================== ===== ======== ========
118,504 107,182
======================================== ===== ======== ========
Total assets 538,131 448,051
======================================== ===== ======== ========
Liabilities
======================================== ===== ======== ========
Current liabilities
======================================== ===== ======== ========
Trade and other payables 12 36,091 9,619
======================================== ===== ======== ========
Total liabilities 36,091 9,619
======================================== ===== ======== ========
Net assets attributable to shareholders 502,040 438,432
======================================== ===== ======== ========
Equity
======================================== ===== ======== ========
Share capital 24 2,048 2,069
======================================== ===== ======== ========
Share premium 24 244,533 246,245
======================================== ===== ======== ========
Treasury shares 24 - (25,024)
======================================== ===== ======== ========
Retained earnings 255,459 215,142
======================================== ===== ======== ========
Total shareholders' equity 502,040 438,432
======================================== ===== ======== ========
Net asset per ordinary share
======================================== ===== ======== ========
Basic and diluted net assets per share 23 GBP2.45 GBP2.31
======================================== ===== ======== ========
Ordinary shares in issue at 31 December 204,804 189,804
======================================== ===== ======== ========
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
The financial statements of Oakley Capital Investments Limited (registration number 40324) were approved by the Board of Directors and authorised for issue on 14 March 2018 and were signed on their behalf by:
Christopher Wetherhill Laurence Blackall Director Director
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Share Share Treasury Retained Total shareholders'
capital premium shares earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
========================================= ======== ======== ======== ========= ===================
Balance at 1 January 2016 2,069 246,245 (23,170) 157,006 382,150
========================================= ======== ======== ======== ========= ===================
Profit for the year/ total comprehensive
income - - - 66,677 66,677
========================================= ======== ======== ======== ========= ===================
Ordinary shares issued - - - - -
========================================= ======== ======== ======== ========= ===================
Purchase of treasury shares - - (1,854) - (1,854)
========================================= ======== ======== ======== ========= ===================
Sale of treasury shares - - - - -
========================================= ======== ======== ======== ========= ===================
Dividends - - - (8,541) (8,541)
========================================= ======== ======== ======== ========= ===================
Total transactions with equity
shareholders - - (1,854) (8,541) (10,395)
========================================= ======== ======== ======== ========= ===================
Balance at 31 December 2016 2,069 246,245 (25,024) 215,142 438,432
========================================= ======== ======== ======== ========= ===================
Profit for the year/ total comprehensive
income - - - 44,925 44,925
========================================= ======== ======== ======== ========= ===================
Ordinary shares issued - - - - -
========================================= ======== ======== ======== ========= ===================
Purchase of treasury shares - - - - -
========================================= ======== ======== ======== ========= ===================
Sale of treasury shares - (259) 23,550 - 23,291
========================================= ======== ======== ======== ========= ===================
Cancellation of treasury shares (21) (1,453) 1,474 - -
========================================= ======== ======== ======== ========= ===================
Dividends - - - (4,608) (4,608)
========================================= ======== ======== ======== ========= ===================
Total transactions with equity
shareholders (21) (1,712) 25,024 (4,608) 18,683
========================================= ======== ======== ======== ========= ===================
Balance at 31 December 2017 2,048 244,533 - 255,459 502,040
========================================= ======== ======== ======== ========= ===================
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
Consolidated Statement of Cash Flows
For the year ended 31 December 2017
2017 2016
Notes GBP'000 GBP'000
=========================================== ===== ========= =========
Cash flows from operating activities
=========================================== ===== ========= =========
Purchases of investments (167,047) (178,228)
=========================================== ===== ========= =========
Sales of investments 167,773 173,554
=========================================== ===== ========= =========
Interest income received 7,001 17,403
=========================================== ===== ========= =========
Expenses paid (5,967) (4,704)
=========================================== ===== ========= =========
Interest expense paid (42) (55)
=========================================== ===== ========= =========
Other income received 306 140
=========================================== ===== ========= =========
Net cash provided by operating activities 2,024 8,110
=========================================== ===== ========= =========
Cash flows from financing activities
=========================================== ===== ========= =========
Proceeds from treasury shares sold 24 23,291 -
=========================================== ===== ========= =========
Payment for treasury shares purchased 24 - (1,854)
=========================================== ===== ========= =========
Dividends paid 25 (13,149) -
=========================================== ===== ========= =========
Net cash provided by/(used in) financing
activities 10,142 (1,854)
=========================================== ===== ========= =========
Net increase in cash and cash equivalents 12,166 6,256
=========================================== ===== ========= =========
Cash and cash equivalents at the beginning
of the year 106,509 95,520
=========================================== ===== ========= =========
Effect of foreign exchange rate changes (839) 4,733
=========================================== ===== ========= =========
Cash and cash equivalents at the end
of the year 10 117,836 106,509
=========================================== ===== ========= =========
The Notes to the Consolidated Financial Statements are an integral part of these financial statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2017
1. Reporting entity
Oakley Capital Investments Limited (the "Company") is a closed-end investment company incorporated under the laws of Bermuda on 28 June 2007. The principal objective of the Company is to achieve capital appreciation through investments in a diversified portfolio of private mid-market businesses, primarily in the UK and Europe. The Company currently achieves its investment objective primarily through its investments in the following four private equity funds (the "Funds"): Oakley Capital Private Equity L.P. ("Fund I"), Oakley Capital Private Equity II-A L.P., which together with Oakley Capital Private Equity II-B L.P., Oakley Capital Private Equity II-C L.P. (collectively the "Fund II Feeder Funds") and OCPE II Master L.P. (the "Fund II Master") collectively comprise "Fund II", Oakley Capital Private Equity III-A L.P., which together with Oakley Capital Private Equity III-B L.P., Oakley Capital Private Equity III-C L.P. (collectively the "Fund III Feeder Funds") and OCPE III Master L.P. (the "Fund III Master") collectively comprise "Fund III" and OCPE Education (Feeder) L.P., which together with OCPE Education L.P. collectively comprise "OCPE Education". All constituent limited partnerships comprising the Funds are exempted limited partnerships established in Bermuda.
The defined term "Company" shall, where the context requires for the purposes of consolidation, include the Company's sole and wholly owned subsidiary, OCIL Financing (Bermuda) Limited ("OCI Financing").
The Company listed on AIM of the London Stock Exchange Limited on 3 August 2007, with "OCI" as its listed ticker.
2. Basis of preparation
The consolidated financial statements of the Company have been prepared on a going concern basis and under the historical cost convention, except for financial instruments at fair value through profit and loss, which are measured at fair value.
2.1 Basis for compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").
2.2 Functional and presentation currency
The consolidated financial statements are presented in British Pounds ("Pounds"), which is the Company's functional currency.
3. Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.
3.1 Changes in accounting policies and disclosures
(a) New and amended standards adopted by the Company
The following amendments to standards and interpretations are effective for annual periods beginning on or after 1 January 2017, and have been applied in preparing these consolidated financial statements. None of these had a significant effect on the measurement of the amounts recognised in the consolidated financial statements of the Company in the current or prior periods.
i. Disclosure Initiative - Amendments to IAS 7 (effective 1 January 2017). The amendment requires an entity to provide disclosures that enables users of the financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash charges.
ii. Annual Improvements 2014 to 2016 - Amendments to IFRS 12 (effective 1 January 2017). IFRS 12 states that an entity need not provide summarised financial information for interest in subsidiaries, associates or joint ventures that are classified as held for sale. The amendment clarifies that this is the only concession from the disclosure requirements of IFRS 12 for such interest.
(b) New standards, amendments and interpretations that are not yet effective and might be relevant for the Company:
i. IFRS 9 Financial Instruments
The Company is required to adopt IFRS 9 Financial Instruments from 1 January 2018 and it replaces IAS 39 Financial Instruments: Recognition and Measurement. It includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39.
IFRS 9 contains a new classification and measurement approach for financial assets with three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income ("FVOCI") and fair value through profit and loss ("FVTPL"). It eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale.
IFRS 9 also replaces the 'incurred losses' model in IAS 39 with a forward looking 'expected credit loss' model. The new impairment model will apply to financial assets measured at amortised cost of FVOCI, except for investments in equity instruments.
The Company is currently in the process of analysing the impact of this standard but it is not expected to have a material impact on the Company as the majority of financial assets are measured at FVTPL.
ii. IFRIC 22 Foreign currency transactions and advance considerations
IFRIC 22 clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.
The Company is also currently in the process of analysing the impact of this standard, as well as amendments to existing standards and annual improvements to IFRS, but there is not expected to be a material effect on the consolidated financial statements of the Company.
3.2 Basis for consolidation
Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. While the Company may have a greater than 50% ownership interest in a Fund, it is a limited partner and does not have the ability to affect the decisions of the Fund's General Partner or the returns of the Funds. The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances.
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary, after the elimination of all significant intercompany balances and transactions. The financial statements of the Company's sole wholly owned subsidiary, OCI Financing, are included in the consolidation. As at 31 December 2017, the Company holds $29,201,704 share capital in OCI Financing (2016: $29,201,704).
As a result of the amendments to IFRS 10, investment entities are exempted from consolidating controlled investees. The Company meets the definition of an investment entity, as the following conditions are met:
-- The Company provides investment management services.
-- The business purpose of the Company is the purchase, holding and disposal of investments held in private equity funds and directly in portfolio companies with above-average growth potential with the goal of achieving returns from capital appreciation and investment income.
-- The performance of these investments is measured and evaluated on a fair value basis. -- The Company holds multiple investments.
-- The Company therefore measures its investments at fair value through profit and loss in accordance with the investment entity exemption. The Company does not consolidate any of its investments in the Funds.
3.3 Investments
(a) Classification
The Company classifies its investments in private equity funds, direct investments and loans to the Funds, portfolio companies and other loans (herein referred to as "unquoted debt securities") as financial assets held at fair value through profit and loss at inception.
Financial assets held at fair value through profit and loss at inception are assets that are managed and their performance evaluated on a fair value basis in accordance with the Company's investment strategy.
(b) Recognition and measurement
Financial assets held at fair value through profit and loss are recognised initially on the trade date. Financial assets held at fair value through profit and loss are recognised initially at fair value, with transaction costs recognised in profit or loss.
Net gains and losses from financial assets held at fair value through profit and loss include all realised and unrealised fair value changes and foreign exchange differences and are included in the consolidated statement of comprehensive income in the period in which they arise.
Quoted investments are subsequently carried at fair value. Fair value is measured using the closing bid price at the reporting date, where the investment is quoted on an active stock market.
Unquoted investments, including both equities and loans, are subsequently carried in the consolidated balance sheet at fair value. Fair value is determined in line with the Company's investment valuation policy, which is compliant with the fair value guidelines under IFRS 13 and the International Private Equity and Venture Capital (IPEV) Valuation Guidelines.
(c) Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all the risks and rewards of ownership and does not retain control of the financial asset. Any interest on such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised), and consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss.
3.4 Cash and cash equivalents
Cash and cash equivalents include deposits held on call with banks and other short-term deposits. The Company considers all short-term deposits with a maturity of 90 days or less as equivalent to cash.
3.5 Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less any allowance for impairment, using the effective interest method.
3.6 Trade payables
Trade payables are obligations to pay for goods or services that have been acquired or received in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
3.7 Interest income
Interest on unquoted debt securities held at fair value through profit and loss is accrued on a time-proportionate basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that discounts estimated future cash receipts over the expected life of the debt security to its net carrying amount on initial recognition. Interest income is recognised gross of withholding tax, if any. Interest income on unquoted debt securities is recognised as a separate line item in the consolidated statement of comprehensive income and classified within operating activities in the consolidated cash flow statement.
3.8 Expenses
Expenses are recognised on the accruals basis.
3.9 Foreign currency translation
The functional currency of the Company is Pounds. Transactions in currencies other than Pounds are recorded at the rates of exchange prevailing on the dates of the transactions.
At each reporting date, investments and other monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing on the reporting date. Capital drawdowns and proceeds of distributions from the Funds and foreign currencies and income and expense items denominated in foreign currencies are translated into Pounds at the exchange rate on the respective dates of such transactions.
Foreign exchange gains and losses on other monetary assets and liabilities are recognised in net foreign currency gains and losses in the consolidated statement of comprehensive income.
The Company does not isolate unrealised or realised foreign exchange gains and losses arising from changes in the fair value of investments. All such foreign exchange gains and losses are included with the net realised and unrealised gains or losses on investments in the consolidated statement of comprehensive income.
3.10 Share capital
Ordinary shares issued by the Company are recognised based on the proceeds or fair value received, with the excess of the amount received over their nominal value being credited to the share premium account. Direct issue costs are deducted from equity.
3.11 Treasury shares
Treasury shares are included at the consideration paid as a reduction in shareholders' equity. Gains or losses resulting from the subsequent sale of treasury shares are recorded as an adjustment to equity.
3.12 Earnings per share
The Company presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share are calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potentially dilutive ordinary shares.
4. Critical accounting estimates, assumptions and judgment
The reported results of the Company are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its consolidated financial statements. IFRS require the Board of Directors, in preparing the Company's consolidated financial statements, to select suitable accounting policies, apply them consistently and make judgments and estimates that are reasonable and prudent. The Company's estimates and assumptions are based on historical experience and the Board of Directors' expectation of future events and are reviewed periodically. The actual outcome may be materially different from that anticipated. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The judgments, assumptions and estimates involved in the Company's accounting policies that are considered by the Board of Directors to be the most important to the Company's results and financial condition are the fair valuation of the investments and the assessment regarding investment entities.
(a) Fair valuation of investments
The fair values assigned to investments held at fair value through profit and loss are based upon available information and do not necessarily represent amounts which might ultimately be realised. Because of the inherent uncertainty of valuation, these estimated fair values may differ significantly from the values that would have been used had a ready market for the investments existed, and those differences could be material.
Investments held at fair value through profit and loss are valued by the Company in accordance with IAS 39 and IFRS 13 and the IPEV valuation guidelines. Judgment is required in order to determine the appropriate valuation methodology under these standards and subsequently in determining the inputs into the valuation models used. These judgments include making assessments of the future earnings potential of portfolio companies, appropriate earnings multiples to apply, estimating future cash flows and determining appropriate discount rates.
(b) Assessment as an investment entity
Entities that meet the definition of an investment entity within IFRS 10 are required to account for investments in controlled entities, as well as investments in associates and joint ventures, at fair value through profit and loss.
The Board of Directors has concluded that the Company meets the definition of an investment entity as its strategic objective is to invest in portfolio investments on behalf of its investors for the purpose of generating returns in the form of investment income and capital appreciation.
5. Financial risk management
5.1 Introduction and overview
The Board of Directors, the Company's Risk Committee (the "Risk Committee") and the Investment Adviser attribute great importance to professional risk management, proper understanding and negotiation of appropriate terms and conditions and active monitoring, including a thorough analysis of reports and financial statements and ongoing review of investments made. It is also key to structure the investment vehicles for the portfolio taking into account issues such as liquidity and tax. The Company has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy and has established processes to monitor and control the economic impact of these risks. The Investment Adviser provides the Board of Directors with recommendations as to the Company's asset allocation and annual investment levels that are consistent with the Company's objectives. The Risk Committee reviews and agrees policies for managing the risks as summarised below.
The Company has exposures to the following risks from financial instruments: credit risk, liquidity risk and market risk (including interest rate risk, currency risk, and price risk). The Company's overall risk management process focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company's financial performance.
5.2 Credit risk
The Company is subject to credit risk on its unquoted investments and cash. The schedule below summarises the Company's exposure to credit risk on its cash and unquoted investments.
2017 2016
-------------------------------- ---------------------- ----------------------
Total Rating Total Rating
GBP'000 (Moody's) GBP'000 (Moody's)
-------------------------------- --------- ----------- --------- -----------
Cash at HSBC 29,868 A2 72,142 A1
-------------------------------- --------- ----------- --------- -----------
Cash at Barclays 87,855 A1 34,254 A1
-------------------------------- --------- ----------- --------- -----------
Cash at Lloyds 113 Aa3 113 A1
-------------------------------- --------- ----------- --------- -----------
Investments in Funds 308,943 n/a 211,254 n/a
-------------------------------- --------- ----------- --------- -----------
Investments in debt securities 69,502 n/a 85,761 n/a
-------------------------------- --------- ----------- --------- -----------
In accordance with the Company's policy, the Investment Adviser monitors the Company's exposure to credit risk on cash on a quarterly basis and the Risk Committee regularly reviews the Company's exposure to credit risk. The credit quality of the investments in the Funds and unquoted equity and debt securities, which are held at fair value and include debt and equity elements, is based on the financial performance of the individual investments and they are not rated.
5.3 Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by delivering cash or another financial asset, or that such obligations will have to be settled in a manner disadvantageous to the Company. The Company's policy and the Investment Adviser's approach to managing liquidity is to have sufficient cash available to meet its liabilities, including estimated capital calls, without incurring undue losses or risking damage to the Company's reputation.
Unfunded commitments to the Funds are irrevocable and can exceed cash and cash equivalents available to the Company. Based on current short-term cash flow projections and barring unforeseen events, the Company expects to be able to honour all capital calls by the Funds.
As of 31 December 2017, cash and cash equivalents of the Company amount to GBP117,836,056 (2016: GBP106,509,636). The Company has total unfunded capital and loan commitments of GBP251,900,575 (2016: GBP330,796,945) relating to the Funds with the option of further investment to OCPE Education but no commitment. The unfunded commitments of the Company are listed in Note 26. As per the Company's Bye-laws, the Company can borrow up to 25% of total shareholders' equity which would equal approximately GBP125,510,000 for the year ending 31 December 2017 (2016: GBP109,608,000). As at 31 December 2017, the Company has incurred no borrowings (2016: GBPnil).
The majority of the investments held by the Company are unquoted and subject to specific restrictions on transferability and disposal. Consequently, the risk exists that the Company might not be able to readily dispose of its holdings in such markets at the time of its choosing and also that the price attained on a disposal may be below the amount at which such investments were included in the Company's consolidated balance sheet.
The table below analyses the Company's consolidated financial liabilities based on the remaining period between the balance sheet date and the contractual maturity date. The amounts in the schedule are the contractual undiscounted cash flows. Balances due within 12 months equal their fair values, as the impact of discounting is not significant. In accordance with the Company's policy, the Investment Adviser monitors the Company's liquidity position and the Risk Committee reviews it on a regular basis.
2017 2016
GBP'000 GBP'000
-------------------------------- --------- ---------
Trade and other payables
-------------------------------- --------- ---------
Less than 1 month 34,457 8,541
-------------------------------- --------- ---------
1-3 months 1,634 1,078
-------------------------------- --------- ---------
Total trade and other payables 36,091 9,619
-------------------------------- --------- ---------
5.4 Market risk
Market risk is the risk that changes in market prices, such as equity prices, foreign exchange rates and interest rates will affect the Company's income or the value of its holdings of financial instruments. The Company's sensitivity to these items is set out below.
a) Interest rate risk
Interest rate risk arises principally from changes in interest receivable on cash and deposits. The Company holds unquoted debt securities at fixed rates of interest and is therefore exposed to interest rate risk.
The impact of an increase or decrease on interest rates of 100 basis points on cash and deposits, based on the closing consolidated balance sheet position over a 12 month period, would have been:
2017 2016
-------------------------------- ---------------------------- ----------------------------
Increase Decrease Increase Decrease
in variable in variable in variable in variable
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- ------------- ------------- ------------- -------------
Impact on interest income from
cash and deposits 840 (840) 830 (830)
-------------------------------- ------------- ------------- ------------- -------------
Impact on profit/(loss) 840 (840) 830 (830)
-------------------------------- ------------- ------------- ------------- -------------
The Company's unquoted debt investments consist of mezzanine loans, financing loan facilities, revolving loan facilities and senior secured loans, which carry fixed rates of interest ranging from 6.5 % to 15%. These loans are subject to interest rate risk as increases and decreases in interest rates will have an impact on their fair value. A 100 basis point increase in interest rates would result in a decrease in fair value of those loans of GBP1,523,034 and a corresponding decrease of 100 basis points in interest rates would result in an increase in their fair value by the same amount (2016: GBP1,702,961).
In addition, the Company has indirect exposure to interest rates through changes to the financial performance and valuation in equity investments in the Funds and portfolio companies that have issued debt caused by interest rate fluctuations. Short term receivables and payables are excluded as the risks due to fluctuation in the prevailing levels of market interest rates associated with these instruments are not significant and is limited to the Company's investment in these Funds.
b) Currency risk
The Company holds assets and liabilities denominated in currencies other than its functional currency, which expose the Company to the risk that the exchange rates of those currencies against the Pound will change in a manner which adversely impacts the Company's net profit and net assets attributable to shareholders. The following sensitivity analysis is presented based on the sensitivity of the Company's net assets to movements in foreign currency exchange rates assuming a 10% increase in exchange rates against the Pound. A 10% decrease in exchange rates against the Pound would have an equal and opposite effect.
2017 2016
-------------------------------- --------------------- ---------------------
Euro US dollar Euro US dollar
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- ---------- --------- ----------
Assets:
-------------------------------- --------- ---------- --------- ----------
Financial assets at fair value
through profit and loss 30,894 - 21,125 -
-------------------------------- --------- ---------- --------- ----------
Cash and cash equivalents 9,277 - 7,808 -
-------------------------------- --------- ---------- --------- ----------
Trade and other receivables 67 - 64 -
-------------------------------- --------- ---------- --------- ----------
Total assets 40,238 - 28,997 -
-------------------------------- --------- ---------- --------- ----------
Liabilities:
-------------------------------- --------- ---------- --------- ----------
Trade and other payables (3,475) (9) - (16)
-------------------------------- --------- ---------- --------- ----------
Total liabilities (3,475) (9) - (16)
-------------------------------- --------- ---------- --------- ----------
Impact on profit/(loss) 36,763 (9) 28,997 (16)
-------------------------------- --------- ---------- --------- ----------
The Investment Adviser monitors the Company's currency position on a regular basis and reports the impact of currency movements on the performance of the investment portfolio to the Risk Committee quarterly. As per the Company's investment policy, all investments in quoted equity securities and unquoted equity and debt securities are denominated in Pounds, placing currency risk on the counterparty. The investments in the Funds are denominated in Euros.
c) Price risk - market fluctuations
The Company's management of price risk, which arises primarily from quoted and unquoted equity instruments, is through the careful selection of financial assets within specified limits as advised by the Investment Adviser and approved by the Risk Committee.
For quoted equity securities, the market risk variable is deemed to be the market price itself. A 15% change in the price of those investments would have the following direct impact on the consolidated statement of comprehensive income:
2017 2016
----------------------------------- ---------------------------- ----------------------------
Increase Decrease Increase Decrease
in variable in variable in variable in variable
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- ------------- ------------- ------------- -------------
Quoted equity investments:
----------------------------------- ------------- ------------- ------------- -------------
15% movement in price of listed
investment
----------------------------------- ------------- ------------- ------------- -------------
Impact on profit/(loss) 6,177 (6,177) 6,578 (6,578)
----------------------------------- ------------- ------------- ------------- -------------
Impact on net assets attributable
to shareholders 6,177 (6,177) 6,578 (6,578)
----------------------------------- ------------- ------------- ------------- -------------
For the investment in the Funds and unquoted equity securities, the market risk is deemed to be the change in fair value. A 15% change in the fair value of those investments would have the following direct impact on the consolidated statement of comprehensive income:
2017 2016
--------------------------------------- ---------------------------- ----------------------------
Increase Decrease Increase Decrease
in variable in variable in variable in variable
GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------- ------------- ------------- -------------
Funds and unquoted equity securities:
--------------------------------------- ------------- ------------- ------------- -------------
15% movement in price of Funds
and unquoted equity securities
--------------------------------------- ------------- ------------- ------------- -------------
Impact on profit/(loss) 46,341 (46,341) 31,688 (31,688)
--------------------------------------- ------------- ------------- ------------- -------------
Impact on net assets attributable
to shareholders 46,341 (46,341) 31,688 (31,688)
--------------------------------------- ------------- ------------- ------------- -------------
The Company is exposed to a variety of market risk factors which may change significantly over time. As a result, measurement of such exposure at any given point may be difficult given the complexity and limited transparency of the investments held by the underlying portfolio companies.
Limitations of sensitivity analysis
The sensitivity information included in Notes 5 and 8 demonstrates the estimated impact of a change in a major input assumption while other assumptions remain unchanged. In reality, there are normally significant levels of correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results. Furthermore, estimates of sensitivity may become less reliable in unusual market conditions such as instances when risk free interest rates fall towards zero.
5.5 Capital management
The Company's capital is represented by ordinary shares with GBP0.01 par value and they carry one vote each. The shares are entitled to dividends when declared. The Company has no additional restrictions or specific capital requirements on the issuance and repurchase of ordinary shares. The movements of capital are shown in the consolidated statement of changes in equity.
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern and to achieve positive returns in all market environments. In order to maintain or adjust the capital structure, the Company may return capital to shareholders through the issue and repurchase of treasury shares. The effects of the issue, the repurchase and resale of treasury shares as a result of market making activities are listed in Note 24. Liberum Capital Limited acts as the Company's nominated adviser and broker.
6. Investments
Investments as at 31 December 2017:
Net change
in
2016 Purchases Realised Interest unrealised 2017
Fair / capital Total sales*/ gains/ And gains/ Fair
value calls distributions (losses) other (losses) value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Oakley funds
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund I 64,906 12,309 (17,847) - - (22,817) 36,551
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund II 144,015 12,319 (49,183) 18,274 - 11,629 137,054
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund III 2,333 99,962 (11,427) (2,683) - 20,873 109,058
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total Oakley funds 211,254 124,590 (78,457) 15,591 - 9,685 282,663
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Co-Investment funds
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
OCPE Education (Feeder)
L.P. - 39,932 (35,355) 8,400 - 13,303 26,280
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total co-investment
funds - 39,932 (35,355) 8,400 - 13,303 26,280
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total funds 211,254 164,522 (113,812) 23,991 - 22,988 308,943
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Quoted equity securities
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Time Out Group plc 43,854 - - - - (2,672) 41,182
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total quoted equity
securities 43,854 - - - - (2,672) 41,182
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Unquoted debt securities
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Bellwood Holdings
Ltd - 1,878 (1,970) - 92 - -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Daisy Group Holdings
Limited 17,202 - (6,610) - 2,109 - 12,701
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Ellisfield (Bermuda)
Limited 14,530 - - - 925 - 15,455
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund I 12,256 7,288 (13,844) - 651 - 6,351
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund II 4,337 18,661 (23,551) - 553 - -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund III - 1,319 (1,356) 37 -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
NSG Apparel BV 21,978 - - - 2,637 - 24,615
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Oakley Capital II
Limited 768 - (769) - 1 - -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Oakley Capital III
Limited 5,210 3,470 (1,872) - 360 - 7,168
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Oakley NS (Bermuda)
L.P. - 2,940 - 272 3,212
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
OCPE Education L.P. - 1,426 (1,432) - 6 - -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
TO (Bermuda) Limited 9,480 - (9,826) - 346 - -
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total unquoted debt
securities 85,761 36,982 (61,230) - 7,989 - 69,502
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Total investments 340,869 201,504 (175,042) 23,991 7,989 20,316 419,627
-------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
* Total sales include sales, loan repayments and transfers.
Investments as at 31 December 2016:
Net change
in
2015 Purchases/ Realised Interest unrealised 2016
Fair capital Total sales*/ gains/ and gains/ Fair
value calls distributions (losses) other (losses) value
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Oakley funds
---------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund I 56,318 - (6,271) (13,686) - 28,545 64,906
---------------------------- --------- ----------- --------------- ---------- --------- ------------ ---------
Fund II 102,051 33,989 (42,365) 23,089 - 27,251 144,015 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Fund III - 7,857 - - - (5,524) 2,333 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Total Oakley funds 158,369 41,846 (48,636) 9,403 - 50,272 211,254 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Quoted equity securities ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Time Out Group plc - 47,155 - - - (3,301) 43,854 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Total quoted equity securities - 47,155 - - - (3,301) 43,854 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Unquoted equity securities ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Flypay Limited 7,115 - (6,990) - - (125) - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Time Out Group HC Limited 13,271 4,000 (15,635) (2,165) 529 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Time Out Mercado Limited 5,564 2,754 (9,530) 747 574 (109) - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Total unquoted equity securities 25,950 6,754 (32,155) (1,418) 1,103 (234) - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Unquoted debt securities ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Bellwood Holdings Ltd 2,805 2,200 (5,055) - 50 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- BH(B) 55 Limited 10,948 - (11,175) - 227 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Daisy Group Holdings Limited 14,061 - - - 3,203 (62) 17,202 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Damoco Holdco Ltd 4,212 - (4,300) - 88 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Ellisfield (Bermuda) Limited 25,711 - (12,537) - 1,356 - 14,530 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Fund I 10,550 12,037 (11,032) - 701 - 12,256 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Fund II - 43,567 (39,838) - 608 - 4,337 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- NSG Apparel BV 10,066 10,000 - - 1,912 - 21,978 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Oakley Capital II Limited 2,895 - (2,214) - 87 - 768 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Oakley Capital III Limited - 5,500 (529) - 239 - 5,210 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Parship GmbH - 5,172 (5,292) - 120 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Time Out Group BC Limited 4,032 - (4,211) - 179 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Time Out Group HC Limited - 2,000 (2,053) - 53 - - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- TO (Bermuda) Limited 11,222 - (2,652) - 910 - 9,480 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- TONY MC LLC 8,395 - (9,088) 560 612 (479) - ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Total unquoted debt securities 104,897 80,476 (109,976) 560 10,345 (541) 85,761 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- Total investments 289,216 176,231 (190,767) 8,545 11,448 46,196 340,869 ---------------------------- --------- ----------- --------------- ---------- --------- ------------ --------- * Total sales include sales, loan repayments and transfers.
7. Net gains/(losses) from investments at fair value through profit and loss
2017 2016
GBP'000 GBP'000
-------------------------------------------------------- --------- ---------
Net change in unrealised gains/(losses) on investments
at fair value through profit and loss:
-------------------------------------------------------- --------- ---------
Funds 22,988 50,272
-------------------------------------------------------- --------- ---------
Quoted equity securities (2,672) (3,301)
-------------------------------------------------------- --------- ---------
Unquoted equity securities - (234)
-------------------------------------------------------- --------- ---------
Unquoted debt securities - (541)
-------------------------------------------------------- --------- ---------
Total net change in unrealised gains/(losses)
on investments at fair value through profit
and loss 20,316 46,196
-------------------------------------------------------- --------- ---------
Realised gains/(losses) on investments at fair
value through profit and loss:
-------------------------------------------------------- --------- ---------
Funds 23,991 9,403
-------------------------------------------------------- --------- ---------
Quoted equity securities - -
-------------------------------------------------------- --------- ---------
Unquoted equity securities - (1,418)
-------------------------------------------------------- --------- ---------
Unquoted debt securities - 560
-------------------------------------------------------- --------- ---------
Total realised gains/(losses) on investments
at fair value through profit and loss 23,991 8,545
-------------------------------------------------------- --------- ---------
8. Disclosure about fair value of financial instruments
The Company has adopted IFRS 13 in respect of disclosures about the degree of reliability of fair value measurements. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The Company classifies financial instruments measured at fair value in the investment portfolio according to the following hierarchy:
-- Level I: Quoted prices (unadjusted) in active markets for identical instruments that the Company can access at the measurement date. Level I investments include quoted equity instruments.
-- Level II: Inputs other than quoted prices included within Level I that are observable for the instrument, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
-- Level III: Inputs that are not based on observable market data. Level III investments include private equity funds, unquoted equity and debt securities.
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the instrument. The determination of what constitutes 'observable' requires significant judgment by the Company. The Company considers observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table analyses the Company's investments measured at fair value as of 31 December 2017 by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level Level
I III Total
GBP'000 GBP'000 GBP'000
------------------------------------------ --------- --------- ---------
Funds - 308,943 308,943
------------------------------------------ --------- --------- ---------
Quoted equity securities 41,182 - 41,182
------------------------------------------ --------- --------- ---------
Unquoted debt securities - 69,502 69,502
------------------------------------------ --------- --------- ---------
Total investments measured at fair value 41,182 378,445 419,627
------------------------------------------ --------- --------- ---------
The following table analyses the Company's investments measured at fair value as of 31 December 2016 by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level Level
I III Total
GBP'000 GBP'000 GBP'000
------------------------------------------ --------- --------- ---------
Funds - 211,254 211,254
------------------------------------------ --------- --------- ---------
Quoted equity securities 43,854 - 43,854
------------------------------------------ --------- --------- ---------
Unquoted debt securities - 85,761 85,761
------------------------------------------ --------- --------- ---------
Total investments measured at fair value 43,854 297,015 340,869
------------------------------------------ --------- --------- ---------
Level I
Quoted equity investment values are based on quoted market prices in active markets, and are therefore classified within Level I investments. The Company does not adjust the quoted price for these investments.
Level II
The Company did not hold any Level II investments as of 31 December 2017 or 31 December 2016.
Level III
The Company has determined that Funds and unquoted debt securities fall into the category Level III. Funds and unquoted debt securities are measured in accordance with the IPEV Valuation Guidelines with reference to the most appropriate information available at the time of measurement. The consolidated financial statements as of 31 December 2017 include Level III investments in the amount of GBP378,445,332, representing approximately 75.38% of shareholders' equity (2016: GBP297,014,877; 67.74%).
Funds
The Company primarily invests in portfolio companies via the Funds. The Funds are unquoted equity securities that primarily invest in unquoted securities. The Company's investments in unquoted equity securities are recognised in the consolidated balance sheet at fair value, in accordance with IPEV Valuation Guidelines and IFRS 13 and are considered Level III investments.
The valuation of unquoted fund investments is generally based on the latest available net asset value ("NAV") of the Fund as reported by the corresponding General Partner or administrator, provided that the NAV has been appropriately determined using fair value principles in accordance with IFRS 13.
The NAV of a Fund is calculated after determining the fair value of a Fund's investment in any portfolio company. This value is generally obtained by calculating the Enterprise Value ("EV") of the portfolio company and then adding excess cash and deducting financial instruments, such as external debt, ranking ahead of the fund's highest ranking instrument in the portfolio company.
A common method of determining the EV is to apply a market-based multiple (e.g. an average multiple based on a selection of comparable quoted companies) to the 'maintainable' earnings or revenues of the portfolio company. This market-based approach presumes that the comparative companies are correctly valued by the market. A discount is sometimes applied to market-based multiples to adjust for points of difference between the comparatives and the company being valued.
As at 31 December 2017, the value of the Funds' investments, other assets and liabilities attributable to the Company based on its respective percentage interest in each Fund was as follows:
OCPE
Fund I Fund II Fund III Education
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------------- --------- --------- --------- -----------
Investments 42,516 199,645 129,410 29,282
-------------------------------------- --------- --------- --------- -----------
Loans (4,565) (25,004) (46,015) -
-------------------------------------- --------- --------- --------- -----------
Provisional profit allocation - (21,815) (2,847) -
-------------------------------------- --------- --------- --------- -----------
Other net assets 3,164 1,341 42,127 278
-------------------------------------- --------- --------- --------- -----------
Total value of the Fund attributable
to the Company 41,115 154,167 122,675 29,560
-------------------------------------- --------- --------- --------- -----------
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- --------- --------- --------- -----------
Total value of the Fund attributable
to the Company 36,551 137,054 109,058 26,280
-------------------------------------- --------- --------- --------- -----------
As at 31 December 2016, the value of the Funds' investments, other assets and liabilities attributable to the Company based on its respective percentage interest in each Fund was as follows:
OCPE
Fund I Fund II Fund III Education
EUR'000 EUR'000 EUR'000 EUR'000
-------------------------------------- --------- --------- --------- -----------
Investments 82,225 213,160 - -
-------------------------------------- --------- --------- --------- -----------
Loans (9,241) (27,564) - -
-------------------------------------- --------- --------- --------- -----------
Provisional profit allocation - (17,751) - -
-------------------------------------- --------- --------- --------- -----------
Other net assets 3,090 949 2,734 -
-------------------------------------- --------- --------- --------- -----------
Total value of the Fund attributable
to the Company 76,074 168,794 2,734 -
-------------------------------------- --------- --------- --------- -----------
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- --------- --------- --------- -----------
Total value of the Fund attributable
to the Company 64,906 144,015 2,333 -
-------------------------------------- --------- --------- --------- -----------
The Company does not utilise valuation models to calculate the fair value of its Fund investments. The NAV as reported by the Funds' General Partner or administrator is considered to be the key unobservable input. In addition, the Company has the following control procedures in place to evaluate whether the NAV of the underlying Fund investments is calculated in a manner consistent with IFRS 13:
-- Thorough initial due diligence process and the Board of Directors performing ongoing monitoring procedures, primarily discussions with the Investment Adviser;
-- Comparison of historical realisations to last reported fair values; and -- Review of the Auditor's report of the respective Fund.-
Unquoted debt securities
The fair values of the Company's investments in unquoted debt securities are derived from a discounted cash flow calculation based on expected future cash flows to be received, discounted at an appropriate rate. Expected future cash flows include interest received and principal repayment at maturity.
Unobservable inputs for Level III investments
Funds
In arriving at the fair value of the unquoted Fund investments, the key input used by the Company is the NAV as provided by the General Partner or administrator. It is recognised by the Company that the NAV of the Funds are sensitive to movements in the fair values of the underlying portfolio companies.
The underlying portfolio companies owned by the Funds may include both quoted and unquoted companies. Quoted portfolio companies are valued based on market prices and no unobservable inputs are used. Unquoted portfolio companies are valued based on a market approach for which significant judgment is applied.
For the purposes of sensitivity analysis, the Company considers a 10% adjustment to the fair value of the unquoted portfolio companies of the Funds as reasonable. For the year ending 31 December 2017 a 10% increase to the fair value of the unquoted portfolio companies held by the Funds would result in a 5.9% movement in net assets attributable to shareholders (2016: 4.9%). A 10% decrease to the fair value of the unquoted portfolio companies held by the Funds would have an equal and opposite effect.
Unquoted debt securities
In arriving at the fair value of the unquoted debt securities, the key inputs used by the Company are future cash flows expected to be received until maturity of the debt securities and the discount factor applied. The discount factor applied is considered to be an unobservable input and range between 6.5% and 15%.
For the purposes of sensitivity analysis, the Company considers a 1% adjustment to the discount factor applied as reasonable. For the year ending 31 December 2017 a 1% increase to the discount factor would result in a 0.3% movement in net assets attributable to shareholders (2016: 0.4%). A 1% decrease to the discount factor would have an equal and opposite effect.
Transfers between levels
There were no transfers between the Levels during the year ended 31 December 2017.
The following table presents the transfers between the Levels for the year ended 31 December 2016:
Level Level
I III
GBP'000 GBP'000
----------------------------------------------- --------- ---------
Funds - -
----------------------------------------------- --------- ---------
Quoted equity securities 47,155 -
----------------------------------------------- --------- ---------
Unquoted equity securities - (32,155)
----------------------------------------------- --------- ---------
Unquoted debt securities - (15,000)
----------------------------------------------- --------- ---------
Total transfers between Level I and Level III 47,155 (47,155)
----------------------------------------------- --------- ---------
On 14 June 2016, the Time Out unquoted debt and equity securities classified as Level III were exchanged for listed shares of Time Out Group plc ("Time Out Group") as part of the reorganisation and Initial Public Offering ("IPO") of the Time Out Group. Transfers are recognised at the date of transfer.
Level I and Level III reconciliation
The changes in investments measured at fair value, for which the Company has used Level I and Level III inputs to determine fair value as of 31 December 2017 and 2016, are as follows:
2017 2016
Level I Investments: GBP'000 GBP'000
------------------------------------------------------------- --------- ---------
Quoted equity securities
------------------------------------------------------------- --------- ---------
Fair value at the beginning of the year 43,854 -
------------------------------------------------------------- --------- ---------
Shares transferred from unquoted debt and equity securities - 47,155
------------------------------------------------------------- --------- ---------
Net change in unrealised gains/(losses) on investments (2,672) (3,301)
------------------------------------------------------------- --------- ---------
Fair value of Level I investments at the end of the
year 41,182 43,854
------------------------------------------------------------- --------- ---------
Level III Investments:
Unquoted Unquoted
equity debt
Funds securities securities Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- ---------- ------------ ------------ ----------
2017
-------------------------------------------- ---------- ------------ ------------ ----------
Fair value at the beginning of the
year 211,254 - 85,761 297,015
-------------------------------------------- ---------- ------------ ------------ ----------
Purchases 164,522 - 36,982 201,504
-------------------------------------------- ---------- ------------ ------------ ----------
Proceeds on disposals (including interest) (113,812) - (61,230) (175,042)
-------------------------------------------- ---------- ------------ ------------ ----------
Realised gain on sale 23,991 - - 23,991
-------------------------------------------- ---------- ------------ ------------ ----------
Interest income and other fee income - - 7,989 7,989
-------------------------------------------- ---------- ------------ ------------ ----------
Net change in unrealised gains/(losses)
on investments 22,988 - - 22,988
-------------------------------------------- ---------- ------------ ------------ ----------
Fair value at the end of the year 308,943 - 69,502 378,445
-------------------------------------------- ---------- ------------ ------------ ----------
Unquoted Unquoted
equity debt
Funds securities securities Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------------- --------- ------------ ------------ ----------
2016
-------------------------------------------- --------- ------------ ------------ ----------
Fair value at the beginning of the
year 158,369 25,950 104,897 289,216
-------------------------------------------- --------- ------------ ------------ ----------
Purchases 41,846 6,754 80,476 129,076
-------------------------------------------- --------- ------------ ------------ ----------
Proceeds on disposals (including interest) (48,636) - (94,976) (143,612)
-------------------------------------------- --------- ------------ ------------ ----------
Realised gain on sale 9,403 - - 9,403
-------------------------------------------- --------- ------------ ------------ ----------
Accrued interest capitalised in debt
for share conversion - 1,103 - 1,103
-------------------------------------------- --------- ------------ ------------ ----------
Net realised loss on debt for share
conversion - (1,418) 560 (858)
-------------------------------------------- --------- ------------ ------------ ----------
Transferred to quoted equity securities
(Level I) - (32,155) (15,000) (47,155)
-------------------------------------------- --------- ------------ ------------ ----------
Interest income and other fee income - - 10,345 10,345
-------------------------------------------- --------- ------------ ------------ ----------
Net change in unrealised gains/(losses)
on investments 50,272 (234) (541) 49,497
-------------------------------------------- --------- ------------ ------------ ----------
Fair value at the end of the year 211,254 - 85,761 297,015
-------------------------------------------- --------- ------------ ------------ ----------
Financial instruments not carried at fair value
Financial instruments, other than financial instruments at fair value through profit and loss, where carrying values are equal to fair values:
2017 2016
GBP'000 GBP'000
----------------------------- --------- ---------
Cash and cash equivalents 117,836 106,509
----------------------------- --------- ---------
Trade and other receivables 668 673
----------------------------- --------- ---------
Trade and other payables 36,091 9,619
----------------------------- --------- ---------
As at 31 December 2017, trade and other payables includes a balance of EUR39,093,600 (GBP34,457,099 ) which is due to Fund III in relation to a capital call made by Fund III.
9. Segment information
The Company has two reportable segments, as described below. For each of them, the Board of Directors receives detailed reports on at least a quarterly basis. The following summary describes the operations in each of the Company's reportable segments:
-- Fund investments: includes commitments/investments in four private equity funds.
-- Direct investments and loans: includes direct investments, loans to the Funds' portfolio companies, loans to the Funds and other loans.
Balance sheet and income and expense items which cannot be clearly allocated to one of the segments are shown in the column "Unallocated" in the following tables.
The reportable operating segments derive their revenue primarily by seeking investments to achieve an attractive return in relation to the risk being taken. The return consists of interest, dividends and/or unrealised and realised capital gains.
The financial information provided to the Board of Directors with respect to total assets and liabilities is presented in a manner consistent with the consolidated financial statements. The assessment of the performance of the operating segments is based on measurements consistent with IFRS. With the exception of capital calls payable, liabilities are not considered to be segment liabilities but rather managed at the corporate level.
There have been no transactions between the reportable segments during the financial year 2017 (2016: none).
The segment information for the year ended 31 December 2017 is as follow:
Direct Total
Fund investments operating
investments and loans segments Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net realised gains on financial
assets at fair value through
profit and loss 23,991 - 23,991 - 23,991
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net unrealised gains/(losses)
on financial assets at fair
value through profit and
loss 22,988 (2,672) 20,316 - 20,316
------------------------------------- ------------- ------------- ----------- ------------ ---------
Interest income - 7,683 7,683 39 7,722
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net foreign currency gains/(losses) - - - (839) (839)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Other income - 306 306 - 306
------------------------------------- ------------- ------------- ----------- ------------ ---------
Expenses - - - (6,529) (6,529)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Interest expense - - - (42) (42)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Profit/(loss) for the year 46,979 5,317 52,296 (7,371) 44,925
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total assets 308,943 110,684 419,627 118,504 538,131
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total liabilities (34,457) - (34,347) (1,634) (36,091)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net assets 274,486 110,684 385,170 116,870 502,040
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total assets include:
------------------------------------- ------------- ------------- ----------- ------------ ---------
Financial assets at fair
value through profit and
loss 308,943 110,684 419,627 - 419,627
------------------------------------- ------------- ------------- ----------- ------------ ---------
Cash and others - - - 118,504 118,504
------------------------------------- ------------- ------------- ----------- ------------ ---------
The segment information for the year ended 31 December 2016 is as follows:
Direct Total
Fund investments operating
investments and loans segments Unallocated Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net realised gains on financial
assets at fair value through
profit and loss 9,403 (858) 8,545 - 8,545
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net unrealised gains/(losses)
on financial assets at fair
value through profit and
loss 50,272 (4,076) 46,196 - 46,196
------------------------------------- ------------- ------------- ----------- ------------ ---------
Interest income - 11,355 11,355 282 11,637
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net foreign currency gains/(losses) - - - 4,733 4,733
------------------------------------- ------------- ------------- ----------- ------------ ---------
Other income - 93 93 47 140
------------------------------------- ------------- ------------- ----------- ------------ ---------
Expenses - - - (4,519) (4,519)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Interest expense - - - (55) (55)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Profit/(loss) for the year 59,675 6,514 66,189 488 66,677
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total assets 211,254 129,615 340,869 107,182 448,051
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total liabilities - - - (9,619) (9,619)
------------------------------------- ------------- ------------- ----------- ------------ ---------
Net assets 211,254 129,615 340,869 97,563 438,432
------------------------------------- ------------- ------------- ----------- ------------ ---------
Total assets include:
------------------------------------- ------------- ------------- ----------- ------------ ---------
Financial assets at fair
value through profit and
loss 211,254 129,615 340,869 - 340,869
------------------------------------- ------------- ------------- ----------- ------------ ---------
Cash and others - - - 107,182 107,182
------------------------------------- ------------- ------------- ----------- ------------ ---------
10. Cash and cash equivalents
2017 2016
GBP'000 GBP'000
----------------------------------- --------- ---------
Cash and demand balances at banks 91,229 80,402
----------------------------------- --------- ---------
Short-term deposits 26,607 26,107
----------------------------------- --------- ---------
117,836 106,509
----------------------------------- --------- ---------
11. Trade and other receivables
2017 2016
GBP'000 GBP'000
---------------------------------- --------- ---------
Prepayments 1 34
---------------------------------- --------- ---------
Amounts due from related parties 667 639
---------------------------------- --------- ---------
668 673
---------------------------------- --------- ---------
12. Trade and other payables
2017 2016
GBP'000 GBP'000
---------------------- --------- ---------
Trade payables 1,634 1,078
---------------------- --------- ---------
Dividend payable - 8,541
---------------------- --------- ---------
Capital call payable 34,457 -
---------------------- --------- ---------
36,091 9,619
---------------------- --------- ---------
13. Interest income
2017 2016
GBP'000 GBP'000
------------------------------------------------------ --------- ---------
Interest income on investments carried at amortised
cost:
------------------------------------------------------ --------- ---------
Cash and cash equivalents 39 282
------------------------------------------------------ --------- ---------
Interest income on investments designated as at fair
value through profit and loss:
------------------------------------------------------ --------- ---------
Debt securities 7,683 11,355
------------------------------------------------------ --------- ---------
7,722 11,637
------------------------------------------------------ --------- ---------
14. Expenses
2017 2016
Notes GBP'000 GBP'000
------------------------------- ------ --------- ---------
Management fees 15 535 2,264
------------------------------- ------ --------- ---------
Operational and advisory fees 16 2,568 -
------------------------------- ------ --------- ---------
Professional fees 17 872 1,196
------------------------------- ------ --------- ---------
Performance fees 15,16 1,246 607
------------------------------- ------ --------- ---------
Other expenses 16 1,308 452
------------------------------- ------ --------- ---------
6,529 4,519
------------------------------- ------ --------- ---------
15. Management and performance fees until 31 March 2017
Pursuant to a management agreement dated 30 July 2007, the Company appointed Oakley Capital (Bermuda) Limited (the "Manager") to provide management services. On 31 March 2017, the management agreement was terminated. The terms of the management agreement were as follows:
a) Management fees
The Manager was not entitled to receive a management fee from the Company in respect of amounts either committed or invested by the Company in the Funds. The Manager received a management fee at the rate of 1% per annum in respect of assets that were not committed to the Funds and which were invested in cash, cash deposits or near cash deposits and a management fee at the rate of 2% per annum in respect of those assets which were invested directly in co-investments. The management fee was payable monthly in arrears.
Management fees for the period 1 January 2017 through 31 March 2017 totalled GBP535,090 (1 January 2016 - 31 December 2016: GBP2,263,915) and are presented in the consolidated statement of comprehensive income. There were no management fees payable to the Manager at 31 December 2017 (2016: GBP802,283).
b) Performance fees
The Manager was also entitled to receive a performance fee of 20% of the excess of the amount earned by the Company over and above an 8% per annum hurdle rate on any monies invested as a co-investment with any Fund. Any co-investment was treated as a segregated pool of investments by the Company. If the calculation period was greater than one year, the hurdle rate was compounded on each anniversary of the start of the calculation period for each segregated co-investment. If the amount earned did not exceed the hurdle rate on any given co-investment, that co-investment was included in the next calculation so that the hurdle rate is measured across both co-investments.
The Company did not incur any performance fee for the period 1 January 2017 through 31 March 2017 (1 January 2016 - 31 December 2016: GBP606,701). There was no performance fee payable to the Manager at 31 December 2017 (2016: GBPnil).
The Manager entered into an Investment Advisory Agreement with the Investment Adviser to advise the Manager on the investment of the assets of the Company. The Investment Advisory Agreement was terminated on 31 March 2017. The Investment Adviser did not receive a management or performance fee from the Company. Any fees due to the Investment Adviser were paid by the Manager out of the management and performance fees it received from the Company.
16. Operational, advisory and performance fees from 1 April 2017
Pursuant to an operational services agreement dated 1 April 2017 (the "Operational Services Agreement"), the Company appointed Oakley Capital Manager Limited (the "Administrative Agent") to provide operational assistance and services to the Board with respect to the Company's investments and its general administration.
a) Operational fees
Under the Operational Services Agreement, the Administrative Agent receives an operational services fee equal to 2% per annum of the net asset value (before deduction of any accrued performance fees) of all investments held by the Company except for the investments in and any revolvers with Fund I, Fund II and Fund III and any loans to entities affiliated with the Administrative Agent. The fee is pro rata for partial periods and payable quarterly in arrears.
The operational services fee for the period 1 April 2017 through 31 December 2017 totalled GBP1,892,118 (2016: GBPnil) and is presented in the consolidated statement of comprehensive income. The amount outstanding as at 31 December 2017 was GBP635,022 (2016: GBPnil) and is included in 'Trade and other payables' in the consolidated balance sheet.
b) Advisory fees
Under the Operational Services Agreement, the Administrative Agent also receives an advisory fee based on the successful buy-side and sell-side transactions of the Company for any equity investment. The advisory fee is 2% of the equity transaction value unless otherwise agreed between the parties.
Advisory fees for the period 1 April 2017 through 31 December 2017 totalled GBP675,712 (2016: GBPnil) and are presented in the consolidated statement of comprehensive income. There are no amounts outstanding as at 31 December 2017 (2016: GBPnil).
c) Performance fees
The Administrative Agent also receives a performance fee of 20% of the excess of any proceeds from the full or partial realisation on disposal of each of the Company's co-investments over and above an 8% hurdle rate after the deduction of the original cost of the co-investment and the attributable proportion of all other expenses incurred by the Company in respect of co-investments.
Performance fees for the period 1 April 2017 through 31 December 2017 totalled GBP1,246,443 (2016: GBPnil) and are presented in the consolidated statement of comprehensive income. The amount outstanding as at 31 December 2017 was GBP624,297 (2016: GBPnil) and is included in 'Trade and other payables' in the consolidated balance sheet.
d) Other fees
Under the Operational Services Agreement, the Administrative Agent may also recharge costs incurred, either directly or indirectly by its contracted advisors, on behalf of the Company. For the period 1 April 2017 through 31 December 2017, the Administrative Agent recharged such other costs to the Company totalling GBP595,659 (2016: GBPnil) and is included in other expenses (Note 14). The amount outstanding as at 31 December 2017 was GBP189,464 (2016: GBPnil) and is included in 'Trade and other payables' in the consolidated balance sheet.
The Administrative Agent has entered into an Investment Advisory Agreement with the Investment Adviser to advise on the investment of the assets of the Company. The Investment Adviser does not receive any management or performance fees from the Company. Any fees earned by the Investment Adviser are paid by the Administrative Agent.
17. Professional fees
2017 2016
Notes GBP'000 GBP'000
------------------------ ------ --------- ---------
Administration fees 18 359 368
------------------------ ------ --------- ---------
Consulting fees 34 300
------------------------ ------ --------- ---------
Directors' fees 19 205 261
------------------------ ------ --------- ---------
Auditor's remuneration 20 85 124
------------------------ ------ --------- ---------
Legal fees 104 63
------------------------ ------ --------- ---------
Other fees 85 80
------------------------ ------ --------- ---------
872 1,196
------------------------ ------ --------- ---------
18. Administration fees
The Company has appointed Mayflower Management Services (Bermuda) Limited ( the "Administrator") to provide administration services pursuant to the Administration Agreement dated 30 July 2007 and it receives an annual administration fee at prevailing commercial rates. Administration fees for the year ended 31 December 2017 totalled GBP359,432 (2016: GBP367,553) and are included in Professional fees (Note 17). There was no administration fee payable to the Administrator as at 31 December 2017 (2016: GBP91,226).
The Company has also entered into an agreement with Mayflower Corporate Services Limited ("MCS"), a subsidiary of the Administrator to provide corporate secretarial services. Any fees due to MCS will be paid by the Administrator.
19. Directors' fees
2017 2016
GBP'000 GBP'000
------------------------- --------- ---------
Chairman's remuneration 65 55
------------------------- --------- ---------
Directors' fees 140 206
------------------------- --------- ---------
205 261
------------------------- --------- ---------
The members of the Board of Directors are listed in the annual report and are considered to be Key Management Personnel. No pension contributions were made in respect of any of the Directors and none of the Directors receives any pension from any portfolio company held by the Company.
During the year none of the Directors waived remuneration (2016: none). Other fees paid to the Directors included consulting fees of GBP24,694 paid to the Chairman of the Board. No fees were payable as at the year end (2016: none). For the years ended 31 December 2017 and 31 December 2016 members of the Board of Directors held shares in the Company and were entitled to dividends as detailed below:
2017 2016
'000 '000
------------------------------------- ------- -------
Shares at the beginning of the year 2,231 385
------------------------------------- ------- -------
Shares acquired during the year 459 1,846
------------------------------------- ------- -------
Shares at the end of the year 2,690 2,231
------------------------------------- ------- -------
Dividends paid to Directors GBP161 -
------------------------------------- ------- -------
Dividends payable to Directors - GBP100
------------------------------------- ------- -------
20. Auditors' remuneration
2017 2016
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Audit of consolidated financial statements 85 96
-------------------------------------------- --------- ---------
Other assurance services - 28
-------------------------------------------- --------- ---------
Total Auditor's remuneration 85 124
-------------------------------------------- --------- ---------
21. Withholding tax
Under current Bermuda law the Company is not required to pay tax in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that in the event of such taxes being imposed, the Company is exempt from such taxation at least until 31 March 2035.
The Company may, however, be subject to foreign withholding taxes in respect of income derived from its investments in other jurisdictions. For the year ended 31 December 2017, the Company was not subjected to foreign withholding taxes (2016: nil).
22. Earnings per share
The earnings per share calculation use the weighted average number of shares in issue during the year.
2017 2016
--------------------------------------------------- ---------- ----------
Basic and diluted earnings per share GBP0.22 GBP0.35
--------------------------------------------------- ---------- ----------
Profit for the year ('000) GBP44,925 GBP66,677
--------------------------------------------------- ---------- ----------
Weighted average number of shares in issue ('000) 203,859 189,901
--------------------------------------------------- ---------- ----------
23. Net asset value per share
The net asset value per share calculation uses the number of shares in issue at the end of the year.
2017 2016
------------------------------------------------ ----------- -----------
Basic and diluted net asset value per share GBP2.45 GBP2.31
------------------------------------------------ ----------- -----------
Net assets attributable to shareholders ('000) GBP502,040 GBP438,432
------------------------------------------------ ----------- -----------
Number of shares in issue at year end ('000) 204,804 189,804
------------------------------------------------ ----------- -----------
24. Share capital
a) Authorised and issued capital
The authorised share capital of the Company is 280,000,000 ordinary shares at a par value of GBP0.01 each. Ordinary shares are listed and traded on AIM of the London Stock Exchange. Each share confers the right to one vote and shareholders have the right to receive dividends.
As at 31 December 2017, the Company's issued and fully paid share capital was 204,804,036 ordinary shares (2016: 189,804,036).
2017 2016
'000 '000
----------------------------------------------- -------- --------
Ordinary shares outstanding at the beginning
of the year 189,804 191,078
----------------------------------------------- -------- --------
Treasury shares purchased - (1,274)
----------------------------------------------- -------- --------
Treasury shares issued 15,000 -
----------------------------------------------- -------- --------
Ordinary shares outstanding at the end of the
year 204,804 189,804
----------------------------------------------- -------- --------
b) Treasury shares
On 24 January 2017, the Company sold 15,000,000 (2016: nil) ordinary shares at a share price of GBP1.57 per share and a total net cash consideration of GBP23,290,950 (2016: GBPnil). No treasury shares were purchased during the year (2016: 1,274,279 ordinary shares for a total cash consideration of GBP1,853,928). On 25 January 2017, the Company cancelled its remaining 2,108,843 treasury shares.
All rights associated with treasury shares held by the Company are suspended until the shares are re-issued.
As at 31 December 2017, the Company holds no treasury shares (2016: 17,108,843).
c) Share premium
Share premium represents the amount received in excess of the nominal value of ordinary shares.
25. Dividends
On 11 September 2017, the Board of Directors declared and approved payment of an interim dividend of 2.25 pence per ordinary share which resulted in a dividend payment of GBP4,608,091 paid on 26 October 2017 (2016: On 16 December 2016, the Board of Directors declared and approved a final dividend of 4.5 pence per ordinary share which resulted in a dividend payment of GBP8,541,181 paid on 30 January 2017).
26. Commitments
The Company had the following capital commitments in Euros at the year end:
2017 2016
EUR'000 EUR'000
--------------------------------------------------- --------- ---------
Fund I
--------------------------------------------------- --------- ---------
Total capital commitment: GBP167,486 (2016:
GBP160,741) 188,398 188,398
--------------------------------------------------- --------- ---------
Called capital at the beginning of the year 178,978 178,978
--------------------------------------------------- --------- ---------
Capital calls during the year: 3.6% (2016: 0%) 6,782 -
--------------------------------------------------- --------- ---------
Called capital at the end of the year: GBP165,141
(2016: GBP152,704) 185,760 178,978
--------------------------------------------------- --------- ---------
Unfunded capital commitment: GBP2,345 (2016:
GBP8,037) 2,638 9,420
--------------------------------------------------- --------- ---------
Aggregate recycled commitment 13,000 5,652
--------------------------------------------------- --------- ---------
2017 2016
EUR'000 EUR'000
--------------------------------------------------- --------- ---------
Fund II
--------------------------------------------------- --------- ---------
Total capital commitment: GBP168,910 (2016:
GBP170,640) 190,000 200,000
--------------------------------------------------- --------- ---------
Called capital at the beginning of the year 153,000 114,000
--------------------------------------------------- --------- ---------
Capital calls during the year: 7% (2016: 19.5%) 14,000 39,000
--------------------------------------------------- --------- ---------
Adjustment for partial sale during the year (8,350) -
--------------------------------------------------- --------- ---------
Called capital at the end of the year: GBP141,040
(2016: GBP130,540) 158,650 153,000
--------------------------------------------------- --------- ---------
Unfunded capital commitment: GBP27,870 (2016:
GBP40,100) 31,350 47,000
--------------------------------------------------- --------- ---------
During the year, the Company sold 5% of its investment in Fund II for a total consideration of EUR8,216,636.
2017 2016
EUR'000 EUR'000
-------------------------------------------------------- --------- ---------
Fund III
-------------------------------------------------------- --------- ---------
Total capital commitment:GBP289,618 (2016: GBP277,290) 325,780 325,000
-------------------------------------------------------- --------- ---------
Called capital at the beginning of the year 9,750 -
-------------------------------------------------------- --------- ---------
Capital calls during the year: 35% (2016: 3%) 114,047 9,750
-------------------------------------------------------- --------- ---------
Called capital at the end of the year: GBP110,055
(2016: GBP8,319) 123,797 9,750
-------------------------------------------------------- --------- ---------
Unfunded capital commitment: GBP179,563 (2016:
GBP268,971) 201,983 315,250
-------------------------------------------------------- --------- ---------
Total unfunded capital commitments: GBP209,778
(2016: GBP317,108) 235,971 371,670
-------------------------------------------------------- --------- ---------
The Company had the following loan commitments at the year end:
2017 2016
GBP'000 GBP'000
-------------------------------------------- --------- ---------
Total revolving loan facility commitments:
-------------------------------------------- --------- ---------
Fund I 5,000 5,000
-------------------------------------------- --------- ---------
Fund II 20,000 15,000
-------------------------------------------- --------- ---------
Fund III 20,000 -
-------------------------------------------- --------- ---------
Oakley NS (Bermuda) L.P. 3,000 -
-------------------------------------------- --------- ---------
48,000 20,000
-------------------------------------------- --------- ---------
Total unfunded loan commitments:
-------------------------------------------- --------- ---------
Fund I 2,122 3,000
-------------------------------------------- --------- ---------
Fund II 20,000 10,688
-------------------------------------------- --------- ---------
Fund III 20,000 -
-------------------------------------------- --------- ---------
Oakley NS (Bermuda) L.P. - -
-------------------------------------------- --------- ---------
42,122 13,688
-------------------------------------------- --------- ---------
27. Contingent liabilities
In the ordinary course of business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history, experience and assessment of existing contracts, the Board of Directors believe that the current likelihood of such an event is remote.
As at 31 December 2017 and 2016, there are no contingent liabilities outstanding.
28. Related parties
Balances and transactions between the Company and its subsidiary have been eliminated on consolidation and are not disclosed in this note. Related parties as disclosed below are not part of the consolidation and for this reason are not eliminated.
The Investment Adviser and the Administrative Agent are considered related parties to the Company given the direct and indirect control and transactions with them. Until 31 March 2017, the Manager was considered a related party to the Company given the direct and indirect control and transactions with the Manager.
Management fees and performance fees paid for the period 1 January 2017 through 31 March 2017 are detailed in Notes 14 and 15. Operational service fees, advisory fees, performance fees and recharged costs paid to the Administrative Agent for the period 1 April 2017 through 31 December 2017 are detailed in Notes 14 and 16. The agreements between the Company and these service providers are based on normal commercial terms.
During the year ended 31 December 2017, the Investment Adviser recharged staff costs of GBP409,722 (2016: GBP132,565) and overheads of GBP2,343 (2016: GBP42,435) to the Company which is included in other expenses (Note 14).
As part of the Company's investment in Fund III, the Company agreed to pay Oakley Capital Manager Limited, the manager of Fund III (the "Fund III Manager"), an option fee of EUR1,500,000 to secure the option to increase the Company's commitment in Fund III by an additional EUR150,000,000 at any time on or prior to 31 December 2016. Under the terms of the option agreement, the Fund III Manager would repay the option fee in the event that the Company exercises the option. In November 2016, the Company exercised 50% of the option when it committed an additional EUR75,000,000 to Fund III. The Fund III Manager repaid 50% of the option fee to the Company at that time. In December 2016, it was agreed that the Fund III Manager would repay the remaining 50% of the option fee. The Company did not exercise the remaining portion of the option and the option agreement expired on 31 December 2016. As at 31 December 2017, the GBP666,750 (EUR750,000) is included in 'Trade and other receivables' in the consolidated balance sheet (2016: GBP639,300 (EUR750,000)).
Until 7 June 2016, the Administrator and the Company were considered related parties by virtue of a Director in common. This Director did not seek re-election to the Company's Board of Directors at the Company's 2016 Annual General Meeting. Administration fees paid to the Administrator are detailed in Note 18.
One Director of the Company is also a Director of the Investment Adviser and Oakley Advisory Limited; entities which provide services to, and receive compensation from, the Company. Until 31 March 2017, one Director of the Company was also a Director of the Manager, an entity that provided services to, and received compensation from, the Company. The agreements between the Company and these service providers were and are based on normal commercial terms.
Throughout 2017, no Director of the Company had a personal interest in any transaction of significance for the Company (2016: none).
Fund I is considered a related party due to the investment the Company has in Fund I. During the year ended 31 December 2017, the Company acquired an interest in OCPE Education L.P. from most Limited Partners of Fund I and paid EUR23,492,217 (GBP20,795,311) for such additional interests in OCPE Education L.P.
29. Events after the balance sheet date
The Board of Directors has evaluated subsequent events from the year end through 14 March 2018, which is the date the consolidated financial statements were available for issue. The following events have been identified for disclosure.
On 9 February 2018, the Company increased its loan to Oakley NS (Bermuda) L.P. from GBP3,000,000 to GBP7,850,000 and extended the repayment date to 9 February 2019.
On 12 February 2018, the Company agreed to extend the repayment date on one of its loans to Oakley Capital III Limited to 30 June 2018.
On 9 March 2018, the Company received a distribution of EUR11,976,638 (GBP10,643,639) from Fund III arising from the refinancing of capital by Casa & at Home.
On 14 March 2018, the Board of Directors declared and approved payment of a dividend of 2.25 pence per ordinary share resulting in a dividend of GBP4,608,091 payable on 26 April 2018.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKQDPBBKBBND
(END) Dow Jones Newswires
March 15, 2018 03:01 ET (07:01 GMT)
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