REG - Onward Opportunities - Annual Results
11/04/2024 07:00
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RNS Number : 0869K Onward Opportunities Limited 11 April 2024
Announcement of ONWD
The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any
member state of the European Economic Area (other than to professional
investors in Belgium, Denmark, the Republic of Ireland, Luxembourg, the
Netherlands, Norway and Sweden), Canada, Australia, Japan or the Republic of
South Africa.
11 April 2024
Onward Opportunities Limited
("ONWD" or the "Company")
Annual Results
Highlights for the reporting period to 31 December 2023 include:
· FY23 audited Net Asset Value ("NAV") Total Return of +11.3% to
106.5 per share over the nine months from Initial Public Offering ("IPO"), 30
March 2023, to 31 December 2023.
· Encouraging first financial year, ahead of target returns in
difficult market conditions, delivering strong investment performance (NAV
growth):
o Outperformed UK AIM All Share total return index by 15.0%; +11.3% Company
NAV increase versus decline of 3.7% for UK AIM All Share;
o Top decile performance in AIC UK Smaller Companies sector since inception;
and
o Portfolio delivered an aggregate Internal Rate of Return ("IRR") of 22.6%
and the invested portfolio as at year-end generated an unrealised IRR of
40.2%, against a target return of >15%, stated at the time of IPO.
· In March 2023, the Company completed its IPO notwithstanding
challenging market conditions. The Company successfully completed a further
capital raise in September 2023, increasing the Company's capital base by 25%
and welcoming new shareholders to the Company.
Post year end Highlights (1 January 2024 - 31 March 2024)
· Further strong investment performance post year-end; unaudited
Net Asset Value (NAV) Total Return of +2.3% to 109.04p/share in the three
months from 1 January 2024 to 31 March 2024 comparing favourably to the UK AIM
All Share which fell in the same period.
· Total NAV return since inception (1-year) of +14.0% to 109.04p
per share, outperforming indices, the majority of peers and target returns.
· In March 2024, the Company completed its third NAV accretive
capital raise, increasing the Company's capital base by a further 10%
supported by new and existing shareholders to fund a pipeline of investments
identified by the Manager. This meant the company grew by c.40% through
capital raises in its first twelve months.
Andrew Henton, Chairman, commented:
"The Board is pleased with the performance of the Company since inception as
measured by NAV appreciation and capital raised. The Portfolio Manager's
experience within the highly specialised smaller companies sector has
demonstrably been successfully embedded within the ONWD investment process.
We continue to believe that the timing of the fund's launch was and remains
auspicious."
Laurence Hulse, Portfolio Manager, commented:
"We have done what we said we would do; demonstrated an ability to raise
capital repeatedly regardless of market conditions, deploy that capital using
a high-touch investment style, and invest profitably delivering strong
absolute returns. The Company made an encouraging start in the first financial
year; delivering a 1-year NAV return of +14.0% since inception.
An eclectic portfolio of situations and opportunities has been built by the
team to take us into 2024 and beyond and resultantly the first quarter of FY24
has started encouragingly for our shareholders."
-ENDS-
For further information, please contact
Onward Opportunities Limited Tel: +44 (0)20 3416 9143
Andrew Henton, Chairman hello@dowgate.co.uk
Dowgate Wealth Limited (Portfolio Manager) Tel: +44 (0)20 3416 9143
Laurence Hulse, Investment Director hello@dowgate.co.uk
Apex Administration (Guernsey) Limited (Company Secretary) Tel: +44 (0) 203 5303 150
Martin Baxter / Harry Rouillard ool@apexgroup.com
Cavendish Capital Markets Limited (Nominated Adviser and Joint Broker) Tel: +44 (0)20 7397 8900
Ben Jeynes/Camilla Hume
Dowgate Capital Limited (Joint Broker) Tel: +44 (0)20 3903 7715
Russell Cooke / Nicholas Chambers
Extracts from the Financial Statements
Highlights for the reporting period to 31 December 2023 include:
· FY23 audited Net Asset Value ("NAV") Total Return of +11.3% to
106.5 per share over the nine months from Initial Public Offering ("IPO"), 30
March 2023, to 31 December 2023.
· Encouraging first financial year, ahead of target returns in
difficult market conditions, delivering strong investment performance (NAV
growth):
o Outperformed UK AIM All Share total return index by 15.0%; +11.3% Company
NAV increase versus decline of 3.7% for UK AIM All Share;
o Top decile performance in AIC UK Smaller Companies sector since inception;
and
o Portfolio delivered an aggregate Internal Rate of Return ("IRR") of 22.6%
and the invested portfolio as at year-end generated an unrealised IRR of
40.2%, against a target return of >15%, stated at the time of IPO.
· In March 2023, the Company completed its IPO notwithstanding
challenging market conditions. The Company successfully completed a further
capital raise in September 2023, increasing the Company's capital base by 25%
and welcoming new shareholders to the Company.
Portfolio Update
· Significant early contributions from both core and nursery
holdings; the top five contributors to unrealised returns were Angling Direct
plc, MPAC Group plc, EKF Diagnostics Holding plc, Windward Limited and
Springfield Properties plc.
· Early IRR performance is indicative of further upside potential
over the medium to long term from the existing portfolio following an
encouraging start to 2024, in addition to potential returns from the
attractive pipeline of investments the manager continues to target in current
markets.
· The portfolio's income stream, based on current dividends, is
expected to offset the majority of the Company's total expense ratio for FY24.
· Intense period of investment activity capitalising on the value
opportunity in UK smaller companies; the Company was over 90% invested by
year-end. The top 10 holdings represented 60% of NAV.
Post year end Highlights (1 January 2024 - 31 March 2024)
· Further strong investment performance post year-end; unaudited
Net Asset Value (NAV) Total Return of +2.3% to 109.04p/share in the three
months from 1 January 2024 to 31 March 2024 comparing favourably to the UK AIM
All Share which fell in the same period.
· Total NAV return since inception (1-year) of +14.0% to 109.04p
per share, outperforming indices, the majority of peers and target returns.
· In March 2024, the Company completed its third NAV accretive
capital raise, increasing the Company's capital base by a further 10%
supported by new and existing shareholders to fund a pipeline of investments
identified by the Manager. This meant the company grew by c.40% through
capital raises in its first twelve months.
Chair's Statement
Onward Opportunities Limited (the "Company" or "ONWD") was incorporated on 31
January 2023, and the shares issued at its IPO were admitted for trading on
the Alternative Investment Market ("AIM") of the London Stock Exchange ("LSE")
on 30 March 2023. These accounts have been prepared for the 11 month
accounting period covering 31 January 2023 to 31 December 2023.
As at 31 March 2024 (the latest practicable date prior to the publication of
this report) the NAV per share was 109.04p and the share price 110.0p,
representing a premium to NAV of 0.8% and a NAV performance of +14.0% since
inception.
Objective of the Fund
ONWD was launched to take advantage of the investment opportunity presented by
the valuation discount placed on smaller companies in the United Kingdom
("UK"), those with a market capitalisation below £250 million. Despite
offering the potential for higher revenue growth than their larger peers,
smaller companies generally trade on lower earnings multiples. It is this
dichotomy between latent potential and low valuation which presents the
opportunity for an experienced and research led Portfolio Manager ("Dowgate
Wealth Limited") to identify dynamic, yet undervalued companies and actively
to engage with them in order to realise hidden value for the benefit of
investors.
The Board thus holds the fundamental belief that the risk premium demanded of
many smaller, listed companies is too high. ONWD is certainly not the first
investment company to espouse the structural opportunity of 'buying low and
selling high' in the context of the smaller companies market. We also
sincerely hope not to be the last, since the long-term success of the Company
necessarily requires higher capital flows into the segment. I conclude below
with some thoughts on the vagaries of timing, but two data points which give
grounds for optimism about prospects for our Company are evidence of greater
recognition being given to the smaller company sector in the UK, and the
performance of the ONWD portfolio in its short trading history to date.
The role of SMEs in the UK economy
Small and Medium sized Enterprises ("SMEs") have always been a vital component
of the UK economy. They employ over 60% of the total workforce and are a major
source of job creation, often providing opportunities for young people and
women and thereby promoting diversity and inclusivity in the workforce. Their
inherent ability to adapt and innovate quickly enables SMEs to disrupt
established industries and create new opportunities for growth. Smaller
companies also play an important role in diversifying the UK's export base as
they often specialise in niche markets and are able to cater to the specific
demands of customers in foreign markets.
Economists and politicians of all hues recognise the importance of a
supportive environment for SMEs in underpinning sustainable, long term
economic growth. The Mansion House Compact by which UK pension funds have
committed to allocate an additional £25 billion to SMEs (including
specifically AIM-listed companies) by 2025 is thus significant. It is
appropriate that UK savings which are tax advantaged should be deployed by
pension fund managers in a manner that both generates returns for savers (thus
reducing the future burden of an aging population on the State) but also
stimulates the UK economy. It is also implicit within the Mansion House
Compact that the major pension fund managers in the UK do recognise the
opportunity for long term capital appreciation that is afforded by inter alia
investment in AIM companies, even if they have not yet fully worked out how
they can access that opportunity.
The total market capitalisation of the AIM market is approximately £53.8
billion made up of 660 constituents; almost any additional investment
triggered by the Mansion House Compact would represent a significant infusion
of share trading volume and liquidity, the lack of which has been a major
contributory factor to low valuations. The AIM market will likely always be
less efficient in terms of quickly capturing price sensitive information than
the main market of the LSE, and will thus always present opportunities for the
ONWD investment strategy. However, any catalysts for the junior market
becoming less inefficient in the short to medium term is to be welcomed as a
macro positive for ONWD. The Mansion House Compact could be part of that
catalysing process.
Portfolio performance
During the accounting period, the Company's NAV per share appreciation
represents an annualised gain of 22.6%, a top decile return relative to peers
and a strong outperformance relative to the AIM All Share index. The
performance of the portfolio is described in greater detail within the
Portfolio Manager's report.
Whilst smaller companies present the opportunity for very significant gains
(not least because they start from a lower base) lack of scale also makes
those companies more vulnerable to various risks including over-trading,
client concentration, key person dependency, lack of access to development
capital (debt and equity) and working capital management. Whilst it may be a
self-evident truth to state that the importance of selecting the right
companies for investment is an essential requirement for success, it is
particularly true in the context of the ONWD strategy. The scarcity of
third-party research means that the Portfolio Manager's process of investment
analysis is more analogous to that of a private equity investor than it is to
that of a portfolio manager dealing in larger listed stocks. Not least, the
work performed in identifying the likely exit route (sale of a position) can
often involve identifying a trade sale or 'take private' opportunity, driven
by the arbitrage between the low trading multiple of the publicly traded share
versus the higher earnings multiple of the acquiror. DX Group provided an
early example of the success of this approach; ONWD first acquired shares at a
price of 32p per share and sold into a trade sale that realised 48.5p per
share within 6-months of investing. For so long as the Price Earnings Ratios
("P/Es") of smaller company stocks remain so far below those of larger
comparables, trade sales will likely form a major part of the value
realisation process for ONWD.
The Board is pleased with the performance that has been delivered by the
Portfolio Manager. Whilst ONWD is a new fund, Laurence Hulse does bring with
him many years of successful experience gained within the highly specialised
segment that is smaller companies. The Company has the benefit of a
proprietary investment process that has been developed based on Laurence's
experience. That process has now been tested and embedded in the live
environment. Whilst no investment selection process can ever guarantee 100%
success, the measured pace of building positions as due diligence is refined
has allowed for both attractive entry prices but also swift and controlled
divestment when new information is distilled which undermines the logic of the
business case.
The return in NAV terms that has been generated by the Company since inception
is testament to the efficacy and diligence of the Portfolio Manager. Being
able to evidence capability in practice, not just in theory, is an important
achievement and will be used to support further fund-raising activity over the
next twelve months. There is no shortage of identified opportunities, and the
Portfolio Manager is far from capacity constrained.
ESG
The Portfolio Manager has a research driven approach to identifying
opportunities and selecting stocks. Analysis and due diligence will always
include proactively seeking to identify hidden externalities that can be
expected to impact on enterprise value once investors become (or are made)
aware of them. Externalities in this context would include business models
predicated on unsustainable production or employment practices, poor corporate
governance or supply chains reliant on unethical counterparties. ESG practices
are thus embedded within the investment selection process, and form part of
the post investment risk management and stewardship policy. The Portfolio
Manager's policy of engaged investing means that ESG factors could lead to
engagement with the boards of investee companies with the objective of
improving practices that pose sustainability risks in order to stimulate
long-term value creation.
Conclusion
ONWD was the first investment company to IPO on the LSE since 2021 and the
Company also closed a secondary fund raising later in the year which increased
its shares in issue by c.25%. This was then grown further post period end in
March with a further capital raise, again at a premium to NAV. As bald
statistics, these are impressive achievements for a new fund launched by a new
Portfolio Manager. In absolute terms however, the small size of the Company is
a function of the very opportunity which it exists to capture.
The relative scarcity of capital allocation to small and micro-cap listed
companies undermines the valuation of those companies, thereby making the
opportunity set and upside potential for the ONWD strategy compelling.
The Board believes that capital allocation to smaller listed companies in the
UK will increase over the medium to long term, even if that increase comes
from a low base. The Company will certainly continue to advocate for such an
increase within the professional investor community. The Board will also
oversee adherence to the Portfolio Manager's disciplined approach with the
goal of further developing and building upon the successful track record to
date. In demonstrating its ability to generate attractive returns over the
medium to long term, the Board believes that the Company will continue to be
able to attract new money and to evidence the achievability of attractive
returns from a carefully selected portfolio of smaller companies. Momentum is
a powerful force in investment markets, and the emerging evidence of a
virtuous circle comprised of mutually reinforcing elements is cause for
optimism. We continue to believe that the timing of ONWD's launch was and
continues to be auspicious.
On behalf of the Board, I thank all of our investors for their support over
the past year, and we look forward to welcoming many more new investors over
the months and years to come.
Andrew Henton
Chair
10 April 2024
Portfolio Manager's Report
It is a privilege to present Onward Opportunities Limited's (the "Company" or
"ONWD") maiden set of financial statements as a public company. The success of
the Company's 2023 AIM IPO in last year's market environment, and the
subsequent early investment returns generated in those conditions are
testament to the Company's potential. Two areas of particular highlight were
the NAV performance ahead of peers, targets and indices and that we were able
to demonstrate our ability to grow the Company with a 25% equity issue within
the first six months of launch. We have done what we said we would do;
demonstrated an ability to raise capital repeatedly regardless of market
conditions, deploy that capital using a high-touch investment style, and
invest profitably delivering strong absolute returns.
The Company made an encouraging start in the first financial year; delivering
a NAV return of +11.3% since inception (30/03/2023), outperforming the UK AIM
All-Share's total return by 15.0%, which fell in the same period. An eclectic
portfolio of situations and opportunities has been built by the team and this
process is described in the Portfolio Manager's report. The investment
portfolio has been designed to take us into 2024 and beyond and resultantly
the first quarter of FY24 has started encouragingly for our shareholders. The
NAV has grown a further 2.3% to 109.04p/share and a further £1.65m of new
shares were issued to new and existing investors at a premium to NAV.
Top 10 Holdings Table as at 31 March 2024 (the last practicable date before
publication)
Holding £ Value Portfolio Weighting % Thesis Summary Catalysts Total Return %
MPAC Group plc (MPAC LN) £1.89m 9.8% Margin recovery, horizontal expansion New CEO & sales team, pension buy-out, supply +107.4%
chain normalisation, Board evolution
Angling Direct plc (ANG LN) £1.5m 7.8% Margin recovery, strategic refocus Strategy review, end market recovery, uses of cash, +17.3%
Board evolution
Springfield Properties plc (SPR LN) £1.2m 6.3% De-leveraging, cycle recovery Land disposals, social housing market share growth +30.0%
Speedy Hire plc (SDY LN) £1.2m 6.3% Organic growth, Cycle recovery New CEO & strategy, completion of inventory -17.7%
audits
EKF Diagnostics Holdings plc (EKF LN) £1.3m 6.1% Margin recovery, organic growth in enzyme New Exec-chair, New production site scale up +7.7%
market
React Group plc (REAT LN) £1.2m 6.1% Organic growth, bolt-on M&A Bolt-on M&A, IR initiatives, uses of cash -3.2%
Windward Ltd (WNWD LN) £1.2m 6.1% Organic growth, profitability Contract wins, breakeven, private sector product +44.3%
roll outs
Team17 Group plc (TM17 LN) £1.2m 6.1% Margin recovery, strategic refocus New Chair & CEO, strategy review +25.0%
Transense Technologies plc (TRT LN) £1.1m 5.6% Organic growth Sales pipeline execution, senior leadership hires, +8.7%
Board evolution
RBG Holdings plc (RBG LN) £1.0m 5.3% Re-rating, discount to transaction multiples Cost take-out, property disposals, divisional disposals, legacy case asset -28.1%
values
Ten Nursery Holdings £5.2m 24.9%
Cash at Bank £1.8m 9.5%
Portfolio Performance
The Company made an encouraging start in the first financial year; delivering
a NAV return of +11.3% since inception, outperforming the UK AIM All-Share's
total return by 15.0%, which fell in the same period. Perhaps most encouraging
was the investment performance of the fund relative to its peers, which was
top decile.
Performance was consistently positive through the year and accelerated in-line
with capital deployment as the team identified investment opportunities from
the pipeline and engaged with them.
Total Returns in the 9 months to 31 December 2023 FY23 - Date of inception to 31 December
(9 months to year-end)
ONWD NAV Total Return +11.3%
ONWD Total Shareholder Return +2.5%
UK AIM All-Share Total Return Index -3.7%
The top 5 contributors to unrealised returns at 31 December 2023 were Angling
Direct, MPAC Group, EKF Diagnostics, Windward and Springfield Properties.
The early performance continued post-period end, with the NAV growing further
to 109.04p/share, +14.0% since inception as shown in the table below for
illustrative purposes:
Total Returns in the twelve months to 31 March 2024 Since inception date of 30 March 2023 (1-year)
ONWD NAV Total Return +14.0%
ONWD Total Shareholder Return +10%
UK AIM All-Share Total Return Index -5.9%
Market Commentary
2023 was a different year than most investors expected. Investors began 2023
fearing inflation and the consequences of higher, for longer, interest rates.
While the demise of Silicon Valley Bank ("SVB") and the life support given to
other regional banks seemed to justify their fears, the vital signs of US
economic health persisted, and policy rates continued to rise until August.
This drove increasing levels of pain and discounting in equities, especially
at the most economically sensitive smaller company end of the spectrum, which
became particularly pronounced in the UK around Halloween in October. Perhaps
not by coincidence just a few weeks later, following some Federal Reserve
smoke signals, investors began believing rates had peaked. Bond yields
tumbled, risk assets rose as short positions were closed, and the bond rush
subsided. Financial conditions and liquidity eased, the dollar weakened, and
investors rolled out the red carpet to greet the improbable soft landing. The
'immaculate disinflation' became investors' base case scenario.
In the coming year, circa 40% of the world's population will vote in national
elections, including both its wealthiest and most populous nations. The UK's
election, likely in FY24Q4, will be of little consequence for global
investors, most of whom wrote off the UK as a home for proactive investment
long ago. Having won last year's Most Improved Player Award for Political
Stability, this year, a smooth UK political transition could be all that is
required for both direct and portfolio investors to tie a bow on the UK as a
place to increase their position sizes. In stock market terms last year, the
UK remained a laggard by global standards.
The S&P 500 was pipped by Tokyo's Nikkei 225 (+28% to +25%) in the major
country indices stakes. The real story of the year, however, was the continued
power of US Big Tech, with the NASDAQ 100 up over 50%. Within it, the newly
crowned Magnificent Seven AI wonder stocks (the FAANGS minus Netflix, plus
Nvidia, Microsoft and Tesla) were ahead by more than 100%, and ended the year
accounting for nearly 30% of the market cap of the S&P 500 and 19% of the
MSCI Developed World All Share Index - an index which comprises the largest
12,500 listed-companies across 23 countries. As a result, just seven stocks
now account for almost US$12 trillion of market value (more than six times the
size of the FTSE100), a degree of market concentration greater than the Dotcom
Boom of 25 years ago and the Nifty Fifty of 50 years ago.
When these previous periods of excessive market concentration were unwound,
the result was the multiyear outperformance of smaller companies and the value
style. We remain vigilant for early signs that might suggest the coming years
might follow such a pattern.
The UK's AIM 100 index ended the year down a disappointing 8% but also rallied
from its post-COVID low in October 2023 by 8%. The more value-laden FTSE
Smaller Companies Index, broadly unchanged over 2023, rose by 13% from its
October 2023 low point. These moves have yet to constitute a new trend. They
offer signs of hope that normalised rates will establish a divergence of
equity returns that reward active stock picking over trend following and
indexation, a trend, if established, that could significantly re-rate the UK
small and mid-markets.
As we enter a year of elections, the issue of fiscal dominance and bond yields
remain essential drivers of financial market performance. 2023 ended with US
and UK 10-year yields broadly unchanged. However, this masked a roller coaster
ride. Capital poured into sovereign debt during the year, offering the
prospect of a real return for the first time in many years and crowding out
investment for other assets. The lesson from 2023 is that bond markets
influence equity valuations, but quality equities can adapt and survive, as we
saw in a number of our investments.
Portfolio Commentary
The Company's first nine full months of activity which represent the 2023
financial year were one of hyper-activity for the investment process, as the
team sought to deploy the capital raised at launch (March 2023) and added to
further in September. There was a natural lag effect as a number of ideas were
worked on in parallel and in other cases where the Investment Committee waited
for an identified opportune moment to invest.
This meant that capital employment built gradually over the summer before
accelerating into Q4 of FY23Q followed by a small number of deals in 2024.
This has resulted in the fact that at 31 March 2024, the Company was 'fully
invested' ahead of schedule into 10 core investments and 10 nursery holdings
which represented 90% of the portfolio. A summary of the core investments in
the top 10 is provided in detail below. We have an active and engaged approach
to investee companies, and shareholders can expect us to be working hard to
support profitable outcomes on our investments and some of these workstreams
are shared below.
MPAC Group plc (MPAC LN) - Date of first investment September 2023
MPAC Group plc ("MPAC") is a designer and assembler of automated robotic
packaging lines with a strong foothold in defensive sectors, and a first-mover
advantage in battery packaging, due to its historic specialism in
'side-loading'. After a difficult 18-months that was worsened by global supply
chain disruption, it is now a business with a clear plan for earnings growth
that we have been able to purchase on an EV/EBITDA of 2.5x. New CEO Adam
Holland (referenced extensively at JCB & Rolls Royce), has identified
levers to recover margins to 10%+, and grow earnings with an expanding sales
team and abating supply chain headwinds of 2022/3. This first stage, we
believe, can more than double the value of the company and we are pleased to
report a very early +100% gain on our investment post period end; a great
example of our screening process identifying emerging change in a company.
There is then a longer-term opportunity in battery casing that if delivered
could add significantly to returns beyond our base case.
We are actively engaging with the company on a number of key initiatives
including a pension 'buy-out' as it is now in surplus, incentive arrangements
for the new senior leadership team, board composition, M&A strategies and
investor communications. We were delighted to see the company follow up with a
very strong set of FY23 results in March.
Angling Direct plc (ANG LN) - Date of first investment May 2023
Angling Direct is the UK's leading retailer of fishing equipment and tackle.
This position gives us an opportunity to provide investors with some early
insights to our investment strategy in action. We believe we have captured
dual optionality on the upside on our investment into Angling Direct, which
creates an attractive asymmetric risk profile for shareholders' capital,
invested between 24 and 30 pence per share.
This position represents either a growth or value investment, depending on
various strategic decisions that are taken in the coming months. The business
has a dominant market position in the UK, where it is profitable and cash
generative from a repeat customer base of 'anglers'. These metrics are
expected to improve under new management, and to benefit from both a UK
consumer recovery and growth from additional store rollout.
More recently, the business has been attempting to enter the much larger
European market to provide additional earnings growth. Success has been
limited so far, with annual losses that are material in the context of overall
group profits, whereas the UK business generates a profit that is
approximately double the current group number (which factors in European
losses). Our returns thesis is that either the European strategy starts to
bear fruit in the near-term and contributes profitable growth to the group, or
it can be reviewed to remove the opportunity cost to management and losses
from group profits. Either outcome would be shareholder value creative to our
investment and we would be happy for our initial scepticism about the European
opportunity to be proved wrong during the remainder of the calendar year. Our
analysis suggests either of these outcomes would add more than 50% to Angling
Direct's current profits.
Fishing is a sport of probability maximisation, and in that sense shares many
similarities with investment management. Anglers buy tackle to maximise their
chances of catching fish predictably and ONWD shareholders can expect a
similar mindset in our strategic discussions with the company in order to
maximise shareholder returns. Our entry valuation on Angling Direct was at
c.£20 million, a market capitalisation more-than underpinned by balance sheet
assets - c.£14 million net cash and c.£16 million of inventory. We have in
this context noted with interest, the consolidation of angling retailers in
the USA and Nordic countries in recent years.
Team17 Group plc (TM17 LN) - Date of first investment December 2023
Team17 is a leading UK 'indie' video games developer in the UK with a number
of well-known titles within its catalogue. The historic titles have a
precedent of sales and cash generation; a vital characteristic in the
notoriously fast-moving video games sector both to investors and managers of
the business. The business suffered something of an annus horribilis as the
previous management became overly optimistic on new title opportunities off
the back of the pandemic inspired boom in gaming. In parallel the market
became over-saturated as competitors behaved similarly. This led to what
turned out to be a poor allocation of capital into lower ROI new titles, and
the earnings and shares of the company suffered.
We have invested into a back-to-basics strategy under the newly appointed
chair Frank Sagnier with a renewed focus on ROI hurdles for new investment,
and cash generation maximisation from the existing franchises. Our entry
valuation of just c.5x a downgraded EBITDA has allowed us to buy into a deep
discount to the intrinsic value of the catalogue core titles, let alone the
company's value, and management retain optionality over future uses of cash.
We have taken comfort from Frank's strong track record at Codemasters which
was ultimately acquired after a sustained period business development
execution under his leadership.
EKF Diagnostics Holding plc (EKF LN) - Date of first investment May 2023
EKF shares had languished due to downgraded earnings, a misjudged acquisition
(now disposed of), and delays in completing a new enzyme production facility.
The departure of the previous CEO and CFO further exacerbated things. Our
recovery thesis is that Julian Baines can remedy these matters, being the
company's highly experienced former CEO who has stepped back into an Executive
Chairman role and it was his confirmed return that triggered our due diligence
and investment into the company. Primarily, we believe the company can now
deliver significant earnings recovery as the new enzyme fermenters come
online, driving a re-rating in the company's shares and earnings uplift from
60-70% gross margin sales. The site recently won its first order.
We also believe the company is a covetable asset given the attractive business
model of the Point of Care business (razor/razor blade) along with the high
margins and repeatable revenues. EKF has a very strong board, which affords us
the benefit of being able to quietly support tried and tested shareholders and
board members recover value for all.
React Group plc (REAT LN) - Date of first investment May 2023
With React we believe we have captured a defensive growth opportunity at a
value price, and invested c.6% NAV into the company. It is a business the team
have been researching since September 2022 (pre-launch) and was an early
pipeline priority. Through a mix of specialist cleaning services for UK
corporates, the business has a highly attractive earnings profile.
The business has three core divisions:
1. React - the heritage of the group, reactive specialist cleaning
often needed for emergencies or callouts requiring specialist cleaning
techniques; high margin but less predictable.
2. LaddersFree - large glass pane and cladding cleaning for UK
corporates, executed through a capital-light membership model.
3. Fidelis - contract cleaning focused on public services. The
business operates over 80% of its sales on contracted terms of one to five
years and has been organically growing at 17%+ per annum for the past four
years under a new management team. Sales are highly cash generative and yield
a high contribution margin, whilst CAPEX, depreciation and amortisation are
all insignificant.
Crucially now, as a result of a mix of organic and acquisitive growth and the
upcoming cessation of deferred consideration payments, the business is
beginning to generate strong profits and free cash flow growth from
contribution margin as it exploits inherent operational gearing. If one were
to look away for a moment - not knowing the company cleans large glass
facades, rolling stock, and prisons - its characteristics mean it could easily
be mistaken for a small, successful software company. Yet we have been able to
acquire shares in React over the past six months on forward P/E multiples of
6.5x - 8.5x.
Crucially now, as a result of a mix of organic and acquisitive growth and the
upcoming cessation of deferred consideration payments, the business is
beginning to generate strong profits and free cash flow growth from
contribution margin as it exploits inherent operational gearing. If one were
to look away for a moment - not knowing the company cleans large glass
facades, rolling stock, and prisons - its characteristics mean it could easily
be mistaken for a small, successful software company. Yet we have been able to
acquire shares in React over the past six months on forward P/E multiples of
6.5x - 8.5x.
Springfield Properties plc (SPR LN) - Date of first investment July 2023
Springfield Properties is one of Scotland's largest housebuilders and
crucially owns the largest land bank with planning approval in the country.
Over the past 24-months the Scottish government has helpfully self-inflicted a
number of headwinds to the housebuilding market to complement the
well-documented impact of rising interest rates and consumer pressures on the
sector. These include rent-controls, unrealistic terms of business for social
housing construction contracts and wider political uncertainty. These
challenges resulted in Springfield properties having to materially cut
earnings guidance, which in turn left its balance sheet looking stretched. The
shares followed and the company traded at a nearly 50% discount to NAV (of
which the main asset is the previously mentioned land bank). Whilst these all
created fascinating reasons to create a potential entry point, it is of course
a recovery that we as capital allocators are interested in.
We have invested with line of sight on a number of catalysts for value
recovery. Firstly, the regulatory environment is improving; the Scottish
government are ending rent controls which should see the build to rent market
improve for Springfield and social housing contract terms have been adjusted
to reflect inflationary pressures. Springfield is seeing and winning work in
both these areas again. The near-term likelihood of Scottish independence has
also reduced materially which again provides more certainty for business and
investors.
Most crucially however are the self-help initiatives we are supporting. The
company has removed £4m from the central cost base - which is material in the
context of a historic EBITDA of around £20m. Secondly, and really to the core
of our thesis, is the disposal of land parcels which transfer enterprise value
to equity value in the form of monetising a portion of the balance sheet
assets to pay down debt. The company has already announced a number of
profitable disposals and we expect these efforts to continue to progress for
the rest of the calendar year.
As these de-risking catalysts complete it is not unreasonable to expect
Springfield to re-rate from around 0.6x NAV at the point of investment to
nearer 1.2-1.3x where the sector typically trades through the cycle. From this
point the investment is likely to become a healthy compounder for the
portfolio through the next housebuilding cycle, where Scottish properties are
much more appealingly priced relative to average earnings than most parts of
the UK.
Windward Limited (WNWD) - Date of first investment August 2023
Windward is perhaps the most exciting business model in the portfolio and has
the potential to be one of the most value-creative investment theses too. The
business harnesses marine traffic data to provide analytical insights to a
growing list of household names and global operators in two key maritime
markets; supply chain logistics and regulatory/legal compliance. Both these
segments and the wider maritime industry are going through massive upheaval
and we believe Windward is extremely well placed to capitalise on this for
shareholders. Windward delivers these insights through an attractive
subscription model via its Maritime AI TM platform. Customers include;
Interpol, the US military, Glencore, BP, Maersk, BMW and Transworld. The
compelling investment case has been demonstrated in the recent FY23 results
which I would encourage shareholders to read; they are some of the best
trading figures I have read on AIM in some time.
This model and market backdrop is allowing the business to produce some very
compelling operational metrics in the context of our sub 1x EV/Sales entry
point. The business is growing at 35% per annum and this is a 99% contracted
revenue base it is building, or adding to each year. The gross margins
associated with this are 79% and can likely accrete above 80% and most
crucially we expect the business to reach profitability this year, leaving its
$17m of cash surplus to requirements and providing optionality. The business'
list of blue-chip customers is rapidly growing, almost doubling to 200 in the
past 12-months as Windward's offering becomes ever more topical for customers
making high-value maritime decisions. We believe this growth can continue and
double turnover over the next 5 years or more and if this level of execution
were to be achieved the business would trade in line with similar businesses
around 5x sales. This has the potential to provide extremely attractive
investment returns on our 1x current sales investment point.
Speedy Hire plc (SDY LN) - Date of first investment June 2023
Speedy Hire is a much better-known small cap stock that we have been tracking,
undergoing a similar strategic and personnel change, designed to improve
earnings and return of capital employed ("ROCE"). A very impressive capital
markets day in May revealed CEO Dan Evans clearly lives and breathes the
industry, having worked his way up the organisation. He is well-placed to lead
the cultural and operational changes required to get Speedy Hire firing on all
cylinders again after a few difficult years and we have been gradually
building our take through the course of the year. The shares pay a handsome
yield, while the 'Velocity' strategy plays out. We are particularly attracted
to how rental has a tangible role to play in reducing emissions in the
construction sector (which is currently a big challenge for Speedy's target
market), and how this can drive earnings and perhaps even SDY's multiple.
Transense Technologies plc (TRT LN) - Date of first investment June 2023
Transense Technologies is a very different business, but we believe is another
example of a small UK company quietly working up great prospects for growth.
It is fair to say the business has had a checkered history of 'jam tomorrow'
as a listed business, with a series of false dawns leading to cash
consumption, funding requirements and shareholder value destruction. However,
our screens and subsequent due diligence uncovered that over the past few
years, prospects and crucially profits have tangibly changed and this success
is partly obscured by perceptions from the past.
The business has three core market leading technologies at various stages of
execution and a valuation of £13m at the point of investment. In 2019 the
first of these, iTrack, became profitable through a 10-year royalty deal with
Bridgestone, that is 100% profit margin and we believe will peak at around
£3m per annum versus £2m currently.
The future cashflows of this deal underpin the current value of the business.
This deal, led by the now Executive Chairman Nigel Rogers, has been crucial,
as it has provided the group with visible long-term profits that have allowed
tangible development of the groups other two exciting technologies -
Translogik and Surface Acoustic Wave ("SAW") sensors. Translogik provides tyre
wear monitoring equipment to fleet managers and revenues have more than
doubled since 2020 when the new team started to deploy time and effort into
the opportunity using iTrack profits.
The technology generates a gross margin in excess of 50% for the group and we
expect that under the recently appointed Director of Business Development,
Ryan Maughan, revenues can at least double again in the next few years, if not
more. Lastly, the patent protected SAW technology, which is the least
progressed, but with the largest potential for earnings contribution, has
started to make headway in some of the highest barriers to entry markets; US
defence and high performance motorsport. SAW is garnering industry and
investor interest because of its ability to provide more specific and
consistent torque readings in high-intensity and adverse operating
environments. The team are targeting opportunities in the industrial, electric
drivetrain and aerospace sectors and we are monitoring progress closely
following early successes with
McLaren and GE aviation. We were delighted to see Stephen Parker join the
board in May given his experience in scaling applied technologies, such as
YASA, which was acquired by Mercedes, where he now sits on a subsidiary board.
As an applied technology company, revenues generate an extremely high gross
margin, north of 85% and sales have been accelerating. We have been delighted
to see a number of new hires and recent directors buying alongside those
developments.
RBG Holdings plc 'Rosenblatt Group' (RBG LN) - Date of first investment
September 2023
After a difficult series of results that we believe mark trough earnings and
peak balance sheet stress, we have over the past six months invested into RBG
Holdings (Rosenblatt Group). RBG is a deep-value opportunity due to the
strategic and operational missteps of the past 24 months under the previous
team, since removed. The shares have collapsed from over 150p to as low as 9p
during this period. Progress to unwind previous strategic and operational
errors are now progressing. Rosenblatt is a professional services group in the
UK, including two of the UK's leading law firms, Rosenblatt and Memery
Crystal, and these 'gems' had been mired with dilutive strategic activity in
litigation funding (now exited) and a poorly timed entry into corporate
finance advisory (now exited).
The remainder business is pure legal services and in fact a top ten law firm
with a history of sector-leading margins that now looks mispriced on spot and
recovery multiples that are low single-digit EBITDA versus our target multiple
of 7 or 8x. The thesis is primarily one of backing earnings stability, cost
take-out, cash generation to pay down debt and a material multiple re-rating
under the return of the founder Ian Rosenblatt, who has made a long term
contractual commitment to the business and recently re-invested nearly £1m
into the recent fundraise. There may also be material hidden value in certain
archive cases that RBG historically funded (and is therefore entitled to a
material portion of any settlement, but we ascribe only hope value to these,
which have been prudently fully written down by the new management team.
Having admittedly started investing one profits warning too early, We are
working hard with the Board to ensure maximum value recovery, with the
disposal of Convex providing a recent example of catalyst execution.
Outlook
The highlights at the start of this report flagged another strong first
quarter for FY24 for the Company as a number of core holdings' theses started
to play-out. Team17, Windward, Springfield Properties and MPAC all had
particularly strong series of updates that demonstrated the improving
operational activity and strategic changes we had identified.
These and broad-based positivity across the nursery holdings drove performance
onward and wider market weakness to generate a positive contribution to the
NAV for the first quarter of the year of an additional +2.3% to 109.04p/share,
again significantly outperforming the UK AIM market.
This early performance and line of sight on catalysts as well as active
engagement opportunities across the portfolio leave the portfolio well placed
to meet its target returns of 15% IRR for the year. Additional capital raised
in March provides the team with additional firepower to capitalise on the
market opportunity that is a core ingredient of the company's raison d'etre.
We look forward to updating shareholders on progress at the interims and via
our quarterly factsheets.
Onwards,
Laurence Hulse
Investment Director and Founder
10 April 2024
Investment Objective and Policy
Investment objective
The Company was incorporated with limited liability in Guernsey under The
Companies (Guernsey) Law, 2008 (the "Companies Law") on 31 January 2023 as a
non-cellular (closed-ended) company limited by shares. The Company's
investment objective is to generate risk-adjusted absolute returns for
shareholders through investments in UK smaller companies. Returns are expected
to be principally derived from capital growth over a target three to five-year
holding period with an appropriate diversification of investment risk.
Investment policy
The Company will seek to achieve its investment objective by investing
primarily in equity and equity-related securities of UK smaller companies that
are predominantly listed or admitted to trading on markets operated by the
London Stock Exchange, and where it is considered that there is a material
potential valuation upside that can be delivered from catalysing strategic,
operational or management initiatives.
In order to ensure that the Company is able to maintain its approach of active
engagement with investee companies, and to encourage and support value
creation, the Company will typically target meaningful minority stakes in
investee companies of between 5% and 25% of the issued share capital.
Whilst the Company has no limitation on the size of the companies in which it
can invest, the Company typically expects to invest in companies with market
capitalisations of no more than £250 million (with particular focus on those
below £100 million) at the time of investment. The Company will therefore
focus on investments in the 'micro' smaller companies sector and on companies
admitted to trading on AIM.
Investee companies will typically have certain of the following
characteristics:
· balance sheet asset backing;
· a competitive advantage and/or strong management track record;
· attractive cash flow potential;
· visibility of earnings/future earnings improvement;
· potential for liquidity and/or exit in line with the Company's
targeted hold period;
· scope for an active shareholder to trigger value creation; and/or
· foreseeable events and catalysts to unlock intrinsic value.
Investments may be either direct investments made by the Company, or indirect
investments made by the Company through similar funds or investment vehicles.
The Company may make its investments for cash or for share consideration.
Although investments will not be restricted to specific sectors, the Company
does not expect to pursue or make investments into companies in the
biotechnology sector or in companies directly involved in extractive
industries (such as mining or oil and gas).
Whilst the Company will initially seek to take minority stakes in investee
companies of between 5% and 25% and will not typically seek to take majority
positions in investee companies, it will not be restricted from taking a
majority position if considered appropriate by the Portfolio Manager.
The Company's portfolio is expected to be relatively concentrated, with a
typical investment being between 2% and 10% of Net Asset Value at the time of
investment. This is expected over time to result in a portfolio of
approximately 10 to 15 high conviction investments and a further 5 to 10
smaller portfolio holdings, in companies operating in a number of industries
and geographic locations.
Whilst the Company will target an investment holding period of three to five
years, actual holding periods and exit strategies will depend on the
underlying investment, the availability of exit opportunities and the size of
the Company's investment. The Company may therefore dispose of investments
outside of the target timeframe should an appropriate opportunity arise.
The Company may hold cash in its 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 at any time.
Investment restrictions
The Company will observe the following investment restrictions:
· the maximum investment in any single investee company will be no
more than 15% of Net Asset Value at the time of investment;
· no more than 10% of Gross Asset Value at the time of investment
will be invested in securities listed or quoted on listing venues other than
markets operated by the London Stock Exchange (without the explicit written
consent of the Board);
· no more than 25% of Gross Asset Value at the time of
investment(s) will be in unquoted securities including, inter alia, in
unlisted shares or other unlisted instruments such as convertible loan notes
issued by quoted companies, rights, options, warrants, bonds and notes; and
· no more than 20% in aggregate, of the Gross Asset Value at the
time of investment will be in other listed closed-ended investment funds.
Corporate Governance Statement
The Company is listed on AIM and became a member of the Association of
Investment Companies (AIC) on 4 April 2023. The Directors recognise the
importance of sound corporate governance and the Directors intend to observe
the requirements of the AIC Code so far as is practicable.
The Guernsey Financial Services Commission's ("GFSC") Financial Sector Code of
Corporate Governance (the "Code") applies to the Company. The GFSC has stated
in the Code that companies which report against the UK Corporate Governance
Code, or the AIC Code are deemed to meet the requirements of the Code and need
take no further action. Accordingly, as the Company will report against the
AIC Code, it will be deemed to meet the requirements of the Code.
The Board has established an Audit and Risk Committee and a Management
Engagement Committee. These committees undertake specific activities through
delegated authority from the Board. Terms of reference for each committee have
been adopted and will be reviewed on a regular basis by the Board. The Board
as a whole will undertake the functions of remuneration and nomination
committees and as such no separate remuneration or nomination committee has
been established.
Key Governance Disclosures
Section 172(1) Statement
Through adopting the AIC Code, the Board acknowledges its duty to apply and
demonstrate compliance with section 172 of the UK Companies Act 2006 and to
act in a way that promotes the success of the Company for the benefit of its
Shareholders as a whole, having regard to (amongst other things):
a) consequences of any decision in the long-term;
b) the need to foster business relationships with suppliers, customers
and others;
c) impact on community and environment;
d) maintaining reputation; and
e) acting fairly as between members of the Company.
The Board considers its duties under section 172 to be integrated within the
Company's culture and values. The Company's culture is one of respect for the
opinions of stakeholders, with an aim of carrying out its operations in a fair
and sustainable manner that is both instrumental to the Company's long-term
success and upholds the Company's ethical values. The Board encourages
diversity of thought and opinion and would like to encourage stakeholders to
engage freely with the Board of Directors on matters that are of concern to
them. Stakeholders may contact the Company via the Company's dedicated e-mail
address ool@apexgroup.com (mailto:ool@apexgroup.com) or by post via the
Company Secretary on any matters that they wish to discuss with the Board of
Directors.
The Company does not have a formal diversity policy. This is a function of the
fact that the Company's remunerated officers are limited to the directors. The
composition and effectiveness of the Board is internally assessed on an annual
basis. The periodic rotation or retirement of directors is a trigger event
which initiates a formal search and selection process. This prioritises
professional experience relevant to the needs of the Company over other more
subjective factors which do not lend themselves to formal assessment and
testing. Whilst the Company does not therefore have any policy of positive
discrimination in relation to age, gender or race, the Company does recognise
the value that different perspectives and outlooks can bring to the quality of
decision making. Accordingly, whilst remaining focused on merit-based
appointments, the Board encourages and seeks to identify candidates who can
also enhance the diversity of its composition.
The Board has continued to work closely with its service providers during 2023
in order to support the maintenance of high standards of service. As part of
its annual review process, the Management Engagement Committee enquires about
any incidents, breaches or other occurrences within its service providers that
might create a reputational risk or other negative consequences for the
Company. Further details relating to the service providers can be found within
the Directors' Report.
The Board considers that there is a very low risk of modern slavery or human
trafficking associated with the Company's activities, given it has no
employees, premises, manufacturing or other physical operations. Its suppliers
are professional services providers, most of whom are regulated and none of
whom operate in jurisdictions that have a poor record on modern slavery or
human trafficking. The Company is an externally managed investment company,
has no employees, and as such is operationally quite simple.
The Board does not believe that the Company has any material stakeholders
other than those set out in the following table.
Investors Service providers Community and environment
Issues that matter to them
Performance of the shares Reputation of the Company Compliance with Law and Regulation Impact of the Company and its activities on
third parties
Growth of the Company Compliance with Law and Regulation
Liquidity of the shares Remuneration
Corporate Governance
Engagement process
Annual General Meeting The main service providers engage with the Board in formal quarterly meetings, Adherence to principles of appropriate ESG policies exists at both Company and
giving them direct input to Board discussions. investment level. Principles of socially responsible investing form a key part
of the Company's investment strategy.
Frequent meetings with investors by brokers and the Portfolio Manager and
subsequent reports to the Board Communication between the Board and service providers also occurs informally
on an ongoing basis during the year.
Quarterly factsheets
Key Information Document
Rationale and example outcomes
The Board have engaged with shareholders in relation to the Company's business The Company relies on service providers as it has no systems or employees of The Portfolio Manager works to ensure that sustainability and ESG factors are
over the course of the year. its own. carefully considered and reflected in the Company's investment decisions.
The Board seeks to act fairly and transparently with all service providers, The Board of Directors travel as infrequently as possible and instead
and this includes such aspects as prompt payment of invoices. communicate, where they are able to, by video and conference call.
Going Concern Statement
The Going Concern Statement is made on page 26.
Long-Term Viability Statement
The Long-Term Viability Statement is made on pages 26 to 27.
Fair, Balanced and Understandable Statement
The annual report and accounts taken as a whole are considered by the Board to
be fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
Further information on how this conclusion was reached can be found within the
Audit and Risk Committee Report.
Continuing Appointment of the Portfolio Manager
Further details relating to the continuing appointment of the Portfolio
Manager and how this is in the interests of shareholders as a whole can be
found within the Directors' Report.
Assessment of Principal and Emerging Risks
The Board has undertaken a robust assessment of the Company's principal risks,
together with the procedures that are in place to identify emerging risks.
Further information on this assessment and an explanation on how these risks
are being mitigated and managed can be found on pages 28 to 30.
Review of Risk Management and Internal Control
The Audit and Risk Committee is responsible for ensuring that the financial
performance of the Company is properly reported and monitored. The Audit and
Risk Committee reviews the Company's annual and interim accounts, the
accounting policies of the Company and key areas of accounting judgment,
management information statements, financial announcements, internal control
systems, risk management and the continuing appointment of auditors. It also
monitors the whistle blowing policy and procedures over fraud and bribery of
the Administrator.
Due to its size, structure and the nature of its activities, the Company does
not have an internal audit function. The Audit and Risk Committee will
continue to keep this matter under review.
The Board is ultimately responsible for the Company's system of internal
controls and for reviewing its effectiveness. The Board has developed a
framework that is designed to manage, rather than to eliminate, the risk of
failure to achieve the Company's business objectives. The framework involves
identifying sources of risk, the potential significance (financial and
operational) of any risk impacts, and the associated controls in place to
identify, pre-empt and mitigate those potential impacts. This is documented in
a Business Risk Assessment which is considered at least annually by the Board.
The framework is discussed with the Portfolio Manager, and members of the
Management Engagement Committee conduct a detailed meeting with the Portfolio
Manager to review the effectiveness of controls and any breaches / errors that
have occurred since the last inspection visit. Any such control failures are
also recorded on an exceptions basis and reported at quarterly Board meetings
or in real time if sufficiently significant. No significant failings or
weaknesses have been identified to date. These processes ensure an at least
annual review of the Company's system of internal controls, including
financial, operational, compliance and risk management. The system can only
provide reasonable and not absolute assurance against material misstatements.
The Board has delegated the management of the Company's investment portfolio,
the provision of custody services, the administration (including the
independent calculation of the Company's NAV), share registration, corporate
secretarial functions and the production of the half-yearly and annual
independently audited financial reports. The Board retains accountability for
the functions it delegates. Formal contractual arrangements have been put in
place between the Company and the providers of these services. Compliance
reports are provided by the Company's Compliance Officer at each quarterly
Board meeting. The Board considers that its internal control processes meet
current industry best practice.
Regulatory Compliance
The Company keeps abreast of regulatory and statutory changes and responds
appropriately. The Board continues to take advice on Alternative Investment
Fund Managers Directive ("AIFMD") from external professional advisers and to
implement necessary measures to ensure compliance with relevant requirements
of the AIFMD Regulations. The AIFM is also a resource relied upon by the Board
in this regard. Although the majority of the obligations associated with AIFMD
are applicable to the AIFM, the Board is satisfied that the Company as an
Alternative Investment Fund ("AIF") complies fully with its relevant
obligations under the AIFMD and the UK's AIFMD Regulations 2013. Key
Information Documents ("KIDs") have been updated in accordance with the EU's
Packaged Retail and Insurance-based Investment Products Regulations ("PRIIPs")
and the UK's amended version thereof and are available at
https://onwardopportunities.co.uk/wp-content/uploads/2023/03/Onward-Opportunities-Limited-2023-UK-PRIIP-KID86.pdf
(https://onwardopportunities.co.uk/wp-content/uploads/2023/03/Onward-Opportunities-Limited-2023-UK-PRIIP-KID86.pdf)
.
Board Members
The Board is responsible for the determination of the Company's investment
objective and investing policy and has overall responsibility for the
Company's activities including the review of investment activity and
performance and the control and supervision of the AIFM, the Portfolio Manager
and the other service providers.
The Directors meet at least four times a year, and at such other times as may
be required. The Directors (including the Chair) are all independent
non-executive directors. Given the size of the Board it has not been
considered necessary to appoint a senior independent director at this stage in
the Company's lifecycle.
The Board has been assembled to ensure that the Company has the appropriate
breadth of skills and experience in order to ensure that it can be governed
effectively and comprises the following persons:
Director Biographies
Andrew Henton (Independent Non-Executive Chair)
Andrew graduated from Oxford University in 1991 and subsequently qualified as
a Chartered Accountant with PricewaterhouseCoopers in London, specialising as
a corporate tax consultant. He spent eight years working in the City as a
corporate finance advisor with HSBC Investment Bank and as a principal of the
Baring English Growth Fund, a private equity Fund focussed on mid-market
transactions sponsored by ING Barings. In 2002 Andrew was relocated to
Guernsey by Close Brothers Group plc to take responsibility for integrating
and reorganising a number of regulated banking, custody, asset management and
fiduciary administration businesses that the bank had acquired in Jersey,
Guernsey and Isle of Man.
He was Head of Offshore Businesses for Close until the division he managed was
sold in 2011. Thereafter he chose to remain in Guernsey and to work with a
portfolio of companies as a non-executive director. He has wide board
experience of both regulated and non-regulated businesses (including listed
funds and venture backed companies) in both executive and non-executive
capacities. Andrew is British and resident in Guernsey.
Susan Norman (Independent Non-Executive Director)
Susan has over 25 years of boardroom experience formerly in company
secretarial roles and most recently through non-executive director roles
across a wide range of companies in multiple jurisdictions. Susan is currently
a non-executive director of a number of Terra Firma Capital Partners Limited's
Guernsey-based private equity vehicles. Susan started her career within the
private banking and fund of hedge funds sectors and now runs her own
consultancy business providing company secretarial, governance and independent
directorship services to a broad range of clients across various
jurisdictions. Susan's board experience covers public and private equity
investment companies, real estate investment companies and impact investment
funds, amongst others.
Susan holds an LLB (Hons) degree in Scots Law from the University of
Strathclyde, is a Fellow of the Chartered Governance Institute and holds the
Institute of Directors' Diploma in Company Direction.
Henry Freeman (Independent Non-Executive Director, Chair of Management
Engagement Committee)
Henry is an investment professional with over 25 years of investment decision
making and over 10 years of Board experience. During his executive career as
an investment manager with Lloyds Private Banking/Hill Samuel and Forsyth
Partners, and then an investment banker with Liberum and Investec Securities,
Henry managed institutional and private client funds, investing across
equities, investment trusts and alternative investments; and advised
London-listed investment companies and funds on strategy, structuring, IPOs
and M&A. Henry has also built technology and investment businesses and sat
on UK parliamentary policy groups and Downing Street roundtables for fintech
and social finance. Henry was a founding member of Innovate Finance.
In addition to Onward Opportunities, Henry sits on a number of commercial fund
and investment company boards, as well as the Crown Dependency of Guernsey's
sovereign wealth and pension funds. He is a member of the Guernsey Investment
& Funds Association (GIFA) Executive Committee and is proud to have
established the GIFA Schools Investment Challenge, encouraging financial
literacy and investment education among young people. Henry holds the
Institute of Directors' Diploma in Company Direction.
Luke Allen (Independent Non-Executive Director, Chair of Audit and Risk
Committee)
Luke is an independent non-executive director with over 30 years' experience
working in the financial services sector, the majority of which have been
spent in the investment funds industry. Until December 2019 he was the chief
executive and managing director of Man Group plc's Guernsey office, which
serviced an extensive range of hedge funds and funds of hedge funds. His
primary role was to lead Man Group's operations in Guernsey, chairing the
local management company boards, setting strategy and ensuring effective risk
management, outsourced service provider oversight, and compliance with laws
and regulations. He has well over a decade's experience (in both an executive
and independent non-executive capacity) of working with, and sitting on the
boards of, a wide range of fund and management company structures across
various asset classes and international jurisdictions.
He is a chartered accountant (ICAEW) and, prior to running Man Group's
Guernsey office, he headed up their fund financial reporting and liquidations
team, with responsibility for the production of fund financial statements and
for fund terminations across their entire product range. He has completed the
Institute of Directors' Diploma in Company Direction and is the holder of a
personal fiduciary licence issued by the Guernsey Financial Services
Commission.
Public Company Directorships
The following details are of all other public company directorships and
employment held by each Director and shared directorships of any commercial
company held by two or more Directors:
Andrew Henton
Pershing Square Holdings Limited
Susan Norman
None to be disclosed
Henry Freeman
None to be disclosed
Luke Allen
Boussard & Gavaudan Holding Limited
Investec W&I International PCC Limited
Global Private Equity One Limited
Director Attendance
During the period ended 31 December 2023, the Board and Committee meetings
held and attended by the Directors were as follows:
Management
Audit and Risk Committee Meeting Engagement
Quarterly Board Meeting Committee Ad-hoc Meetings
Meetings
Director Attended/ Attended/ Attended/ Attended/
Eligible Eligible Eligible Eligible
Andrew Henton 2/2 1/1 0/0 3/3
Susan Norman 2/2 1/1 0/0 3/3
Henry Freeman 2/2 1/1 0/0 3/3
Luke Allen 2/2 1/1 0/0 3/3
Division of Responsibilities
A schedule of matters reserved for the Board is maintained by the Company and
can be summarised as follows:
· Strategic Issues
· Financial Items such as approval of the annual and half-yearly
reports and any preliminary announcement of the final results and the annual
report and accounts including the corporate governance statement
· Legal, Administration and Other Benefits
· Communications with Shareholders
· Board Appointments and Arrangements
· Miscellaneous such as to approve the appointments of professional
advisers for any Group company in addition to the Company's Auditors
· Monetary Limits and payment approvals.
The Directors have also delegated certain functions to other parties such as
the Portfolio Manager, the Administrator, the Company Secretary, the Custodian
and the Registrar. In particular, the Portfolio Manager has been granted
discretion over the management of the investments comprising the Company's
portfolio.
The Portfolio Manager reports to the Board on a regular basis both outside of
and during quarterly board and Committee meetings, where the operating and
financial performance of the portfolio, together with valuations, are
discussed at length between the Board and the Portfolio Manager. The Directors
have responsibility for exercising supervision over the Portfolio Manager.
Board Committees
The Company has established an Audit and Risk Committee and a Management
Engagement Committee (together the "Committees"). The Terms of Reference for
each committee are available on the Company's website.
The Board believes that its established Committees are adequately composed,
and that each member has the necessary skills and experience to discharge
their duties effectively. The relevant Committee and the actions carried out
by each Committee since the previous quarterly board meeting are reported at
each meeting to the Board of Directors by the respective Committee chair. Each
Committee meeting is attended by the Company Secretary and minutes are kept,
as well as a schedule of the action points arising from each meeting.
The Audit and Risk Committee comprises all of the Directors and is chaired by
Luke Allen who is considered to have recent and relevant financial experience.
The Audit and Risk Committee meets at least three times a year. There are
likely to be a number of regular attendees at meetings of the Audit and Risk
Committee, including the Company's external auditors. A full report regarding
the Audit and Risk Committee's activities during the period can be found in
the Audit and Risk Committee Report on pages 36 - 40.
The Management Engagement Committee comprises all of the Directors and is
chaired by Henry Freeman. The Management Engagement Committee meets at least
once a year or more often, if required. Its principal duties are to consider
and review the management engagement terms on which each of the AIFM and the
Portfolio Manager is engaged. Those terms are reviewed by the Committee
annually, scrutinising and holding to account the performance of each of the
AIFM, the Portfolio Manager and other service providers prior to the annual
results announcement being released. Details of the Management Engagement
Committee's activities during the period can be found on page 32.
Investment Committee
Laurence Hulse (Investment Director and Founder)
Laurence joined Dowgate Wealth in September 2022 as an Investment Director.
Laurence started his career at Gresham House in 2015, around the time of its
inception, and worked on a number of outperforming equity products as part of
a small team during that time. At the time of his departure from Gresham
House, he had co-managed or deputised on a number of equity funds; namely
Gresham House Strategic plc (now called Rockwood Strategic plc), Strategic
Public Equity Fund LP and Gresham House Smaller Companies Fund. He was awarded
both AAA and AA-ratings by Citywire during this time and two of these
co-managed funds achieved FE '5-crown' ratings while he was part of the team
working on them. During his tenure, the company grew from a handful of
employees and less than £50m assets to over 200 employees and in excess of
£7.5 billion of assets. Gresham House was bid for by Searchlight Capital in
Q3 2023 for a value of c.£500m, generating a total return to Gresham House
Shareholders since the management buy-in in December 2014 of over 300%.
Laurence joined Dowgate to pursue a long-held ambition to build and manage an
investment vehicle tailored for HNWIs and Family Offices focused on special
situations in the UK, which perfectly aligns with the Dowgate ethos. The first
step of this ambition was achieved with the floatation of Onward Opportunities
in March 2023.
As an investor, Laurence strongly believes in creating value through change;
whether that be strategic, operational or personnel within a business -
particularly in small and micro-cap companies where the impacts of these
changes tend to be most tangible. He prides himself on working actively with
the Boards and Executive teams of investee companies to drive shareholder
value through the investment cycle. He holds a truly active approach to
investment management by applying private equity techniques to publicly listed
companies. His enthusiasm and drive have allowed him to successfully garner a
track record of outperformance and close industry network throughout his early
career in the City.
Career highlights for Laurence include when he was nominated for the rising
star of investment companies award in 2021 and the flotation of Onward
Opportunities, the investment vehicle he founded, on the London stock market
in 2023. His biggest achievement away from work was climbing Mount Kilimanjaro
for charity at the age of 16. In addition to his duties as Investment
Director, Laurence loves cycling, driving, and vintage cars.
Tom Teichman (Investment Committee Chair)
Tom started his career at Willis Faber & Dumas and then William Brandt's
Sons & Co., becoming head of European merchant banking. Over the next 40
years he has sat on various credit and investment committees whilst working at
Bankers Trust Company, Credit Suisse, Finanz AG, Mitsubishi Finance
International, Bank of Montréal Nesbitt Thomson, NewMedia Investors, SPARK
Ventures (which he co-founded), The Garage Soho (which he co-founded) and
Gresham House Strategic, where he worked directly with Laurence Hulse. Tom was
personally, or through investment vehicles he established, a very early-stage
investor in MAID, Argonaut Games, ARC Risc Cores, lastminute.com,
mergermarket.com, System C, Notonthehighstreet.com, made.com,
moshimonsters.com, Kobalt Music Group and IMI Mobile.
He served on the boards of most of these companies, in some cases as chairman,
advising on growth, funding and exit strategy. Some of these eventually went
public or were acquired by major corporations, including The Financial Times
and Oracle, and/or achieved valuations of over £1 billion.
Tom has a B.Sc. (Econ.) Hons. from University College, London and was born in
Hungary. He has over 30 years' experience in venture capital and banking and
has chaired or been a member of several credit and investment committees
including the Gresham House Strategic Public Equity Investment Committee where
he worked directly with Laurence Hulse from its inception.
David Poutney (Investment Committee Member)
David is Chief Executive of Dowgate Capital and Chairman of, Dowgate Wealth,
and Dowgate Group. His early career was in commercial banking and asset
finance, after completing a history degree from Cardiff University in 1974. He
made the transition into stockbroking a few years ahead of the Big Bang,
becoming a number one rated financials analyst for 15 years at a number of
well-known firms including BZW, James Capel and UBS. He moved into a broader
role in corporate broking during the Dotcom boom of the 1990s and was involved
in the flotation of a number of companies which survived the crash, notably
Sports Internet Group which was taken over by Sky. After joining Numis in 2001
as head of corporate broking, he was responsible for a number of growth
companies such as Domino's Pizza, Alliance Pharma and Learning Technologies
Group. Overall, he was involved in the flotation of over 30 companies.
In addition to his positions at Dowgate Group, David is a non-executive
director of AIM-quoted Franchise Brands plc and Belluscura plc and previously
of Be Heard plc which also quoted on AIM before being sold to a private equity
firm.
Jeremy McKeown (Investment Committee Member)
After obtaining an economics degree from Georgia State University, Jeremy
began his career as a trainee investment analyst at the South Yorkshire
Pension Fund in 1982. Over the following forty years, Jeremy worked on both
the buy and sell sides of the UK stock market, including with companies such
as Abbey Life, British Gas Pension Fund, Midland Bank, Charterhouse, Merril
Lynch, Investec, Liberum and Royal Bank of Canada. Jeremy obtained an MBA from
the City University Business School during this time. Jeremy built a
reputation for independent advice to institutional small and mid-cap investors
and worked on many equity capital market transactions. He led award-winning
teams at Charterhouse, Merrill Lynch and Investec. Since 2020 Jeremy has
worked as a consultant for a number of clients, including Dowgate and
Progressive Equity Research. Jeremy is passionate about understanding the
investment landscape from the macroeconomic backdrop to the entrepreneurs
capable of delivering exceptional returns. He started writing a blog during
the pandemic and launched a podcast series covering investment issues. Jeremy
is a non-executive director at Cranfield University spinout, Loxham Precision.
Jay Patel (Investment Committee Member)
Jay is the Vice President and General Manager of Cisco's Webex CPaaS
initiative and joined Cisco when the company he ran, IMIMobile, was acquired
for US$730m in 2021. He helped start IMImobile PLC in 2003, as CEO led it to a
successful IPO in 2014 and then delivered its exit to Cisco. Today Jay is
working on combining the IMI platforms with relevant technologies from Webex
to create solutions that help clients deliver the world's best customer
experiences.
Jay is an experienced technology executive with over 25 years' commercial
experience through operational, investment and advisory roles. He has had a
successful career working with fast growth businesses and has served as both
an executive and non-executive director on the boards of both private and
public companies over the last 20 years.
Previously, Jay was a co-founder of venture capital firm Spark Ventures PLC
(an early stage venture capital firm), where he led several successful
investments, restructurings and exits in the technology sector across digital
media and publishing, B2B software and B2C eCommerce. Jay has also worked in
corporate finance roles at UBS Warburg and BSkyB and qualified as a Chartered
Accountant with KPMG. He has an MBA from INSEAD and an Economics degree from
London School of Economics.
Directors' Report
The Directors present their Report and the Audited Financial Statements of the
Company for the period ended 31 December 2023.
Principal Activities and Business Review
The investment objective of the Company is to generate long term capital
growth through investing in a portfolio consisting primarily of equity
investments in quoted companies.
The Directors do not envisage any change in these activities for the
foreseeable future. A description of the activities of the Company in the
period under review is given in the Chair's Statement and the Portfolio
Manager's Report.
Business and Tax Status
The Company has been registered with the GFSC as a closed-ended investment
company under the Registered Collective Investment Schemes Rules and Guidance,
2021 ("the RCIS Rules) and the Protection of Investors (Bailiwick of Guernsey)
Law, 2020 ("POI") Law and was incorporated in Guernsey on 31 January 2023. The
Company operates under The Companies (Guernsey) Law, 2008 (the "Law").
The Company's shares are listed and traded on AIM.
The Company's management and administration takes place in Guernsey and the
Company has been granted exemption from income tax within Guernsey by the
Administrator of Income Tax. It is the intention of the Directors to continue
to operate the Company so that each year this tax-exempt status is maintained.
In respect of the Criminal Finances Act 2017, which has introduced a new
corporate criminal offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that they are committed to
zero tolerance towards the criminal facilitation of tax evasion.
Foreign Account Tax Compliance Act ("FATCA")
FATCA requires certain financial institutions outside the United States ("US")
to pass information about their US customers to the US tax authorities, the
Internal Revenue Service (the "IRS"). A 30% withholding tax is imposed on the
US source income and disposal of assets of any financial institution within
the scope of the legislation that fails to comply with this requirement.
The Board of the Company has taken all necessary steps to ensure that the
Company is FATCA compliant and confirms that the Company is registered and has
been issued a Global Intermediary Identification Number ("GIIN") by the IRS.
The Company will use its GIIN to identify that it is FATCA compliant to all
financial counterparties.
Common Reporting Standard
The Common Reporting Standard is a global standard for the automatic exchange
of financial account information developed by the Organisation for Economic
Co-operation and Development ("OECD"), which has been adopted in Guernsey and
which came into effect in January 2016.
The Company is subject to Guernsey regulations and guidance on the automatic
exchange of tax information and the Board will therefore take the necessary
actions to ensure that the Company is compliant in this regard.
Going Concern
The Directors have adopted the going concern basis in preparing the Audited
Financial Statements.
In assessing the going concern basis of accounting, the Directors have
assessed the guidance issued by the Financial Reporting Council and considered
the Company's own financial position, recent market volatility, the on-going
impact of the Russian war on Ukraine and the conflict in the Middle East,
energy shortages, inflation, increases in interest rates, recent bank failures
and other uncertainties impacting on the Company's investments, their
financial position and liquidity requirements.
At period end the Company had a net asset position of £17,069,000 comprising
cash of £407,000, listed investments amounting to £16,695,000.
The Company generates liquidity by raising capital and exiting investments. It
uses liquidity by making new and follow-on investments and paying company
expenses. The Directors ensure it has adequate liquidity by regularly
reviewing its financial position and forward-looking liquidity requirements.
In assessing its going concern status, the Directors have considered the level
of operating expenses relative to net assets, such expenses approximating to
2.53% of net assets as at 31 December 2023.
Long-Term Viability Statement
The principal risks facing the Company are documented in the Business Risk
Assessment and are described later in this report. The business model and
investment strategy are described and evaluated in the Portfolio Manager's
report. The Board's review of the effectiveness of the Company's risk
management and internal control systems is described in the Audit Committee's
report.
Given the liquid, tradeable nature of its assets it would take a general
failure in the effective and ongoing operation of financial markets (cessation
of market liquidity) to threaten the Company's solvency. Such a market failure
could prevent investments held by the Company from being redeemed and thereby
leave it potentially unable to meet its financial obligations as they fall
due. Notwithstanding the uncertainty caused by recent market volatility, the
on-going impact of the Russian war on Ukraine and the conflict in the Middle
East, energy shortages, inflation, increases in interest rates, recent bank
failures and other uncertainties impacting on the Company's investments, the
fact that the operating expenses (excluding performance fees) of the Company
represent less than 3.0% of its NAV on an annual basis makes this risk remote.
The Board has conducted a robust assessment of the principal and emerging
risks and uncertainties facing the Company and has also assessed its long-term
viability. The ongoing impact of both the Russian war on Ukraine and the
conflict in the Middle East have formed part of this assessment. The key risk
to the Company has been identified as a failure of the investment decision
making process to generate NAV accretion that is in line with investors'
expectations, and which is attractive on a risk adjusted basis when compared
with alternative managed investment opportunities.
The Company's performance is measured on a monthly basis via both the NAV of
its underlying investments and its share price. Key data inputs used by the
Portfolio Manager when making investment decisions comprise company earnings,
macro factors and indicators of sentiment. The Company's performance is
compared primarily to peer group funds on a regular basis, and performance
fees payable to the Portfolio Manager are calculated annually.
The significant majority of investment positions taken by the Company are in
relatively liquid assets that can be converted to cash readily in the market
and a great effort is made by the Portfolio Manager to minimise drawdowns and
to maintain liquidity. Given that the Company's operating costs as a
percentage of its realisable investment portfolio are low and that it is a
closed-ended fund, the Directors consider there to be significant liquidity
headroom available in all but the most extreme market failure scenarios.
Despite the emphasis on short-term performance and resilience described above,
not all investment positions are entered into with the expectation of them
being unwound within twelve months. Moreover, the 'repeatability' of the
investment process is of fundamental importance. The Portfolio Manager has
developed analytical tools and processes that it seeks to apply on a
consistent basis over time when making investment decisions. In this way it
seeks to generate positive risk adjusted returns using strategies that are
sustainable for the medium to long term. The time frame over which it is
necessary to identify and respond to 'paradigm shifts' in economic markets is
long term in nature. Factors such as government or central bank policies (e.g.
quantitative easing) or external events (including wars and regional
instability) can cause significant changes in investor sentiment, which can in
turn alter market assessments of intrinsic value and correlations between
different asset types. For these reasons, the Board considers a three-year
time horizon to 30 April 2027 as being the appropriate period over which to
assess future prospects and viability.
On the basis of the relevant and rigorous assessment described above, the
Board believes that the Company will remain viable as a closed-ended
investment company for at least the period ending 30 April 2027.
Results and Dividends
The results attributable to shareholders for the period are shown in the
Statement of Comprehensive Income on page 45. The Directors have neither
declared nor paid a dividend for the period.
Directors
The Directors of the Company who served during the period and to date are set
out on pages 19 to 20.
Directors' Interests
The Directors held the following interests in the share capital of the Company
either directly or beneficially as at
31 December 2023, and as at the date of signing these Audited Financial
Statements:
Number of % Ordinary Shares in
Ordinary Shares issue as at 31 December 2023
Andrew Henton 100,000 0.6239
Susan Norman 20,000 0.1248
Henry Freeman 15,000 0.0936
Luke Allen - -
Adrian Norman (husband of Susan Norman) 4,878 0.0304
Under their terms of appointment, the Directors' total remuneration (including
one-off fees) are as disclosed below:
The Directors' compensation is reviewed annually and effective 30 March 2023,
each Director is paid a basic fee of £27,500 per annum by the Company. In
addition to this, the Chair receives an extra £11,500 per annum and the Audit
and Risk Committee Chair receives an extra £3,500 per annum.
Procedures for Identifying Risks
Principal Risks and Uncertainties
There are several potential risks and uncertainties which could have a
material impact on the Company's performance and could cause actual results to
differ materially from expected and historical results.
The AIFM has overall responsibility for risk management and control within the
context of achieving the Company's objectives. The Board agrees the strategy
for the Company, approves the Company's risk appetite and the AIFM monitors
the risk profile of the Company. The AIFM also maintains a risk management
process to identify, monitor and control risk concentration.
The Board's responsibility for conducting a robust assessment of the principal
and emerging risks is embedded in the Company's risk map, which helps position
the Company to ensure compliance with the Association of Investment Companies
Code of Corporate Governance (the "AIC Code").
The principal risks that the Company faces arising from its financial
instruments are:
(i) market risk, including:
- Price risk, being the risk that the value of investments will
fluctuate because of changes in market prices;
- interest rate risk, being the risk that the future cash flows of a
financial instrument will fluctuate because of changes in interest rates;
(ii) credit risk, being the risk that a counterparty to a financial instrument
will fail to discharge an obligation or commitment that it has entered with
the Company.
(iii) liquidity risk, being the risk that the Company will not be able to meet
its liabilities when they fall due. This may arise should the Company not be
able to sell its investments.
(iv) company failure, being the risk that companies invested in may fail and
result in loss of capital invested.
To manage such risks the Company complies with the investment restrictions and
diversification limits provided for in its Admission Document.
The Company invests and manages its assets with the objective of spreading
risk. Further to the investment restrictions referenced, the Company also
seeks to manage risk by:
· not incurring debt over 25% of its NAV, calculated at time of
drawdown. The Company will target repayment of such debt within twelve months
of drawdown; and
· not using 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,
although the Company may do so if the Board deems it appropriate for efficient
portfolio management purposes.
Other operational related risks identified by the Board include the following:
Portfolio concentration risk
The majority of the Company's portfolio is expected to be invested in
approximately 10 to 15 companies, with a further 5 to 10 smaller portfolio
holdings existing from time to time. As a result, the portfolio carries a
higher degree of stock-specific risk than a more diversified portfolio.
This is mitigated by position sizing being relatively evenly spread across the
portfolio to ensure that there isn't a disproportionately high level of
exposure to a small number of assets within the portfolio itself. In addition,
both the AIFM and the Portfolio Manager monitor that the investment
restrictions as set out in its Admission Document are adhered to at all times.
Key person risk
At present the Company's investment selection, portfolio management and
marketing functions are heavily reliant upon a single individual employed by
the Portfolio Manager. This individual presents a key person risk as their
departure or inability to continue to provide services to the Company could be
significantly detrimental to its performance. This risk is countered by the
fact that the key individual is reputationally and financially linked to the
success of the Company, that there are other staff employed by the Portfolio
Manager who could provide cover in the event of any unexpected absence, that
there is a plan to procure additional staff resources as the Company grows in
size and that contractual notice periods are in place in order to enable the
Company sufficient time to find a replacement Portfolio Manager in the event
that this became necessary.
Share price risk
There is a risk that the Company's shares trade at a discount to their
prevailing Net Asset Value and that any discount may become embedded if it
persists for a significant length of time, albeit that this is a function of
supply and demand for the Company's shares in the market which cannot be
controlled by the Board. The discount risk is mitigated by the fact that the
Portfolio Manager, AIFM and Brokers review market conditions on an ongoing
basis and will report to the Board if a persistent discount appears to be
materialising. In addition, consideration has been given to discount
management options as set out in the Company's Admission Document and the
Company is committed to ensuring that secondary market liquidity is maintained
via the issuance of informative investor communications and the engagement of
active Brokers.
Conflicts of interest
The Portfolio Manager and/or companies with which it is associated may act as
advisor in relation to, or be otherwise involved with, other investment funds
or accounts which presents the risk of a conflict of interest. There is also a
risk that key individuals at the Portfolio Manager may spend time on other
structures rather than on providing services to the Company. This risk is
mitigated by the fact that the Company has put a formal Conflicts of Interest
Policy in place and that it has access to, and receives regular reporting
from, the Portfolio Manager.
Emerging Risks
Emerging risks, along with all other risks the directors have identified the
Company as being exposed to, are monitored via the Company's Business Risk
Assessment. During the year, as part of their regular review and assessment of
risk, the Directors have continued to consider the impact of the emerging
risks of climate change, the use of artificial intelligence, an escalation of
the conflict in the Middle East, the current recessionary environment in the
UK and the forthcoming UK general election on the Company's business model and
viability, but do not consider these to be material risks at this time. With
respect to climate change risk in particular, the Directors consider that the
pricing of the underlying portfolio of the Company's investments reflects
market participants' views of climate change risk and that there are no
further climate related influences on the NAV of the Company at this point in
time.
ESG and Climate Change Risks and Considerations
The momentum of ESG adoption in the asset management industry continued in
2023, as incoming regulations pushed asset owners to increase their demand for
transparency. This is expected to have the dual benefits of supporting NAV
growth for shareholders, and also (as ESG processes are further embedded
within the wider investment sector) improving environmental outcomes by
companies accessing capital via the public markets.
Climate change risk has been considered within the Emerging Risks section
above.
Ongoing Charges
The ongoing charges figure for the period was 3.14%. The ongoing charges
represent ongoing annual expenses of £431,333 divided by total average Net
Asset Value for the period of £13,721,592. The ongoing charges has also been
prepared in accordance with the recommended methodology provided by the
Association of Investment Companies where performance fees of £28,350 have
been excluded and represents the percentage reduction in shareholder returns
as a result of recurring operational expenses.
Service Providers
Portfolio Management Agreement and Fees
The Portfolio Management Agreement between the Company, the AIFM, the
Portfolio Manager and Laurence Hulse, pursuant to which the Portfolio Manager
has been appointed, with effect from Admission, to act as the portfolio
manager to the Company and the AIFM, was executed on 23 March 2023.
The initial term of the Portfolio Management Agreement is three years
commencing on Admission (the "Initial Term"). The Company may terminate the
Portfolio Management Agreement by giving the Portfolio Manager not less than
12 months' prior written notice such notice not to be served prior to the end
of the Initial Term. The Portfolio Manager may terminate the Portfolio
Management Agreement by giving the Company not less than 12 months' prior
written notice such notice not to be served prior to the end of the Initial
Term. The Portfolio Management Agreement may be terminated with immediate
effect on the occurrence of certain events, including insolvency or material
and continuing breach.
Under the terms of the Portfolio Management Agreement, the Portfolio Manager
is entitled to an annual management fee, and in certain circumstances the
payment of a Performance Fee, together with reimbursement of all reasonable
costs and expenses incurred by it in the performance of its duties.
In addition, in the event that the Key Man ceases to be involved in a material
respect with the Portfolio Manager, the Company shall be entitled to terminate
the Portfolio Management Agreement immediately without penalty by notice in
writing if the Portfolio Manager, within 90 days of being requested by the
Company to do so, is unable to present a proposal which is reasonably
acceptable to the Board to replace the departed Key Man. The 'Key Man' shall
be Laurence Hulse or any person approved as a replacement Key Man by the
Board.
The Company has given an indemnity in favour of the Portfolio Manager (subject
to customary exceptions) in respect of the Portfolio Manager's potential
losses in carrying on its responsibilities under the Portfolio Management
Agreement.
Laurence Hulse is a party to the Portfolio Management Agreement to take the
benefit of certain provisions. The Portfolio Management Agreement is governed
by the laws of England and Wales. The Board has reviewed the performance of
the Portfolio Manager since the date of its appointment and is satisfied that
the continued appointment of the Portfolio Manager on the terms agreed is in
the interests of the shareholders.
Administrator and company secretary
Apex Administration (Guernsey) Limited (the "Administrator") will be
responsible for the day to day administration and company secretarial
functions of the Company (including but not limited to the maintenance of the
Company's accounting records, the calculation and publication of the Net Asset
Value and the production of the Company's annual and interim report).
Prospective investors should note that it is not possible for the
Administrator to provide any investment advice to investors.
The Administrator will be responsible for monitoring regulatory compliance and
providing support to the Board's corporate governance process and its
continuing obligations under UK Market Abuse Regulation (UK MAR).
The Administrator is a company incorporated in Guernsey with limited liability
on 20 January 2010, with registered number 51371, and is licensed by the GFSC
under the provisions of the POI Law to conduct certain restricted investment
and administrative activities in relation to collective investment schemes.
The Administrator, for the purposes of the POI Law and the RCIS Rules, is the
'designated administrator' of the Company. The Administrator's ultimate
holding company is Apex Group Limited.
Alternative Investment Fund Managers Directive
The Company has appointed FundRock Management Company (Guernsey) Limited as
the AIFM of the Company, pursuant to the AIFM Agreement. The AIFM will act at
the Company's alternative investment fund manager for the purposes of the UK
AIFM Regime.
The AIFM has formally delegated portfolio management functions to the
Portfolio Manager as portfolio manager to the Company and the AIFM. The AIFM
retains risk management functions in relation to the Company and is
responsible for oversight of the portfolio management functions delegated to
the Portfolio Manager.
The AIFM works closely with the Portfolio Manager in implementing appropriate
risk measurement and management standards and procedures. The AIFM carries out
the on-going oversight functions and supervision of the Portfolio Manager. The
AIFM is legally and operationally independent of the Company and the Portfolio
Manager.
Custodian
The Custodian of the Company is Butterfield Bank (Guernsey) Limited.
Registrar
Link Market Services (Guernsey) Limited was appointed as registrar to the
Company pursuant to the Registrar Agreement dated 24 March 2023. In such
capacity, the Registrar is responsible for the transfer and settlement of
shares held in certificated and uncertificated form. The Register may be
inspected at the office of the Registrar.
Corporate Governance Statement
The Corporate Governance Statement forms part of the Directors' Report.
Board Responsibilities
The Board comprises four non-executive Directors, who meet at least quarterly
to consider the affairs of the Company in a prescribed and structured manner.
All Directors are considered independent of the Portfolio Manager for the
purposes of the AIC Code. Biographies of the Directors for the period ended 31
December 2023 appear on pages 19 to 20 which demonstrate the wide range of
skills and experience they bring to the Board.
The Directors, in the furtherance of their duties, may take independent
professional advice at the Company's expense, which is in accordance with
principle 13 of the AIC Code. The Directors also have access to the advice and
services of the Company Secretary through its appointed representatives who
are responsible to the Board for ensuring that the Board's procedures are
followed, and that applicable rules and regulations are complied with.
To enable the Board to function effectively and allow the Directors to
discharge their responsibilities, full and timely access is given to all
relevant information. Whilst no limit has been imposed on the overall length
of service of the Directors, at each annual general meeting of the Company,
each director shall retire from office and each director may offer themselves
for election or re-election by the shareholders.
Conflicts of Interest
None of the Directors nor any persons connected with them had a material
interest in any of the Company's transactions, arrangements or agreements at
the date of this report and none of the Directors has or had any interest in
any transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was affected by the
Company during the reporting period.
At the date of this Report, there are no outstanding loans or guarantees
between the Company and any Director.
The Audit and Risk Committee
Luke Allen is the Chair of the Audit and Risk Committee. A full report
regarding the Audit and Risk Committee can be found in the Audit and Risk
Committee Report.
Management Engagement Committee
The Management Engagement Committee comprises all of the Directors and is
chaired by Henry Freeman. The Management Engagement Committee meets at least
once a year or more often, if required. Its principal duties are to consider
the terms of appointment of the AIFM and the Portfolio Manager and it reviews
these appointments and the terms of the AIFM Agreement and the Portfolio
Management Agreement annually. The Management Engagement Committee also
reviews the terms of appointment of other key service providers to the
Company. Details of the management and performance fees can be found in note
5. The Management Engagement Committee did not meet during 2023 as the
appointment of all service providers was subject to detailed scrutiny by the
Board of the Company prior to the commencement of the Company's activities.
The Committee will be reviewing the terms of appointment of all service
providers and will be carrying out an in-person due diligence visit to the
Portfolio Manager and the AIFM in the second quarter of 2024.
Substantial Shareholdings
On 10 April 2024, the latest practicable date for disclosure in this Report,
the Company's only shareholders with a holding greater than 5% were Dowgate
Capital Limited (10.7%) and Dowgate Wealth Limited (41.0%) .
Shareholder Communication
The Company's main method of communication with Shareholders is through its
published Half Yearly and Annual Reports which aim to provide Shareholders
with a fair, balanced and understandable view of the Company's results and
objectives. This is supplemented by the publication of the Company's monthly
net asset values on its ordinary shares on AIM and quarterly factsheets.
In line with principle 16 of the AIC Code, the Portfolio Manager communicates
with both the Chair and shareholders and is available to communicate and meet
with major shareholders. The Company has also appointed Cavendish Capital
Markets Limited to liaise with all major shareholders together with the
Portfolio Manager, all of whom report back to the Board at quarterly board
meetings ensuring that the Board is fully aware of shareholder sentiment,
expectations and analyst views. The Company's website, which is maintained by
the Portfolio Manager, is regularly updated with news and announcements.
Information published online is accessible in many countries each with
differing legal requirements relating to the preparation and dissemination of
financial information.
Users of the Company's website are responsible for informing themselves of how
the requirements in their own countries may differ from those of Guernsey.
Relations with Shareholders
All holders of Ordinary Shares in the Company have the right to receive notice
of, attend and vote at the general meetings of the Company.
At each general meeting of the Company, the Board and the Portfolio Manager
will be available to discuss issues affecting the Company.
Shareholders are additionally able to contact the Board, Portfolio Manager and
the Chair directly outside of meetings via the Company's dedicated e-mail
address (ool@apexgroup.com) or by post via the Company Secretary. The Company
has adopted a zero-tolerance policy towards bribery and is committed to
carrying out business fairly, honestly and openly.
Voting and Stewardship code
The Portfolio Manager is committed to the principles of the Financial
Reporting Council's UK Stewardship Code and this also constitutes the
disclosure of that commitment required under the rules of the FCA (Conduct of
Business Rule 2.2.3).
Signed on behalf of the Board by:
( )
Andrew Henton
Chair
10 April 2024
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Report and Audited Financial
Statements in accordance with applicable law and regulations.
Guernsey Companies Law requires the Directors to prepare Audited Financial
Statements for each financial year. Under that law they are required to
prepare the Audited Financial Statements in accordance with International
Financial Reporting Standards as adopted by the EU and applicable law.
Under company law the Directors must not approve the Audited Financial
Statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Company and of its profit or loss for that year.
In preparing these Audited Financial Statements, the Directors are required
to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Audited
Financial Statements;
· assess the Company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either
intend to liquidate the Company or to cease operations or have no realistic
alternative but to do so.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its Audited Financial Statements comply with the
Companies (Guernsey) Law, 2008. They are responsible for such internal control
as they determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to fraud or
error, and have general responsibility for taking such steps as are reasonably
open to them to safeguard the assets of the Company and to prevent and detect
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination of
Financial Statements may differ from legislation in other jurisdictions.
Disclosure of information to auditors
The Directors who held office at the date of approval of this Directors'
Report confirm that, so far as they are aware, there is no relevant audit
information of which the Company's Auditor is unaware; and that each Director
has taken all the steps that they ought to have taken as a director to make
themselves aware of any relevant audit information and to establish that the
Company's Auditor is aware of that information.
Responsibility statement of the Directors in respect of the Report
We confirm that to the best of our knowledge:
· the Financial Statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company; and
· the management report (comprising the Chair's Statement, the
Portfolio Manager's Report, and Directors' 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.
We consider the Report and Audited Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information necessary for
shareholders to assess the Company's position and performance, business model
and strategy.
Signed on behalf of the Board by:
Andrew Henton
Chair
10 April 2024
Audit and Risk Committee Report
Role and Responsibility of the Committee
This is the report of the Audit and Risk Committee (herein the "Committee")
which has been prepared with reference to the AIC Code and describes the work
of the Committee in discharging its responsibilities.
The Committee meets formally at least three times each year and on an ad hoc
basis when required and reports to the Board. It has formally delegated duties
and responsibilities with written terms of reference which are reviewed and
reapproved at least annually. Those terms of reference are published on the
Company's website at
https://onwardopportunities.co.uk/wp-content/uploads/2023/08/Audit-and-Risk-Committee-Terms-of-Reference.pdf
The Committee is mandated by the Board to investigate any activity within its
terms of reference and to consult externally with legal or other independent
professional advisors, as required, to ensure that the Committee adequately
discharges its duties and responsibilities, which include:
a) considering the appointment of the external auditor, its letter of
engagement and the terms thereof, the audit fee, and any questions of
resignation or dismissal of the external auditor;
b) reviewing from time to time the effectiveness of the audit and the
independence and objectivity of the external auditor;
c) developing and implementing policy on the engagement of the external
auditor to supply non-audit services where necessary, taking into account
relevant ethical guidance regarding the provision of non-audit services by the
external audit firm; and report to the Board, identifying any matters in
respect of which it considers that action or improvement is needed and making
recommendations as to the steps to be taken;
d) reviewing the Company's half-yearly and annual financial reports, not
excepting the full Board's responsibility over the reports, focusing
particularly on:
· Any changes in accounting policies and practice;
· Major judgmental areas;
· Significant adjustments arising from the audit;
· The going concern assumption;
· Compliance with accounting standards (and in particular
accounting standards adopted in the financial year for the first time);
· Compliance with applicable legal and regulatory requirements;
· A risk management review; and
· Assessing the effectiveness of internal controls.
e) discussing any problems and reservations arising from the final
audit, and any other matters which the auditor may wish to discuss (in the
absence of the Company's agents where necessary);
f) reviewing the external auditor's Report to the Committee and
determining whether any changes have to be implemented as a result;
g) reviewing, on behalf of the Board, the Company's systems of internal
controls (including financial, operational, compliance and risk management)
and making recommendations to the Board;
h) considering the major findings of internal investigations and
management's response;
i) reviewing the Company's operating, financial and accounting
policies and practices;
j) considering any other matters specifically delegated to the
Committee by the Board from time to time;
k) reporting to the Board on how it performs its duties; and
l) confirming to the Board as to whether the annual report and audited
Financial Statements taken as a whole, is fair, balanced and understandable
and provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
The Committee may review any matter that it considers appropriate not
withstanding that it is not specifically mentioned in the above list of
duties.
Composition
The Committee is comprised of all of the Directors with Luke Allen acting as
permanent Chair. The membership of the Committee and its terms of reference
are kept under review. All members of the Committee have relevant competence
in the sector in which the Company operates in addition to relevant financial
experience as required by the Code.
Only independent non-executive Directors serve on the Committee and the
members do not have any links with the Company's external auditor. They are
also independent of the management teams of the Portfolio Manager,
administrator and all other service providers. Notwithstanding that Andrew
Henton is Chair of the Board, he was independent upon appointment, so is a
member of, but may not chair, the Committee.
The Committee meets the external auditor at least twice a year.
Oversight of Controls and Risk Management Systems
The Board, via its Management Engagement Committee, conducts an annual
Business Risk Assessment in conjunction with the Portfolio Manager and the
AIFM. The intention of this exercise is to identify and articulate the
material risks that might affect the Company and its trading prospects, the
likelihood of them occurring and their assessed impact. As part of this
process the explicit controls intended to mitigate either or both of the risk
of occurrence, or the impact of an occurrence, are also articulated. In this
way a residual net impact assessment is derived.
The Management Engagement Committee will hold meetings with the Portfolio
Manager, the AIFM and the Administrator on a regular basis, to review and
inspect operations. The Management Engagement Committee will review senior
staff members responsible for the internal control and oversight functions,
and who report as to the proper conduct of the business in accordance with the
regulatory environment in which both the Company and the Portfolio Manager
operate.
The oversight programme will follow a preplanned agenda involving reviews of,
inter alia (i) changes that have taken place within operations; (ii) IT
systems and controls, including cyber security arrangements; (iii) regulatory
compliance; (iv) investor relations; (v) the valuation of any unquoted
investments; (vi) the risk register, complaints, errors and breaches logs and
business continuity arrangements; (vii) ESG and responsible investment
policies; and (vii) the impact of external factors such as the Russia /
Ukraine conflict and the conflict in the Middle East. The results of the
oversight visits and questionnaires will be documented and discussed at a
meeting of the Management Engagement Committee.
As part of the oversight programme, the Portfolio Manager, the AIFM and the
Administrator report formally to the Committee at least annually on their
systems of internal controls. In accordance with the provisions of the Code,
the Committee has conducted a review of those systems of internal controls and
is satisfied that they are sufficient to withstand the risks to which the
Company is subject.
As the Company is a closed-ended investment company, all of whose Directors
are non-executive, and as all executive functions have been delegated to
professional third party advisors, the Committee does not consider it
necessary for the Company to have its own internal audit function. Whilst no
reliance can be placed on them, reviews conducted on the Portfolio Manager's
operations by independent custodians, and on-site due diligence visits by
prospective investors and their professional advisers provide a degree of
additional third party comfort.
Whilst the Company does not have any staff, the Committee considers that the
arrangements by which staff of the Portfolio Manager, the AIFM and the
Administrator may, in confidence, raise concerns about possible improprieties
in matters of financial reporting or other matters are of great importance.
The Committee reviews such arrangements annually and, as required by the Code,
is satisfied that arrangements are in place for the proportionate and
independent investigation of such matters and for appropriate follow-up
action.
Significant Risks in Relation to the Report and Audited Financial Statements
In discharging its responsibilities, the Committee has specifically considered
the following significant issues relating to the Financial Statements:
Valuation of Investments
The Board reviews portfolio valuations on a regular basis throughout the year,
and at quarterly meetings with the Portfolio Manager seeks assurance that the
pricing basis is appropriate and in line with relevant accounting standards.
The Company's net asset value is calculated on a monthly basis by the
Administrator.
The impact of the Russia / Ukraine conflict and the conflict in the Middle
East on financial markets has been significant, reflecting disruption to
international supply chains, the interruption of production generally, higher
short and long-term interest rates, inflationary pressures, delays in
corporate activity and investment, uncertainty about the availability of
financing and increased volatility in the value of financial instruments. The
Committee has considered the particular circumstances of the Company in light
of these issues, in particular the associated risk exposures and implications
for financial reporting.
As an investment company, the Company does not have employees, customers or
suppliers in a conventional sense as a trading/operating company does.
Reliance is however placed on service providers, principally the Portfolio
Manager, the AIFM and the Administrator. The Committee has been kept appraised
of business continuity measures enacted by these key service providers and is
receiving updates in relation to any emergent risks, vulnerabilities and the
continued effectiveness of internal controls. Information flows between the
Portfolio Manager and other advisers have been effective and a key component
of oversight in prevailing conditions. Both the Board and the Portfolio
Manager are maintaining dialogue with shareholders in order to provide
transparency.
Completeness and accuracy of the disclosures in the Financial Statements
The Committee concluded that all appropriate and required disclosures have
been incorporated in the Financial Statements and drew comfort from the fact
that multiple layers of oversight exist to achieve this objective.
Specifically, the administrator, Portfolio Manager and external auditor have
all performed their own checks for completeness.
The Committee continues to give particular attention to the extent of
disclosures about the Company's underlying portfolio. Risk measures,
sensitivities and performance are driven by the make-up of the portfolio and
hence detailed disclosures about it are appropriate to permit a full
understanding of the accounts.
Presentation of Financial Statements
The Committee considered the complexity of the Financial Statements in their
entirety, and the descriptive narrative supporting the financial disclosures.
It was recognised that the sophistication of the investment strategy pursued
by the Company does not lend itself to description in 'plain English' and that
the use of technical terminology was not always consistent with the goals of
ensuring transparency and maximising ease of understanding.
On balance the Committee concluded that the benefits of accurate - but
detailed - descriptive narrative outweighed the possible benefit of simplified
summaries. The nature of the shareholder base (predominantly sophisticated
professional investors) was an important factor in reaching this conclusion.
Going concern
The Committee reviewed the assumptions upon which it is assumed that the
Company can continue to operate on a going concern basis as set out in the
Directors' Report. In so doing, it assessed outstanding financial obligations
and calls on the Company's resources, investment performance and the meeting
of shareholders' expectations.
Assessment of the External Audit Process
The Company's auditor was appointed immediately prior to the launch of the
Company in March 2023. The Committee, in conjunction with the Board, is
committed to reviewing this appointment on a regular basis to ensure that the
Company is receiving an optimal level of service. The appointment of the
auditor is reviewed on an annual basis. There are no contractual obligations
which restrict the Company's choice of auditor and the Board is satisfied that
the auditor remains independent.
The Committee does not award any non-audit work other than the review of its
interim Financial Statements for the half year ended 30 June. The full Board
would have to approve any other non-audit work. Where non-audit services are
provided by the auditor, these engagements are pre-approved by the Committee
to ensure that the auditor's independence and objectivity is not breached, and
a recommendation is made to the Board. Whilst interim reviews of financial
information are considered to be a non-audit service, the Committee did not
consider that this role undermined the auditor's independence. No other
non-audit services were provided in 2023.
The Committee considered the experience and tenure of the audit partner and
staff and the nature and level of services provided. The Committee received
confirmation from the auditor that it had complied with the relevant Guernsey
professional and regulatory requirements on independence.
The Committee considers the nature, scope and results of the auditor's work
and monitors the independence of the external auditor. Formal reports are
received from the auditor on an annual basis relating to the extent of their
work. The work of the auditor in respect of any significant audit issues and
consideration of the adequacy of that work is discussed.
The Chair of the Committee liaises with the Portfolio Manager and the
Administrator to discuss the extent of audit work completed to ensure all
matters of risk are covered, while the Committee assesses the quality of the
draft Financial Statements prepared by the Administrator.
The Committee has an active involvement in and oversight of the preparation of
both half yearly and annual Financial Statements. Ultimate responsibility for
reviewing and approving the Report and Audited Financial Statements remains
with the Board.
The table below summarises the remuneration for services provided to the
Company by Grant Thornton Limited Channel Islands for audit and non-audit
services during the year ended 31 December 2023.
31 December
2023
£
Annual audit fee 20,000
Interim review 16,000
36,000
Conclusion in respect of the Report and Audited Financial Statements
The production of the Company's Report and Audited Financial Statements is a
comprehensive process requiring input from a number of different parties. One
of the key governance requirements is that the Company's Report and Audited
Financial Statements be fair, balanced and understandable. The Board has
requested that the Committee advise on whether it considers that the Report
and Audited Financial Statements fulfils these requirements.
As a result of the work performed, the Committee recommended that the Board
should conclude that the Report and Audited Financial Statements for the Year,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's performance,
business model and strategy and has reported on these findings to the Board.
The Board's conclusions in this respect are set out in the Directors' Report
above.
Luke Allen
Chair of Audit & Risk Committee
10 April 2024
Independent Auditor's Report to the Shareholders of Onward Opportunities
Limited
Opinion
We have audited the financial statements of Onward Opportunities Limited (the
"Company") which comprise the Statement of Comprehensive Income, the Statement
of Financial Position, the Statement of Changes in Equity, and the Statement
of Cash Flows for the period then ended, and Notes to the financial
statements, including a summary of material accounting policies. The financial
statements framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union (EU).
In our opinion, the financial statements:
· give a true and fair view of the state of the Company's affairs
as at 31 December 2023 and of the Company's profit for the period then ended;
· are in accordance with IFRSs as adopted by the EU; and
· comply with the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(ISAs) and applicable law. Our responsibilities under those standards are
further described in the 'Auditor's responsibilities for the audit of the
financial statements' section of our report. We are independent of the Company
in accordance with the International Ethics Standards Board for Accountants'
International Code of Ethics for Professional Accountants (including
International Independence Standards) (IESBA Code), together with the ethical
requirements that are relevant to our audit of the financial statements in
Guernsey, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the IESBA Code. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period. These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
The key audit matter How the matter was addressed in our audit
Existence and Valuation of Quoted Investments - Equity Instruments In responding to the key audit matter, we performed the following audit
£16,695,000 procedures:
Due to the use of a custodian, accounting records may not match the · We obtained an understanding of the processes, policies, and controls
custodian's records with respect to securities held; and in relation to the valuation of investments and performed tests of design and
implementation of controls relevant to the valuation of investments.
The fair value measurements at the reporting date may be inaccurate due to the
use incorrect inputs. · We obtained year end confirmation from the Custodian confirming the
number of shares owned.
The portfolio of investments is fully comprised of quoted investments which
are held by an external Custodian and valued using publicly available quoted · We reviewed information about the trading history of the investee
market prices, in accordance with IFRS 9 Financial Instruments and IFRS 13 companies to determine whether the shares are traded in an active market to
Fair Value Measurement. Whilst the valuation of these investments is not verify the accuracy of the classification as level 1 instruments.
considered complex, nor does it involve significant judgements and estimates
to be made by management, the market value of investments is material to the · We obtained the quoted prices as at the reporting date from
Company, as it represents 98% of the net asset value as at 31 December 2023 independent publicly available sources and compared them to the share prices
and represents a balance considerably larger than any other reported balance used by management.
within the Company's financial statements. In addition, due to the
regular/frequent trading of investment positions held by the Company, there is · We recalculated the valuation per the accounting records using the
a risk that the reported investment portfolio at the year end, may be quoted share prices obtained from the relevant stock exchanges and the
misstated. Due to the financial significance of the investments held at the confirmed number of shares from the custodian.
year-end, an error or misstatement regarding the recognition/ inclusion of a
single investment could lead to a material misstatement. Our result
Based on our work, we did not note any material misstatements relating to the
valuation and existence of investments.
Other information in the Annual Report
The Directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Audited financial
statements but does not include the financial statements and our auditor's
report thereon.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements, or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is
a material misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities set
out on page 34 the Directors are responsible for the preparation of the
financial statements which give a true and fair view in accordance with IFRSs
as adopted by the EU, and for such internal control as the Directors determine
is necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities of the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment
and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
· Obtain an understanding of internal control relevant to the audit in
order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by the
Directors.
· Conclude on the appropriateness of the Directors' use of the going
concern basis of accounting and, based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on Company's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention
in our auditor's report to the related disclosures in the financial statements
or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor's
report. However, future events or conditions may cause the Company to cease to
continue as a going concern.
· Evaluate the overall presentation, structure and content of the
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in a manner that
achieves fair presentation.
We communicate with the directors regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our
audit.
We also provide the directors with a statement that we have complied with
relevant ethical requirements regarding independence, and to communicate with
them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with the directors, we determine those matters
that were of most significance in the audit of the financial statements of the
current period and are therefore the key audit matters. We describe these
matters in our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the
adverse consequences of doing so would reasonably be expected to outweigh the
public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor's
report is Cyril Swale.
Use of our report
This report is made solely to the Company's shareholders, as a body, in
accordance with section 262 of the Companies (Guernsey) Law, 2008. Our audit
work has been undertaken so that we might state to the Company's shareholders
those matters we are required to state to them in an auditor's report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the Company and the Company's
shareholders as a body, for our audit work, for this report, or for the
opinions we have formed.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which the Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
· proper accounting records have not been kept by the Company; or
· the Company's financial statements are not in agreement with the
accounting records; or
· we have not obtained all the information and explanations, which
to the best of our knowledge and belief, are necessary for the purposes of our
audit.
Grant Thornton Limited
Chartered Accountants
St Peter Port
Guernsey
Date:
Statement of Comprehensive Income
For the period from 31 January 2023 to 31 December 2023
Period from
31 January 2023 to
31 December 2023
Notes Revenue Capital Total
£'000 £'000 £'000
Net gains on investments held at fair value through profit or loss 9 - 1,843 1,843
Net investment gains - 1,843 1,843
Interest income 8 14 22
Dividend income - 127 127
Total income 8 141 149
Portfolio management and 5 (156) (28) (184)
performance fees
Other expenses 6 (275) - (275)
Total (loss) / gain and comprehensive (loss) / income for the period (423) 1,956 1,533
(Deficit) / earnings per 7 (3.81) 17.56 13.75
Ordinary Share (pence)
The total column of this statement represents the Statement of Comprehensive
Income of the Company prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS").
The supplementary revenue and capital return columns are prepared under
guidance published by the Association of Investment Companies ("AIC").
All items in the above statement derive from continuing operations.
The notes on pages 49 to 64 form an integral part of these Audited Financial
Statements.
Statement of Financial Position
As at 31 December 2023
31 December
2023
£'000
Notes
Non-current assets
Investments held at fair value through profit or loss 9 16,695
Current assets
Cash and cash equivalents 407
Other receivables 38
Unsettled trades 10 157
602
Total assets 17,297
Current liabilities
Management fee payable 5 (22)
Performance fee payable 5 (28)
Unsettled trades 10 (132)
Other payables (46)
Total liabilities (228)
Net assets 17,069
Equity
Share capital 11 15,536
Capital reserve 1,956
Revenue reserve (423)
Total equity 17,069
Net Asset Value per Ordinary Share: basic and diluted (pence) 12 106.50
Number of Ordinary Shares in issue 11 16,027,290
Approved by the Board of Directors and authorised for issue on 10 April 2024
and signed on their behalf:
_______________________
Director
The notes on pages 49 to 64 form an integral part of these Audited Financial
Statements.
Statement of Changes in Equity
For the period from 31 January 2023 to 31 December 2023
Share capital Revenue reserve Capital reserve Total
£'000 £'000 £'000 £'000
For the period 31 January 2023
to 31 December 2023
At 31 January 2023 - - - -
Share issue (note 11) 16,109 - - 16,109
Share issue costs (note 11) (573) - - (573)
Total (loss) / gain and comprehensive (loss) / income for the period - (423) 1,956 1,533
At 31 December 2023 15,536 (423) 1,956 17,069
The notes on pages 49 to 64 form an integral part of these Audited Financial
Statements.
Statement of Cash Flows
For the period from 31 January 2023 to 31 December 2023
Period from
31 January 2023
to 31 December
2023
Notes £'000
Cash flows from operating activities
Other expense payments 13 (274)
Interest income 22
Purchase of UK Government Debt 9 (15,556)
Sale of UK Government Debt 9 15,736
Purchase of equity instruments 9, 10 (17,543)
Sale of equity instruments 9, 10 2,486
Net cash outflow from operating activities (15,129)
Cash flows from financing activities
Issue of Ordinary Shares 11 16,109
Share issue costs 11 (573)
Net cash inflow from financing activities 15,536
Net increase in cash and cash equivalents 407
Cash and cash equivalents at beginning of period -
Cash and cash equivalents at end of period 407
Cash and cash equivalents comprise of the following:
Cash at bank 407
407
The notes on pages 49 to 64 form an integral part of these Audited Financial
Statements.
Notes to the Audited Financial Statements
For the period from 31 January 2023 to 31 December 2023
1. Reporting Entity
Onward Opportunities Limited (the "Company") is registered in Guernsey and was
incorporated on 31 January 2023, with registered number 71526. The Company's
registered office is 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, GY1
2HL.
The Company is a Registered Closed-ended Collective Investment Scheme
regulated by the Guernsey Financial Services Commission ("GFSC"), with
reference number 2804577, pursuant to the Protection of Investors (Bailiwick
of Guernsey) Law 2020, as amended and the Registered Collective Investment
Scheme Rules and Guidance, 2021.
The Company's 16,027,290 shares in issue under ticker ONWD, SEDOL BMZR151 and
ISIN GG00BMZR1514 were admitted to trading on AIM on 31 December 2023. The
Company is also a member of the AIC. The Audited Financial Statements of the
Company are presented for the eleven month period ended 31 December 2023.
The Company and its Alternative Investment Fund Manager received discretionary
portfolio management services directly from Dowgate Wealth Limited ("DWL")
during the eleven month period ended 31 December 2023. The administration of
the Company is delegated to Apex Administration (Guernsey) Limited ("AAGL")
(the "Administrator") (formerly Maitland Administration (Guernsey) Limited).
2. Material accounting policies
(a) Basis of accounting
The Audited Financial Statements have been prepared in compliance with
International Financial Reporting Standards as adopted by the European Union
("IFRS"). The Audited Financial Statements give a true and fair view and
comply with the Companies (Guernsey) Law, 2008.
Where presentational guidance set out in the Statement of Recommended Practice
("SORP") for investment companies issued by the Association of Investment
Companies ("AIC") updated in February 2019 is consistent with the requirements
of IFRS, the Directors have sought to prepare the Audited Financial Statements
on a basis compliant with the recommendations of the SORP.
(b) Going concern
The Directors have adopted the going concern basis in preparing the Audited
Financial Statements.
In assessing the going concern basis of accounting, the Directors have
assessed the guidance issued by the Financial Reporting Council and considered
the Company's own financial position, recent market volatility, the on-going
impact of the Russian war on Ukraine and the conflict in the Middle East,
energy shortages, inflation, increases in interest rates, recent bank failures
and other uncertainties impacting on the Company's investments, their
financial position and liquidity requirements.
At period end the Company had a net asset position of £17,069,000 comprising
cash of £407,000, listed investments amounting to £16,695,000.
The Company generates liquidity by raising capital and exiting investments. It
uses liquidity by making new and follow-on investments and paying company
expenses. The Directors ensure it has adequate liquidity by regularly
reviewing its financial position and forward-looking liquidity requirements.
In assessing its going concern status, the Directors have considered the level
of operating expenses relative to net assets, such expenses approximating to
2.53% of net assets as at 31 December 2023.
(c) Segmental reporting
The chief operating decision maker is the Board of Directors. The Directors
are of the opinion that the Company is engaged in a single segment of business
with the primary objective of investing in securities to generate capital
growth for shareholders. Consequently, no business segmental analysis is
provided.
The key measure of performance used by the Board is the Net Asset Value of the
Company (which is calculated under IFRS). Therefore, no reconciliation is
required between the measure of profit or loss used by the Board and that
contained in these Audited Financial Statements.
(d) Functional and presentational currency
The Audited Financial Statements of the Company are presented in the currency
of the primary economic environment in which it operates (its functional
currency). For the purpose of the Audited Financial Statements, the results
and financial position of the Company are expressed in pound sterling ("£").
All amounts have been rounded to the nearest thousand, unless otherwise
indicated.
(e) Income
Interest income is accounted for on an accruals basis and recognised in profit
or loss in the Audited Statement of Comprehensive Income. Interest income
includes interest earned on senior notes (UK treasury debts), cash held at
bank on call, on deposit and cash held as cash equivalents.
(f) Expenses
Expenses are accounted for on an accruals basis. The Company's portfolio
management and administration fees, finance costs and all other expenses are
charged through the Audited Statement of Comprehensive Income and are charged
to revenue. Performance fee is charged to the capital column in the Audited
Statement of Comprehensive Income.
(g) Dividends to shareholders
Dividends are recognised in the year in which they are paid.
(h) Taxation
The Company has been granted exemption from liability to income tax in
Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989
amended by the Director of Income Tax in Guernsey for the current period.
Exemption is applied and granted annually and is subject to the payment of a
fee which was £1,200 for the period. The fee increased to £1,600 per annum
with effect from 1 January 2024.
(i) Financial instruments
Recognition and derecognition of financial assets
The Company recognises a financial asset at its fair value, plus, in the case
of a financial asset not at fair value through profit or loss, transaction
costs that are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at fair value through
profit or loss which are directly attributable to the acquisition are
capitalised.
A financial asset (in whole or in part) is derecognised either (i) when the
Company has transferred substantially all the risks and rewards of ownership;
or (ii) when it has neither transferred nor retained substantially all the
risks and rewards and when it no longer has control over the assets or a
portion of the asset; or (iii) when the contractual right to receive cash flow
has expired. The derecognised investments are measured at the weighted average
method. Any gain or loss on derecognition is recognised in the Net gains on
investments held at fair value through profit or loss in the Audited Statement
of Comprehensive Income.
Classification
The Company's financial assets are classified in the following measurement
categories:
· those to be measured at fair value through profit or loss; and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
At initial recognition, the Company measures a financial asset at its fair
value, plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to the acquisition
of the financial asset. Transaction costs of financial assets carried at fair
value through profit or loss are expensed in profit or loss.
Subsequent measurement of financial assets
Financial assets held at amortised cost
Assets that are held in order to collect contractual cash flows give rise to
cash flows that are solely payments of principal and interest are measured at
amortised cost. These assets are subsequently measured at amortised cost using
the effective interest method.
The Company has elected to apply the simplified approach permitted by IFRS 9
in respect of trade and other receivables. This approach requires expected
lifetime losses to be recognised from initial recognition of the receivables.
The Company's financial assets held at amortised cost include trade and other
receivables and cash and cash equivalents.
Financial assets at fair value through profit or loss
For investments actively traded in organised financial markets, fair value
will generally be determined by reference to Stock Exchange quoted market bid
prices at the close of business on the valuation date, without adjustment for
transaction costs necessary to realise the asset.
The Company has adopted a valuation policy for unquoted securities to provide
an objective, consistent and transparent basis for estimating the fair value
of unquoted equity securities in accordance with IFRS as well as IPEVC.
The Company considers it impractical to perform an in-depth valuation analysis
for every unquoted investment on a daily basis (whether internally or with the
assistance of an independent third party). Therefore, it is expected that an
in-depth valuation of each investment will be performed: (i) on an annual
basis; and (ii) where DWL determines that a Triggering Event has occurred.
A "Triggering Event" may include any of the following:
· a subsequent round of financing (whether pro rata or otherwise)
by the relevant investee company;
· a significant or material milestone achieved by the relevant
investee company;
· a secondary transaction involving the relevant investee company
on which sufficient information is available;
· a change in the makeup of the management of the relevant investee
company;
· a material change in the recent financial performance or expected
future financial performance of the relevant investee company;
· a material change in the market environment in which the relevant
investee company operates; or
· a significant movement in market indices or economic indicators.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
The change in fair value is recognised in profit or loss and is presented
within the "net gains on investments held at fair value through profit or
loss" in the Audited Statement of Comprehensive Income.
IFRS requires the Company to measure fair value using the following fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. IFRS establishes a fair value hierarchy that prioritises the
inputs to valuation techniques used to measure fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the lowest priority
to unobservable inputs (Level 3 measurements).
The three levels of fair value hierarchy under IFRS are as follows:
· Level 1 reflects financial instruments quoted in an active
market.
· Level 2 reflects financial instruments whose fair value is
evidenced by comparison with other observable current market transactions in
the same instrument or based on a valuation technique whose variables include
only data from observable markets.
· Level 3 reflects financial instruments whose fair value is
determined in whole or in part using a valuation technique based on
assumptions that are not supported by prices from observable market
transactions in the same instrument and not based on available observable
market data. For investments that are recognised in the Audited Financial
Statements on a recurring basis, the Company determines whether transfers have
occurred between levels in the hierarchy by re-assessing the categorisation
(based on the lowest significant input) at the date of the event that caused
the transfer.
Impairment of financial assets
The Company recognises lifetime expected credit losses (ECL) for other
receivables and related party receivables, as the receivables are from loans
with non-contractual payment terms. The expected credit losses on these
financial assets are estimated using a provision matrix based on the Company's
historical credit loss experience, adjusted for factors that are specific to
the debtors, general economic conditions and an assessment of both the current
as well as the forecast direction of conditions at the reporting date,
including time value of money where appropriate.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the
assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Company are recognised at the proceeds received, net of direct
issue costs.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangement.
Financial liabilities, including borrowings, are initially measured at fair
value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the
effective interest method, with interest expense recognised on an effective
yield basis.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the
Company's obligations are discharged, cancelled or they expire.
(j) Cash and cash equivalents
Cash comprises cash and demand deposits. Cash equivalents, are short-term,
highly liquid investments that are readily convertible to known amounts of
cash, are subject to insignificant risks of changes in value, and are held for
the purpose of meeting short-term cash commitments rather than for investment
or other purposes. Included in cash and cash equivalents at the period end was
cash at bank of £407,000.
(k) Other receivables
Other receivables do not carry interest and are short-term in nature and are
accordingly recognised at amortised cost.
(l) Foreign currency
Transactions and balances
At each Statement of Financial Position date, monetary assets and liabilities
that are denominated in foreign currencies are translated at the rates
prevailing at that date.
Non-monetary items carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date fair value is
measured. Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated. Exchange differences are recognised
in profit or loss in the year in which they arise. Transactions denominated in
foreign currencies are translated into pound sterling (£) at the rate of
exchange ruling at the date of the transaction.
Foreign exchange gains and losses arising from translation are included in the
Audited Statement of Comprehensive Income.
Where foreign currency items are held at fair value, the foreign currency
movements are presented as part of the fair value change.
(m) Capital reserve
Profits achieved by selling investments and changes in fair value arising upon
the revaluation of investments that remain in the portfolio are all charged to
profit or loss in the capital column of the Audited Statement of Comprehensive
Income and allocated to the capital reserve. The capital reserve is also used
to fund dividend distributions.
(n) Revenue reserve
The balance of all items allocated to the revenue column of the Audited
Statement of Comprehensive Income for the year is transferred to the Company's
revenue reserve.
(o) Investment entities
In accordance with IFRS 10 an investment entity is an entity that:
· obtains funds from one or more investors for the purpose of
providing those investor(s) with investment management services;
· commits to its investor(s) that its business purpose is to invest
funds solely for returns from capital application, investment income, or both;
and
· measures and evaluates the performance of substantially all of
its investments on a fair value basis.
The Directors are satisfied that the Company meets each of these criteria and
hence is an investment entity in accordance with IFRS 10.
3. Use of estimates and critical judgements
The preparation of Audited Financial Statements in accordance with IFRS
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the Audited Financial Statements and the reported
amounts of income and expenses during the period. Actual results could differ
from those estimates and assumptions.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Climate Change
In preparing the Company's Financial Statements the Directors have considered
the impact of climate change risk as a principal risk as set out in the
Principal and Emerging Risks and Uncertainties section of the Directors'
Report and have concluded that it does not have a material impact on the value
of the Company's investments. In line with IFRS, investments are valued at
fair value as disclosed in Note 9. The Directors consider that the pricing of
the underlying portfolio of the Company's investments reflects market
participants' views of climate change risk and that there are no further
climate related influences on the NAV of the companies in which the Company
invests.
There are no estimates or critical accounting judgements to note in the
current year.
4. New and revised standards
New standards and interpretations not yet adopted
Certain new accounting standards, amendments to accounting standards and
interpretations have been published that are not mandatory for 31 December
2023 reporting periods and have not been early adopted by the Company.
· Classification if Liabilities as Current or Non-current
(Amendments to IAS 1) that become effective for periods beginning on or after
1 January 2024;
· The Effects of Changes in Foreign Exchange Rates (Amendments to
IAS 21) that become effective for periods beginning on or after 1 January
2025; and
· Supplier Finance Arrangement (Amendments to IAS and IFRS 7) that
become effective for periods beginning on or after 1 January 2024.
Standards, amendments and interpretations effective during the year
There are no standards, amendments to standards or interpretations that are
effective for annual
periods beginning on 31 January 2023 that have a material effect on the
financial statements of the
Company.
5. Portfolio management and performance fees
31 January 2023
to 31 December
2023
£'000
Portfolio management fees 156
Portfolio performance fees 28
Total portfolio management and performance fees 184
The Company procures portfolio management services directly from DWL, under
the Portfolio Management Agreement.
Management fee
The monthly management fee is equal to 1.5% of the Net Asset Value is up to
and including £50m and 1% of the Net Asset Value that is above £50 million
(the "Management Fee"). The management fee is calculated and paid monthly in
arrears.
As at 31 December 2023, an amount of £21,818 was outstanding in respect of
management fees.
Performance fee
For the period ended 31 December 2023, a performance fee may be payable, the
sum of which is equal to 12.5% of the amount by which the Adjusted Net Asset
Value at the end of a Calculation Period exceeds the higher of: (i) the
Performance Hurdle; and (ii) the High Water Mark (the "Performance Fee"). The
calculation period for the current period will be the period commencing on 30
March 2023 and ending on 31 December 2023 (the "Calculation Period").
As at 31 December 2023, the Company had exceeded the High Water Mark and
Performance Hurdle therefore an accrual of £28,350 for performance fees has
been reflected within these Audited Financial Statements. The Performance fee
is accrued on an ongoing basis and reflected as such in the NAV reporting.
6. Other expenses
31 January 2023 to 31 December
2023
£'000
Directors' fees 95
Administration fee 61
Auditor's remuneration for:
- audit fees 20
- non-audit fees 16
Custodian fees 10
Broker fees 8
Registrars' fees 4
Listing fees 9
Regulatory fees 28
Legal and professional fees:
- ongoing operations 12
Directors' liability insurance 3
Sundry expenses 9
Total other expenses 275
7. (Deficit) / Earnings per Ordinary Share
31 December 2023
Net return Per share
£'000 pence
Revenue return (423) (3.81)
Capital return 1,956 17.56
At 31 December 1,533 13.75
Weighted average number of Ordinary Shares 11,144,294
The return per share is calculated using the weighted
average number of Ordinary Shares.
8. Dividends
The Board has not declared or paid any dividends during the
period.
9. Investments held at fair value through profit or loss
UK Government Debt Equity instruments
31 December 31 December
2023 2023
£'000 £'000
Opening book cost - -
Opening investment holding unrealised gains - -
Opening valuation - -
Movements in the period
Purchases at cost 15,556 17,675
Sales - proceeds (15,736) (2,643)
Net gains on investments held at fair value
through profit or loss 180 1,663
Closing valuation - 16,695
Closing book cost - 15,032
Closing investment holding unrealised gains - 1,663
Closing valuation - 16,695
Movement in unrealised gains during the period - 3,259
Movement in unrealised losses during the period - (1,873)
Realised gain on sale of investments 180 277
Net gain on investments held at fair value through profit or loss 180 1,663
Total net gain on investments held at fair value through 1,843
profit or loss
10. Unsettled trades
At period end, the net amount in relation to trades that were settled post
year end is £24,900. The table below summarises these trades as at 31
December 2023.
£'000 Settlement date
Payable
Mpac Group plc (31) 3 January 2024
Springfield Properties plc (57) 3 January 2024
Transense Technologies plc (10) 3 January 2024
Windward plc (34) 2 January 2024
Total unsettled trades payable (132)
Receivable
Pinewood Technologies plc 157 2 January 2024
Total unsettled trades receivable 157
Net unsettled trades 25
11. Share capital
No of
shares £'000
Ordinary Shares at no par value
Opening balance as at 31 January 2023 - -
Issue of shares 16,027,290 16,109
Issue costs - (573)
At 31 December 2023 16,027,290 15,536
The holders of Ordinary Shares have the right to receive notice of and attend,
speak and vote in general meetings of the Company. They are also entitled to
participate in any dividends and other distributions of the Company.
12. Net Asset Value per Ordinary Share
The Net Asset Value per Ordinary Share and the Net Asset Value at the period
end calculated in accordance with the Articles of Incorporation were as
follows:
31 December 2023
NAV NAV
per share attributable
pence £'000
Ordinary Shares: basic and diluted 106.50 17,069
The Net Asset Value per Ordinary Share is based on 16,027,290 Ordinary Shares,
being the number of Ordinary Shares in issue at the period end.
13. Other expense payments
31 December
2023
£'000
Total gains for the period 1,533
Net gains on investments held at fair value
through profit or loss (1,843)
Interest income (22)
Movement in working capital
Increase in other receivables (38)
Increase in payables 96
Total other expense payments (274)
14. Financial instruments and capital disclosures
The Company's activities expose it to a variety of financial risks; market
risk (including other price risk, foreign currency risk and interest rate
risk), credit risk and liquidity risk.
Certain financial assets and financial liabilities of the Company are carried
in the Audited Statement of Financial Position at their fair value. The fair
value is the amount at which the asset could be sold, or the liability
transferred in a current transaction between market participants, other than a
forced or liquidation sale. For investments actively traded in organised
financial markets, fair value is generally determined by reference to Stock
Exchange quoted market mid prices and Stock Exchange Electronic Trading
Services ("SETS") at last trade price at the period end date, without
adjustment for transaction costs necessary to realise the asset. Other
financial instruments not carried at fair value are typically short-term in
nature and reprice to the current market rates frequently. Accordingly, their
carrying amount is a reasonable approximation of fair value. This includes
cash and cash equivalents, other receivables and other payables.
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements.
The Company measures fair values using the following hierarchy that reflects
the significance of the inputs used in making the measurements. Categorisation
within the hierarchy has been determined on the basis of the lowest level
input that is significant to the fair value measurement of the relevant assets
as follows:
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
arm's-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 2 inputs include the following:
· quoted prices for similar (i.e., not identical) assets in active
markets;
· quoted prices for identical or similar assets or liabilities in
markets that are not active. Characteristics of an inactive market include a
significant decline in the volume and level of trading activity, the available
prices vary significantly over time or among market participants or the prices
are not current;
· inputs other than quoted prices that are observable for the asset
(for example, interest rates and yield curves observable at commonly quoted
intervals); and
· inputs that are derived principally from, or corroborated by,
observable market data by correlation or other means (market-corroborated
inputs).
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. 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.
At 31 December 2023 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Equity instruments 16,695 - - 16,695
16,695 - - 16,695
The Company only has exposure to level 1 instruments in the current period.
The following table shows a reconciliation of the opening balance to the
closing balance for Level 1 fair values:
December
2023
£'000
Level 1
Opening balance -
Purchases at cost 33,231
Sales at cost (18,379)
Total gains included in net gains on investments in the Audited Statement of
Comprehensive Income
- on assets sold 457
- on assets held at period end 1,386
16,695
Investments are transferred between levels at the point of the trigger event.
The main risks that the Company faces arising from its financial instruments
are:
(i) market risk, including:
- other price risk, being the risk that the value of investments will
fluctuate as a result of changes in market prices;
- interest rate risk, being the risk that the future cash flows of a
financial instrument will fluctuate because of changes in interest rates;
(ii) credit risk, being the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that it has
entered into with the Company; and
(iii) liquidity risk, being the risk that the Company will not be able to meet
its liabilities when they fall due. This may arise should the Company not be
able to liquidate its investments.
Market and other price risk
The management of price risk is part of the portfolio management process and
is characteristic of investing in equity securities. The investment portfolio
is managed with an awareness of the effects of adverse price movements through
detailed and continuing analysis with an objective of maximising overall
returns to shareholders. Although it is the Company's current policy not to
use derivatives, they may be used from time to time for the purpose of
efficient portfolio management and managing any exposure to assets denominated
in currencies other than pound sterling.
If the investment portfolio valuation rose or fell by 10% at 31 December 2023,
the impact on the net asset value would have been £1,669,500/-£1,669,500.
The calculations are based on the investment portfolio valuation as at the
Audited Statement of Financial Position date and are not necessarily
representative of the period as a whole.
Interest rate risk
As at 31 December 2023 the financial assets and financial liabilities exposed
to interest rate risk are as shown below:
In one year Greater than 2023
or less one year Total
£'000 £'000 £'000
Cash at bank 407 - 407
Total 407 - 407
Interest risk table
The following tables detail the Company's remaining contractual maturity for
its current financial assets and liabilities.
Over
Interest Year 1 Year 1 - 2 2 years Total
2023 rate % £'000 £'000 £'000 £'000
Assets
Cash at bank Daily bank rate 407 - - 407
Unsettled trades Interest free 157 - - 157
Other receivables Interest free 38 - - 38
Total 602 - - 602
Over
Interest Year 1 Year 1 - 2 2 years Total
2023 rate % £'000 £'000 £'000 £'000
Liabilities
Other current liabilities Interest free 228 - - 228
Total 228 - - 228
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Company. The Audit and Risk Committee has in place a monitoring procedure
in respect of counterparty risk which is reviewed on an ongoing basis.
The carrying amounts of financial assets best represent the maximum credit
risk exposure at the Audited Statement of Financial Position date, and the
main exposure to credit risk is via the Company's Custodian who is responsible
for the safeguarding of the Company's cash balances.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following:
2023
Total
£'000
Cash at bank 407
Unsettled trades 157
Other receivables 38
Total 602
All the assets of the Company which are traded on a recognised exchange are
held on its behalf by Butterfield Bank (Guernsey) Limited, the Company's
Custodian. Bankruptcy or insolvency of the Custodian may cause the Company's
rights with respect to securities held by the Custodian to be delayed or
limited.
The credit risk on cash is controlled through the use of counterparties or
banks with high credit ratings, rated B or higher, assigned by international
credit rating agencies. Bankruptcy or insolvency of such financial
institutions may cause the Company's ability to access cash placed on deposit
to be delayed, limited or lost.
Cash of £407,000 was held with Butterfield Bank (Guernsey) Limited and Alpha
FX Group plc at period end.
The credit rating of Butterfield Bank (Guernsey) Limited was A2 and Alpha FX
Group plc was B at the period end.
Liquidity risk
Liquidity risk is defined as the risk that the Company does not have
sufficient liquid resources to meet its obligations as they fall due. In
managing the Company's assets, the Company will seek to ensure that it holds
at all times a portfolio of assets (including cash) to enable the Company to
discharge its payment obligations as they fall due. The Company may also
maintain a short-term overdraft facility that it may utilise from time to time
to manage short-term liquidity.
The Company's liquidity risk is maintained by the Board in accordance with
established policies, procedures and governance structures in place. Cash flow
forecasting is reviewed by the Board to ensure that it has sufficient cash to
meet obligations as they fall due.
The maturity profile of the Company's current assets and liabilities is
presented in the following table.
Between Between
Up to 3 and 12 1 and 5 Total
3 months months years Total
2023 £ £ £ £
Assets
Cash at bank 407 - - 407
Unsettled trades 38 - - 38
Other receivables 157 - - 157
Liabilities
Current liabilities (228) - - (228)
Total 374 - - 374
The Board, ensure that a robust assessment of the principal risks facing the
Company has been undertaken (including those risks that would threaten its
business model, future performance, solvency or liquidity) and provide advice
on the management and mitigation of those risks.
Capital management objectives, policies and procedures
The structure of the Company's capital is described in note 11 and details of
the Company's reserves are shown in the Audited Statement of Changes in Equity
on page 47.
The Company's capital management objectives are:
· to ensure that it is able to continue as a going concern; and
· to generate long-term capital growth through investing in a
portfolio consisting primarily of equity or equity related securities of UK
smaller companies that are predominantly listed or admitted to trading on
markets operated by the London Stock Exchange.
The Board, with the assistance of the Portfolio Manager, regularly monitors
and reviews the broad structure of the Company's capital. These reviews
include:
· the extent to which revenue reserves should be retained or
utilised; and
· ensuring the Company's ability to continue as a going concern.
15. Related parties
DWL provides portfolio management services to the Company.
31 January 2023
to 31 December
2023
£'000
Fees charged / (recharged) by DWL:
Management fees
Total management fee charged 156
Management fee outstanding 22
AIFM recharge
Total AIFM fee recharged (38)
AIFM fee recharge outstanding (4)
Performance fees
Total Performance fees charged 28
Performance fees outstanding 28
AIFM fee charged by FundRock:
Total AIFM fee charged 38
AIFM fee outstanding 4
Directors' fees:
Total Directors' fees charged 95
Directors' fees outstanding -
As at 31 December 2023 the following Directors have holdings in the Company:
Number of % Ordinary Shares in
Ordinary Shares issue as at 31 December2023
Andrew Henton 100,000 0.6239
Susan Norman 20,000 0.1248
Henry Freeman 15,000 0.0936
Luke Allen - -
Adrian Norman (husband of Susan Norman) 4,878 0.0304
16. Post statement of financial position events
The Company has raised gross proceeds of approximately £1.65 million by way
of a direct subscription, by new and existing investors, for 1,513,240 new
ordinary shares at a price of 110 pence per new ordinary share.
There has not been any other matter or circumstance occurring subsequent to
the end of the financial period that has significantly affected, or may
significantly affect, the operations of the Company, the results of those
operations, or the state of affairs of the Company in future financial period.
Corporate Information
Directors
Andrew Henton, Chair
Henry Freeman
Luke Allen
Susan Norman
Registered office
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey, GY1 2HL
Portfolio Manager
Dowgate Wealth Limited ("DWL")
15 Fetter Lane
London
EC4A 1BW
AIFM
FundRock Management Company (Guernsey) Limited
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey, GY1 2HL
Nominated Advisor and Joint Broker
Cavendish Capital Markets Limited (formerly Cenkos Securities plc)
6-8 Tokenhouse Yard
London
EC2R 7AS
Joint Broker
Dowgate Capital Limited
15 Fetter Lane
London
EC4A 1BW
Administrator and Company Secretary
Apex Administration (Guernsey) Limited
(formerly Maitland Administration (Guernsey) Limited)
1 Royal Plaza
Royal Avenue
St Peter Port
Guernsey, GY1 2HL
Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
GY2 4LH
Guernsey
Custodian
Butterfield Bank (Guernsey) Limited
P.O. Box 25
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 3AP
English Legal Adviser to the Company
Gowling WLG (UK) LLP
4 More London Riverside
London
SE1 2AU
Guernsey Legal Adviser to the Company
Collas Crill LLP
Glategny Court
PO Box 140
St Peter Port
Guernsey
GY1 4EW
Independent Auditor
Grant Thornton Limited Channel Islands
St James Place
St James Street
St Peter Port
Guernsey
GY1 2NZ
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