TIDMOIT
RNS Number : 1457B
Odyssean Investment Trust PLC
31 May 2023
31 May 2023
ODYSSEAN INVESTMENT TRUST PLC
Annual Report and Financial Statements
for the year ended 31 March 2023
This announcement contains regulated information
Odyssean Investment Trust plc (the "Company" or "OIT") today
announces
audited results for the year ended 31 March 2023
Investment Policy
The Company primarily invests in smaller company equities quoted
on markets operated by the London Stock Exchange, where the
Portfolio Manager believes the securities are trading below
intrinsic value and where this value can be increased through
strategic, operational, management and/or financial initiatives.
Where the Company owns an influencing stake, it will engage with
other stakeholders to help improve value. The Company may, at
times, invest in securities quoted on other recognised exchanges
and/or unquoted securities.
It is expected that the majority of the Portfolio by value will
be invested in companies too small to be considered for inclusion
in the FTSE 250 Index, although there are no specific restrictions
on the market capitalisation of issuers into which the Company may
invest.
The portfolio will typically consist of up to 25 holdings, with
the top 10 holdings accounting for the majority of the Company's
aggregate Net Asset Value ("NAV") across a range of industries. The
Company will adhere to an exclusion-based investment approach to
avoid investment in companies involved in activities the Company
deems unethical and/or unsustainable.
The Company may hold cash in the Portfolio from time to time to
maintain investment flexibility. There is no limit on the amount of
cash which may be held by the Company from time to time.
Investment restrictions
- No exposure to any investee company will exceed 15 per cent.
of Net Asset Value at the time of investment.
- The Company may invest up to 20 per cent. of Gross Assets at
the time of investment in unquoted securities where the issuer has
its principal place of business in the UK.
- The Company may invest up to 20 per cent. of Gross Assets at
the time of investment in quoted securities not traded on the
London Stock Exchange.
- The Company will not invest more than 10 per cent., in
aggregate, of Gross Assets at the time of investment in other
listed closed-end investment funds.
Ethical and sustainability investment restrictions
The Company will not invest(1) in companies which derive any
revenue from, or are engaged in:
- the production or direct distribution of pornography;
- the manufacture, production or retail of controversial
weapons(2) (e.g. chemical, biological or nuclear weapons, cluster
munitions, landmines), civilian firearms and ammunition;
- the manufacture of alcohol and tobacco products;
- the ownership or operation of gambling facilities;
- sub-prime and/or predatory lending;
- oil and gas production (both conventional and unconventional,
including shale oil and gas, coal seam gas, coal bed methane,
thermal coal, tar sands, Arctic onshore/offshore deepwater, shallow
water and other onshore/offshore) extraction and refining;
- animal experimentation or animal testing, (a) where there is a
proven alternative and/or where testing is not mandated by
regulation; or (b) where there is no proven alternative and/or the
experimentation or testing is mandated by regulation, but where the
investee company is not adhering to the "three Rs" ethics of
Replacement, Reduction and Refinement.
The Company will not invest more than 10 per cent., in
aggregate, of Gross Assets at the time of investment in companies
involved in distributing, licensing, retailing or supplying tobacco
and/or alcohol beverage products.
(1) The Company will base its analysis of an investee company's
revenues and activities on publicly available information, and will
exclude revenues and activities that are considered to be
de-minimis, being those that represent less than 1% of the investee
company's revenue.
(2) Controversial weapons are those that have an indiscriminate
and disproportional humanitarian impact on civilian populations,
the effects of which can be felt long after military conflicts have
ended.
Borrowings
The Company does not intend to incur borrowings for investment
purposes, although the Company may, from time to time, utilise
borrowings over the short term for working capital purposes up to
10 per cent. of Net Asset Value at the time of borrowing.
Derivatives and Hedging
The Company will not use derivatives for investment purposes. It
is expected that the Company's assets will be predominantly
denominated in Sterling and, as such, the Company does not intend
to engage in hedging arrangements, however, the Company may do so
if the Board deems it appropriate for efficient portfolio
management purposes.
General
The Company will not be required to dispose of any asset or to
rebalance the Portfolio as a result of a change in the respective
valuations of its assets.
The Company intends to conduct its affairs so as to qualify as
an investment trust for the purposes of section 1158 of the
Corporation Tax Act 2010.
Any material change to the Company's investment policy set out
above will require the approval of Shareholders by way of an
ordinary resolution at a general meeting and the approval of the
Financial Conduct Authority. Non-material changes to the investment
policy may be approved by the Board.
Financial Summary
As at 31 March As at 31 March
Company performance 2023 2022 Change
---------------------------------------- -------------- -------------- ------
Shareholders' funds GBP181.2m GBP157.8m 14.8%
NAV per share 160.4p 164.0p (2.2)%
Share price per share 164.0p 166.0p (1.2)%
Share price premium to NAV per share(#) 2.2% 1.2%
Year ended Year ended
31 March 2023 31 March 2022
------------------------------------------ -------------- --------------
Revenue income per share* 0.2p 0.5p
Capital (losses)/gains per share* (4.1)p 23.5p
Total (loss)/profit per share* (3.9)p 24.0p
NAV total return per share(#) (2.2)% 17.7%
NSCI ex IC plus AIM Total Return Index(#)
** (13.4)% (2.1)%
Year ended Year ended
Cost of running the Company 31 March 2023 31 March 2022
------------------------------------------ -------------- --------------
Annualised ongoing charges(#) 1.45% 1.45%
# Alternative Performance Measures (see Glossary).
* Based on the weighted average number of shares in issue during the period.
** Used by the Company as comparator, not a Benchmark. Source: Bloomberg.
Past performance is not a guide to future performance.
Chairman's Statement
Introduction
I am pleased to present the Annual Report and Financial
statements for Odyssean Investment Trust PLC ("OIT" or the
"Company") covering the period from 1 April 2022 to 31 March
2023.
Performance
Over the year, the net asset value per share ("NAV per share")
of your Company fell by 2.2%. That said, the Company's performance
is creditable against the broad peer group and underlying markets
during a period of considerable market turmoil. Over a matter of a
few months, there has been a 400% increase in the absolute cost of
money (i.e. interest rates) and this continues to have
ramifications for both asset prices and company earnings. Moreover,
as the Portfolio Manager details, UK equity funds are extremely out
of favour, with open ended funds experiencing large
redemptions.
The net assets of your Company increased during the period under
review by GBP23.4m to GBP181.2m, representing a rise of 14.8%
reflecting a steady issuance of shares above the NAV per share.
This growth is extremely credible in the difficult environment and
reflective of increased awareness of the Company's differentiated
investment strategy, as well as the loyal, long-term shareholder
base.
Our management team are navigating these markets well and I am
confident we will make money out of them but some short-term
volatility has to be endured.
Discount and Premium Management
The share price has tracked in line with the NAV per share over
the period, albeit with some minor volatility across the late
summer. The Company's shares ended the period trading at a moderate
premium to its NAV per share.
The Company issued a total of 17.0m shares at a premium to NAV,
which meant that there was no dilution to existing shareholders. Of
these 1.2m were issued to the Portfolio Manager and connected
parties. Stuart Widdowson sold a total of 753,300 shares during the
year for personal reasons. He owned 1,171,425 shares at the
year-end. Since the period-end and up to the date of this report a
further 627,000 shares have been issued at a premium to NAV.
It is pleasing to note that the Company's average discount since
IPO has been narrower than 0.5%. The Board believes that the
Company's strong absolute and relative rating is driven by a number
of factors including good performance, a differentiated strategy
(only accessible to investors via OIT), effective communication
with existing and potential investors, a clear discount control
policy (including a periodic redemption facility), a well-balanced
register of long-term shareholders and multiple features which
align the interests of all stakeholders.
The Company's realisation facility coming up in the seventh year
after initial admission, starting on 1 May 2024, should continue to
anchor the price of our shares around NAV.
Dividend
The Directors expect that returns for shareholders will be
driven primarily by capital growth of the shares rather than
dividend income. No dividend is proposed for the year ended 31
March 2023.
Portfolio Manager
In spite of the double-digit relative NAV per share
out-performance over the year, and the considerable relative
outperformance over the three year test period, an absolute decline
in the NAV per share over the period meant that the high watermark
for the performance fee struck at the end of March 2022 was not
exceeded. As a result, no performance fee was paid to the Portfolio
Manager over the period.
Growth of the Company
The Board believes that the growth in the Company, described
above, provides a number of benefits to shareholders including
greater liquidity in the shares and a lower ongoing charges ratio
as the fixed costs of the Company are spread over a larger asset
base.
The Board is also of the view that investors typically prefer to
invest in larger more liquid trusts and hence further growth in the
Company's assets is likely to widen the universe of potential
shareholders, stimulating more demand and liquidity, which
ultimately should lead to less discount volatility. The Board will
continue to look for opportunities to grow the Company through
issuance or other strategic initiatives, where possible.
The Board
I am delighted to welcome Neil Mahapatra to the Board. Neil
became a Director on 3 April. He has over 20 years finance and
investment experience and is a managing partner at Kingsley Capital
Partners LLP.
Annual General Meeting ("AGM")
The fifth AGM of the Company will take place at 12.00 noon on
Thursday, 21 September 2023. The AGM will be held at the offices of
Odyssean Capital LLP, 6 Stratton Street, Mayfair, London W1J 8LD.
The Notice convening the AGM together with explanations of the
proposed resolutions can be found in the Notice of Meeting.
Outlook
At the time of this report, we have recently crossed the fifth
anniversary since your Company's launch. The NAV per share has
increased by more than 60%, during which time the relevant equity
markets have made negligible progress.
Investor sentiment towards UK equities remains very poor, but
the level of M&A activity from private equity and corporate
buyers of quoted UK companies is extremely strong so far in 2023,
indicative of many valuation anomalies. The Company has benefitted
from this trend, and, absent a material re-rating of markets, is
likely to continue to do so.
Investing in these market conditions can be challenging. The
positive and negative attributes of quoted equity markets,
particularly in less liquid smaller companies, is that
recalibration can be frighteningly quick, with some potential
overshoots. However what I observe as Chairman of this highly
concentrated, specialist portfolio, is that the hands-on active
management of our positions creates opportunities in bad days as
well as good days. I have taken great comfort in watching your
management team closely and although there are bumps in the road,
we have a team who know their companies well and can move quickly
to take advantage of situations.
The Portfolio Manager is also willing and able to engage with
their portfolio companies to help bring about positive change, the
benefits of which tend to be seen months later and deliver
non-market driven returns.
With the considerable M&A driven exits of portfolio
companies over the period, the Portfolio Manager has been busy
re-allocating capital. As a result, portfolio turnover has been
higher than expected for the strategy, but it is indicative of the
current opportunity set that the Portfolio Manager has been able to
find new investments so quickly.
It is also notable that the underlying portfolio generates the
supermajority of revenues from outside of the UK. Far from being
the stereotypical domestic smaller company exposed fund, the
Company's portfolio enables shareholders to benefit from
international growth opportunities. This feature, the
concentration, and the avoidance of various sectors drives the
differentiated performance against the indices and the broader peer
group.
The Board shares the Portfolio Manager's view that
notwithstanding short-term volatility and further potential
short-term weakness, above trend long-term future returns are
likely from this point. The lead indicator is likely to be data
showing that the level of outflows from UK equity funds is slowing.
Once fund flows stabilise and forced selling stops, it's likely
that UK equities will re-rate, potentially quite sharply for less
liquid smaller companies. The market backdrop for the level of
absolute returns in the next five years appears more supportive
than the first five years.
We are grateful for the ongoing support shown by shareholders
during the period.
Jane Tufnell
Chairman
30 May 2023
Portfolio Manager's Report
Stuart Widdowson
Ed Wielechowski
Details of the Portfolio Manager
The Company's Portfolio Manager is Odyssean Capital LLP.
The Portfolio Manager was founded in 2017 by Stuart Widdowson
and Harwood Capital Management Limited, an independently owned
investment group, and is jointly owned by both parties. The
Chairman of Odyssean Capital LLP is Ian Armitage, former CEO and
Chairman of HgCapital.
The Portfolio Manager's investment team, Stuart Widdowson and Ed
Wielechowski, identify and undertake research on potential investee
companies as well as managing the portfolio. They draw on the
experience of a three-strong Panel of Advisors, who have run and
invested in multiple quoted and unquoted smaller companies. In
addition, the investment team draws on the expertise and experience
of Mr Armitage and Mr Christopher Mills, who sits on Odyssean
Capital's Board as a Non-Executive JV Partner. Mr Armitage and Mr
Mills have more than 85 years' combined investment experience in
quoted and unquoted smaller companies.
Stuart Widdowson, Co-fund Manager
Stuart has spent the last 22 years investing in public and
private UK small and mid-size corporates and a further two years
providing investment advisory services in the same field.
Prior to founding the Portfolio Manager, Stuart was at GVQ
Investment Management ("GVQ"), where he held the position of fund
manager and head of strategic investments for more than seven
years. During his time at GVQ, Stuart led the transformation of the
performance of Strategic Equity Capital plc ("SEC") and
significantly improved shareholder value. Stuart led SEC to win
several industry awards and was recognised as Fund Manager of the
Year at both the PLC and QCA awards in 2015.
Stuart began his career as a strategy consultant undertaking
commercial due diligence and strategy projects for private equity
and corporate clients. In 2001, he joined HgCapital and spent five
years working on small and mid-cap leveraged buyouts in the UK and
Germany. During this time, he worked on a number of public to
private transactions of UK quoted companies.
Ed Wielechowski, Co-fund Manager
Ed joined the Portfolio Manager in December 2017 as a Fund
Manager.
Prior to joining Odyssean Capital, Ed was a Principal in the
technology team at HgCapital. He joined HgCapital in 2006 and
worked on numerous completed deals, including multiple bolt-on
transactions made by portfolio companies. He has additional quoted
market experience, having led the successful IPO of Manx Telecom
plc in 2014, as well as having evaluated and executed public to
private transactions. Ed started his career as an analyst in the UK
mergers and acquisitions department of JPMorgan in 2004.
The investment approach
Our investment approach applies the core elements of the private
equity investment philosophy - highly focused, long-term, engaged
'ownership' style investment - to public markets. We believe that
this approach creates a portfolio unlike that of many typical
public equity funds and that, well executed, can offer attractive,
differentiated, risk-adjusted returns.
- Highly concentrated portfolio: We look to build a highly
concentrated portfolio of no more than 25 investee companies where
we carry out intensive diligence, only investing behind our highest
conviction ideas.
- Narrow focus: We are focused on smaller companies typically
too small for inclusion in the FTSE 250 index. We believe this
market is less efficient, offering more opportunities to find
mis-pricings. Further, we believe the best investment decisions are
made from a base of knowledge and experience, and we will make most
investments in industry sectors that we and our advisors, know well
(TMT, Services, Industrials and Healthcare).
- Targeting long-term holding periods: We will evaluate each
investment opportunity over a three to five-year investment
horizon. We have structured our business to reflect this belief and
do not intend to run any capital which is redeemable over short
time periods. To think like an 'owner' of a business we believe
your capital should behave like one too.
- Engaged investment style: We are engaged investors. We like
investing in companies which, whilst good, are underperforming
their potential and where we see the opportunity for constructive
corporate engagement to unlock improved sustainable returns for all
stakeholders.
The Company's investment objective is to deliver long-term
capital growth rather than outperform a specific index. Our
differentiated investment approach, allied with our sector focus
and the recently revised investment restrictions approved in
January 2021, is likely to lead to periods of NAV per share
performance materially different from those of the broader market.
We fully anticipate this potential short-term performance variance
and will focus on comparative investment performance on a rolling
three-year basis.
The absolute return mentality of the strategy, allied with the
desire to avoid being a forced seller, may lead to net cash
balances being held over the long term. We anticipate a core range
of 5-15% over the long term. Net cash balances will not be used as
an attempt to market time, but to enable us to invest where blocks
of stock are available rather than being required to sell a less
liquid holding on short notice.
Implementing the investment strategy
There are three key factors we look for when we analyse a
potential investment;
1) a valuation opportunity;
2) in a higher-quality company; and
3) with improvement potential.
Our view is that buying at a fair price and supporting improved
performance generates capital growth, while our quality filters
mitigate losses in the event of unexpected headwinds.
Valuation
We look for two valuation factors in every investment. Firstly,
what we refer to as "static valuation" - does the company trade at
a discount to its current value? This is not only judged by
traditional public market ratios. We also seek to model every
company through the lens of a private equity buyer (of which we
have considerable experience) as well as evaluating its
attractiveness to strategic trade buyers.
Secondly, we are looking for companies which can grow their
value over time - "dynamic valuation". We particularly look for
situations where there are multiple, independent drivers of value
creation present, and where management actions can unlock these. We
believe seeking multiple value drivers makes an investment case
more secure and less exposed to single areas of uncertainty or
misjudgement.
Quality
We assess every potential investment against qualitative and
quantitative quality criteria. The quality assessment is important
to mitigate the risk of permanent capital destruction from
investments which fail to achieve their value potential. In our
experience, higher quality companies are more likely to maintain a
minimum value through difficult times and are more able to attract
high calibre management teams to rectify underperformance.
Improvement potential and engagement
We particularly like companies that are in some way
underperforming relative to their potential, and where the current
valuation does not price in the potential for improvement. Once
invested, constructive corporate engagement can help to unlock
value. Our mantra is to buy good businesses and sell excellent
businesses. The spectrum of areas which can be improved is broad
and includes operating performance, asset utilisation, overly
complex business structures/organisation, strategic direction, poor
M&A, investor relations, and governance and pay.
ESG in our investment process
We have historically focused on evaluating and engaging on
corporate governance ("G") and financial performance as part of our
investment process.
In January 2021, shareholders approved a change in the
investment policy of the Company to implement negative screening of
certain investments, deemed unethical and or involved in activities
which were deemed unsustainable. These restrictions augment our
approach to corporate engagement and provide clarity and certainty
to investors and formalises the approach we have taken since we
launched.
Our partnership with the specialist ESG data provider for
smaller quoted companies, announced in December 2020, has enabled
us to analyse all our portfolio companies' ESG performance. Many of
these companies are too small to have attracted ratings from the
major ESG rating agencies. As at the time of preparation, we have
shared these reports with each of our portfolio companies.
This is in line with the pragmatic approach to E&S
engagement given the more resource-constrained nature of smaller
quoted companies. Our focus is on how boards approach
sustainability, where the scope for improvement is, how progress is
evaluated and how it is reported to investors. Our belief is that
performing ahead of peers and market expectations on ESG should
attract new shareholders, a higher rating and a lower cost of
equity, all things which will drive enhanced returns and benefit
the Company's shareholders.
Progress and performance in the past year
The year ended March 2023 can broadly be divided into two
halves, with markedly differing performance for equity markets. The
first half of the year through to the end of September was a
challenging period for investors. Investor sentiment was poor as
they digested a broad range of headwinds from rising inflation and
tightening monetary policy, through UK political instability (three
prime ministers and four chancellors in a year) and expectations of
a looming recession with the tragic war in Ukraine raising the risk
of winter energy rationing in Europe. Against this backdrop UK
small and mid-cap markets were particularly weak posting declines
of c.20%.
The second half of the year saw a shift in sentiment. Signs that
inflation may be peaking allowed markets to see through to an
eventual end to central bank tightening; a warm winter saw Europe's
energy crunch pass and initial expectations of a deep and long
recession revised against continued robust economic data. Markets
showed some recovery on this improving outlook; in the UK mid-cap
stocks rose c.15% in the six months from September with small-cap
lagging this with a c.7% rise and the AIM index up c.1%.
The ultimate outcome of this volatile 12-month period was
disappointing for small and mid-cap stocks in the UK. For the year
as a whole mid-caps fell c.7%, small-caps c.13% and AIM by 21%.
One key consistent market trend has been the headwinds created
by fund flows. During the 12 months to March 2023, Numis estimates
8% of the starting assets of UK Small and Mid Cap OEICs have been
redeemed by investors, totalling GBP1.3bn,
The Company's net asset value ("NAV") per share fell 2.2% in the
year and whilst negative in absolute terms, it materially exceeded
the performance of the NSCI & AIM index (a comparator not a
benchmark) which fell by 13.4%. On an absolute basis the net cash
balance averaged 4% across the year.
The top five positive contributors to performance were
Euromoney, Curtis Banks, Devro, Hyve and Ascential.
M&A and other corporate activity have been key drivers of
the top contributors. Three of the top five contributors were also
B2B media companies, a subsector we perceived as offering
attractive risk/reward characteristics, where there has been
considerable financial and trade buyer M&A activity.
In June Euromoney received a bid approach from a private equity
consortium of Astorg and Epiris. The recommended bid at c.1,481p
came with a lengthy period to completion (required for regulatory
approvals); with limited likelihood of an interloper we sold our
shares generating a 1.5x cash 50% IRR return from our investment.
The majority of the proceeds from this sale were invested into
Ascential.
Our investment thesis for Ascential was similar to that of
Euromoney - both were multi divisional B2B media groups, trading at
a discount to their sum- of-the-parts value, suffering from poor
investor sentiment. The market capitalisations at the time of
investment were both towards the high end of our focus area, but
demonstrative of our investment strategy identifying attractive
opportunities in slightly larger companies.
Curtis Banks was a particularly pleasing success story during
the year. We initially invested in March 2021. The group, which had
stable revenues, in our view had been historically under managed,
and as a result was not generating the margins it should.
Correcting this shortfall in potential, and driving an attractive
return, could be delivered through operational change over a period
of time, and made the group highly attractive to sector
consolidators who already had efficient operating platforms. As a
result of dialogue between a number of shareholders, material board
change was announced in May 2022, with the new chairman instigating
a strategic and operational review. In November the company
received an approach from industry peer James Hay/Nucleus at 350p
per share, representing a premium of 32%. With the bidder bringing
significant synergies we saw a counter bid as unlikely and sold our
shares into the market. Including dividends, the investment
delivered a c.1.5x cash, >31% IRR return in a wider market that
had fallen materially.
Devro and Hyve continued the theme of M&A activity in the
period. Devro was one of OIT's first investments in 2018. We
believed the market was overlooking the potential of new management
to improve performance of the group whilst continuing to generate
attractive cash flows. During our investment, management delivered
on a successful self-help program, but the improved quality of the
business was not fully reflected in the share price, and in
February Devro received a bid from industry peer Saria Group at a
c.65% premium. We exited our holding delivering a return, including
dividends, of 1.7x cash, 19% IRR - a solid result in a broadly flat
market.
Hyve demonstrates the unpredictability of M&A activity.
Aided by our specialist dealer, we purchased just under 3% of the
company in February. Within four weeks, the company was subject to
a bid from Providence Private Equity. The bid at a c.40% premium
delivered a 1.5x cash return. Given the short holding period, the
IRR exceeded 8,000%.
The top five negative contributors to performance were NCC,
Dialight, Benchmark, Flowtech and Xaar.
NCC delivered a material profit warning on the last day of the
period, citing weakening demand from large US tech customers
following layoffs and general cost cutting in the sector. Coming
suddenly and late in the financial year, there has been limited
ability for NCC to quickly reallocate resources to other parts of
its assurance business (some parts are growing at 30% per annum,
and assurance as a whole will grow in the current financial year).
The company's shares fell sharply on this news. Against this
trading weakness, NCC has made progress with changes in the
management team and announced a strategic review to potentially
crystallise value from its Software Resilience (or Escrow)
division. We believe that the shares are trading at a significant
discount to their sum-of-the parts value. Whilst the temporary loss
of value is unfortunate, we believe that the shares are pricing in
a very pessimistic view of the strategic value of the Assurance
division, indicative of investor capitulation.
Dialight issued a profit warning in January for the year just
finished, noting some large orders not landing in December.
However, the order outlook remained robust, and the business
continues to grow. A new chairman, Neil Johnson, has a proven track
record of creating and crystalising shareholder value in multiple
small and mid-cap quoted companies.
Benchmark released positive trading updates through the year
showing progression in all its divisions. The company moved its
listing to Oslo and potentially some overhang from this has weighed
on shares. Flowtech and Xaar both released solid trading updates
through the year and delivered on key operational objectives - new
product launches and factory reorganisation at Xaar and group
simplification and transactional website launch for Flowtech. Both
suffered from market concerns on macro outlook which saw shares
fall. The progress in reported financials and operations at both
companies remains overlooked by the market.
The portfolio was on average 96% invested across the period. Net
cash began the period at 1.6% and ended the period at 0.4%.
Portfolio development
The level of M&A across the portfolio, combined with
volatile markets drove portfolio turnover at levels above those
expected.
GBP109m was invested into stock purchases, a level of portfolio
turnover higher than anticipated driven by increased M&A,
leading to accelerated exits, selling down Chemring in the first
quarter of the period (following the supernormal relative and
absolute performance in the wake of the Ukraine war starting) as
well as cash inflows of GBP28m following the issuance of new
shares.
New investments totalled GBP72m across the period with nine new
positions initiated. This represents an above trend number of new
positions in a 12 month period (typically we would expect c.4-6).
The market turmoil, exacerbated by political uncertainties and
outflows amongst OEICs managed by our broader peer group, meant
many opportunities to deploy capital into compelling risk/ reward
situations, but where historically the companies had been too
highly rated. Our larger new positions Ascential, XP Power, Hyve
and Gooch & Housego are examples of positions well known to us
where general market weakness alongside company specific issues
allowed investment at attractive levels.
We made follow on investments totalling c.GBP37m across the
period including in Xaar, Spire, Benchmark and Elementis. There
were periods during the year where shares in these companies were
sold off, despite solid trading updates. Additionally, we made a
significant further investment in NCC, both prior to and on the day
of the major profits warning (in part re-investing profits taken
historically).
Through the period we realised GBP82m from disposals, with five
positions fully exited raising GBP61m.
Four of the fully exited were Euromoney, Curtis Banks, Hyve and
Devro. We also exited one smaller <2% "toe hold" position, where
trading updates suggested our initial investment thesis was no
longer valid.
Material realisations were taken from our position in Chemring
which benefitted from strong demand and a robust rating supported
by the ongoing conflict in the Ukraine, and Wilmington which has
seen an ongoing strong recovery in demand for in-person training
post COVID.
Industrials remains the largest sector exposure, reflecting the
variety of special situations which remain unloved by many
investors. The majority of the overall increase in exposure to the
industrials sector over the past two years has been deployment of
capital into the B2B electronics sector, through the investments in
Xaar, XP Power, Gooch & Housego and Dialight. Our entry
valuations are undemanding (often after quite material price and/or
rating falls) and offer compelling medium to long-term risk reward
opportunities.
During the period, average cash levels in the portfolio were
lower than is typical for our investment strategy. This was a
result of the large number of attractive investment opportunities
that we were able to find.
Engagement with portfolio companies was centred around corporate
governance, investor relations and ESG disclosure during the
period. Of the 215 resolutions we voted on at general meetings,
there were 19 votes against and no abstentions. As part of our
engagement on broader ESG issues, we engage an external consultant
to conduct a review of each of our investments against a
proprietary ESG scoring system - the score of our companies
increasing reflecting improved disclosure on ESG issues. We believe
this will drive improved ESG performance over time.
Portfolio detail
At the end of the period under review, the portfolio comprised
18 companies.
Key updates through the period for each of our top 10 positions
and our opinions on each are detailed below:
ELEMENTIS
A leading producer of specialty chemicals focused on personal
care, talc and coatings markets.
% NAV: 13%
Sector: Industrials
Performance in period
Elementis delivered pleasing performance through 2022 with
profit upgrades driven by strong performance in the Coatings and
Personal Care divisions which benefitted from pricing actions and
ongoing post COVID demand recovery respectively. The group's talc
activities suffered a more challenging period with weak European
auto demand and high energy prices both headwinds. Early 2023 saw
the group complete the disposal of its Chromium chemicals division
with proceeds used to materially reduce group leverage.
Outlook
We remain optimistic on the outlook. The management team has
continued to deliver on self-help cost actions and has a further
c.$19m of savings targeted. There is scope for a material recovery
in profitability from the talc division when its end markets
improve - the division has historically generated c.$25m of
profits, but was breakeven in 2022. The group is exposed to any
slowdown in industrial and construction demand for coatings in the
near term, but the successful implementation of price rises, cost
reduction and strong momentum from new product launches can offset
any weakness. With strong cash generation to drive de-leveraging
and a current share price underpinned by the value of the group's
unique mineral assets (of which it has decades of supply), we see
an attractive risk/reward balance at current levels.
ASCENTIAL
Provider of B2B data, events and digital commerce support
platforms.
% NAV: 12%
Sector: TMT
Performance in period
The key update from Ascential during the period, alongside a
beat of results for FY 2022, was the outcome of the group's
strategic review, which resulted in the proposed break up the
group. Management intends to split their business in three parts
over the next 2 years; the Product Design division is to be sold
with a significant portion of proceeds returned to shareholders;
the Digital Commerce division is to be listed on NASDAQ and the
remaining events focused assets will remain listed in London. This
announcement drove a strong rise in share price.
Outlook
Despite the rise of shares in the period we still see them
trading at a very meaningful discount to the full sum-of-the parts
value. With catalysts in the coming year as the auction of the
Product Design division progresses, we continue to see upside from
current levels and the return potential feels asymmetrically skewed
to the upside from this point.
XAAR
Leading independent designer and manufacturer of industrial
inkjet print heads.
% NAV: 11%
Sector: Industrials
Performance in period
Xaar's trading updates through the period were broadly in line,
with the group delivering organic revenue growth and improving
margins despite headwinds from ongoing COVID lockdowns in China (a
key end market for users of Xaar's products). Operationally, the
group continued to make good progress. In early 2023 the first
phase of a factory re-organisation to increase manufacturing
capacity and reduce costs and the launch of the group's new
'Aquinox' print head. This product allows Xaar's unique printhead
technology to print with aqueous inks opening significant new
markets for the group notably in printing on textiles. Initial
market reaction has been positive.
Outlook
We believe that Xaar potentially offers some of the most
exciting capital upside in the portfolio. The group enjoys unique,
world leading IP that gives its printheads advantages over
competitors in the printing of highly viscous fluids. The new
management team has re-purposed historic R&D investment into a
product roadmap allowing Xaar to address new industry segments,
increasing Xaar's addressable market. The Aquinox print head is a
key step on this journey, and we expect a further key launch in the
next 18 months to address the largest addressable market for the
first time - Wide Format Graphics. Although it will take time for
new launches to generate meaningful revenues, the positive client
reception on Aquinox shows the potential opportunity for the group.
Little of this upside seems to have been priced in by the
market.
NCCGROUP
Leading independent provider of software escrow services and
cyber security consulting provided through the Assurance
division.
% NAV: 7%
Sector: TMT
Performance in period
NCC saw challenging trading through the end of the period. In
late March the group announced a material downgrade to expectations
driven by a sudden, sharp slowdown in demand for its cyber security
segment from West Coast US based technology clients. This sudden
fall off in demand reflected cost cutting and headcount reductions
seen within this client group. The pace of demand weakening left
NCC with little time to adjust its cost base. The resultant impact
on profitability on NCC's Assurance division was material and
shares fell sharply.
Despite these disappointing trading updates, other news is
positive. In July the group appointed a new CEO with significant
experience of building scale, growth businesses in cyber security.
He completed a strategic review early in 2023 setting out
investment to drive future growth and an intention to sell the
group's lower growth but highly profitable Software Resilience
division aiming to crystallise value from this sometimes overlooked
asset.
Outlook
We remain confident in the value recovery potential from the
current position. Whilst there is demand weakness in one client
segment, NCC's cyber security offering continues to deliver growth
in other areas, and has maintained all of its client relationships.
The new CEO has a clear strategic vision, and the recent miss-steps
increase the urgency in his plans to expand the group's offering,
shift more work towards longer-term or recurring contracts and
build delivery capacity in lower cost regions.
We believe the group's shares are undervalued on a
sum-of-the-parts basis. Any successful crystallisation of value
from the Software Resilience division at levels near current
analyst expectations, would suggest the market puts little value on
the group's cyber security operations. We see this as unrealistic
given the group enjoys a material portion of revenue on longer-term
managed service contracts, maintains a blue-chip client base and
represents a unique, scale asset in what remains a secular growth
market.
XP POWER
New top 10 position Leading manufacturer of power supplies and
power converters.
% NAV: 7%
Sector: Industrials
New top 10 position
The group is a leading, global manufacturer of power supplies
and power converters used in a range of B2B products in industrial,
healthcare and semi-conductor end markets. XPP's products are
commonly 'designed in' to their customer's platforms, offering
longer-term revenue streams, whilst the design expertise and
service level the group offers allow some pricing power. XPP shares
were weak through 2022 driven by macro concerns (notably the
group's exposure to the semi-conductor cycle), litigation from a
competitor and, we believe, material forced sellers of shares on
the group's register.
Despite some near-term uncertainty on industrial and
semi-conductor demand, the group benefits from markets expected to
grow well above GDP across the cycle, and has a track record of
gaining market share. With ongoing geopolitical focus on building
domestic semi-conductor manufacturing capacity the group is also
exposed to a potential accelerating mid-term tailwind in one of its
key end markets. Alongside this, we see upside in group's margins
as it expands its low-cost manufacturing capacity with a new
facility in Malaysia, rolls out a group wide ERP platform and
further integrates its legacy M&A. We were able to build our
position at prices as low as c.11x PE compared to the groups long
run average rating of c.15x+, with a return to these ratings
offering further upside.
FLOWTECH
Leading UK distributor of hydraulic and pneumatic
components.
% NAV: 6%
Sector: Services
Performance in period
Flowtech's performance through 2022 was in-line with market
expectations. Revenues grew c.5%, the distribution focused Flowtech
division showing a moderate decline, offsetting strong growth in
the solutions and services focused Fluidpower division. Group
margins improved as the benefits of self-help actions and price
rises began to be felt. Operationally the group made forward steps
- completing the integration of a number of legacy brands,
successfully launching a new online presence and shutting some
legacy sites to reduce costs. Immediately after the period end, the
group announced a new CEO, who joins from one of the highest
performing UK quoted distribution groups.
Outlook
The developments at Flowtech in the period are highly positive.
The past few years have been a phase of 'building the platform'
with significant work on integrating legacy M&A and improving
the groups internal and external facing systems. This work
continues, with the group increasingly able to accelerate top-line
growth, gaining market share and continuing to drive margins. We
believe the new CEO has plenty of scope to help unlock and grow
shareholder value.
SPIRE HEALTHCARE
Leading provider of private hospitals in the UK.
% NAV: 6%
Sector: Healthcare
Performance in period
Spire delivered a strong year in 2022. Revenue rose c.8% driven
by strong demand in private healthcare (both self-pay and insured).
EBITDA margin rose to c.17% supported by the mix shift away from
NHS work and the group's delivery of c.GBP15m of cost savings, more
than offsetting inflation and some ongoing cost headwinds from
COVID. The group continued to deliver on the strategy set out in a
recent capital markets day with development of new service areas
around diagnostic clinics and primary care ongoing. Finally, we
would also like to celebrate the ongoing high care quality scores
Spire delivers, with 98% of sites rated 'good' or 'outstanding' by
the CQC.
Outlook
Spire currently enjoys a number of exciting tailwinds. The group
is a beneficiary of extended NHS waiting lists, driving strong
demand from both self-pay and private medical insurance patients.
This allows Spire to manage its capacity more efficiently and
offset any potential wage inflation through mix and pricing
actions. We remain positive on the capabilities of the Spire
management team which has delivered an initial round of cost
savings and expect some more from continuing to integrate
historically separate operating hospitals. With the share price
backed by significant free hold property, strong cash generation
able to fund a number of exciting growth opportunities and a
history of strategic interest in the asset we see further value
ahead.
GOOCH & HOUSEGO
New top 10 position Manufacturer of photonics solutions for a
variety of industrial end markets.
% NAV: 5%
Sector: Industrials
New top 10 position
Gooch and Housego is a leading manufacturer of high value, high
IP photonic & electro-optic systems and components for a
variety of industrial and defence end markets. The group's end
markets are expected to grow significantly above GDP driven by
secular trends towards adoption of photonics solutions and the
group has historically bolstered this organic growth through
acquisitions to add capability and new customer segments. Through
2022 shares were weak largely as a result of pandemic driven issues
as Gooch suffered challenges around supply chain, a factory
re-organisation and difficulties in hiring staff. Despite these
issues, the group continued to report strong demand and record
order books. A new, experienced CEO joined the group in
September.
We see the Company's shares as undervalued given its quality and
the scope for earnings to recover and grow. The group has hard to
replicate, world leading IP, addressing markets that are large and
growing. Recent investment in R&D should position the group
well to deliver organic growth and exploit this market opportunity.
The new CEO joins with a clear mandate to review group operations
and we see significant scope for improvements in group operating
margins to mid teen levels from c.7% in 2022. Alongside this, the
group's current EV/Sales rating is 50% below the average of the
last 15 years, below those of peers and precedent M&A
transactions for businesses of this nature.
WILMINGTON
B2B information, training and media provider focused on the
compliance, healthcare and professional business markets.
% NAV: 5%
Sector: TMT
Performance in period
Wilmington delivered strong trading updates through the period.
The group continued to benefit from a return of in-person events
and training, with demand reaching or exceeding levels seen
pre-pandemic, and strong progression in the group's subscription
businesses. Margins also rose through the period as the group
benefitted from growth and tight cost management. Operationally,
the group continues to invest in building single, integrated IT
platforms for each of its divisions bringing together multiple
legacy systems. Investment which should increase efficiencies and
scalability going forward.
Outlook
Wilmington has continued its track record of delivery and we see
more to come. Over recent years the management team have
reorganised the group structure, disposed of non-core operations
and built a stronger operating platform. With a lot of the 'heavy
lifting' now done, and the headwinds of COVID past, the group can
turn its attention to exploiting the investment of recent years by
driving margins and enhancing growth.
The high levels of recurring revenue the group enjoys, strong
cash conversion and the now net cash balance sheet gives Wilmington
a highly valuable, stable base and we expect this to be added to
with accretive M&A going forward. The current p/e rating,
especially ex cash, is not demanding.
RWS
Leading global provider of language services, translation
software and intellectual property services.
% NAV: 5%
Sector: TMT
Performance in period
RWS's performance in the period was mixed. As expected, trading
was muted on the top line with growth held back by the introduction
of the single EU unitary patent impacting patent translation
demand, some weakness at certain large clients and RWS stepping
away from some lower margin work. Against this, technology sales
were strong. Margins delivered continued improvement through the
period, benefitting from synergies from further integration of the
SDL business (acquired in 2020) as well as early benefits from the
new management's investment into streamlining operations.
Outlook
RWS is at the start of the strategic shift set out by the new
management team in March 2022. This envisages a period of
investment to enhance the group's product offer (including machine
translation), improve operational efficiency and accelerate new
business wins. We view the proposed strategy as sensible.
RWS remains a leader in a fragmented but growing industry. The
business enjoys high recurring/repeat revenue and is highly cash
generative. The group has a market leading product offer (notably
across its technology suite) and is well placed to continue to gain
share. Investing to maximise this opportunity has the potential to
offer attractive returns. The shares have struggled recently,
reflective of shorter-term concerns on current trading and concerns
around the impact of ChatGPT on the business model in the long
term.
The remaining eight investments represent between c.1% and c.4%
of NAV each. These are spread across our core focus sectors and all
offer scope to scale, subject to further due diligence and pricing
remaining attractive.
Review of the first five years and Outlook
Markets have had plenty of events to deal with, making little
headway since the launch of OIT. In this environment the investment
strategy has proven both its differentiation (specifically being
neither growth nor value) and robustness (specifically having
valuation discipline on both buying and selling). As OIT has
recently passed its five year milestone, it's worth reflecting on
elements of the investment proposition and strategy we laid out in
the prospectus, what has happened, and what might happen in the
next five years.
We wrote of high absolute and relative long-term returns from
smaller companies. Since IPO, our comparator index has risen by
1.8%, or 0.3% annualised, against an annualised return of 14.5% for
the 63 years leading to December 2017. Conclusion: UK Smaller
Companies' performance since our IPO has been statistically very
poor compared with history and delivered a return below inflation.
This unfavourable market backdrop compared with our absolute
returns of more than 10% per annum over the period highlights the
value our strategy can add over just "owning the market".
Since May 2018, UK indices have de-rated materially, 21% in the
case of the Comparator Index. This de-rating highlights the
achievement of generating such positive NAV per share growth over
the period. Unlike many momentum strategies, our investment
strategy does not rely on markets re-rating.
With current ratings low, we expect absolute market returns to
provide far more of a tailwind to absolute returns from our
strategy over the next five years. Given our strategy tends to be
low beta, we would be surprised to continue to generate relative
returns of 10% per annum above the market in a rising market.
Secondly, we highlighted the structural liquidity mismatch of
funds investing in small and mid cap companies, specifically
open-ended funds subject to daily inflows and outflows. We detailed
the scope for the potential for valuation anomalies in companies
with market capitalisations below GBP500m, that would be eschewed
by managers of large open ended funds. As detailed earlier, the
outflows, especially during the last 18 months, from open ended UK
equity funds have been vicious, leading in some cases to forced
selling. Our experience (and record) has shown these dynamics have
allowed our strategy, executed through a closed ended investment
company, to thrive and add value.
We believe outflows will eventually stabilise, leading to a
re-rating of markets, which our investee companies should benefit
from. However, it's difficult to anticipate fund management groups
reversing the decision to exit investing in smaller companies.
Hopefully, a strong rebound in performance from smaller companies
will generate institutional inflows into existing and new funds
focused on this historically high performing part of the market. In
summary, a headwind we believe which will abate or even potentially
reverse somewhat.
Thirdly, we wrote of sporadic sell-side research into UK smaller
companies, exacerbated by the introduction of MiFID II, and the
deterioration in research potentially leading to more pricing
anomalies. This has been a tailwind for our deep-research, focused
investment approach, enabling us to uncover investment
opportunities which have generated attractive absolute returns, as
well as we believe attractive reward/risk situations. We see
limited likelihood, or any evidence to support the frequency and
quality of sell-side research improving.
Over the past five years, we have undertaken all of our
corporate engagement with portfolio companies in private. Whilst
this can lead to change taking longer, we believe many of our
corporate engagement initiatives have succeeded. We have not sought
to act as a sole agitator, but have worked with other stakeholders
and shareholders to firmly make the case for change or improvement.
With shareholder registers continuing to concentrate, we believe
engagement and change/self-help at our portfolio companies will
continue.
Since launch, we have exited 25 investments. 10 of these (40%)
were due to M&A/bid approaches, a higher number than expected
at launch, leading to higher than expected portfolio turnover.
These bids have been broadly spread out over the period, with the
average Day 1 premium achieved of >48%. The number of takeovers
and the premiums achieved are an excellent indication of our
ability to find mispriced companies which, if struggling to attract
public market investors, will prove to be takeover targets. In the
short term, absent a re-rating of UK equities, the level of M&A
could remain buoyant, and hopefully the Company's holdings can be
beneficiaries at an appropriate price.
Of the c.60% of exits executed by selling shares in the market,
11 (or 44% of all exits) were where an investment had delivered to
plan. Two (8% of all exits) were where the investment was broadly
delivering, but we believed on balance more compelling risk/reward
opportunities existed elsewhere. The last two (8% of all exits)
were where there had been a thesis violation and we chose to exit
regardless of the prevailing share price and at a capital loss.
This low realised loss ratio is indicative of the focused and
multi-stage investment process, which garners the views of a wide
range of team members, including Ian Armitage, the Chairman of the
management company, and our three strong Panel of Advisers.
Turning to current market conditions, alongside the ever-present
uncertainties, the investment community is grappling with the
outlook for inflation, interest rates and the risk of recession.
The spectre of continued and material outflows remains for managers
of open ended UK equity funds, despite UK equities being clearly
extremely attractively valued on an absolute and relative basis
compared to other major equity markets, especially US equities. The
scale of the outflows in an environment of such attractive pricing
is unprecedented within our careers. The behaviour is put into
perspective by the feeding frenzy of financial and trade buyers
announcing bid approaches for UK quoted companies (at the time of
preparation c.15 live take privates/bid approaches have been
announced for UK Small and Mid-cap companies since the beginning of
2023).
This bid activity is acting as a prop for overall market levels,
in most cases providing cash and exit opportunities for fund
managers to fund outflows.
The fund flow dynamics are not helping underlying liquidity.
With such uncertainties about AUM levels, alongside trading and
macro uncertainties, our contacts on the sell side report there is
very little appetite for fund managers to consider investing in
companies they do not already own. Not surprisingly the IPO market
is shut.
There is scope for value creation from multiple levers across
all of our holdings. Often, these initiatives can be driven by
management irrespective of end market conditions. With such an
international source of revenue across our portfolio companies, NAV
growth is not anchored to the macro success or otherwise of one
particular geography. There will be short-term surprises - negative
and positive. Nevertheless, there is scope for healthy medium and
long -- term returns.
We believe it's a buyer's market for UK equities, especially
smaller companies, (demonstrated by the level of bid activity,
particularly from private equity buyers) and the next five years
will likely see markets as more of a tailwind to absolute returns
from our investment strategy than the five years just gone.
Stuart Widdowson | Ed Wielechowski
Odyssean Capital LLP
30 May 2023
Portfolio of Investments
as at 31 March 2023
Country
of Cost Valuation % of
Company Sector Listing GBP'000 GBP'000 Net Assets
--------------------------- ------------------ -------- ------- --------- ----------
Elementis Industrials UK 18,468 23,820 13.1%
Ascential TMT UK 19,269 21,690 12.0%
Xaar Industrials UK 15,054 20,775 11.5%
NCC Group TMT UK 23,936 13,328 7.4%
XP Power Industrials UK 13,468 13,228 7.3%
Flowtech Fluidpower Business Services UK 10,912 10,894 6.0%
Spire Healthcare Healthcare UK 9,489 10,625 5.9%
Gooch and Housego Industrials UK 10,234 9,266 5.1%
Wilmington TMT UK 4,623 8,305 4.6%
RWS Holdings TMT UK 10,613 8,222 4.5%
--------------------------- ------------------ -------- ------- --------- ----------
Top ten equity investments 136,066 140,153 77.4%
--------------------------------------------------------- ------- --------- ----------
Other equity investments* 46,876 40,241 22.2%
--------------------------------------------------------- ------- --------- ----------
Total equity investments 182,942 180,394 99.6%
--------------------------------------------------------- ------- --------- ----------
Cash and other net current
assets 811 0.4%
--------------------------------------------------------- ------- --------- ----------
Net assets 181,205 100.0%
--------------------------------------------------------- ------- --------- ----------
* Other equity investments include eight investments, each
represents between 1.6% and 4.1% of NAV. These are spread across
our core focus sectors and all offer scope to scale, subject to
further due diligence and pricing remaining attractive.
Business Review
The Strategic Report contains a review of the Company's business
model and strategy, an analysis of its performance during the
financial year ended 31 March 2023 and its future developments and
details of the principal risks and challenges it faces. In
particular, the Chairman's Statement and the Portfolio Manager's
Report concentrate on the outlook for the current year and the
factors likely to affect the position of the business. The
Strategic Report has been prepared solely to provide information to
shareholders to enable them to assess how the Directors have
performed their duty to promote the success of the Company.
The Strategic Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the date of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
Further information on how the Directors have discharged their
duty under Section 172 of the Companies Act 2006 can be found in
the Strategic Report.
Business model
Status of the Company
The Company was incorporated on 21 December 2017 and the IPO
took place on 1 May 2018. It is registered in England and Wales as
a public limited company and is an investment company within the
terms of section 833 of the Companies Act 2006. The principal
activity of the Company is to carry on business as an investment
trust. The Company has been approved by HM Revenue & Customs as
an authorised investment trust under sections 1158 and 1159 of the
Corporation Tax Act 2010, subject to there being no subsequent
serious breaches of regulations. In the opinion of the Directors,
the Company is directing its affairs so as to enable it to continue
to qualify for such approval.
The Company's shares have a listing on the premium segment of
the Official List of the FCA and trade on the London Stock
Exchange's main market for listed securities.
The Company is a member of the AIC, a trade body which promotes
investment companies and also develops best practice for its
members.
Strategy for the year ended 31 March 2023 and Strategic
Review
Throughout the year ended 31 March 2023, the Company continued
to operate as an approved investment trust, following its
investment objective and policy.
During the year, the Board made all strategic decisions for the
Company. Odyssean Capital LLP and Frostrow Capital LLP undertook
all strategic and administrative activities on behalf of the Board,
which retained overall responsibility.
Purpose
The purpose of the Company is to achieve predominantly capital
growth in our shareholders' wealth over time. It aims to achieve
this by using its closed-ended structure to invest in a
concentrated number of less liquid, higher-quality smaller quoted
companies, which the Portfolio Manager believes are undervalued and
could be generating higher returns for their shareholders. The
long-term nature of the Company's capital enables the Portfolio
Manager to undertake constructive corporate engagement with the
underlying portfolio companies and their stakeholders, on financial
and operating performance, strategy and sustainability,
specifically ESG practices.
Sustainable improvement in a smaller quoted company's financial
and operational performance, and ESG practices, not only benefit
the shareholders of the Company, but also the shareholders and
stakeholders in the underlying portfolio companies.
Investment objective
The investment objective of the Company is to achieve attractive
total returns per share principally through capital growth over a
long-term period.
Investment policy
The Company's full investment policy contains information on the
policies which the Company follows, including in relation to
borrowings, derivatives, hedging as well as ethical and
sustainability investment restrictions. The Company invests
primarily in smaller company equities quoted on markets operated by
the London Stock Exchange where the Portfolio Manager believes the
securities are trading below intrinsic value and where this value
can be increased through strategic, operational, management and/or
financial initiatives.
Any material change to the Company's investment policy would
require the approval of shareholders by way of an ordinary
resolution at a general meeting and the approval of the FCA.
Non-material changes to the investment policy may be approved by
the Board.
Portfolio analysis
A detailed review of how the Company's assets have been invested
is contained in the Chairman's Statement and the Portfolio
Manager's Report. A list of all the Company's investments is
contained in the Portfolio of Investments within the Strategic
Report.
Dividend Policy
It is the Company's policy to pursue attractive total returns
principally through growth over the long term. The Company will
comply with the investment trust rules regarding distributable
income, which require investment trusts to retain no more than 15%
of their investment income each year. The Company will only pay the
minimum dividend required to maintain investment trust status. No
dividend will be proposed for the year ended 31 March 2023.
The Board
The Board of the Company comprises Jane Tufnell (Chairman),
Arabella Cecil, Peter Hewitt, Richard King and Neil Mahapatra
(appointed on 3 April 2023), all of whom are independent
non-executive Directors and, with the exception of Mr Mahapatra,
served during the whole year under review and up to the date of
signing the report. All Directors will stand for election or re --
election at the forthcoming Annual General Meeting.
Board Focus and Responsibilities
With the day to day management of the Company outsourced to
service providers the Board's primary focus at each Board meeting
is reviewing the investment performance and associated matters,
such as, inter alia, future outlook and strategy, gearing, asset
allocation, investor relations, marketing, and industry issues.
In line with its primary focus, the Board retains responsibility
for all the key elements of the Company's strategy and business
model, including:
-- Investment Objective and Policy, incorporating the investment
guidelines and limits, and changes to these;
-- whether the Manager should be authorised to gear the portfolio up to a pre-determined limit;
-- review of performance against the Company's key performance indicators ("KPIs");
-- review of the performance and continuing appointment of service providers; and
-- maintenance of an effective system of oversight, risk management and corporate governance.
Details of the principal KPIs, along with details of the
principal risks, and how they are managed, are given in the
Strategic Report.
Section 172 statement
Overview
The Directors' overarching duty is to act in good faith and in a
way that is the most likely to promote the success of the Company
as set out in Section 172 of the Companies Act 2006. In doing so,
Directors must take into consideration the interests of the various
stakeholders of the Company, the impact the Company has on the
community and the environment, take a long-term view on
consequences of the decisions they make as well as aim to
maintaining a reputation for high standards of business conduct and
fair treatment between the members of the Company.
Fulfilling this duty naturally supports the Company in achieving
its investment objective and helps to ensure that all decisions are
made in a responsible and sustainable way. In accordance with the
requirements of the Companies (Miscellaneous Reporting) Regulations
2018, the Company explains how the Directors have discharged their
duty under Section 172 below.
To ensure that the Directors are aware of, and understand, their
duties they are provided with the pertinent information when they
first join the Board as well as receiving regular and ongoing
updates and training on the relevant matters. Induction and access
to training is provided for new Directors. They also have continued
access to the advice and services of the Company Secretary, and
when deemed necessary, the Directors can seek independent
professional advice. The schedule of Matters Reserved for the
Board, as well as the Terms of Reference of its committees are
reviewed on an annual basis and further describe Directors'
responsibilities and obligations and include any statutory and
regulatory duties. The Audit Committee has the responsibility for
the ongoing review of the Company's risk management systems and
internal controls and, to the extent that they are applicable,
risks related to the matters set out in Section 172 are included in
the Company's risk register and are subject to periodic and regular
reviews and monitoring.
Stakeholders
A company's stakeholders are normally considered to comprise its
shareholders, its employees, its customers, its suppliers as well
as the wider community in which the company operates and impacts.
The Company is different in that as an investment trust it has no
employees and, significantly, its customers are synonymous with its
shareholders. In terms of suppliers, the Company receives
professional services from a number of different providers,
principal among them being the Portfolio Manager. The Board
believes that the wider community in which the Company operates
encompasses its portfolio of investee companies and the communities
in which they operate.
Details of how the Board considers the needs and priorities of
the Company's stakeholders and how these are taken into account
during all its discussions and as part of its decision-making are
detailed below. All discussions involve careful considerations of
the longer- term consequences of any decisions and their
implications for stakeholders.
Stakeholder Board Engagement
------------------------ ------------------------------------------------------------------
Shareholders
------------------------ ------------------------------------------------------------------
Continued shareholder The Board is committed to maintaining open channels of
support and engagement communication and to engage with shareholders in a manner
are critical to which they find most meaningful, in order to gain an
existence of the understanding of the views of shareholders. These include:
business and the - Annual General Meeting - The Company welcomes and
delivery of the encourages attendance, voting and participation from
long-term strategy shareholders at the AGM, during which the Directors and
of the Company. the Portfolio Manager are available to discuss issues
affecting the Company and answer any questions. The Portfolio
Manager provides a presentation at the AGM on the Company's
performance and its future outlook. The Company values
any feedback and questions it may receive from shareholders
ahead of and during the AGM.
- Publications - The Annual and Interim Reports of the
Company are made available on its website and the Annual
Report is circulated to shareholders. These reports provide
shareholders with a clear understanding of the Company's
portfolio and financial position. This information is
supplemented by a monthly fact sheet and regular presentations
which are available on the website. Feedback and/or questions
the Company receives from the shareholders help the Company
evolve its reporting, aiming to render the reports and
updates transparent and understandable.
- Shareholder meetings - The Portfolio Manager and the
Company's Broker are in regular contact with major shareholders.
The Chairman and the other Directors are available to
meet with shareholders to understand their views on governance
and the Company's performance where they wish to do so.
Shareholders are also able to meet with the Portfolio
Manager and the Marketing Team of Frostrow Capital LLP
("Frostrow") throughout the year, either in person or
via video conference. The results from all meetings between
the Portfolio Manager, Frostrow, the Broker and shareholders,
and the views of the shareholders are reported to the
Board on a regular basis.
- Shareholder concerns - In the event shareholders wish
to raise issues or concerns with the Directors, they
are welcome to do so at any time by writing to the Chairman.
Other members of the Board are also available to shareholders
if they have concerns that have not been addressed through
the normal channels. Shareholders wishing to communicate
directly with the Board should contact the Company Secretary
at the Company's registered office address.
- Investor relations updates - At every Board meeting,
the Directors receive updates from the Company's Broker
on the share trading activity, share price performance
and any shareholders' feedback, as well as updates from
the Portfolio Manager and from Frostrow. To gain a deeper
understanding of the views of its shareholders and potential
investors, the Portfolio Manager and Frostrow also meet
regularly with shareholders. Any pertinent feedback is
taken into account when Directors discuss the Company's
share capital and any possible fundraisings. The willingness
of the shareholders, including the partners and staff
of the Portfolio Manager, to maintain their holdings
over the long-term period is another way for the Board
to gauge how the Company is meeting its objectives and
suggests the presence of a healthy corporate culture.
------------------------ ------------------------------------------------------------------
The Portfolio Manager
----------------------------------------------------------------------------------------------
The Portfolio Manager's The management of the Company's portfolio is delegated
performance is to the Portfolio Manager, which manages the assets in
critical for the accordance with the Company's objectives and policies.
Company to successfully At each Board meeting, representatives from the Portfolio
deliver its investment Manager are in attendance to present reports to the Directors
strategy and meet covering the Company's current and future activities,
its objective to portfolio of assets and its investment performance over
provide shareholders the preceding period.
with attractive Maintaining a close and constructive working relationship
total return over with the Portfolio Manager is crucial as the Board and
a long-term period. Odyssean Capital both aim to continue to achieve consistent,
long-term returns in line with the Company's investment
objective. Important components in the collaboration
with the Portfolio Manager, representative of the Company's
culture, are:
- Operating in a fully supportive, co-operative and
open environment and maintaining ongoing communication
with the Board between formal meetings;
- Encouraging open discussion with the Portfolio Manager,
allowing time and space for original and innovative thinking;
- Recognising that the interests of shareholders and
the Portfolio Manager are for the most part well aligned,
adopting a tone of constructive challenge, balanced with
robust negotiation of the Portfolio Manager's terms of
engagement if those interests should not be fully united;
- Drawing on Board members' individual experience and
knowledge to support the Portfolio Manager in its monitoring
of and engagement with portfolio companies; and
- Willingness to make the Board members' experience
available to support the Portfolio Manager in the sound
long-term development of its business and resources,
recognising that the long-term health of the Portfolio
Manager is in the interests of shareholders in the Company.
The management arrangements are set out in greater detail
in the Strategic Report. In addition to the management
fee, the Portfolio Manager also receives a performance
fee if certain circumstances are met. In respect of the
year ended 31 March 2023, no performance fee has been
accrued (2022: GBP2,436,000).
------------------------ ------------------------------------------------------------------
Portfolio companies
----------------------------------------------------------------------------------------------
The Company invests The relationship with the Portfolio Manager is fundamental
into available to ensuring the Company meets its purpose. Day-to-day
opportunities, engagement with portfolio companies is undertaken by
allocating capital the Portfolio Manager. Details of how Odyssean Capital
across different carries out portfolio management, as well as information
portfolio companies on its differentiated investment approach and the structuring
to meet the Company's of investments can be found in the Portfolio Manager's
investment objectives Report . The Board receives updates at each scheduled
within the pre-defined Board meeting from the Portfolio Manager on specific
portfolio limits investments including regular valuation reports and detailed
and with a focus portfolio and returns analyses. Odyssean Capital's engagement
on portfolio level with portfolio companies incorporates recurring due diligence
diversification. reviews, active voting at their annual general meetings,
discussions with their stakeholders (including but not
limited to executives, non-executives, other shareholders
and corporate advisors) and on-site visits.
In particular, the Board strongly supports the Portfolio
Manager in engaging with portfolio companies on ESG issues
with the aim of improving operations, ESG standards and
performance as well as company culture.
------------------------ ------------------------------------------------------------------
Other service
providers
------------------------ ------------------------------------------------------------------
In order to function The Company's main functions are delegated to a number
as an investment of service providers, each engaged under separate contracts.
trust with a premium The Board, together with Frostrow as Company Secretary,
listing on the maintains regular contact with its key external providers
London Stock Exchange and receives regular reporting from them, both through
the Company relies the Board and committee meetings, as well as outside
on a diverse range of the regular meeting cycle. Their advice and views
of reputable advisors are routinely taken into account. This regular interaction
for support in provides an environment where issues and business developments
meeting all relevant needs can be dealt with efficiently and collegiately.
obligations. The Audit Committee reviews and evaluates the financial
reporting control environments in place at each service
provider.
Through its Management Engagement Committee, the Board
formally assesses their performance, fees and continuing
appointment annually to ensure that the key service providers
continue to function at an acceptable level and are appropriately
remunerated to deliver the expected level of service.
------------------------ ------------------------------------------------------------------
The above mechanisms for engaging with stakeholders are kept
under review by the Directors and are discussed on a regular basis
at Board meetings to ensure that they remain effective.
Key topics of engagement with stakeholders and outcomes
Key topics of engagement with investors Actions taken and principal decisions
---------------------------------------------------------- ---------------------------------------------------------
* Ongoing dialogue with shareholders concerning the * The Portfolio Manager, Frostrow and the Broker meet
strategy of the Company, performance, the portfolio regularly with shareholders and potential investors
and ESG issues. to discuss the Company's Strategy, performance, the
portfolio and any ESG issues which might be raised.
* Shareholders are provided with performance updates
via the Company's website as well as the usual
financial reports and monthly factsheets.
---------------------------------------------------------- ---------------------------------------------------------
Key topics of engagement with the Actions taken and principal decisions
Portfolio Manager on an ongoing basis
---------------------------------------------------------- ---------------------------------------------------------
* Portfolio composition, performance, outlook and * Updates are received by the Board at every Board
business updates as well as ESG engagement with meeting.
portfolio companies.
---------------------------------------------------------- ---------------------------------------------------------
Key topics of engagement with other Actions taken and principal decisions
service providers
---------------------------------------------------------- ---------------------------------------------------------
* The Directors have frequent engagement with the * During the year, no other specific action was
Company's other service providers through the annual required in respect of the other service providers,
cycle of reporting and due diligence meetings and as the reviews of their services have been positive
conversations with the Portfolio Manager. Frostrow, and the Directors believe that their continued
as Company Secretary, has regular conversations with appointment is in the best interest of the Company.
all other service providers on behalf of the Board
and the Management Engagement Committee.
* This engagement is completed with the aim of
maintaining an effective working relationship and
oversight of the services provided.
---------------------------------------------------------- ---------------------------------------------------------
Culture
The Directors agree that establishing and maintaining a healthy
corporate culture among the Board and in its interaction with the
Portfolio Manager, shareholders and other stakeholders supports the
delivery of the Company's goals. The Board seeks to promote a
culture of openness, debate and integrity through ongoing dialogue
and engagement with its service providers, principally, the
Portfolio Manager.
The Board strives to ensure that its culture is in line with the
Company's purpose, values and strategy. As detailed in the
Corporate Governance Statement, the Company has a number of
policies and procedures in place to assist with maintaining a
culture of good governance including those relating to diversity,
Directors' conflicts of interest and Directors' dealings in the
Company's shares. The Board assesses and monitors compliance with
these policies as well as the general culture of the Board through
Board meetings and in particular, during the annual evaluation
process which is undertaken by each Director.
The Board is cognisant of the nature of companies that the
Company invests in and notes that their performance could fluctuate
while the Portfolio Manager actively engages with them. This
requires a culture of patience from the Board, supported by an
orderly, disciplined investment management process by the Portfolio
Manager. The Board pays particular attention to Odyssean Capital's
corporate engagement initiatives and proxy voting policies.
Additional information on the Board's approach to ESG matters is
detailed in the Strategic Report.
The Board seeks to appoint the best possible service providers
and evaluates their remit, performance and cost effectiveness on a
regular basis. The Board considers the culture of the Portfolio
Manager and other service providers, including their policies,
practices and behaviour, through regular reporting from these
stakeholders and, in particular, during the annual review of the
performance and continuing appointment of all service providers
through its Management Engagement Committee.
Responsible and Sustainable Investing
It is the Board's view that, in order to achieve long-term
success, companies need to maintain high standards of corporate
governance and corporate responsibility. More information is given
in the Portfolio Manager's Report.
* Alternative Performance Measures (see Glossary).
Climate Change
The risks associated with climate change represent an
increasingly important issue and the Board and the Portfolio
Manager are aware that the transition to a low-carbon economy will
affect all businesses, irrespective of their size, sector or
geographic location. Therefore, no company's revenues are immune
and the assessment of such risks must be considered within any
effective investment approach.
Key Performance Indicators ("KPIs")
At each Board meeting, the Directors consider several
performance measures to assess the Company's success in achieving
its objective. The KPIs used to measure the progress and
performance of the Company over time are established industry
measures. These are as follows:
Net asset value
The NAV at 31 March 2023 was 160.4p per ordinary share, compared
to 164.0p per ordinary share at the end of the previous period, a
decrease of 2.2% (2022: an increase of 17.7%) The NAV total return*
since the launch of the Company on 1 May 2018 to 31 March 2023 was
60.4%. The total return from the NSCI ex IC plus AIM Total Return
Index* was 1.6% for the same period.
A full description of the Company's performance for the year
ended 31 March 2023 can be found in the Portfolio Manager's
Report.
Share price total return*
The Company's share price at the previous year end was 166.0p
and decreased to 164.0p as at 31 March 2023, resulting in a return
of -1.2% (2022: +28.7%) during the year.
Share price premium/(discount) to NAV*
The share price premium to NAV changed from 1.2% at the previous
year end to premium of 2.2% as at 31 March 2023. During the year
ended 31 March 2023, the shares traded at an average premium to NAV
of 1.1%.
Revenue return per ordinary share
In the year to 31 March 2023, the Company made a revenue income
of 0.2p per share (2022: revenue income of 0.5p per share).
Ongoing charges*
The Company's ongoing charges ratio for the year ended 31 March
2023 was 1.45% (2022: 1.45%).
Management Arrangements - Portfolio Manager
The Company is an internally managed investment company for the
purposes of the UK's Alternative Investment Fund Managers Directive
and is its own alternative investment fund manager. The Board is
therefore responsible for the portfolio management and risk
management functions of the Company.
Pursuant to the terms of the Portfolio Management Agreement, the
Board has delegated responsibility for discretionary portfolio
management functions to Odyssean Capital LLP as Portfolio Manager,
subject always to the overall supervision and control of the
Board.
The Company may terminate the Portfolio Management Agreement by
giving the Portfolio Manager not less than six months' prior
written notice. The Portfolio Manager may terminate the Portfolio
Management Agreement by giving the Company not less than six
months' prior written notice.
Management Fee
The Portfolio Manager is entitled to receive an annual
management fee equal to the lower of: (i) 1% of the NAV (calculated
before deduction of any accrued but unpaid management fee and any
performance fee) per annum; or (ii) 1% per annum of the Company's
market capitalisation. The annual management fee is calculated and
accrues daily and is payable quarterly in arrears.
The Portfolio Manager is also entitled to reimbursement for all
costs and expenses properly incurred by it in the performance of
its duties under the Portfolio Management Agreement.
Performance Fee
In addition, the Portfolio Manager is entitled to a performance
fee in certain circumstances.
During the year, in order to simplify the accounting treatment,
the Board agreed to amend the settlement mechanism relating to the
payment of any performance fee earned, to a payment wholly in cash
rather than a combination of cash and the Company's ordinary
shares. This amendment only affects such payments made when the
Company's ordinary shares are trading at a premium to the NAV per
share, as this already applies where the Company's shares are
trading at a discount to the NAV per share. The requirement for the
Portfolio Manager to use 50% of any performance fee payment to
purchase the Company's ordinary shares remains in place. Such
purchase to be made within four months of receipt of any cash
payment. Further details regarding the performance fee can be found
below.
The Portfolio Manager will continue to ensure that 50% of any
performance fee earned by the Odyssean Capital LLP will be invested
in the ordinary shares of the Company as a collective group rather
than as individuals. The collective group includes Ian Armitage,
Harwood Capital Management Limited, Stuart Widdowson and Ed
Wielechowski.
The Company's performance is measured over rolling three-year
periods ending on 31 March each year (each a "Performance Period"),
by comparing the NAV total return per ordinary share over a
Performance Period against the total return performance of the NSCI
ex IC plus AIM Total Return Index (the "Comparator Index"). The
first Performance Period ran from IPO to 31 March 2021.
A Performance Fee is payable if the NAV per ordinary share at
the end of the relevant Performance Period (as adjusted to: (i) add
back the aggregate value of any dividends per ordinary share paid
(or accounted as paid for the purposes of calculating the NAV) to
shareholders during the relevant Performance Period; and (ii)
exclude any accrual for unpaid Performance Fee accrued in relation
to the relevant Performance Period) (the "NAV Total Return per
Share") exceeds both:
i) the NAV per ordinary share on the first business day of a
Performance Period; in each case as adjusted by the aggregate
amount of (i) the total return on the Comparator Index (expressed
as a percentage); and (ii) 1% per annum over the relevant
Performance Period (the "Target NAV per Share");
ii) the highest previously recorded NAV per ordinary share as at
the end of the relevant Performance Period in respect of which a
Performance Fee was last paid (the "High Watermark"); and
iii) with any resulting excess amount being known as the "Excess Amount".
The Portfolio Manager will be entitled to 10% of the Excess
Amount multiplied by the time weighted average number of ordinary
shares in issue during the relevant Performance Period to which the
calculation date relates. The Performance Fee will accrue
daily.
Payment of a Performance Fee that has been earned will be
deferred to the extent that the amount payable exceeds 1.75% per
annum of the NAV at the end of the relevant Performance Period
(amounts deferred will be payable when, and to the extent that,
following any later Performance Period(s) with respect to which a
Performance Fee is payable, it is possible to pay the deferred
amounts without causing that cap to be exceeded or the relevant NAV
total return per share to fall below both the relevant target NAV
per share and the relevant High Watermark for such Performance
Period, with any amount not paid being retained and carried
forward).
Subject at all times to compliance with relevant regulatory and
tax requirements, any Performance Fee paid or payable shall be
satisfied as to 100% of its value in cash and the Portfolio Manager
shall, as soon as reasonably practicable following receipt of such
payment, use 50% of such Performance Fee payment to make market
purchases of ordinary shares (rounded down to the nearest whole
number of ordinary shares) within four months of the date of
receipt of such Performance Fee payment.
Each such tranche of shares acquired by the Portfolio Manager
will be subject to a lock-up undertaking for a period of three
years post issuance or acquisition (subject to customary
exceptions).
At no time shall the Portfolio Manager (and/or any persons
deemed to be acting in concert with it for the purposes of the
Takeover Code) be obliged, in the absence of a relevant whitewash
resolution having been passed in accordance with the Takeover Code,
to receive, or acquire, further ordinary shares where to do so
would trigger a requirement to make a mandatory offer pursuant to
Rule 9 of the Takeover Code. Where any restriction exists on the
issuance of further ordinary shares to the Portfolio Manager, the
relevant amount of the Performance Fee may be paid in cash.
Based on the performance of the Company to 31 March 2023, no
performance fee (2022: GBP2,436,000) has been accrued in respect of
the year ended 31 March 2023.
Administration Manager, Company Secretary and Marketing
Specialist
Frostrow Capital LLP ("Frostrow") has been appointed as the
Company's Administration Manager and Company Secretary as well as
Marketing Manager. Frostrow is an independent provider of services
to the investment companies sector and currently has a total of 15
investment company clients whose assets totalled approximately
GBP20.1 billion as at the date of this report.
Administrative, company secretarial and marketing services are
provided by Frostrow under an agreement dated 23 June 2020. An
annual administration and management services fee of 22.5 basis
points of the market capitalisation of the Company up to (but not
including) GBP150 million, charged monthly in arrears, is payable.
Frostrow's fees will reduce from 22.5 basis points to 20 basis
points on market capitalization of the Company in excess of GBP150
million in size up to and including GBP500 million, and to 17.5
basis points on market capitalisation in excess of GBP500 million.
The agreement may be terminated by either party on six months'
written notice. Further details can be found in note 4 to the
financial statements.
Custodian
RBC Investor Services Trust ("RBC") was appointed as the
Company's Custodian pursuant to an agreement dated 22 March 2018.
RBC is in charge of, inter alia, safekeeping and custody of the
Company's assets, investments and cash, processing transactions and
foreign exchange services, if necessary. The Company and the
Custodian may terminate the Custody Agreement with 90 days' written
notice.
Portfolio Manager Evaluation and Continuing Appointment
The Board keeps the ongoing performance of the Portfolio Manager
under continual review and the Management Engagement Committee
conducts an annual appraisal of the Portfolio Manager's performance
and makes a recommendation to the Board about the continuing
appointment of the Portfolio Manager.
The Management Engagement Committee has reviewed Odyssean's
performance, with respect to their provision of portfolio
management and other services. Due consideration was given to the
quality and continuity of its personnel, succession planning and
investment processes. Alongside the performance review, the
Committee completed an appraisal of the terms of the Portfolio
Management Agreement to ensure that the terms remained competitive
and in the interest of the Company. The Portfolio Manager has
executed the investment strategy according to the Board's
expectations and it is the opinion of the Directors that the
continuing appointment of the Portfolio Manager on the terms agreed
is in the interests of shareholders as a whole.
Frostrow's Evaluation and Continuing Appointment
The review of the performance of Frostrow as Administration
Manager, Company Secretary and Marketing Specialist is a continuous
process carried out by the Board and a formal evaluation was
undertaken by the Management Engagement Committee in May 2023. The
Board believes that the continuing appointment of Frostrow Capital
LLP under the terms described above, is in the interests of
shareholders. In coming to this decision, the Board also took into
consideration the quality and depth of experience of the
management, administrative and company secretarial team that
Frostrow allocates to the Company.
Company Promotion
The Company has appointed Frostrow to promote the Company's
shares to professional investors in the UK and Ireland. As
investment company specialists, the Frostrow team provides a
continuous, pro-active marketing, distribution and investor
relations service that aims to promote the Company by encouraging
demand for the shares.
Frostrow actively engages with professional investors, typically
discretionary wealth managers, some institutions and a range of
execution-only platforms. Regular engagement helps to attract new
investors and retain existing shareholders, and over time results
in a stable share register made up of diverse, long-term
holders.
Frostrow arranges and manages a continuous programme of
one-to-one meetings with professional investors around the UK.
These include regular meetings with "gate keepers", the senior
points of contact responsible for their respective organisations'
research output and recommended lists. The programme of regular
meetings also includes autonomous decision makers within large
multi-office groups, as well as small independent organisations.
Some of these meetings involve Odyssean Capital LLP, but most of
the meetings do not, which means the Company is being actively
represented both to existing and potential investors, while the
Portfolio Managers concentrate on the portfolio.
The Company also benefits from involvement in the regular
professional investor seminars run by Frostrow in major centres,
notably London and Edinburgh, and webinars which are focused on
buyers of investment companies.
Frostrow produces many key corporate documents, monthly
factsheets, annual and half-yearly reports. All Company information
and invitations to investor events, including updates from the
Portfolio Manager on portfolio and market developments, are
regularly emailed to a growing database, overseen by Frostrow,
consisting of professional investors.
Frostrow maintains close contact with all the relevant
investment trust broker analysts, particularly those from
Winterflood Securities Limited, the Company's corporate broker, but
also others who publish and distribute research on the Company to
their respective professional investor clients.
The Company further benefits from regular press coverage, with
articles appearing in respected publications that are widely read
by both professional and self-directed private investors. The
latter typically buy their shares via retail platforms, which
account for a significant proportion of the Company's share
register.
Employees, Human Rights, Social and Community Issues
The Board recognises the requirement under Companies Act 2006 to
detail information about human rights, employees and community
issues, including information about any policies it has in relation
to these matters and the effectiveness of these policies. These
requirements do not apply to the Company as it has no employees,
all the Directors are non-executive and it has outsourced all its
functions to third party service providers. The Company has
therefore not reported further in respect of these provisions,
however, it does expect its service providers and portfolio
companies to respect these requirements.
Integrity and Business Ethics
The Company is committed to carrying out business in an honest
and fair manner with a zero-tolerance approach to bribery, tax
evasion and corruption. As such, policies and procedures are in
place to prevent the above. The Board's expectations are that its
principal service providers have similar governance policies in
place. The Company Secretary, on behalf of the Board, will seek
assurances from service providers on a regular basis.
Environmental, Social and Governance ("ESG") issues
The Company has no employees, property or activities other than
investments, so its direct environmental impact is minimal. In
carrying out its activities and in its relationships with service
providers, the Company aims to conduct itself responsibly,
ethically and fairly.
The Board is comprised entirely of non-executive Directors and
the day-to-day management of the Company's business is delegated to
the Portfolio Manager. The Portfolio Manager aims to be a
responsible investor and believes it is important to invest in
companies that act responsibly in respect of environmental, ethical
and social issues.
The Portfolio Manager is specifically looking to invest in
companies which have average or above average ESG characteristics
or practices, but where improvement potential exists. Being mindful
of the smaller company nature of many of the portfolio companies,
the Portfolio Manager has a pragmatic engagement approach, focused
on dialogue with portfolio companies around their performance,
disclosure and general practices compared with best-in-class peers,
and seeking positive changes in specific areas. The Portfolio
Managers will not invest in non-ethical or unsustainable
businesses.
The Directors believe that proxy voting is an important part of
the corporate governance process. It is the policy of the Company
to vote at all shareholder meetings of investee companies, and the
Board has delegated voting activities to the Portfolio Manager. The
Portfolio Manager follows relevant regulatory requirements with an
aim to make voting decisions which will best support growth in
shareholder value and will commonly take into account best
practices regarding corporate governance, board composition,
remuneration and ESG issues. The Portfolio Manager also provides
the Directors with a six-monthly update regarding the voting
decisions made in respect of the investee companies.
Modern Slavery Act 2015
The Company does not provide goods or services in the normal
course of business, and as a financial investment vehicle does not
have customers. The Directors do not therefore consider that the
Company is required to make a statement under the Modern Slavery
Act 2015 in relation to slavery or human trafficking.
The Company's suppliers are typically professional advisers and
the Company's supply chains are considered to be low risk in this
regard.
In light of the nature of the Company's business there are no
relevant human rights issues and the Company does not have a human
rights policy.
Risk Management
Principal Risks, Emerging Risks and Risk Management
The Board considers that the risks detailed within this report
are the principal risks currently facing the Company to deliver its
strategy.
The Board is responsible for the ongoing identification,
evaluation and management of the of the principal risks faced by
the Company and the Audit Committee, on behalf of the Board, has
established a process for the regular review of these risks and
their mitigation. This process accords with the UK Governance Code
and the FRC's Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting.
During the year ended 31 March 2023, the Audit Committee has
again carried out a robust assessment of the emerging and principal
risks facing the Company, including those that would threaten its
business model, future performance, solvency and liquidity. The
Committee also considered the controls in place to mitigate the
inherent risks and whether additional controls or actions were
required to bring the residual risk down to an acceptable level.
The Committee was satisfied with the controls that are in
place.
Further details, including as a summary of the Company's
approach to risk and how principal risks and uncertainties were
dealt with during the year under review, are set out in the
Strategic Report.
Internal Control Review
The Board is also responsible for the internal controls relating
to the Company, including the reliability of the financial
reporting process, and for reviewing their effectiveness.
Key procedures established with a view to providing effective
financial control, have been in place throughout the year ended 31
March 2023 and up to the date of this Report. The internal control
systems are designed to ensure that proper accounting records are
maintained, that the financial information on which business
decisions are made and which are issued for publication is reliable
and that the assets of the Company are safeguarded.
The risk management process and systems of internal control are
designed to manage rather than eliminate the risk of failure to
achieve the Company's investment objective. It should be recognised
that such systems can only provide reasonable, not absolute,
assurance against material misstatement or loss.
The Directors have carried out a review of the effectiveness of
the Company's risk management and internal control systems as they
have operated during the year and up to the date of approval of
this Report. There were no matters arising from this review that
required further investigation and no significant failings or
weaknesses were identified.
Internal Control Assessment Process
Robust risk assessments and reviews of internal controls are
undertaken regularly in the context of the Company's overall
investment objective. During the year, the Board - through the
Audit Committee and together with Frostrow - has confirmed its risk
management controls under the key headings of: Corporate Strategy;
Accounting, Legal and Regulatory; Operational; Investment and
Business Activities. In evaluating the risks the Company faces, the
Board has considered the Company's operations in the light of the
following factors:
- the nature and extent of risks which it regards as acceptable
for the Company to bear within its overall business objective;
- the threat of such risks becoming reality;
- the Company's ability to reduce the incidence and impact of risk on its performance;
- the cost to the Company and benefits related to the review of
risk and associated controls of the Company; and
- the extent to which the third parties operate the relevant controls.
A risk matrix helps to monitor the risks which have been
identified and the controls in place to mitigate those risks. The
risks are assessed on the basis of the likelihood of them
happening, the impact on the business if they were to occur and the
effectiveness of the controls in place to mitigate them. This risk
register is reviewed by the Audit Committee regularly at every
meeting.
Most of the day-to-day management functions of the Company are
sub-contracted, and the Directors therefore obtain regular
assurances and information from key third party suppliers regarding
the internal systems and controls operating in their organisations.
In addition, each of the third parties is requested to provide a
copy of its report on internal controls each year, which is
reviewed by the Audit Committee.
Principal risks and uncertainties Key mitigation
--------------------------------------------------------- ---------------------------------------------------------
Investment performance is not comparable to the
expectations of investors
--------------------------------------------------------- ---------------------------------------------------------
Consistently poor performance could lead to a fall in the The Board reviews and discusses the Company's performance
share price and a widening of the against its investment objective
discount. The success of the Company depends on the and policy, and assesses performance in comparison to
Portfolio Manager's ability to identify, industry peers and the broader comparative
acquire and realise investments in accordance with the market. The Board also keeps the performance of the
Company's investment policy. This, Portfolio Manager under continual review,
in turn, depends on the ability of the Portfolio Manager along with a review of significant stock decisions and
to apply its investment processes the overall rationale for holding the
and identify suitable investments. current portfolio. In addition, the Management Engagement
Committee conducts an annual appraisal
of the Portfolio Manager.
--------------------------------------------------------- ---------------------------------------------------------
Share price performance
--------------------------------------------------------- ---------------------------------------------------------
The market price of the Company's shares, like shares in The Board monitors the relationship between the share
all investment companies, may fluctuate price and the NAV, including regular
independently of the NAV and therefore may not reflect review of the level of discount relative to that of
the underlying NAV of the shares. The companies in the sector. The Company has
shares could trade at a discount or premium to NAV at taken powers to re-purchase shares and will consider
different times, depending on factors doing so to reduce the volatility of
such as market conditions, investors' perceptions of the any share price discount. The Company has also taken
merits of the Company's objective powers to issue shares (only at a premium
and investment policy, supply and demand for the shares to NAV) to provide liquidity to the market to meet
and the extent investors value the investor demand by way of issue of further
activities of the Company and/or the Portfolio Manager. shares.
No share buybacks were undertaken during the year. The
Company issued a total of 16,697,000
new shares through tap issuances all through the year
(2022: 7,990,842 new shares through
tap issuances).
The Board and the portfolio management team all own
shares in the Company, by way of aligning
their own interests with those of all other shareholders.
The Directors invest their Directors'
fees in shares, which are bought at the end of every
quarter, and the Portfolio Manager invests
at least 50% of any performance fee in shares.
In addition, in the seventh year following the IPO (and
every seventh year thereafter), the
Board will provide shareholders with an opportunity to
realise their shares at the applicable
NAV.
--------------------------------------------------------- ---------------------------------------------------------
Portfolio Manager - loss of personnel or reputation
--------------------------------------------------------- ---------------------------------------------------------
The identification and selection of investment The Board maintains a good level of communication and has
opportunities and the management of the day-to-day a good relationship with the Portfolio
activities of the Company depends on the diligence, Manager, and regularly reviews the Portfolio Manager's
skill, judgement and business contacts performance at Board meetings. The
of the Portfolio Manager's investment professionals and Portfolio Manager's Compliance Officer also reports to
the information and deal flow they the Board regularly and the Portfolio
generate during the normal course of their activities. Manager would report to the Board immediately in the
The Company's future success depends event of any change in key personnel.
on the continuing ability of these individuals to provide Odyssean Capital LLP as Portfolio Manager has appointed
services and the Portfolio Manager's an investment team consisting of Stuart
ability to strategically recruit, retain and motivate new Widdowson and Ed Wielechowski, both of whom are very
talented personnel as required. experienced in managing the portfolio
The departure of some or all of the Portfolio Manager's in accordance with the Company's principles and
investment professionals could prevent investment strategy.
the Company from achieving its investment objective and
give rise to a significant public
perception risk regarding the potential performance of
the Company.
--------------------------------------------------------- ---------------------------------------------------------
Material changes within the Portfolio Manager's
organisation
--------------------------------------------------------- ---------------------------------------------------------
Material changes could occur within the Portfolio The Portfolio Manager has advance notice of any material
Manager's organisation or its affiliates changes within its organisation and
which are to the detriment of the Company's standing in would report to the Board immediately in the event of any
respect of its competitors and its such changes, including within its
profitability. organisation and affiliates or to its key personnel.
Reliance on the performance of third party service
providers
--------------------------------------------------------- ---------------------------------------------------------
The Company has no employees and the Directors have been The Board has appointed third party service providers
appointed on a non-executive basis. with relevant experience. Each third
The Company is reliant upon the performance of third party service provider is monitored by the Board and
party service providers for its executive their roles are evaluated at least annually
function. Failure by any service provider to carry out by the Management Engagement Committee.
its obligations to the Company in accordance The Board further receives a monthly report from
with the terms of its appointment could have a material Frostrow, which includes details of compliance
adverse effect on the operation of with applicable law and regulations; reviews internal
the Company. control reports and key policies of
This encompasses disruption or failure caused by cyber its service providers; has considered the increased risk
crime or a pandemic and covers dealing, of cyber-attacks and has received
trade processing, administrative services, financial and assurances from its service providers regarding the
other operational functions. controls in place; and maintains a risk
matrix with details of risks to which the Company is
exposed, the approach to those risks,
key controls relied on and the frequency of the controls
operation.
--------------------------------------------------------- ---------------------------------------------------------
UK Regulatory Risk
--------------------------------------------------------- ---------------------------------------------------------
The regulatory environment in which the Company operates The Board monitors regulatory change with the assistance
changes materially, affecting the of Frostrow and external professional
Company's modus operandi. advisers to ensure that the Board is aware of any likely
changes in the regulatory environment
and will be able to adapt as required.
--------------------------------------------------------- ---------------------------------------------------------
UK Legal Risk
--------------------------------------------------------- ---------------------------------------------------------
The Company and/or the Directors fail to comply with The Board monitors regulatory change with the assistance
legal requirements in relation to FCA of its external professional advisers
dealing rules and procedures, the AIFMD, the Listing to ensure compliance with applicable laws and regulations
Rules, the Companies Act 2006, relevant including the Companies Act 2006,
accounting standards, the Bribery Act 2010, the Criminal the AIFM Rules, the Corporation Tax Act 2010 ("Section
Finances Act 2017, GDPR, tax regulations 1158"), the Market Abuse Regulation
or any other applicable regulations. ("MAR"), the Disclosure Guidance and Transparency Rules
("DTRs") and the FCA's Listing Rules.
The Board reviews compliance reports and internal control
reports provided by its service
providers, as well as the Company's financial statements
and revenue forecasts.
The Directors attend seminars and conferences to keep up
to date on regulatory changes and
receive industry updates from the Company Secretary. The
Company Secretary also presents a
quarterly report on changes in the regulatory
environment, including AIC updates, and how
changes have been addressed.
--------------------------------------------------------- ---------------------------------------------------------
Governance Risk
--------------------------------------------------------- ---------------------------------------------------------
Poor adherence to corporate governance best practice or The Board reviews all information supplied to
errors or irregularities in published shareholders and Frostrow's marketing activity
information could lead to censure and/or result in at each meeting.
reputational damage to the Company. Details of the Company's compliance with corporate
governance best practice, including information
on relationships with shareholders, are set out in the
Corporate Governance Report in the
Annual Report.
--------------------------------------------------------- ---------------------------------------------------------
ESG and Climate Change Risk
--------------------------------------------------------- ---------------------------------------------------------
Risks related to the environment, social issues and At every Board meeting, the Board receives ESG updates,
governance (ESG) such as the impact of which include information on any climate
climate change or bad governance of portfolio companies change and governance related engagement, from the
could have an adverse impact on the Portfolio Manager together with monthly
portfolio companies' operational performance. portfolio updates. The Board challenges the Investment
Manager on ESG matters to ensure that
the portfolio companies are acting in accordance with the
Board's ESG approach.
The Portfolio Manager supports the UK Stewardship Code
and actively engages with portfolio
companies on ESG matters including climate change.
Details of the Portfolio Manager's ESG approach can be
found in the Portfolio Manager's Report
and on the Company's website at www.oitplc.com.
Furthermore, the Board has decided to hold some of its
meetings, when possible, not in person
but via video conference, to save on travel and reduce
the Directors' carbon footprints on
behalf of the Company.
--------------------------------------------------------- ---------------------------------------------------------
Emerging Risks
The Company has carried out a detailed assessment of its
emerging and principal risks. The International Risk Governance
Council's definition of an "emerging" risk is one that is new, or
is a familiar risk in a new or unfamiliar context or under new
context conditions (re-emerging). Failure to identify emerging
risks may cause reactive actions rather than being proactive and,
in a worst case scenario, could cause the Company to become
unviable or otherwise fail or force the Company to change its
structure, objective or strategy.
The Audit Committee reviews the Company's risk register at its
half-yearly meetings. Emerging risks are discussed in detail as
part of this process to try to ensure that emerging as well as
well-known risks are identified and mitigated as far as
possible.
Any emerging risks and mitigations are added to the risk
register, an example being the invasion of Ukraine by Russia, which
has led to shock waves in the markets and was followed by
increasingly severe sanctions against Russia such as the boycott of
Russian oil and gas by many countries and the blacklisting of
Russian banks. Supply emergencies, distribution problems and price
increases ensued and the Board and all its advisers continue to
keep developments under close review.
The experience and knowledge of the Directors is useful in these
discussions, as are update papers and advice received from the
Board's key service providers such as the Portfolio Manager,
Frostrow and the Company's brokers. In addition, the Company is a
member of the AIC, which provides regular technical updates, draws
members' attention to forthcoming industry and regulatory issues
and advises on compliance obligations.
Going Concern
The content of the Company's portfolio, trading activity, the
Company's cash balances and revenue forecasts, and the trends and
factors likely to affect the Company's performance are reviewed and
discussed at each Board meeting.
The Company's financial statements for the year ended 31 March
2023 have been prepared on a going concern basis.
In reaching this conclusion, the Board has considered a detailed
assessment of the Company's ability to meet its liabilities as they
fall due, including tests which modelled the effects of substantial
falls in markets and significant reductions in market liquidity, on
the Company's NAV, its cash flows and expenses. The assessments
also factored in the risk of persistently high inflation, existing
and potential further risks arising from Russia's invasion of
Ukraine, and any ongoing risks from the COVID pandemic. Further
information is provided in the Audit Committee report.
Based on the information available to the Directors at the date
of this report, including the results of these stress tests, the
conclusions drawn in the Viability Statement, the Company's cash
balances, and the liquidity of the Company's listed investments,
the Directors are satisfied that the Company has adequate financial
resources to continue in operation for at least the next 12 months
and that, accordingly, it is appropriate to continue to adopt the
going concern basis in preparing the financial statements.
Longer-Term Viability Statement
In accordance with the UK Corporate Governance Code, the
Directors have carefully assessed the Company's position and
prospects as well as the principal risks and have formed a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the next
three financial years. The Board has chosen a three-year horizon in
view of the long-term nature and outlook adopted by the Investment
Manager when making investment decisions.
To make this assessment and in reaching this conclusion, the
Audit Committee has considered the Company's financial position and
its ability to liquidate its portfolio and meet its liabilities as
they fall due:
- the portfolio is principally comprised of investments listed
and traded on stock exchanges. These are actively traded and,
whilst perhaps less liquid than larger quoted companies, the
portfolio is well diversified;
- the portfolio is typically run with a net cash position
(average of 5.5% in net cash over the past two years) and as a
result there is ample liquidity on a day-to-day basis for the
Company to meet its obligations;
- the expenses of the Company are predictable and modest in
comparison with the assets and there are no capital commitments
foreseen which would alter that position; and
- the Company has no employees, only its non-executive
Directors. Consequently, it does not have redundancy or other
employment related liabilities or responsibilities.
The Audit Committee, as well as considering the potential impact
of the Company's principal risks and various severe but plausible
downside scenarios, has also considered the following assumptions
in considering the Company's longer-term viability:
- there will continue to be demand for investment trusts;
- the Board and the Portfolio Manager will continue to adopt a
long-term view when making investments;
- the Company invests principally in the securities of UK listed
companies to which investors will wish to continue to have
exposure;
- regulation will not increase to a level that makes running the Company uneconomical; and
- the performance of the Company will continue to be satisfactory.
High inflation and the war in Ukraine were also factored into
the key assumptions made by assessing its impact on the Company's
key risks and whether they had increased in their potential to
affect the normal, favourable and stressed market conditions.
Looking to the Future
The Board concentrates its attention on the Company's investment
performance and Odyssean Capital LLP's investment approach and on
factors that may have an effect on this approach.
The Board is regularly updated by Frostrow Capital LLP on wider
investment trust industry issues and regular discussions are held
concerning the Company's future development and strategy.
A review of the Company's year ended 31 March 2023, its
performance and the outlook for the Company can be found in the
Chairman's Statement and in the Portfolio Manager's Review.
The Company's overall strategy remains unchanged.
Approval
This Strategic Report has been approved by the Board of
Directors and signed on its behalf by:
Jane Tufnell
Chairman
30 May 2023
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial period. Accordingly, the Directors
have prepared the Financial Statements in accordance with IFRS as
adopted by the United Kingdom. Under company law, the Directors
must not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that
period.
In preparing the Financial Statements, the Directors are
required to:
- select suitable accounting policies in accordance with IAS 8:
"Accounting Policies, Changes in Accounting Estimates and Errors"
and then apply them consistently;
- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
- provide additional disclosures when compliance with specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Company's financial position and financial performance;
- state whether applicable IFRS have been followed, subject to
any material departures disclosed and explained in the Financial
Statements;
- make judgements and accounting estimates that are reasonable and prudent; and
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with Companies Act 2006 and Article
4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors' Report,
Directors' Remuneration Report and Corporate Governance Statement
that comply with that law and those regulations, and for ensuring
that the Annual Report includes information required by the Listing
Rules of the FCA.
The Financial Statements are published on the Company's website,
www.oitplc.com, which is maintained on behalf of the Company by
Frostrow Capital LLP. The work carried out by the Auditor does not
involve consideration of the maintenance and integrity of this
website and accordingly, the Auditor accepts no responsibility for
any changes that have occurred to the Financial Statements since
they were initially presented on the website.
Under the Portfolio Management Agreement, the Portfolio Manager
is responsible for the maintenance and integrity of the corporate
and financial information included on the Company's website.
Visitors to the website need to be aware that legislation in the
United Kingdom covering the preparation and dissemination of the
financial statements may differ from legislation in their
jurisdiction.
We confirm that to the best of our knowledge:
- the Financial Statements, which have been prepared in
accordance with IFRS as adopted by the United Kingdom, give a true
and fair view of the assets, liabilities, financial position and
loss of the Company; and
- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company's position and performance, business model and
strategy.
On behalf of the Board
Jane Tufnell
Chairman
30 May 2023
Statement of Comprehensive Income
for the year ended 31 March 2023
Year ended 31 March Year ended 31 March
2023 2022
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Income 2 2,720 - 2,720 2,573 - 2,573
Net (losses)/gains on investments
at fair value 7 - (4,295) (4,295) - 24,137 24,137
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Total (loss)/income 2,720 (4,295) (1,575) 2,573 24,137 26,710
Expenses
Portfolio management and performance
fees 3 (1,718) - (1,718) (1,459) (2,436) (3,895)
Other expenses 4 (785) - (785) (663) - (663)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Total expenses (2,503) - (2,503) (2,122) (2,436) (4,558)
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Net (loss)/profit before taxation 217 (4,295) (4,078) 451 21,701 22,152
Taxation 5 (12) - (12) - - -
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Net (loss)/profit for the period 205 (4,295) (4,090) 451 21,701 22,152
------------------------------------- ----- ------- ------- ------- ------- ------- -------
Basic and diluted (loss)/earnings
per share (pence) 6 0.2 (4.1) (3.9) 0.5 23.5 24.0
------------------------------------- ----- ------- ------- ------- ------- ------- -------
The total column of this statement is the Income Statement of
the Company prepared in accordance with International Financial
Reporting Standards ("IFRS"), as adopted by the United Kingdom. The
supplementary revenue and capital columns are presented in
accordance with the Statement of Recommended Practice issued by the
AIC ("AIC SORP").
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the period.
There is no other comprehensive income, and therefore the profit
for the period after tax is also the total comprehensive
income.
The accompanying notes are an integral part of these financial
statements.
Statement of Changes in Equity
for the year ended 31 March 2023
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
-----
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ----- ------- ------- ------------- ------- ------- -------
Year ended 31 March 2023
Opening balance as at 1
April 2022 962 13,244 85,475 58,263 (128) 157,816
Net (loss)/profit for the
year - - - (4,295) 205 (4,090)
Net proceeds from share
issuance 10 167 27,312 - - - 27,479
-------------------------- ----- ------- ------- ------------- ------- ------- -------
As at 31 March 2023 1,129 40,556 85,475 53,968 77 181,205
-------------------------- ----- ------- ------- ------------- ------- ------- -------
Share Special
Share premium distributable Capital Revenue
capital account reserve reserve reserve Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ----- ------- ------- ------------- ------- ------- -------
Year ended 31 March 2022
Opening balance as at 1
April 2021 883 449 85,245 36,562 (579) 122,560
Net profit for the year - - - 21,701 451 22,152
Net proceeds from share
issuance 10 79 12,583 - - - 12,662
Shares released from treasury 10 - 212 230 - - 442
------------------------------ ----- ------- ------- ------------- ------- ------- -------
As at 31 March 2022 962 13,244 85,475 58,263 (128) 157,816
------------------------------ ----- ------- ------- ------------- ------- ------- -------
The accompanying notes are an integral part of these financial
statements.
Balance Sheet
as at 31 March 2023
31 March 31 March
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------- ----- -------- --------
Non current assets
Investments at fair value through profit or loss 7 180,394 155,348
------------------------------------------------- ----- -------- --------
Current assets
Trade and other receivables 8 1,146 420
Cash and cash equivalents 1,370 5,197
------------------------------------------------- ----- -------- --------
2,516 5,617
Total assets 182,910 160,965
------------------------------------------------- ----- -------- --------
Current liabilities
Trade and other payables 9 (1,705) (3,149)
------------------------------------------------- ----- -------- --------
Total liabilities (1,705) (3,149)
Total assets less current liabilities 181,205 157,816
------------------------------------------------- ----- -------- --------
Net assets 181,205 157,816
------------------------------------------------- ----- -------- --------
Represented by:
Share capital 10 1,129 962
Share premium account 40,556 13,244
Special distributable reserve 10 85,475 85,475
Capital reserve 53,968 58,263
Revenue reserve 77 (128)
------------------------------------------------- ----- -------- --------
Total equity attributable to equity holders of
the Company 181,205 157,816
------------------------------------------------- ----- -------- --------
Basic and diluted NAV per ordinary share (pence) 11 160.4 164.0
------------------------------------------------- ----- -------- --------
The accompanying notes are an integral part of these financial
statements.
These statements were approved and authorised for issue by the
Board on 30 May 2023 and signed on its behalf by:
Jane Tufnell
Chairman
Company Registered Number: 11121934
Cash Flow Statement
for the year ended 31 March 2023
Year ended Year ended
31 March 31 March
2023 2022
Notes GBP'000 GBP'000
---------------------------------------------------- ------ ---------- ----------
Reconciliation of net (loss)/profit before taxation
to net cash outflow from operating activities
Net (loss)/profit before taxation (4,078) 22,152
Losses/(gains) on investments held at fair value
through profit and loss 4,295 (24,137)
(Increase)/decrease in receivables (282) 28
(Decrease)/increase in payables (2,337) 710
Taxation paid (12) -
------------------------------------------------------------ ---------- ----------
Net cash outflow from operating activities (2,414) (1,247)
------------------------------------------------------------ ---------- ----------
Investing activities
Purchases of investments (107,939) (90,568)
Sales of investments 79,067 68,223
------------------------------------------------------------ ---------- ----------
Net cash outflow from investing activities (28,872) (22,345)
------------------------------------------------------------ ---------- ----------
Financing activities
Net proceeds from share issuance 27,479 12,662
Shares released from treasury - 442
------------------------------------------------------------ ---------- ----------
Net cash inflow from financing activities 27,479 13,104
------------------------------------------------------------ ---------- ----------
Decrease in cash and cash equivalents (3,807) (10,488)
------------------------------------------------------------ ---------- ----------
Reconciliation of net cash flow movements in funds
Cash and cash equivalents at the beginning of the
year 5,197 15,689
Exchange rate movements (20) (4)
Decrease in cash and cash equivalents (3,807) (10,488)
------------------------------------------------------------ ---------- ----------
Decrease in net cash (3,827) (10,492)
------------------------------------------------------------ ---------- ----------
Cash and cash equivalents at end of year 1,370 5,197
------------------------------------------------------------ ---------- ----------
The accompanying notes are an integral part of these financial
statements.
Notes to the Financial Statements
for the year ended 31 March 2023
1. Accounting Policies
Odyssean Investment Trust PLC is a listed public company
incorporated and registered in England and Wales. The registered
office of the Company is 25 Southampton Buildings, London WC2A 1AL.
The principal activity of the Company is that of an investment
trust company within the meaning of sections 1158/1159 of the
Corporation Tax Act 2010 and its investment approach is detailed in
the Strategic Report.
a) Basis of preparation
The financial statements of the Company have been prepared in
accordance with IFRS as adopted by the United Kingdom which
comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB"), and as applied
in accordance with the provisions of the Companies Act 2006. The
annual financial statements have also been prepared in accordance
with the AIC SORP for the financial statements of investment trust
companies and venture capital trusts, except to any extent where it
is not consistent with the requirements of IFRS.
In order to better reflect the activities of an investment trust
company and in accordance with guidance issued by the AIC,
supplementary information which analyses the Income Statement
between items of a revenue and capital nature has been prepared
alongside the Income Statement.
The functional currency of the Company is Sterling because this
is the currency of the primary economic environment in which the
Company operates. The financial statements are also presented in
Sterling rounded to the nearest thousand, except where otherwise
indicated.
b) Going concern
The financial statements have been prepared on a going concern
basis that approval as an investment trust company will continue to
be met.
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has the resources to continue in business for the foreseeable
future, being a period of at least 12 months from the date these
financial statements were approved. In making the assessment, the
Directors have considered the likely impacts of high inflation and
the Russia/Ukraine conflict on the Company, operations and the
investment portfolio. The Directors noted the net cash balance
exceeds any short-term liabilities, the Company has no debt and the
Company holds a portfolio of investments listed on the London Stock
Exchange The Company is a closed end fund, where assets are not
required to be liquidated to meet redemptions. Whilst the economic
future is uncertain, and the Directors believe it is possible the
Company could experience further reductions in income and/or market
value this should not be to a level which would threaten the
Company's ability to continue as a going concern. The Directors,
the Portfolio Manager and other service providers have put in place
contingency plans to minimise disruption. Furthermore, the
Directors are not aware of any material uncertainties that may cast
doubt upon the Company's ability to continue as a going concern,
having taken into account the liquidity of the Company's investment
portfolio and the Company's financial position in respect of its
cash flows, debt and investment commitments. Therefore, the
financial statements have been prepared on a going concern
basis.
c) Segmental reporting
The Directors are of the opinion that the Company is engaged in
a single segment of the business, being investment business. The
Company invests in small companies principally based in countries
bordering the North Atlantic Ocean.
d) Accounting developments
In the current year, the Company has applied a number of
amendments to IFRS, issued by the IASB. These include annual
improvements to IFRS, changes in standards, legislative and
regulatory amendments, changes in disclosure and presentation
requirements.
The adoption of the changes has had no material impact on the
current or prior years' financial statements.
e) Critical accounting judgements and key sources of estimation uncertainty
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and the reported amounts in
the Balance Sheet, the Income Statement and the disclosure of
contingent assets and liabilities at the date of the financial
statements. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The areas requiring the most significant judgement and
estimation in the preparation of the financial statements are:
recognising and classifying unusual or special dividends received
as either revenue or capital in nature; when determining any
deferred performance fee, this may be affected by future changes in
the Company's portfolio and other assets and liabilities; and
setting the levels of dividends paid and proposed in satisfaction
of both the Company's long-term objective and its obligations to
adhere to investment trust status rules under Section 1158 of the
Corporation Tax Act 2010.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Any revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
future period if the revision affects both current and future
periods. There are no significant judgements or estimates in these
financial statements.
During the year ended 31 March 2023, the Company has received no
unusual or special dividend (2022: GBPnil); no performance fee has
been accrued (2022: GBP2,436,000) or deferred (2022: GBPnil).
f) Investments
The Company's business is investing in financial assets with a
view to profiting from their total return in the form of income and
capital growth. This portfolio of financial assets is managed and
its performance evaluated on a fair value basis in accordance with
the documented investment strategy and information is provided
internally on that basis to the Company's Board of Directors and
other key management personnel.
The investments held by the Company are designated by the
Company as 'at fair value through profit or loss'. All gains and
losses are allocated to the capital return within the Statement of
Comprehensive Income as 'Gains or losses on investments held at
fair value through profit or loss'. Also included within this
heading are transaction costs in relation to the purchase or sale
of investments. When a sale or purchase is made under a contract,
the terms of which require delivery within the timeframe of the
relevant market, the investments concerned are recognised or
derecognised on the trade date.
All investments are designated upon initial recognition as held
at fair value through profit or loss, and are measured at
subsequent reporting dates at fair value, which is either the bid
price or the closing price for Stock Exchange Electronic Trading
Service ("SETS"). The Company derecognises a financial asset only
when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially
all the risks and rewards of ownership of the asset to another
entity. On derecognition of a financial asset, the difference
between the asset's carrying amount and the sum of consideration
received and receivable and the cumulative gain or loss that had
been accumulated is recognised in profit or loss.
Fair values for unquoted investments, or investments for which
the market is inactive, are established by using various valuation
techniques in accordance with the International Private Equity and
Venture Capital Valuation (the "IPEV") guidelines. These may
include recent arm's length market transactions, earnings multiples
and the net asset basis.
All investments for which a fair value is measured or disclosed
in the financial statements are categorised within the fair value
hierarchy levels set out in note 7.
g) Foreign currency translation
Transactions in currencies other than Sterling are recorded at
the rates of exchange prevailing on the date of the transaction.
Items that are denominated in foreign currencies are retranslated
at the rates prevailing on the Balance Sheet date. Any gain or loss
arising from a change in exchange rate subsequent to the date of
the transaction is included as an exchange gain or loss in the
capital reserve or the revenue account depending on whether the
gain or loss is capital or revenue in nature.
h) Cash and Cash Equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to insignificant risk of changes in value.
For the purpose of the Cash Flow Statement, cash and cash
equivalents consist of cash and cash equivalents as defined above,
net of outstanding bank overdrafts when applicable.
i) Trade and other receivables and payables
Trade receivables and trade payables are measured at amortised
cost and balances revalued for exchange rate movement. There are
immaterial expected credit losses on the trade and other
receivables balance.
j) Income
Dividends receivable on quoted equity shares are taken to
revenue on an ex-dividend basis. Dividends receivable on equity
shares where no ex-dividend date is quoted are brought into account
when the Company's right to receive payment is established.
Dividends from overseas companies are shown gross of any
withholding taxes which are disclosed separately in the Statement
of Comprehensive Income.
Special dividends are taken to the revenue or capital account
depending on their nature. In deciding whether a dividend should be
regarded as capital or revenue receipt, the Board reviews all
relevant information as to the sources of the dividend on a
case-by-case basis.
When the Company has elected to receive scrip dividends in the
form of additional shares rather than in cash, the amount of the
cash dividend foregone is recognised as income. Any excess in the
value of the cash dividend is recognised in the capital column.
All other income is accounted on a time-apportioned accruals
basis and is recognised in the Statement of Comprehensive
Income.
k) Expenses
All expenses are accounted on an accruals basis and are
allocated wholly to revenue with the exception of the Performance
Fees and transaction costs which are allocated wholly to capital,
as the fee payable by reference to the capital performance of the
Company.
l) Taxation
The charge for taxation is based on the net revenue for the year
and takes into account taxation deferred or accelerated because of
temporary differences between the treatment of certain items for
accounting and taxation purposes.
Deferred tax is provided using the liability method on temporary
differences between the tax bases of assets and liabilities and
their carrying amount for financial reporting purposes at the
reporting date. Deferred tax assets are only recognised if it is
considered more likely than not that there will be suitable profits
from which the future reversal of timing differences can be
deducted. In line with recommendations of the SORP, the allocation
method used to calculate the tax relief expenses charged to capital
is the 'marginal' basis. Under this basis, if taxable income is
capable of being offset entirely by expenses charged through the
revenue account, then no tax relief is transferred to the capital
account.
m) Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the
period in which they are paid or approved in general meetings and
are taken to the Statement of Changes in Equity. Dividends declared
and approved by the Company after the Balance Sheet date have not
been recognised as a liability of the Company at the Balance Sheet
date.
n) Share capital and reserves
The share capital represents the nominal value of equity
shares.
The share premium account represents the accumulated premium
paid for shares issued above their nominal value less issue
expenses.
The special distributable reserve was created on 7 August 2018.
This reserve may be used for the costs of share buybacks, the
cancellation of shares, and distribution by way of dividends.
The capital reserve represents realised and unrealised capital
and exchange gains and losses on the disposal and revaluation of
investments and of foreign currency items. In addition, performance
fee costs are allocated to the capital reserve.
The revenue reserve represents the surplus of accumulated
revenue profits being the excess of income derived from holding
investments less the costs associated with running the Company.
This reserve may be distributed by way of dividends, if
positive.
2. Income
Year ended Year ended Year ended Year ended Year ended Year ended
31 March 31 March 31 March 31 March 31 March 31 March
2023 2023 2023 2022 2022 2022
Income Capital Total Income Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Income from investments
UK dividends 2,170 - 2,170 2,573 - 2,573
Overseas dividends 420 - 420 - - -
------------------------ ---------- ---------- ---------- ---------- ---------- ----------
2,590 - 2,590 2,573 - 2,573
------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Other income
Bank Interest 130 - 130 - - -
------------------------ ---------- ---------- ---------- ---------- ---------- ----------
Total income 2,720 - 2,720 2,573 - 2,573
------------------------ ---------- ---------- ---------- ---------- ---------- ----------
3. Portfolio management fee
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------- -------- -------- -------- -------- --------
Portfolio management
fee 1,718 - 1,718 1,459 - 1,459
Performance fee - - - - 2,436 2,436
--------------------- -------- -------- -------- -------- -------- --------
1,718 - 1,718 1,459 2,436 3,895
--------------------- -------- -------- -------- -------- -------- --------
The Company is liable to pay a performance fee depending on the
performance of the Company over a three -- year period and
thereafter a rolling three-year period as set out in the Company's
prospectus dated 26 March 2018. Based on the performance of the
Company to 31 March 2023, no performance fee has been accrued
(2022: GBP2,436,000).
Pursuant to the terms of the Portfolio Management Agreement, the
Portfolio Manager is entitled, with effect from IPO on 1 May 2018,
to receive an annual management fee equal to the lower of: (i) 1%
of the NAV (calculated before deduction of any accrued but unpaid
management fee and any performance fee) per annum; or (ii) 1% per
annum of the Company's market capitalisation. The annual management
fee is calculated and accrues daily and is payable quarterly in
arrears.
In addition, the Portfolio Manager will be entitled to a
performance fee in certain circumstances.
The Company's performance is measured over rolling three-year
periods ending on 31 March each year (each a "Performance Period"),
by comparing the NAV total return per ordinary share over a
Performance Period against the total return performance of the NSCI
ex IC plus AIM Total Return Index (the "Comparator Index"). The
first Performance Period ran from IPO to 31 March 2021.
A Performance Fee is payable if the NAV per ordinary share at
the end of the relevant Performance Period (as adjusted to: (i) add
back the aggregate value of any dividends per ordinary share paid
(or accounted as paid for the purposes of calculating the NAV) to
shareholders during the relevant Performance Period; and (ii)
exclude any accrual for unpaid Performance Fee accrued in relation
to the relevant Performance Period) (the "NAV Total Return per
Share") exceeds both:
(i) (a) the NAV per ordinary share at IPO, in relation to the
first Performance Period; and (b) thereafter the NAV per ordinary
share on the first business day of a Performance Period; in each
case as adjusted by the aggregate amount of (i) the total return on
the Comparator Index (expressed as a percentage); and (ii) 1% per
annum over the relevant Performance Period (the "Target NAV per
Share");
(ii) the highest previously recorded NAV per ordinary share as
at the end of the relevant Performance Period in respect of which a
Performance Fee was last paid (or the NAV per ordinary share as at
IPO, if no Performance Fee has been paid) (the "High Watermark");
and
(iii) with any resulting excess amount being known as the
"Excess Amount".
The Portfolio Manager will be entitled to 10% of the Excess
Amount multiplied by the time weighted average number of ordinary
shares in issue during the relevant Performance Period to which the
calculation date relates. The Performance Fee will accrue
daily.
Payment of a Performance Fee that has been earned will be
deferred to the extent that the amount payable exceeds 1.75% per
annum of the NAV at the end of the relevant Performance Period
(amounts deferred will be payable when, and to the extent that,
following any later Performance Period(s) with respect to which a
Performance Fee is payable, it is possible to pay the deferred
amounts without causing that cap to be exceeded or the relevant NAV
total return per share to fall below both the relevant target NAV
per share and the relevant High Watermark for such Performance
Period, with any amount not paid being retained and carried
forward).
Subject at all times to compliance with relevant regulatory and
tax requirements, any Performance Fee paid or payable shall be
satisfied as to 100% of its value in cash and the Portfolio Manager
shall, as soon as reasonably practicable following receipt of such
payment, use 50% of such Performance Fee payment to make market
purchases of ordinary shares (rounded down to the nearest whole
number of ordinary shares) within four months of the date of
receipt of such Performance Fee payment.
Each such tranche of shares acquired by the Portfolio Manager
will be subject to a lock-up undertaking for a period of three
years post issuance or acquisition (subject to customary
exceptions).
At no time shall the Portfolio Manager (and/or any persons
deemed to be acting in concert with it for the purposes of the
Takeover Code) be obliged, in the absence of a relevant whitewash
resolution having been passed in accordance with the Takeover Code,
to receive, or acquire, further ordinary shares where to do so
would trigger a requirement to make a mandatory offer pursuant to
Rule 9 of the Takeover Code. Where any restriction exists on the
issuance of further ordinary shares to the Portfolio Manager, the
relevant amount of the Performance Fee may be paid in cash.
In addition, the Portfolio Manager is entitled to reimbursement
for all costs and expenses properly incurred by it in the
performance of its duties under the Portfolio Management
Agreement.
The Company may terminate the Portfolio Management Agreement by
giving the Portfolio Manager not less than six months' prior
written notice. The Portfolio Manager may terminate the Portfolio
Management Agreement by giving the Company not less than six
months' prior written notice.
4. Other expenses
Year ended Year ended
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------------------------------- ---------- ------------
Frostrow Capital 385 334
Directors' fees* 92 89
Broker fees 60 60
Auditor fees** 52 39
Depositary and Custody fees 29 30
Registrar fees 21 13
Other expenses 146 98
--------------------------------------------------- ---------- ----------
785 663
--------------------------------------------------- ---------- ----------
* Peter Hewitt is not receiving a Director fee in respect of his
services to the Company. Each of the Directors has agreed to use
their applicable Directors' fees (net of applicable taxes) to
acquire ordinary shares in the secondary market, subject to
regulatory requirements. In relation to any dealings, the Directors
will comply with the share dealing code adopted by the Company in
accordance with the Market Abuse Regulation. The Board will be
responsible for taking all proper and reasonable steps to ensure
compliance with the share dealing code by the Directors.
** Exclusive of VAT. The Company's auditor provided no non-audit
services (2022: none) during the year.
5. Taxation
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- -------- -------- -------- -------- -------- --------
Analysis of charge in year
Current tax:
Overseas withholding tax
suffered 12 - 12 - - -
--------------------------- -------- -------- -------- -------- -------- --------
12 - 12 - - -
--------------------------- -------- -------- -------- -------- -------- --------
The tax charged for the period is lower than the standard rate
of corporation tax in the UK of 25% (2022: 19%). The differences
are explained below:
Year ended 31 March 2023 Year ended 31 March 2022
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------- -------- -------- -------- -------- -------- --------
Net (loss)/profit before
taxation 217 (4,295) (4,078) 451 21,701 22,152
----------------------------------- -------- -------- -------- -------- -------- --------
Theoretical tax at UK corporation
tax rate of 19% (2022: 19%) 41 (816) (775) 86 4,123 4,209
Effects of:
UK dividends that are not
taxable (517) - (517) (489) - (489)
Non-taxable investment gains - 816 816 - (4,586) (4,586)
Irrecoverable overseas withholding
tax 12 - 12 - - -
Unrelieved excess management
expenses 476 - 476 403 463 866
----------------------------------- -------- -------- -------- -------- -------- --------
12 - 12 - - -
----------------------------------- -------- -------- -------- -------- -------- --------
Factors that may affect future tax charges
At 31 March 2023, the Company had no unprovided deferred tax
liabilities (2022: GBPnil). At that date, based on current
estimates and including the accumulation of net allowable losses,
the Company had unrelieved losses of GBP12,759,000 (2022:
GBP10,386,000) that are available to offset future taxable revenue.
A deferred tax asset of GBP3,000,000 (2022: GBP2,597,000) has not
been recognised because the Company is not expected to generate
sufficient taxable income in future periods in excess of the
available deductible expenses and accordingly, the Company is
unlikely to be able to reduce future tax liabilities through the
use of existing surplus losses
Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company
meets (and intends to continue for the foreseeable future to meet)
the conditions for approval as an Investment Trust company.
6. (Loss)/earning per ordinary share
The capital, revenue and total return per ordinary share are
based on the net (loss)/profit shown in the Income Statement and
the weighted average number of ordinary shares during the period of
104,414,502 (2022: 92,499,592).
There are no dilutive instruments issued by the Company.
7. Investments held at fair value through profit or loss
As at As at
31 March 31 March
2023 2022
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Opening book cost 128,482 83,896
Opening unrealised investment holding gains 26,866 25,363
----------------------------------------------------- -------- --------
Opening fair value 155,348 109,259
----------------------------------------------------- -------- --------
Analysis of transactions made during the year
Purchases at cost 108,859 90,472
Sales proceeds received (79,511) (68,528)
Gains on sales of investments 25,112 22,642
Unrealised (losses)/gains on investment holding (29,414) 1,503
----------------------------------------------------- -------- --------
Closing fair value 180,394 155,348
----------------------------------------------------- -------- --------
Closing book cost 182,942 128,482
Closing unrealised investment holding (losses)/gains (2,548) 26,866
----------------------------------------------------- -------- --------
Closing fair value 180,394 155,348
----------------------------------------------------- -------- --------
Transaction costs 645 521
----------------------------------------------------- -------- --------
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following three levels:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
An active market is a market in which transactions for the asset
or liability occur with sufficient frequency and volume on an
ongoing basis such that quoted prices reflect prices at which an
orderly transaction would take place between market participants at
the measurement date. Quoted prices provided by external pricing
services, brokers and vendors are included in Level 1, if they
reflect actual and regularly occurring market transactions on an
arms length basis.
- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices).
- Level 3 - Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
As at 31 March 2023 As at 31 March 2022
Level Level Level Level Level Level
Total 1 2 3 Total 1 2 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
Quoted at fair value 180,394 174,832 5,562 - 155,348 155,348 - -
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total 180,394 174,832 5,562 - 155,348 155,348 - -
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
During the year ended 31 March 2023, GBP5,562,000 of level 1
investments were transferred to level 2 (2022: no transfer).
8. Trade and other receivables
As at As at
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------------------- -------- --------
Due from brokers 749 305
Dividend income receivable 337 84
Other receivables 60 31
--------------------------- -------- --------
1,146 420
--------------------------- -------- --------
9. Trade and other payables
As at As at
31 March 31 March
2023 2022
GBP'000 GBP'000
-------------------------- -------- --------
Due to brokers 1,101 208
Portfolio management fees 483 379
Performance fees - 2,436
Other payables 121 126
-------------------------- -------- --------
1,705 3,149
-------------------------- -------- --------
10. Share capital
Year ended 31 March Year ended 31 March
2023 2022
Number of Number of
Shares GBP'000 Shares GBP'000
----------------------------------- ------------ ------- ------------ -------
Issued and fully paid:
Ordinary shares of 1p:
Balance at beginning of the period 96,248,053 962 88,257,211 883
----------------------------------- ------------ ------- ------------ -------
Shares issued during the year 16,697,000 167 7,990,842 79
Balance at end of the period 112,945,053 1,129 96,248,053 962
----------------------------------- ------------ ------- ------------ -------
Special distributable reserve
Upon initial placing and subsequent issuance of the Company's
ordinary shares on 1 May 2018 and 27 June 2018 respectively, the
Company accumulated a premium account of GBP85,495,000. Following
approval of the Court, effective on 8 August 2018, the share
premium account was cancelled and the balance after cancellation
cost of GBP20,000 was transferred to the special distributable
reserve.
The Company currently has no shares in treasury. During the
year, the Company also issued 16,697,000 new ordinary shares (2022:
7,990,842). On 22 May 2020, the Company purchased 275,000 of its
own ordinary shares at a total cost of GBP230,000 and these shares
were placed into treasury, but were subsequently reissued to the
market during the year ended 31 March 2022.
11. Net asset value per ordinary share
The basic net asset value per ordinary share is based on net
assets of GBP181,205,000 (2022: GBP157,816,000) and the number of
ordinary shares in issue of 112,945,053 (2022: 96,248,053).
There are no dilutive instruments issued by the Company.
12. Financial Instruments
Investment objective and policy
The Company primarily invests in smaller company equities quoted
on markets operated by the London Stock Exchange which the
Portfolio Manager believes are trading below intrinsic value and
where this value can be increased through strategic, operational,
management and financial initiatives.
The Company's financial instruments include its investment
portfolios, cash balances, trade receivables and trade payables
that arise directly from its operations. Adherence to the Company's
investment policy is key to mitigating risk.
Risks
The Portfolio Manager monitors the financial risks affecting the
Company on an ongoing basis and the Board regularly receives
financial information, which is used to identify and monitor risk.
All risks are actively reviewed and managed by the Board.
The risks identified arising from the Company's financial
instruments are:
(i) market risk, including market price risk, interest rate risk and currency risk;
(ii) liquidity risk;
(iii) credit and counterparty risk
(i) Market risk
Market risk is the risk of loss arising from movements in
observable market variables. The fair value of future cash flows of
a financial instrument held by the Company may fluctuate because of
changes in market prices. The Portfolio Manager assesses the
exposure to market risk when making each investment decision and
these risks are monitored by the Portfolio Manager on a regular
basis and the Board at meetings with the Portfolio Manager.
Market price risk
The Company is exposed to market price risk (i.e. changes in
market prices other than those arising from currency or interest
rate risk) which may affect the value of investments whose future
prices are uncertain. The Company's exposure to market price risk
comprises movements in the value of the Company's investments. If
the fair value of the Company's investments at the year-end
increased or decreased by 10%, then it would have had an impact on
the Company's capital return and equity of GBP18,039,000 (2022:
GBP15,535,000).
The Portfolio Manager manages this risk by following the
investment objective as set out in the prospectus. The Portfolio
Manager assesses the exposure to market price risk when making each
investment decision and monitors the overall level of market price
risk on the whole investment portfolio on an ongoing basis. The
Portfolio Manager maintains a net cash position and intends to
maintain this for the foreseeable future.
Currency risk
Currency risk is the risk that fair values of future cash flows
of a financial instrument fluctuate because of changes in foreign
exchange rates. The Company held two investments in foreign
currencies as at 31 March 2023 (2022: none). Whilst the Company's
other investments are denominated in Sterling, the Company may have
currency exposure through the trading activities of its investee
companies.
The Portfolio Manager does not hedge underlying portfolio
companies.
Foreign currency exposures
The Company has two investments denominated in foreign
currencies and their respective fair values are shown below. The
Company has no other foreign currency denominated assets or
liabilities.
As at As at
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------- -------------- --------------
Euro 2,839 -
Norwegian krone 5,563 -
--------------- -------------- --------------
8,402 -
--------------- -------------- --------------
Foreign currency sensitivity
The table below shows the impact on the Company's net loss after
taxation for the year ended and net assets as at 31 March 2023, if
sterling had strengthened/weakened by 10% against the Euro and
Norwegian krone.
As at As at
31 March 31 March
2023 2022
GBP'000 GBP'000
--------------- --------------- --------------
Euro (258)/315 -
Norwegian krone (506)/618 -
--------------- --------------- --------------
(764)/933 -
--------------- --------------- --------------
Interest rate risk
Interest rate risk is the risk that fair value of future cash
flows of a financial instrument will fluctuate because of changes
in market interest rates. Interest rate movements may potentially
affect future cash flows from the level of income receivable on
cash deposits.
The Company's bank balances are subject to a variable rate of
interest, it does not generate significant income from interest and
the Portfolio Manager does not hedge against this. The Company has
no gearing and therefore there is limited downside risk from
increasing interest costs on borrowings.
If the Company maintained the following level of cash for a year
GBP1,370,000 (2022: GBP5,197,000), a 1% increase in interest rates
would increase the revenue return and net assets by GBP14,000
(2022: GBP52,000). If there was a fall of 1% in interest rates, the
total effect would be a revenue reduction/cost increase of
GBP14,000 (2022: GBP52,000).
The Portfolio Manager actively manages the cash positions of the
Company.
(ii) Liquidity risk
The Company's assets mainly comprise readily realisable
securities which can be easily sold to meet funding commitments and
obligations. Liquidity risk is mitigated by the fact that the
Company has GBP1,370,000 (2022: GBP5,197,000) cash at bank and the
assets are readily realisable. The Company is a closed-end fund and
assets do not need to be liquidated to meet redemptions.
The Portfolio Manager maintains a net cash position and intends
to maintain this for the foreseeable future. The Portfolio Manager
will manage the portfolio to maintain sufficient cash balances to
meet its obligations or liabilities as they fall due.
(iii) Credit risk
This is the risk a counterparty of the Company will not meet
their obligations to the Company.
The Company does not have any significant exposure to credit
risk arising from one individual party. Credit risk is spread
across a number of counterparties, each having an immaterial effect
on the Company's cash flows, should a default happen. The credit
standing of all counterparties is reviewed periodically and
assesses the debtors to ensure they are neither past due or
impaired.
All the investments of the Company which are traded on a
recognised exchange are held by the Company's custodian, RBC
Investor Services Trust ("RBC"). All the Company's cash is also
held by RBC. The Portfolio Manager and the Board actively monitor
the relationship with RBC and review RBC's internal control
report.
13. Related party transactions
The amount incurred in respect of Portfolio Management fees
during the period to 31 March 2023 was GBP1,718,000 (2022:
1,459,000), of which GBP483,000 (2022: GBP379,000) was outstanding
at 31 March 2023. The amount accrued in relation to the performance
fee provision as at 31 March 2023 was GBPnil (2022:
GBP2,436,000).
Fees paid to the Company's Directors and Directors'
shareholdings, are disclosed in the Directors' Remuneration Report.
At the year end, there were no outstanding fees payable to
Directors (2022: GBPnil).
14. Subsequent events
There have been no events with material impact on the Company
since the Balance Sheet date.
Glossary
AGM
Annual General Meeting
AIC
Association of Investment Companies
Alternative Performance Measure (APM)
An APM is a numerical measure of the Company's current,
historical or future financial performance, financial position or
cash flows, other than a financial measure defined or specified in
the applicable financial framework.
Comparator Benchmark
The Company's Comparator Benchmark is the NSCI (Numis Smaller
Companies Index) ex IC plus AIM Total Return Index. The benchmark
is used only as a yard stick to compare investment performance.
Cost
The book cost of each investment is the total acquisition value,
including transaction costs, less the value of any disposals or
capitalised distributions allocated on a weighted average cost
basis.
Discount/premium (APM)
A description of the difference between the share price and the
net asset value per share. The size of the discount is calculated
by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the
share price is higher than the net asset value per share the result
is a premium. If the share price is lower than the net asset value
per share, the shares are trading at a discount.
31 March 31 March
Premium/(Discount) Calculation 2023 2022
------------------------------- -------- --------
Closing NAV per share (p) 160.4 164.0 a
Closing share price (p) 164.0 166.0 b
Premium
(c=((b-a)/a) x 100) (%) 2.2% 1.2% c
------------------------------- -------- --------
The discount and performance are calculated in accordance with
guidelines issued by the AIC. The discount is calculated using the
net asset values per share inclusive of accrued income with debt at
market value.
ESG
Environmental, social and governance
EU
European Union
FCA
Financial Conduct Authority
Gearing
Gearing refers to the ratio of the Company's debt to its equity
capital. The Company may borrow money to invest in additional
investments for its portfolio. If the Company's assets grow, the
shareholders' assets grow proportionately more because the debt
remains the same. If the Company's assets fall, the situation is
reversed. Gearing can therefore enhance performance in rising
markets but can adversely impact performance in falling markets.
The Company had no borrowings during the year (2022:nil).
IPO
Initial public offering
Key Performance Indicators (KPIs)
KPIs are a shortlist of corporate attributes that are used to
assess the general progress of the Company. These are outlined in
the Strategic Report.
M&A
Mergers and acquisitions
Net Asset Value ('NAV') per Share
The NAV is shareholders' funds expressed as an amount per
individual share. Shareholders' funds are the total value of all of
the Company's assets, at their current market value, having
deducted all liabilities and prior charges at their par value, or
at their asset value as appropriate. The total NAV per share is
calculated by dividing shareholders' funds of GBP181,205,000 (2022:
GBP157,816,000) by the number of Ordinary Shares in issue
112,945,053 (2022: 96,248,053) at the year end.
NAV Total Return (APM)
NAV total return is the closing NAV per share including any
cumulative dividends paid as a percentage over the opening NAV. NAV
total return is an alternative way of measuring investment
management performance of investment trusts which is not affected
by movements in the share price.
Inception
to
31 March 31 March 31 March
2023 2022 2023
-------------------------- -------- -------- ---------
Closing NAV per share (p) 160.4 164.0 160.4 a
Opening NAV Per share (p) 160.4 139.3 100.0 b
Dividend reinvested (p) - - -
NAV total (loss)/return
(c= ((a-b)/b x 100) (%) (2.2)% 17.7% 60.4% c
-------------------------- -------- -------- ---------
NSCI ex IT plus AIM Index
Numis Smaller Companies ex Investment Trust plus AIM Index.
1 May
2018 to
31 March 31 March 31 March
2023 2022 2023
------------------------ -------- -------- --------
Closing index 15,187 17,530 15,187 a
Opening index 17,530 17,913 14,955 b
NAV total (loss)/return
(c= ((a-b)/b x 100) (%) (13.4)% (2.1)% 1.6% c
------------------------ -------- -------- --------
Ongoing Charges Ratio (APM)
As recommended by the AIC in its guidance, ongoing charges are
the Company's annualised expenses (excluding finance costs and
certain non-recurring items) expressed as a percentage of the
average monthly net assets of the Company during the year as
disclosed to the London Stock Exchange Performance fees are
excluded from the calculation.
31 March 31 March
2023 2022
--------------------------------------- ----------- -----------
Ongoing charges (a) 2,503,000 2,122,000
Average net asset value (b) 172,320,000 145,968,000
Ongoing charges (a/b) expressed as a % 1.45% 1.45%
--------------------------------------- ----------- -----------
P/E
Price earnings ratio
R&D
Research and development
TMT
Technology, media and telecom
Total assets
Total assets are the sum of both fixed and current assets with
no deductions.
Share Price Total Return (APM)
Total return statistics enable the investor to make performance
comparisons between investment trusts with different dividend
policies. The combined effect of any dividends paid, together with
the rise or fall in the share price. This is calculated by the
movement in the share price plus dividend income reinvested by the
Company at the prevailing share price.
31 March 31 March
Share Price Total Return 2023 2022
-------------------------------- -------- --------
Closing share price (p) 164.0 166.0 a
Opening share price (p) 166.0 129.0 b
Dividend reinvested (p) - -
Share price total (loss)/return
(c= ((a-b)/b x 100) (%) (1.2)% 28.7% c
-------------------------------- -------- --------
UCITS
Undertakings for the Collective Investment in Transferable
Securities
Volatility
The term volatility describes how much and how quickly the share
price or net asset value has tended to change in the past. Those
investments with the greatest movement in their share prices are
known as having high volatility, whereas those with a narrow range
of change are known as having low volatility.
The Annual Report will be posted to shareholders on or around 16
June 2023.
Further copies may be obtained from the Company Secretary:
Frostrow Capital LLP, 25 Southampton Buildings, London WC2A
1AL.
A copy of the Annual Report will be submitted to the National
Storage Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
The Annual Report will also be available on the Company's
website at www.oitplc.com where up-to-date information on the
Company, including daily NAV, share prices and fact sheets, can
also be found.
The Annual General Meeting will be held on Thursday, 21
September 2023.
- END -
For Further Information please contact
Mark Pope
Frostrow Capital LLP
Company Secretary
0203 008 4913
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END
FR SDSSMFEDSESI
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May 31, 2023 02:04 ET (06:04 GMT)
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