Oakley Capital Investments Limited

Good morning, and thank you for joining the Oakley Capital Investments interim results webcast. It's another period of sustained performance from OCI, thanks to repeatable origination and strong EBITDA growth, growth which is a result of an investment portfolio focused on digital delivery of products and services. The key stats here are known. But to repeat the headlines, despite COVID and FX headwinds and some cash drag, the company recorded an 11% total NAV return in the first half of this year and 26% return for the last 12 months, exceeding an increasing five-year CAGR that now stands at 11%. As the NAV per share bar chart shows, Performance momentum is starting to build here, thanks to an established portfolio and a focused investment strategy. More importantly, whilst the share price may lag the current NAV per share, it is, however, reflecting the NAV growth with total shareholder return of 28% in the period. Driving 75% of portfolio value increase in the period was EBITDA growth. We've highlighted some examples here of those enjoying high growth, companies like Wishcard, who have seen sales of their German multi-retail gift voucher double over the last 12 months. Or 7XT, whose fitness app Jamondo has seen a circa 70% increase in subscribers to its online gym classes. Multiple expansion, EVBITDA increase essentially, drove 25% of portfolio value increase in the first half. The most notable company which enjoyed high EBITDA growth and a modest increase in EBITDA was IU Group, formerly known as Career Partner Group, which alone added 15 pence to the Napa share. This EdTech platform can deliver multi-topic degrees now to people in work anywhere in the world. It will offer some 340 degree programs by the year end. It now has 75,000 students, up from 17,000 in 2018 when we acquired it, And I think most notable is that 70% of those students are for non-academic households. So it's democratizing access to education. And also 25% of those students are now international. They're from some 110 different countries. And we expect that number to grow significantly over the next year or so. I mentioned IU Group in such detail because our target here is for IU Group to be the largest university in Europe within three years' time. And we expect it to be. I guess one of the key drivers of OCI is NAB as well in the coming years. As previously mentioned, there are some headwinds. Seven of the 21 portfolio companies are trading at or below pre-COVID budgets, and that has impacted NAB in the first half by four pence. FX headwinds have also reduced NAB by 14 pence. So let's now break down the NAB and the constituents of the investment portfolio. I canter through a slicing and dicing of the assets, but But based on June valuations, OCI currently has a look-through portfolio valued at £766 million, has £172 million of cash at the period end, and both are offset by £134 million of liabilities, which are largely fund facilities within the Oakley funds. The net of these three numbers is £804 million of net asset value. The cash, compared to outstanding fund commitments of £438 million, However, it is estimated that of this number, only 243 million is likely to be drawn. This takes into consideration the use of facilities refinancings and the final level of drawdown likely within fund four and the origin fund. The assets are split with 615 million held via the funds and 151 million of direct portfolio investments, which includes 110 million of north sales debt and the residual being a direct equity stake in timeout. The board have confirmed that the intention is to realise these direct positions within the next 12 to 24 months. As you can see on this slide, our equity positions are evenly split between the three focus sectors of technology, consumer and education. They're also reasonably evenly split by underlying companies with no pronounced single company exposure risk. A consistent theme across the portfolio and sectors is Oakley's investments in tech-enabled companies, with 14 of 21 companies delivering their products or services digitally. And in the majority of the remainder, we're exploring the adoption of digital solutions as part of the investment thesis. Related to this theme is that 16 of 21 companies enjoy an increasing level of subscription-based or recurring revenue with the benefit the visibility this provides and the rising value most pull it attracts. Finally, as you would expect with a portfolio positioned as ours is, the majority of the companies, 14 of 21 of them are trading at or above pre-COVID budgets. But there is some post-pandemic recovery we can look forward to from the remainder. Let's now look at how Oakley is approaching investing and its success sourcing so far this year. I'll attempt to summarize all Oakley does, or at least how it differentiates itself in one slide. But I guess firstly, and most importantly, is how it approaches sourcing. It's got a relationship-led investment style and that has helped them build a business founder network that provides repeated opportunities to back proven talent. It attracts entrepreneurs new to Oakley as well, and in turn, They have demonstrated their belief in Oakley by investing themselves in the Oakley funds. Only 200 million euros of our assets under management are funds committed by the business founders we've backed. The two most important outcomes of this approach are one, quality of the management we're backing, to make an obvious statement, but it's the single biggest driver of our investment success. In 95% of the cases, we finish an investment with the management that we back to the start of an investment. And the average MP is something more like 50%. And secondly, by virtue of how many of how many of the deals are off market, and often that we're the first private equity capital investing in a company, we see less or no competition for assets. And this is reflected in the below market multiples that Oakley pays. Secondly here, and I think we often overlook it locally, is the role active management plays as a significant part in value creation. And our drivers or the specialist drivers for us include human capital management, digital acceleration, improving the quality of earnings and marketing excellence. But I guess we're both most known for that transformative M&A. buy and build that has proven to be a highly effective way for Oakley portfolio companies to scale up, adding new products and services and customers and entering new markets. The 40 platform companies that Oakley funds have invested in since inception have made over 100 bolt-on deals to date. And then there is the investment themes. In this case, I've defined them in terms of the significant global trends that we are investing behind. The most notable is the growth of global internet users and the accelerating adoption of consumer and digital-led businesses, digital solutions. In terms of ways in which we play that, that is in direct-to-consumer, either in fast-growing or establishing new D2C channels, it's in SaaS solutions, and also it's in repeat regional plays. So that is... going into other countries where we are investing behind the digital disruption curve, learning from more mature markets like the UK and to some extent Germany. And you'll see us therefore investing quite a lot in this particular area in Southern Europe, in Spain, Italy and Portugal. On the subject of M&A, the Oakley Funds have made three transformative bolt-ons in the period. The acquisition of Primavera alongside Econ and the four other acquisitions has created Groupo from Avera and creates the largest independent provider of business software in Iberia. The acquisition of Compass, that's the leading crew management SaaS provider to the maritime industry by Ocean Technologies Group, has brought the group to a stage where it's now the leading software provider to the maritime industry, serving around 20,000 vessels and over 1 million seafarers every year. The group includes the clear market leaders in e-learning, human capital management, and fleet and information management software solutions. And finally on this page, Windstar Medical, which acquired Lab Cosmetics. Now, Windstar is Germany's leading over-the-counter consumer healthcare company, And the strategy here is to create and scale the business through continued product innovation, digitalization, and increase of acquisitions. We're retrieving all three with Labs Cosmetics. It's the leading provider of clean beauty products. And importantly, this is one, a high growth segment, one of the highest growing segments within the broader beauty market. And it also has a fast growing DTC channel, which in turn, you know, WinStar can profit from. So in the period we made four new platform deals, there is Idealista, Southern Europe's answer to kind of right move and Zoopla. Digital penetration amongst consumers in Italy and Spain is far lower than Northern Europe. So there's really exciting growth opportunities here. To give you some example, Idilista is approximately a fifth of the value of a Rightmove, which obviously operates in a very mature market here in the UK. But Idilista is the number one provider, the number one online market, property marketplace in Spain, the number two in Italy, the number one in Portugal. You're talking about markets each of a similar scale to the UK. But at the moment, there isn't the same level of real estate agent penetration nor the spend per agent at this time. But clearly, the trend is moving exactly that direction. Following that online real estate sector expertise, we've made an investment in Dextus, which takes us into the offline world for the first time. Now, the business itself has performed incredibly consistently over the cycle, growing at 15% per annum. The key for us was that 75% of the business is focused on lettings and the visibility that that brings. It's also sort of a highly fragmented sector, particularly retail. London and South East where Dexter's is focused. So there is still the opportunity to buy single site strong operators in different kind of towns or villages in that region. One of the clear opportunities for us that we've identified is to make Dexter's multi-channel and using an online approach, a digital approach to capture some of the the services and spend in this area that is outside of the full service lettings proposition. ICP education is the third largest children's nursery group with nearly 6,000 children at 44 nurseries across England. Premise here is, I mean, one, the nursery sector is large, 6.7 billion. There's an estimated 850,000 children now in nurseries across the UK, some 15,000 nurseries, but most of which owns and operates on a single site basis. And so there's an opportunity to create one of the largest platforms here for nurseries in the UK and in time internationally. The market itself is attractive and it's grown at nearly 5% CAGR for the last kind of 10 years. And it's being driven by, I guess, two things. I mean, it's not just in early learning, but there is an increasing awareness of the importance of early years education. And of course, there's a rising female labour market participation. And finally is e-commerce. The e-commerce, sorry, e-commerce one. It's an e-commerce software roll-up opportunity. And we've initially acquired two of the leading software solutions for German online merchants selling via marketplaces. So this group will provide the plumbing, if you like, for e-commerce. back-end operations for merchants. It's everything from stock control, listing, logistics, et cetera. I guess the key thing to say about this group, or even to put it in context of Fund 4, is that these are clearly attractive opportunities. They've come in via our, in many cases, via the network relationships we've had. But I guess the most important factor for many when they think about a lot of the dry powder in PE and also the kind of significant competition for assets in really attractive sectors like these is kind of what you're paying for them. If I take fund four, the fund we are currently invested in, which is now 60% invested and has eight companies within it, roughly speaking, the average entry value of fund four to date has been about 12 times. That compares to peer group multiples for those companies about 16 times. And currently, that fund, the portfolio companies in that fund are growing their average EBITDA growth by over 40%. It says something about how we're able to access, you know, great companies, but at interesting and attractive valuations. If we take e-commerce one as an example of how we, you know, secure that business, and it's one, or our ability to secure a business, it's one, the fact that it's in an incredibly hot sector. It's digital, it's software, and it's focused on e-commerce. We sourced it via the Oakley network. Valentin Schutt was one of the founders and owners of one of the business, and he introduced that opportunity to us. And we've already backed Valentin in Wishcard in one of our earlier investments. And then finally, despite everything I've just said about this company, we've managed to acquire a single-digit EV EBITDA multiple. To bring the presentation to a close, we'll touch on ESG and also closing the discount. So, look, I think it's always a danger that anyone overstates their ESG credentials and that you lose credibility as a result. Oakley has always been fortunately focused on asset-like, low-impact companies. By virtue of our background and expertise, it will be easy for us to claim great green or ESG credentials as a result. However, I think there's always been a strong ethos of where we're willing to invest and not invest in the kind of other's misery. I think what we've seen, particularly in terms of ESG progression over the last year, is how it's become more formally integrated in the approach of the operations of the business. Actually, in a way that I think in general, I think private equity industry leads across all asset classes versus the public markets. despite a reputation in the media to the contrary. It's now very much part of our investment process. We now have set up a reporting platform that all portfolio companies now report into. And at this point in time, 70% of the portfolio comes on board on this process. We are in the process of developing a cybersecurity roadmap, which has been developed for 80% of the portfolio. And ahead in the rest of the year and beyond, we have a diversity and inclusion committee, which has just launched its review of diversity inclusion within the Oakley group. We're undertaking a carbon footprint assessment with the aim of developing a net zero strategy for Oakley. I think two stats here that kind of strike me is is one in 2020. We don't have the stats for the first half of this year. Oakley Portfolio Companies created 331 new jobs. And we now have NorthSouth Apparel has joined Alessi as being the second B Corp certified company within the portfolio. And then the discount, it's a slide that many of you may have seen before in terms of in kind of green are areas that need to be addressed or areas that we think would add advantage to Oakley's kind of governance, equity, accessibility, and those that we still think still need to be addressed. I won't touch on those that have been addressed, but I will touch on where I think we can do more. And I think we'll hopefully in time, help the discount close. ESG, as I discussed, I think the more we can develop ESG as part of our investment process. And I think the more sustainability we can create within our companies will create more value for those companies. And also, I think one of the key issues is the monetizing of direct investments under the kind of governance umbrella, which is something the board have clearly set out and I think would take away some of the uncertainties around past conflicts of interest. Liquidity is improving and notably, I think, with the increasing investment of retail wealth and private wealth managers, which is encouraging, I think share trading volume can continue to increase. We move from the AIM to the SFS, but ultimately, it will be an advantage for us to be a main list company, a premium list main list company. And that's something that the group would endeavour to achieve within the next 12 months or so. It's certainly a process that is And then there's accessibility. Our investor materials, our four-year results were awarded the best in the alternative asset class by the AIC, which is a really mark of the progress OCI has made in this area. I still think OCI is the lesser of the known listed PE, particularly amongst the direct investment peers. And look, we're younger and we're slightly smaller, And I think, you know, with the increase of our profile and awareness of our kind of consistent performance over time, I think that will kind of help. And then there's also reporting quarterly. At the moment, we report on a half yearly basis. That leads to a kind of sustained period where we have an update on the NAV. And we've committed to the latest introducing NAV reporting, quarterly reporting, with a full revaluation of the fund on a quarterly basis from Q1 of next year. I would say, and I say consistently, that anyone should acquire the shares of OCI for the growth in the NAV. Discount may close, we have less control over that, but the shares, as we highlighted earlier, track the NAV growth. And the more consistently we perform at the levels that we're doing, the more scale we create, then the more likely that the share price will meet or exceed the NAV per share. Bringing this section of the webcast to a close, we've got a lot of confidence in the performance of OCI in the second half and beyond. I talked about the digital, the tech focus of the portfolio and the other accelerating megatrends that we invest behind and those are very firmly in place for the years ahead. There's the cash, it's an encouraging level of cash to have, but it also means that we can really benefit from the new investments that the Oakley funds will be making. And also it enables us to further commit to new Oakley funds as and when those opportunities arrive. I think as well in terms of, as we think about news flow from here on, particularly news flow that may or may not, you know, drive the NAV in between reporting periods, we expect activity to continue at relatively high levels. And there are strong prospects for further investments and for realisations. I guess to give some context, the average holding period of our realised investments to date is about four years. The average holding period of our current investments, unrealized investments, is about three and a half years. So you'd expect those, as funds like Fund 3 mature, that there'll be opportunity for, if not realizations, maybe for refinancings.