Oakley Capital Investments Limited

Good morning and thank you for joining the Oakley Capital Investments 2021 four-year results webcast. In summary, we saw strong earnings and realizations, which drove significant NAV growth in 2021. And looking ahead, we expect the current 22 portfolio companies to deliver the benefit from a range of long-term trends across three core sectors. Based on the portfolio being fully revalued to December, The NAV per share has risen from 445 pence at June to 338 pence at the end of 2021. Sustained NAV growth is delivering scale for OCI with NAT assets now just shy of the £1 billion mark. The 35% total NAV growth for the year speaks for itself, and we'll talk more on what specifically drove this and how our growth can be sustained. Cash of £163 million currently sits on the balance sheet, representing 17% of NAV, and much closer to our long run average of 15%. This healthy level of cash and expected proceeds has enabled us to make an initial commitment to the recently launched Fund 5. As the NAV per share bar chart here shows, performance momentum is building. thanks to an established portfolio and a focused investment strategy. Our five-year compound annual growth rate of 19% is one of the highest in the sector and in line with what we believe is repeatable in the years ahead. Now we take a look at what drove the recent NAV growth. In short, portfolio company financial performance was the key driver in the period. with 75% of portfolio company growth being driven by the increase in EBITDA over the year. The average portfolio EBITDA growth in the period was 28%, with the growth rate higher in the second half of the year, reflecting that this growth wasn't based on a pandemic-related boost to our tech investments. We'll highlight some of the best performers over the slide. In turn, multiple expansion drove 25% of the value growth, half of which was based on the realization of Tech Insights. The portfolio now stands at a conservative average EV EBITDA multiple of 14 times. We'll talk more on this and our confidence in these ratings shortly. The largest contributors to OCI's NAV based on their financial performance was IU Group, The German university, with an online platform that can deliver tuition of multi-topic degrees to people in work anywhere in the world, saw student numbers exceed 80,000 by the end of the year, up from 52,000 at the start of it. Wishcard added 10 pence to net asset value as Europe's leading gifts and rewards platform saw sales grow by 70%, selling over 9 million multi-brand gift cards in the year. with the business recording strong growth across all business segments, with particularly impressive e-commerce sales, which more than doubled versus last year. And thirdly, Contabo, which has seen above budget demand for its web hosting services continuing to surge, leading to a doubling of EBITDA in the year. When it comes to multiple expansion, as we touched on, Tech Insights is the key contributor. The technical content platform for silicon microchips saw its valuation raised to reflect the signing of an agreed sale of a stake to CVC in December. The sale at 130% premium to the June book value reflects one, the transformation, the quality of the company's earnings with 20% subscription revenue on acquisition growing to 65% in 2021. It also reflects the discipline that Oakley adopts when valuing its portfolio companies. And thirdly, it demonstrates the continuing strong demand for our tech enabled assets, particularly from the large global sponsors. Paying 14 times for 28% EBITDA growth sounds pretty attractive, a conservative rating in contrast to many tech growth stocks, which were priced for perfection in 2021. But even after recent falls, it appears prudent. If we compare, we'd say the tech-focused NASDAQ, it is trading on double our portfolio rating. Yeah, our EBITDA is growing 50% faster than that of the NASDAQ. In addition to this, it's worth considering four hygiene factors when it comes to our valuation multiples. One, Oakley and the Board of OCI receive independent valuations to compare with those provided by the manager. On average, since inception and through cycles, Oakley has sold investee companies at an average premium to book of 50%. The current multiples are not under-peered by listed peer groups. IU Group, as a great example, doesn't have a direct listed peer. Instead, the prevailing multiple trends tends to move the trend closer to reflect the entry valuation. And finally, it's worth clarifying that the manager, Oakley, as is the case in general with true private equity, has no incentive to aggressively value the portfolio, as it has no bearing on its management or performance fees. They are only paid the latter at the point of realization. Taking a closer look at how the NAV breaks down, based on December valuations, OCI currently has a total look-through portfolio valued at £928 million. It has 163 million pounds of cash at the period end, and both are offset by 130 million of liabilities, which are largely fund facilities within the Oakley funds. The net of these three is the 961 million of net asset value. Focusing initially on that cash, this combined with expected near-term proceeds puts OCI in a strong position to participate in future fund performance. To this end, OCI announced an initial 400 million euro commitment to the new fund five. There's a range of factors underpinning our confidence in likely near-term proceeds, and they include the consistent engagement from interested parties, the current age of the portfolio. Despite recent new investments, the average age of the holdings is still just under three times. And the average hold period of our realized assets is 3.6 years. Today, seven of the invested companies have been held for more than four years. The expected proceeds are also in line with past levels, with the last two years generating proceeds of $460 million. And finally, as this week's BAME private equity report underlined, there's a record $1 trillion of dry powder sitting in buyout funds, particularly the large cap global funds. which bodes well for our future exits. The assets are split with 758 million held by the funds and 170 million of direct portfolio investments, which includes 123 million of NorthSouth's 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. Due to the impact of the pandemic, NorthSouth required additional funding support in 2021 to fund apparel losses in the working capital of both apparel and the action sports division. It is encouraging to now report a very positive outlook for the company, which is currently ahead of budget in all divisions and expected to deliver an EBITDA two and a half times that generated in 2019. 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. Noteworthy is OCI's increasing relative exposure to IU group, which remains one of the most exciting prospects in the portfolio as it moves from being a German and European opportunity to being a global one. Whilst we divide the investments into our three focus sectors, there is clear overlap between them. It's 70% essentially qualifying as being technology due to them delivering their products or services digitally. And the majority of the remainder that currently sit outside that technology subset, we are exploring the adoption of digital solutions as part of the investment thesis. We often highlight this, but it's all the more important on certain times that 75% of the portfolio, or 17 of the 22 companies, enjoy an increasing level of subscription-based or recurring revenues, with the visibility attracting increasing valuations, as Tech Insights has demonstrated. In the current climate, it's worth highlighting the Western and Southern European focus of the portfolio. Based on our expertise and network, this will remain the fund's geographic footprint going forward. I should note, however, we are less geography-led, but primarily opportunity and sector-led when looking for investments. As we look to the future and consider the resilience of the current portfolio post-COVID in the face of global economic uncertainty and consider the ability for Oakley to repeatedly source new deals in spite of strong demand for its hot sectors, the next slides will outline the three key factors which the continued performance of the Oakley Fund is built upon. Firstly, Oakley will be sticking to its knitting with focused sectors that it knows and understands well. Importantly, these sectors we've been investing, sorry, importantly, these are sectors and trends that we're investing behind, which are irreversible long-term trends that are in their relative infancy. As we outlined here, they include business migration to the cloud, or the consumer shift to online, which was only just begun in some sectors and geographies. And it's not just digital trends we invest behind, but also, for example, the growing global demand for quality and accessible education. Importantly, although at an early stage in the year, we can report that the portfolio across the board has been responding well as we'd imagined from these trends and trading very much in line with expectations. But there is one facet of our approach which has delivered us, which has defined us since inception, and most differentiates us as an investor, and is the key ingredient to how we unearth such attractive companies at attractive venture valuations, that it is our relationship-led approach to origination. Our empathetic partnership style for backing and supporting successful business founders has built us an enviable reputation and a network of entrepreneurs' proven talents, some of whom we have backed three or four times, and who, between them, will have committed some 400 million euros to Oakley's funds themselves. The mid-market opportunities that they help us unearth aren't straightforward. They may be a carve-out from a larger parent or a family-owned group with little management information, poor accounting, or messy shareholder structures. It could be a very short timeframe in which we have to act. The key point is that they are complex, and they are not close to being part of a competitive auction. If you are equipped and inclined to navigate this complexity as Oakley is, then there is the opportunity to acquire companies at really interesting multiples in spite of growing competition for private assets. I'll tell you more about the exciting new investments we've made, but first let's talk about what we do with businesses once we've invested in them. The third pillar of performance is Oakley's Value Creation Toolkit. We've outlined here four of the strategies which we are most prolific at, all enable us to drive value regardless of the economic cycle, or operating environment. In the interest of time, I'll highlight two of these. Second there on the page is digitization. And that's taking offline or companies with an early stage digital solution and driving the growth of that channel. Alessi is a great example of this. We acquired the business in 2019 when it was loss-making and had a very modest online sales, less than 5%, thanks in part to a dysfunctional and third-party provided website. Two, three years later, and despite of COVID, with an entirely new management team, sales were up 50%, but just as importantly, after a full revamp of its digital channels and marketing, 30% of sales are now thanks to e-commerce. And the EBITDA this year is set to exceed 6 million euros. Now, buy and build is a well-known strategy for us. We've made 40 platform deals to date, and they, between them, have made over 100 acquisitions. And we have plenty of active roll-up strategies still within the fund. They include the likes of eCommerce One, ICP Education, Contabo, Windstar, Ocean, but most notably, Grupo Primavera, which after eight acquisitions, it's fulfilling its mission to become Iberia's leading independent provider of business software. helping thousands of SMEs migrate to the cloud. We know the kind of value that can be created by being the national software as a service business champion. Visma is a clear case in point. To briefly demonstrate what we've been describing throughout much of this presentation, the chart here provides a value creation bridge for Oakley's realized investments. demonstrating that organic growth is the key driver with 45% of value created here, whilst M&A and multiple expansion are circa 20, 30% respectively. 2021 saw Oakley continue to source new opportunities with six investments made in the year laying the foundation for future growth. We've talked about most of these at the half year. They include Idealista, Southern Europe's answer to right-moving Zoopla, with digital penetration amongst consumers in Italy and Spain far lower than Northern Europe. It's a really exciting growth opportunity, and it builds on our track record in digital marketplaces. ICP education is a leading chain of premium UK nurseries, extending our breadth of education investments in yet another highly fragmented education vertical. One new investment worth highlighting, which we made in September, is founder-led SeaTag. The Spanish advertising technology business is the leader of contextual advertising, which allows audiences to be identified based on the content, written, image, video, or otherwise, that they are consuming. So why is this appealing? Well, third-party cookies are disappearing amid privacy concerns, and big brands are having to prepare for a cookie-less future. And that is why the likes of Adidas, Renault, Nestle, Microsoft, and Unilever are all working with SeaTac who have already exceeded their expectations, growing sales over 80% in the last 12 months. In conclusion, what I hope this brief presentation has underlined, we have significant confidence in the performance of OCI in 2022 and beyond. There's earnings growth, which, thanks to the Digital Focus portfolio, continues to benefit from the accelerating megatrends. We have cash and expected proceeds, leaving OCI well-placed to meet its commitments to the Oakley funds as we make new investments. And finally, we can expect continued activity as we see strong prospects for both investments and realizations. That brings the formal part of the presentation to a close. And thank you very much for listening. I now hand over to James to moderate the Q&A should there be any audience questions.

Thank you, Stephen. And just as a reminder, if you would like to submit any questions, please click on the questions tab at the top of the screen. And our first question is, Steve, great set of results as usual, but the world has changed somewhat since year end. How confident are you you can sustain strong performance going forward?

I think confident. I mean, look, I think it's fair to say that no one quite knows what is in store for the global economy this year and the disruption that geopolitical events are causing. And clearly, we won't be unimpacted by that. But I think hopefully what we've identified here is that many of the trends we're investing behind are very persistent, irreversible trends that and we're confident that we're going to continue to benefit from those. And look, if we look, it's very early in the year and we're only in March, but performance so far has proven to be in line with those expectations.