TIDMOIT
RNS Number : 1405V
Odyssean Investment Trust PLC
30 November 2023
ODYSSEAN INVESTMENT TRUST PLC
(the "Company", the "Trust" or "OIT")
HALF YEAR REPORT FOR THE SIX MONTHSED 30 SEPTEMBER 2023
Odyssean Investment Trust PLC has today released its half year
report for the six months ended 30 September 2023.
The half year report and other information will be available via
www.oitplc.com
A copy of the half year report will also be submitted to the
National Storage Mechanism and will shortly be available for
inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
Finding extraordinary companies in unloved UK small-cap
Highlights for the six months ended 30 September 2023
-- Over the past six months assets have grown from GBP181.2m to GBP182.5m
-- During the period NAV per share has seen a slight decline of 2.6% from 160.4p to 156.2p
-- The underlying portfolio currently generates the majority of revenues from outside the UK
-- Investor sentiment towards UK equity markets continues to be
poor, but we continue to find extraordinary examples of absolute
value
-- Top three positive contributors to performance were NCC, XPP and Benchmark
-- Jane Tufnell will step down as Chair with effect from 31
March 2024 to allow for a short transition period for Linda
Wilding, who joined the Board in October this year
-- In April 2024 the trust will enter its seventh year, during
which a commitment has been made to provide an exit opportunity for
shareholders
Jane Tufnell
Chairman of Odyssean Investment Trust (OIT)
"Investor sentiment towards UK equities continues to be very
poor, with ongoing outflows from UK equities irrespective of the
attractive absolute and relative valuations. I feel like a
well-worn record in continuing to point out the value in this space
but that isn't normally the time to stop doing it. After a lull
during the summer, the level of M&A activity from private
equity and corporate buyers of quoted UK companies has picked up
notably post the period end."
"It is well accepted that UK small and mid-cap equities are
attractively priced, but there are "no takers". When the "buyers'
strike" for small and medium-sized UK equities ends, liquidity and
ratings are likely to improve, leading to portfolio companies'
shares becoming of more interest to a wider pool of institutional
investors."
Stuart Widdowson
Portfolio Manager of Odyssean Investment Trust (OIT)
"Through the period, our investment focus has remained on
finding high quality businesses, trading at a discount to their
fair value with an opportunity for self-help and engagement.
Alongside this we have remained aware of the opportunities thrown
up by the current market conditions."
"Liquidity in our part of the market remains patchy and we have
been able to build positions of size in a number of our investee
companies which we believe would be hard to replicate in the market
today at current share prices."
"We have continued to actively engage with portfolio company
directors and other stakeholders where appropriate in order to help
defend or create value."
Financial Summary
Company performance As at As at Change
30 September 31 March 2023
2023
Shareholders' funds GBP182.5m GBP181.2m 0.7%
-------------- --------------- -------
NAV per share 156.2p 160.4p (2.6)%
-------------- --------------- -------
Share price per share 156.2p 164.0p (4.8)%
-------------- --------------- -------
Share price premium/(discount)
to NAV per share - 2.2%
-------------- --------------- -------
Past performance is not a guide to future performance and may
not be repeated. Capital at risk.
Six months to Year to
30 September 2023 31 March 2023
Revenue (loss)/income per share* (0.5)p 0.2p
------------------- ---------------
Capital (losses)/gains per share* (3.7)p (4.1)p
------------------- ---------------
Total (loss)/profit per share* (4.2)p (3.9)p
------------------- ---------------
NAV Total Return per share# (2.6)% (2.2)%
------------------- ---------------
NSCI ex IC plus AIM Total Return
Index#** (2.9)% (13.4)%
------------------- ---------------
* Based on the weighted average number of shares in issue during
the period
** Source: Bloomberg
# Alternative Performance Measure ("APM")
Press Enquiries
Stuart Widdowson, Odyssean Capital 07710 031620
Neil Langford, Winterflood Securities (Corporate
Broker) 020 3100 0160
Sarah Gibbons-Cook/Nick Croysdill, Quill PR (Media 07702 412680/
Agency) 07815 823412
OIT@quillpr.com
About Odyssean Investment Trust PLC
Odyssean Investment Trust PLC 'OIT' is a closed-ended investment
trust that seeks to deliver attractive returns to its clients by
investing in quality businesses and supporting them to deliver
superior returns. To achieve this the Board has appointed Odyssean
Capital LLP to manage the portfolio. OIT will remain a Small
Registered UK AIFM, with Frostrow providing risk management support
to the Board.
Odyssean Capital invests in a concentrated portfolio of
well-researched smaller companies, typically too small for
inclusion in the FTSE 250. Constructive corporate engagement is a
key part of the Portfolio Manager's approach, drawing on the
investment team's lengthy and successful track record in this area.
OIT has recently introduced formal ethical and sustainable
investment restrictions, which augment our approach to
engagement.
INVESTMENT OBJECTIVE
The investment objective of the Company is to achieve attractive
total returns per share principally through capital growth over a
long-term period.
INVESTMENT POLICY
The Company primarily invests in smaller company equities quoted
on markets operated by the London Stock Exchange, where the
Portfolio Manager believes the securities are trading below
intrinsic value and where this value can be increased through
strategic, operational, management and/or financial initiatives.
Where the Company owns an influencing stake, it will engage with
other stakeholders to help improve value. The Company may, at
times, invest in securities quoted on other recognised exchanges
and/or unquoted securities.
It is expected that the majority of the Portfolio by value will
be invested in companies too small to be considered for inclusion
in the FTSE 250 Index, although there are no specific restrictions
on the market capitalisation of issuers into which the Company may
invest.
The portfolio will typically consist of up to 25 holdings, with
the top 10 holdings accounting for the majority of the Company's
aggregate Net Asset Value ("NAV") across a range of industries. The
Company will adhere to an exclusion-based investment approach to
avoid investment in companies involved in activities the Company
deems unethical and/or unsustainable.
The Company may hold cash in the Portfolio from time to time to
maintain investment flexibility. There is no limit on the amount of
cash which may be held by the Company from time to time.
Investment restrictions
- No exposure to any investee company will exceed 15 per cent.
of Net Asset Value at the time of investment.
- The Company may invest up to 20 per cent. of Gross Assets at
the time of investment in unquoted securities where the issuer has
its principal place of business in the UK.
- The Company may invest up to 20 per cent. of Gross Assets at
the time of investment in quoted securities not traded on the
London Stock Exchange.
- The Company will not invest more than 10 per cent., in
aggregate, of Gross Assets at the time of investment in other
listed closed-end investment funds.
Ethical and sustainability investment restrictions
The Company will not invest (1) in companies which derive any
revenue from, or are engaged in:
- the production or direct distribution of pornography;
- the manufacture, production or retail of controversial
weapons2 (e.g. chemical, biological or nuclear weapons, cluster
munitions, landmines), civilian firearms and ammunition;
- the manufacture of alcohol and tobacco products;
- the ownership or operation of gambling facilities;
- sub-prime and/or predatory lending;
- oil and gas production (both conventional and unconventional,
including shale oil and gas, coal seam gas, coal bed methane,
thermal coal, tar sands, Arctic onshore/ offshore deepwater,
shallow water and other onshore/ offshore) and includes extraction
and refining;
- animal experimentation or animal testing, (a) where there is a
proven alternative and/or where testing is not mandated by
regulation; or (b) where there is no proven alternative and/ or the
experimentation or testing is mandated by regulation, but where the
investee company is not adhering to the "three Rs" ethics of
Replacement, Reduction and Refinement.
The Company will not invest more than 10 per cent., in
aggregate, of Gross Assets at the time of investment in companies
involved in distributing, licensing, retailing or supplying tobacco
and/or alcohol beverage products.
1 'The Company will base its analysis of an investee company's
revenues and activities on publicly available information, and will
exclude revenues and activities that are considered to be
de-minimis, being those that represent less than 1% of the investee
company's revenue.
2 Controversial weapons are those that have an indiscriminate
and disproportional humanitarian impact on civilian populations,
the effects of which can be felt long after military conflicts have
ended.
Borrowings
The Company does not intend to incur borrowings for investment
purposes, although the Company may, from time to time, utilise
borrowings over the short term for working capital purposes up to
10 per cent. of Net Asset Value at the time of borrowing.
Derivatives and Hedging
The Company will not use derivatives for investment purposes. It
is expected that the Company's assets will be predominantly
denominated in Sterling and, as such, the Company does not intend
to engage in hedging arrangements, however, the Company may do so
if the Board deems it appropriate for efficient portfolio
management purposes.
General
The Company will not be required to dispose of any asset or to
rebalance the Portfolio as a result of a change in the respective
valuations of its assets.
The Company intends to conduct its affairs so as to qualify as
an investment trust for the purposes of section 1158 of the CTA
2010.
Any material change to the Company's investment policy set out
above will require the approval of Shareholders by way of an
ordinary resolution at a general meeting and the approval of the
Financial Conduct Authority. Non-material changes to the investment
policy may be approved by the Board.
Financial Summary
As at As at
30 September 31 March
Company performance 2023 2023 Change
Shareholders' funds GBP182.5m GBP181.2m 0.7%
NAV per ordinary share 156.2p 160.4p (2.6)%
Share price per ordinary share 156.2p 164.0p (4.8)%
Share price premium to NAV per ordinary
share# - 2.2%
Six months
to
30 September Year to
2023 31 March 2023
------------------------------------------ ------------- --------------
Revenue (loss)/income per ordinary share* (0.5)p 0.2p
Capital loss per ordinary share* (3.7)p (4.1)p
Total loss per ordinary share* (4.2)p (3.9)p
Six months
to
30 September Year to
Performance 2023 31 March 2023
NAV total loss per ordinary share# (2.6)% (2.2)%
NSCI ex IT plus AIM Index Total Return#** (2.9)% (13.4)%
Six months
to
30 September Year to
Cost of running the Company 2023 31 March 2023
Annualised ongoing charges# 1.45% 1.45%
* Based on the weighted average number of shares in issue during the period.
** Source: Bloomberg.
# Alternative Performance Measure ("APM"). See glossary.
Past performance is not a guide to future performance.
Chairman's Statement
Introduction
I am pleased to present the Half Year Report and Financial
statements for Odyssean Investment Trust PLC ("OIT" or the
"Company") covering the period from 1 April 2023 to 30 September
2023.
Performance
Over the period, the net asset value per share ('NAV per share')
of your Company fell by 2.6%. This compares to a decline of 2.9% in
our comparator benchmark.
The net assets of your Company increased during the period by
GBP1.3m to GBP182.5m due to a small amount of new shares being
issued. It is encouraging to see support for the Company and its
differentiated investment strategy.
Discount and premium management
The share price has tracked in line with the NAV per share over
the period, albeit with continued volatility. The Company's shares
ended the period trading around its NAV per share.
The Company issued a total of 3.9m shares at a premium to NAV
per share, which meant that there was no dilution to existing
shareholders. Since the period end and up to the date of this
report a further 0.6m shares have been issued at a premium to
NAV.
The Company's average discount since IPO has been 0.2%. The
Board believes that the Company's strong absolute and relative
rating is driven by a number of factors including good performance,
a differentiated strategy, effective communication with existing
and potential investors, a clear approach to discount control and a
well-balanced register of long term shareholders.
The Company's realisation facility coming up in the seventh year
after initial admission, starts on 1 May 2024 and should anchor the
price of our shares around NAV.
Dividend
The Directors expect that returns for shareholders will be
driven primarily by capital growth of the shares rather than
dividend income. No interim dividend will be paid for the year
ending 31 March 2024.
Board of Directors
At the time of launch, the Board had four independent directors,
each now in their sixth year of service. As part of succession
planning, Neil Mahapatra was appointed as a fifth independent
director in February 2023. In April 2024, the Company will be
entering into its seventh year, during which a commitment has been
made to provide an exit opportunity for shareholders. Being mindful
of the nine-year rule for director independence, the Board is keen
for there to be a steady rotation of directors over the coming
years. This will allow for a gradual evolution of the Board as the
four original directors approach their nine years of service and
will ensure the future Board has staggered appointment dates.
The Board is of the view that it is appropriate to identify a
new Chair at an early stage. The principal reasons for this are as
follows:
- the new Chair can take the Company through the exit
opportunity and, prior to making any election, investors will know
who the Chair will be for the next 'investment period'; and
- it will enable the new Chair to participate in the selection process for future directors.
I have therefore decided to step down as Chair and to retire
from the Board with effect from 31 March 2024, to allow for a short
transition period and for Linda Wilding, who joined the Board in
October this year, to be in the position as Chair and to engage
with shareholders in advance of the exit opportunity.
Growth of the Company
The vast majority of the growth in the Company since launch has
been organic due to performance delivered by the Portfolio Manager.
However as previously mentioned the Company has also taken the
opportunity to issue new shares at a premium to NAV per share. The
growth has been measured and spread across wealth managers, retail
investors and high net worth individuals.
The Board believes that the growth in the Company provides a
number of benefits to shareholders including greater liquidity in
the shares and a lower ongoing fees ratio as the fixed costs of the
Company are spread over a larger asset base.
Wealth managers represent c.50% of the shareholder base of the
Company. The Board is mindful of the continued consolidation of the
very large wealth managers but the Company has a limited proportion
of its shareholder base which is subject to such consolidation.
We have had continued success in attracting retail shareholders
and small and mid sized wealth managers without mandated
central-buy lists. Our shareholder register is diversified,
creating the potential for greater liquidity than might be the case
with a more concentrated shareholder base.
Outlook
Investor sentiment towards UK equities continues to be very
poor, with ongoing outflows from UK equities irrespective of the
attractive absolute and relative valuations. I feel like a well
worn record in continuing to point out the value in this space but
that isn't normally the time to stop doing it. After a lull during
the summer, the level of M&A activity from private equity and
corporate buyers of quoted UK companies has picked up notably post
the period end. The Company's NAV has benefitted from the bids for
two out of three of the divisions of Ascential, at an aggregate
consideration in line with the Portfolio Manager's view of
intrinsic value.
This is another excellent example of how the Portfolio Manager's
valuation approach and disciplines, allied with a focus on special
situations, can help spot value creation opportunities even in
difficult market conditions.
It is well accepted that UK small and mid cap equities are
attractively priced, but there are "no takers". When the "buyers'
strike" for small and medium sized UK equities ends, liquidity and
ratings are likely to improve, leading to portfolio companies'
shares becoming of more interest to a wider pool of institutional
investors.
However, the longer that UK equities remain unloved, the more
likely that the portfolio will be a beneficiary of further M&A.
Given the highly international nature of underlying portfolio
company revenues, overseas trade buyers would be the most likely
suitors. Some of the unloved industrial holdings in the portfolio,
with their lowly ratings and high international exposure, seem
particularly vulnerable.
Notwithstanding the prospects for accelerated returns from
M&A activity, the Portfolio Manager continues to actively
engage with their portfolio companies to help bring about positive
change. The benefits of this engagement can act as an incremental
driver of returns as market sentiment improves.
The closed ended nature of the Company, and the certainty of the
capital base which it allows, has enabled the Portfolio Manager to
focus on where it believes the best medium to long term risk/reward
investments are. In addition, during a period of declining
liquidity, it has provided the Portfolio Manager with the
confidence to take on less liquid positions where there are
prospects of significant long term premium returns. The Board and
the Portfolio Manager believe that this provides shareholders with
a significant competitive advantage over open ended funds investing
in the same asset class.
We are grateful for the ongoing support and patience shown by
shareholders during the period.
Jane Tufnell
Chairman
29 November 2023
Portfolio Manager's Report
Details of the Portfolio Manager
The Company's Portfolio Manager is Odyssean Capital LLP.
The Portfolio Manager was founded in 2017 by Stuart Widdowson
and Harwood Capital Management Limited, an independently owned
investment group, and is jointly owned by both parties. The
Chairman of Odyssean Capital LLP is Ian Armitage, former CEO and
Chairman of HgCapital.
The Portfolio Manager's investment team, Stuart Widdowson and Ed
Wielechowski, identify and undertake research on potential investee
companies as well as managing the portfolio. They draw on the
experience of a three-strong Panel of Advisors, who have run and
invested in multiple quoted and unquoted smaller companies. In
addition, the investment team draws on the expertise and experience
of Mr Armitage and Mr Christopher Mills, who sits on Odyssean
Capital's Board as a Non-Executive Director. Mr Armitage and Mr
Mills have more than 85 years' combined investment experience in
quoted and unquoted smaller companies.
Stuart Widdowson, Fund Manager
Stuart has spent the last 23 years investing in public and
private UK small and mid-size corporates and a further two years
providing investment advisory services in the same field.
Prior to founding the Portfolio Manager, Stuart was at GVQ
Investment Management ("GVQ"), where he held the position of fund
manager and head of strategic investments for more than seven
years. During his time at GVQ, Stuart led the transformation of the
performance of Strategic Equity Capital plc ("SEC") and
significantly improved shareholder value. Stuart led SEC to win
several industry awards and was recognised as Fund Manager of the
Year at both the PLC and QCA awards in 2015.
Stuart began his career as a strategy consultant undertaking
commercial due diligence and strategy projects for private equity
and corporate clients. In 2001, he joined HgCapital and spent five
years working on small and mid-cap leveraged buyouts in the UK and
Germany. During this time, he worked on a number of public to
private transactions of UK quoted companies.
Ed Wielechowski, Fund Manager
Ed joined the Portfolio Manager in December 2017 as a Fund
Manager.
Prior to joining Odyssean, Ed was a Principal in the technology
team at HgCapital. He joined HgCapital in 2006 and worked on
numerous completed deals, including multiple bolt-on transactions
made by portfolio companies. He has additional quoted market
experience, having led the successful IPO of Manx Telecom plc in
2014, as well as having evaluated and executed public to private
transactions. Ed started his career as an analyst in the UK mergers
and acquisitions department of JPMorgan in 2004.
The investment approach
Our investment approach applies the core elements of the private
equity investment philosophy - highly focused, long-term, engaged
'ownership' style investment - to public markets. We believe that
this approach creates a portfolio unlike that of many typical
public equity funds and that, when well executed, can offer
attractive, differentiated, risk--adjusted returns.
- Highly concentrated portfolio : We look to build a highly
concentrated portfolio of no more than 25 investee companies where
we carry out intensive diligence, only investing in our highest
conviction ideas.
- Narrow focus : We are focused on smaller companies typically
too small for inclusion in the FTSE 250 index. We believe this
market is less efficient, offering more opportunities to find
mis-pricings. Further, we believe the best investment decisions are
made from a base of knowledge and experience, and we will make the
majority of investments in industry sectors that we and our
advisors, know well (TMT, Services, Industrials and
Healthcare).
- Targeting long-term holding periods : We will evaluate each
investment opportunity over a 3 to 5-year investment horizon. We
have structured our business to reflect this belief and do not
intend to run any capital which is redeemable over short time
periods. To think like an 'owner' of a business we believe your
capital should behave like one too.
- Engaged investment style : We are engaged investors. We like
investing in companies which, whilst good, are underperforming
their potential and where we see the opportunity for constructive
corporate engagement to unlock improved sustainable returns for all
stakeholders.
The Company's investment objective is to deliver long term
capital growth rather than outperform a specific index. Our
differentiated investment approach, allied with our sector focus
and the recently revised investment restrictions approved in
January 2021, is likely to lead to periods of NAV per share
performance materially different to those of the broader market. We
fully anticipate this potential short-term performance variance and
will focus on comparative investment performance on a rolling
three-year basis.
The absolute return mentality of the strategy, allied with the
desire to avoid being a forced seller, may lead to net cash
balances being held over the long-term. We anticipate a core range
of 5-15% over the long term. Net cash balances will not be used as
an attempt to market time, but to enable us to invest where blocks
of stock are available rather than being required to sell a less
liquid holding on short notice.
Implementing the investment strategy
There are three key factors we look for when we analyse a
potential investment;
1) a valuation opportunity;
2) in a higher-quality company; and
3) with improvement potential.
Our view is that buying at a fair price and supporting improved
performance generates capital growth, while our quality filters
mitigate losses in the event of unexpected headwinds.
Valuation
We look for two valuation factors in every investment. Firstly,
what we refer to as "static valuation" - does the company trade at
a discount to its current value? This is not only judged by
traditional public market ratios. We also seek to model every
company through the lens of a private equity buyer (of which we
have considerable experience) as well as evaluating its
attractiveness to strategic trade buyers.
Secondly, we are looking for companies which can grow their
value over time - "dynamic valuation". We particularly look for
situations where there are multiple, independent drivers of value
creation present, and where management actions can unlock these. We
believe seeking multiple value drivers makes an investment case
more secure and less exposed to single areas of uncertainty or
misjudgement.
Quality
We assess every potential investment against qualitative and
quantitative quality criteria. The quality assessment is important
to mitigate the risk of permanent capital destruction from
investments which fail to achieve their value potential. In our
experience, higher quality companies are more likely to maintain a
minimum value through difficult times and are more able to attract
high calibre management teams to rectify underperformance.
Improvement potential and engagement
We particularly like companies that are in some way
underperforming relative to their potential, and where the current
valuation does not price in the potential for improvement. Once
invested, constructive corporate engagement can help to unlock
value. Our mantra is to buy good businesses and sell excellent
businesses. The spectrum of areas which can be improved is broad
and includes operating performance, asset utilisation, overly
complex business structures/organisation, strategic direction, poor
M&A, investor relations, and governance and pay.
ESG in our investment process
We have historically focused on evaluating and engaging on
corporate governance ("G") and financial performance as part of our
investment process.
In January 2021, shareholders approved a change in the
investment policy of the Company to implement negative screening of
certain investments, deemed unethical and or involved in activities
which were deemed unsustainable. These restrictions augment our
approach to corporate engagement and provide clarity and certainty
to investors and largely formalises the approach we have taken
since we launched.
Our partnership with the specialist ESG data provider for
smaller quoted companies, announced in December 2020, has enabled
us to analyse all our portfolio companies ESG performance. Many of
these companies are too small to have attracted ratings from the
major ESG rating agencies. As at the time of preparation, we have
shared these reports with each of our portfolio companies.
This is in line with a pragmatic approach to environmental and
social engagement given the more resource--constrained nature of
smaller quoted companies. Our focus is on how boards approach
sustainability, where the scope for improvement is, how progress is
evaluated and how it is reported to investors. Our belief is that
performing ahead of peers and market expectations on ESG should
attract new shareholders, a higher rating and a lower cost of
equity, all things which will drive enhanced returns and benefit
the Company's shareholders.
Progress and performance in the period
The six months to September 2023 was another mixed period for
equity investors. Volatility continued and overall there was a lack
of direction in markets as investors continued to digest the key
questions that have dominated their thoughts for the past 18 months
- the path for inflation and interest rates and the impact of
historic rate rises working through the financial system.
Against this backdrop, markets have drifted with varying
performance. The FTSE All share and FTSE Small Cap delivered small
gains, the FTSE Mid Cap a small decline and once again there was
particularly poor performance from AIM stocks as risk appetite
remained weak.
A headwind across the markets has been the ongoing level of
outflows from UK focused equity funds. Data collected by Calastone
suggests UK focused equity funds had seen more than two years of
consecutive outflows in the period to September 2023, with small
caps in particular hard hit. As the market has adjusted to rising
rates, it is natural to see some re-balancing away from risk
assets, but the UK market in particular has remained unloved.
The Company's NAV per share fell 2.6% in the period, which was
broadly in-line with the 2.9% fall in the NSCI & AIM index,
which we use as a comparator.
The top three positive contributors to performance through the
period were NCC, XPP and Benchmark.
As flagged in our 2023 annual report, NCC released a material
profit warning on the last day of March driven by a sharp drop in
demand largely from large tech clients on the West Coast of the US.
As a result, shares entered the period being very weak. We saw this
initial overreaction as a buying opportunity and materially grew
our position.
Our confidence in making this further investment was driven by
our view that the value of the group's cyber security consulting
business was being unduly discounted by the market. Despite the
profit warning this part of the group maintains a blue-chip client
list (none of which had been lost despite the headwinds) and has
many areas still delivering strong growth, notably a high margin,
recurring, managed services business delivering c.GBP70m of
revenue. Cyber security remains a growth area and we believe NCC's
new CEO is a proven, capable exec with a clear strategy to grow
this part of the group back to 'mid-teens margins and mid-teens
growth' as his stated ambition. There is significant value to be
unlocked here. Through the period itself, NCC has demonstrated good
progress in its operational turnaround and has seen a stabilisation
of end markets. There is still a significant way to go on the
journey, but the start of recovery and path to further value
creation can be seen.
XPP delivered a strong performance through the period.
Unfortunately, this was followed by a disappointing update just
after period end which we detail in the profile. In August the
group announced a robust set of interim results re-confirming full
year expectations and flagging improving margins as historic,
pandemic driven supply chain challenges began to ease. Order book
value was noted as 'softening' due to changes in buyer behaviour as
lead times reduced, but the historically high order book supported
full year expectations. Book to bill was reducing as anticipated as
the company's order book began to normalise following unusual order
patterns caused by the lengthening of order times through the
pandemic. Whilst the book to bill for semiconductor equipment
customers had fallen to 0.5x, the company reported it was seeing
evidence that the order cycle in this area had bottomed.
Immediately post the period end, the company released a weak
trading statement which saw the shares sell off materially - in our
view very disproportionately to the news released. The company has
subsequently announced an equity raise to strengthen its balance
sheet alongside a number of management actions to reduce costs and
improve cashflow. We continue to believe that the medium to
long--term prospects for the business are very positive and have
added to our investment.
At the time of preparation, XPP's closest competitor Advanced
Energy Inc, quoted on NASDAQ, trades on a significantly higher
EV/Sales multiple indicating substantial equity upside to intrinsic
value.
Since the first purchase in 2018, the Benchmark share price has
been volatile. Through the period, the company demonstrated a
continuation of recent improving performance with strong growth in
the genetics and health divisions offsetting some weakness in the
nutrition division which was impacted by a decline in the shrimp
market. This was rewarded with a strong performance from the
shares. The group continues to benefit from prior investment, with
the roll out of its new sea lice treatment solution and ramp up of
a genetics facility in Chile, key drivers for future growth. With a
management team focused on driving commercial best practice through
the group, and improving cash generation and profitability we see
further value growth from here.
The bulk of the negative contributors during the period were
from larger positions which saw shares drift down - Xaar and
Ascential - or smaller industrial positions facing market specific
headwinds - Videndum and Synthomer.
Xaar's shares fell during the period despite a strong interim
trading update and maintenance of full year expectations. The group
continued to see growing traction with OEMs (Original Equipment
Manufacturers) for its new product set, notably the new Aquinox
product able to print aqueous fluids. This re-purposing of historic
R&D investment is providing the group scope to regain share in
markets it previously addressed, and also to grow its addressable
market from c.GBP250m to c.GBP500m by entering new vertical
markets. The final new family of product launches to address the
wide format graphics market, which Xaar has no exposure to at the
moment, is due in approximately twelve months. We believe this
would increase the addressable market further to c.GBP850m-GBP1bn.
In addition, Xaar's unique technology is creating new market
opportunities for digital inkjet printing to displace other
analogue solutions, which have the potential to grow its
addressable market by at least a further GBP150m. Alongside
momentum in new products, the group has also completed the first
phase of a factory re-organisation that will in future support
greater capacity and higher efficiencies. If the team manages to
execute well and wins back share in ceramics with its 720 dpi
product, we believe there is substantial medium to long-term upside
for the shares.
As noted in our annual report, in January, Ascential announced
its intention to break itself up initially through the sale of its
product design division, a process we see as having the potential
to unlock significant value for shareholders. The group's interim
results showed strong performance despite the risk of distraction
from the ongoing sales process, demonstrating the quality of the
various businesses in the group. After the end of the period, in
late October, the group announced proposed disposals of both its
product design division and its digital commerce division - for a
combined valuation of c.GBP1.2bn, with GBP850m expected to be
returned to shareholders (89% of the group's market capitalisation
prior to the announcement). We view the proposed disposals as a
good outcome for shareholders in current markets, validating our
view of significant hidden value in the group. In our opinion, the
remaining business will be a high quality, pure play events company
with significant growth prospects and we see further value to be
unlocked.
Videndum and Synthomer both posted disappointing trading updates
through the period driven by specific headwinds in their end
markets - the Hollywood writers' and actors' strike in the case of
Videndum, which has come simultaneously with weaker end markets for
its consumer products, and ongoing de-stocking at customers for
Synthomer. In both cases, these issues have left balance sheets
stretched and shares materially sold off. In cases such as these,
where there are negative surprises, we look to re-evaluate our
investment thesis, carry out further diligence and assess the
attractiveness of the investment going forward. In the case of
Synthomer we saw the ongoing risk of continuing macro headwinds as
significant. Whilst undoubted medium to long-term upside existed,
we concluded that the risk/return of holding through the
fundraising was not sufficiently attractive compared with other
holdings. In the case of Videndum, we have retained a small
position, seeing significant scope for recovery in the stock
supported by the recent announcement of a cessation of the writers'
strike. The company enjoys market leading positions with relative
market shares of between 4-10x in most of its niches.
Recapitalised, the company should recover well and take share from
smaller competitors.
The portfolio was on average 99% invested across the period. Net
cash began the period at 0.4% and ended the period at 2.2%. The
portfolio consisted of 16 holdings as at the end of September
2023.
Portfolio development
The six months to September 2023 saw a reduced level of
portfolio activity following a busy financial year 2023.
In total c.GBP13.5m was invested across the period into stock
purchases. No new positions were initiated, but material follow on
investments were made into existing positions notably NCC, Xaar and
XP Power. We have actively looked to add to positions on share
price weakness where we see an attractive shift in the risk/reward
balance.
Through the period we realised GBP12.1m from stock sales with
two positions fully exited raising GBP6.2m, and partial
realisations raising a further GBP5.8m.
The fully exited positions were Medica and Synthomer, both small
positions outside of the top 10 in the portfolio. Partial
realisations were made in names which had performed well and where
we felt profits could be attractively recycled into other
opportunities. Notably we sold stock in Elementis and RWS. In both
cases, the decision to reduce our holding was driven by shares
performing well relative to the rest of the portfolio and we
actively looked to re-balance position weightings as a result.
Through the period, our investment focus has remained on finding
high quality businesses, trading at a discount to their fair value
with an opportunity for self-help and engagement. Alongside this we
have remained aware of the opportunities thrown up by the current
market conditions.
Liquidity in our part of the market remains patchy and we have
been able to build positions of size in a number of our investee
companies which we believe would be hard to replicate in the market
today at current share prices.
We have continued to actively engage with portfolio company
directors and other stakeholders where appropriate in order to help
defend or create value.
Portfolio detail
At the end of the period under review, the portfolio comprised
16 companies. During the period no new positions were initiated and
two smaller positions outside the top 10 were fully exited (as
detailed above).
Key updates through the period for the largest ten positions
(accounting for 82% of net asset value) are detailed below:
ELEMENTIS
% NAV: 13%
Sector: Industrials
Leading producer of specialty chemicals focused on personal
care, talc and coatings markets.
Elementis posted a solid set of interims in July, noting ongoing
resilient performance in personal care products offsetting some
de-stocking headwinds in coatings. The group also continued on its
programme of cost savings alongside ongoing new product development
to drive revenue growth. Late in the period Franklin Templeton, a
top three shareholder, released an open letter to the board of
Elementis calling for a sale of the group to crystallise value for
shareholders - this was rejected by the board. We agree that this
development has helped spark a debate about how best shareholder
value can be unlocked at the company given the quality of its asset
base and profit generation potential.
NCC GROUP
% NAV: 12%
Sector: TMT
Leading independent provider of software escrow services and
cyber security consulting provided through the Assurance
division.
NCC's full year results showed good progress in its operational
turnaround following the disappointing trading statement at the end
of March 2023. The headwinds in demand for its cyber services from
North American clients appear to have abated, and the group
delivered strong growth in its high margin managed services
business. Operationally the new team are progressing with their
program to re-shape the cyber business with an offshore delivery
centre, a new vertical focused commercial strategy and strengthened
leadership team in place. Provided the management execute well the
cyber business has the potential to return to mid-teens margins and
mid-teens organic growth, which would likely see the shares return
towards past peaks.
XAAR
% NAV: 11%
Sector: Industrials
Leading independent designer and manufacturer of industrial
inkjet print heads.
Xaar delivered an in-line set of interim results despite ongoing
turmoil in end markets. The group delivered the first phase of its
factory re-organisation which will deliver future savings and
capacity uplifts, and the initial benefits from investment in new
product development is being seen with a number of OEM's actively
in development of products using Xaar's print heads which should
launch later this year.
We are excited by the prospects for Xaar. The new products under
development offer the scope for the group to gain share as well as
open up new markets previously unaddressed. The group has scope to
significantly grow revenues overtime which can be delivered from
its well invested cost base at high incremental profit. Delivery of
this opportunity will take time to deliver, but we believe Xaar has
the potential to be a materially bigger business in three years
time and even more coveted.
ASCENTIAL
% NAV: 11%
Sector: TMT
Provider of B2B data, events and digital commerce support
platforms.
Ascential posted a strong set of interim results with revenues
up 16% and improving margins. The management had announced earlier
in the year a strategic review and intention to break up the group
initially selling the Product Design division. Shortly post the
period end the group surprisingly announced the proposed disposals
of both its product design division and its digital commerce
division for total value of c.GBP1.2bn with GBP850m to be returned
to shareholders (c.89% of market cap prior to the announcement). In
our view these transactions represent a good outcome in current
markets, clearly demonstrating support for our view that the market
had been materially undervaluing Ascential's portfolio of higher
quality assets. Completion of the disposals is expected in early
2024 and remains subject to shareholders' approval. Once the
transactions are executed the remaining Ascential will be a pure
play events business. We see this go forward group as benefitting
from two scale, market leading platforms with multiple growth
opportunities. We believe that the quality and strategic value of
these assets remains overlooked even following the strong run in
shares post the announcement.
XP POWER
% NAV: 9%
Sector: Industrials
Leading supplier of power supplies and power converters for
industrial, healthcare and semi-conductor end markets.
XP Power's interim results in August were in-line with
expectations with some of the operational challenges seen during
covid beginning to be managed through. The company highlighted its
optimism for medium to long-term growth and that the semiconductor
clients were "bumping along the bottom". Immediately post the
period end the company released a trading update flagging that Q3
had seen weaker than expected demand with customers pushing out
some large orders. With the balance sheet relatively geared
following historic M&A and the unfortunate outcome of legal
action, the company also announced an equity raise to strengthen
its balance sheet. The company's shares price fell more sharply on
this news than we believe was justified, exacerbated it seems by
urgent selling in size by a very small handful of large holders -
volumes were 15-20x normal in the few days after the statement.
We believe that the market overreacted, with the shares
bottoming out at around 1x EV/Sales compared with long--term
average ratings around 2.6x. Although there may be near-term
uncertainties, XP Power is exposed to attractive end markets, with
two very specific drivers supporting demand from the semiconductor
industry in particular. Firstly, the fourth wave of the ongoing
multiyear growth of the semiconductor sector as a whole (driven by
demand for new products for AI and Internet-of-Things). Secondly,
the global build out of additional semiconductor manufacturing
capacity as nations look to 'near shore' production away from
Taiwan. Alongside secular market tailwinds, we see significant
scope for operational improvement at the company. Alongside the
fund raise the group announced a material GBP8m-GBP10m cost savings
programme (largely now executed), and beyond this we see
significant scope for further operational improvement through the
roll-out of lean manufacturing across the group. An improvement in
end markets allied with these operational improvements should
return operating margins to at least 20%. seen historically support
strong profit progression.
The company's shares are trading at a substantial discount to
their closest peer, which is listed on NASDAQ. Alongside the
fundraising the company announced it had received multiple
expressions of interest from potential acquirers, but not at levels
the Board were prepared to engage with. We increased our stake
materially during the share price weakness and fundraising and see
significant upside from current levels.
SPIRE HEALTHCARE
% NAV: 6%
Sector: Healthcare
Leading provider of private hospitals in the UK.
Spire's interim results showed a continuation of recent strong
performance. The demand environment remains supportive with private
insured and NHS revenues particularly strong. The group showed a
good ability to manage inflationary costs through efficiencies and
price rises and these headwinds are likely to fade going forward.
We see Spire as well positioned in a market with strong demand
drivers over the medium term as NHS waiting lists push more people
towards private healthcare. The executive team have proven their
ability to deliver cost savings with more potential to come. New
business initiatives around primary care and occupational health
offer further upside.
GOOCH & HOUSEGO
% NAV: 5%
Sector: Industrials
Manufacturer of photonics solutions for a variety of end
markets.
Gooch & Housego made good progress through the period. The
group interims showed strong revenue growth and a normalisation of
operations as the group worked through some of the operational
issues and order backlog from the prior year. The new CEO also used
the interims to report back on his strategic review of the group.
This identified the opportunity to almost double operating margins
to c.15% largely through self-help actions and re-shaping of the
portfolio. Our investment case saw significant margin opportunity
at Gooch and we are buoyed by the confirmation of this by the new
CEO. The group remains a leader in a growing market with world
beating IP. We do not believe that the shares price in either the
growth potential or successful execution of margin improvement.
WILMINGTON PLC
% NAV: 5%
Sector: TMT
B2B information, training and media provider focused on the
compliance, healthcare and professional business markets.
Wilmington's full year results published in September continued
the recent track record of strong performance, delivering 7%
organic growth, improving margins and high cash generation. The
group has benefited from management actions through the pandemic to
refocus the group onto Governance, Risk and Compliance ("GRC") end
markets and build out of shared back-office and delivery
infrastructure. We see further progress to come as the group
invests in its content and leverages AI to deliver its products
more effectively. The company's significant net cash balance sheet
provides it with capital to fund bolt on acquisitions at a time
where private market multiples are likely to return to a more
normal level.
FLOWTECH FLUIDPOWER
% NAV: 5%
Sector: Services
Leading UK distributor of hydraulic and pneumatic
components.
Flowtech's interims downgraded full year expectations with good
momentum in its Solutions and Services offer unable to offset
market weakness impacting the distribution focused (and higher
margin) Flowtech business. The new CEO Mike England has rapidly
strengthened the exec team, identified a performance improvement
plan and refreshed the group strategy aiming to address the wider
market of motion products beyond pneumatics and hydraulics. We are
positive on these developments, although the market outlook remains
uncertain, we see significant value to come from the new team
implementing their plan and building a stronger, more scalable
platform for future growth.
BENCHMARK HOLDINGS PLC
% NAV: 5%
Sector: Healthcare
Leading supplier of genetics, nutrition, and health solutions to
the global aquaculture market.
Benchmark's Q3 results were mixed with strong performance in
their Genetics and Health division's offset by weaker performance
in their nutrition division which was impacted by a downturn in
shrimp end markets. The group also announced that following an
initial listing in Oslo the group would also be maintaining its AIM
listing. We believe that Benchmark is well positioned in an
aquaculture market which is set to continue to professionalise and
look to implement best practice measures for efficiency and
sustainability which Benchmark's products will benefit from. The
group's new sea lice treatment system is continuing its commercial
roll out, with the lowest environmental footprint and best efficacy
on the market this can drive material growth going forward, as will
scale up of the new genetics facility in the crucial Chilean
market. Management remains focused on driving up margins and cash
generation.
The remaining six investments represent between 1.3% and 4.7% of
NAV. They are weighted towards our core focus sectors and include
positions with the potential to scale as liquidity and due
diligence allows.
Outlook
At the time of preparation, there continues to be both
geopolitical unrest in the Middle East as well as uncertainties on
future interest rates and inflation. Market "fear" levels are
elevated as investors worry about the prospect of geopolitical and
monetary shocks. The concept of transitory inflation is long gone
and whilst inflation is likely to continue to fall, our working
expectation is that interest rates will remain higher for
longer.
Sentiment has been poor in our sector for almost two years. This
period of negative market sentiment in UK Smaller Companies exceeds
the length of the downturn during the Great Financial Crisis, where
the UK Smaller Companies sector peaked in early Q3 2007 and
bottomed in Q1 2009.
UK quoted equities continue to be cheaply valued against history
and international peers across a number of metrics, on both an
absolute and relative basis. Our own analysis based on the Quest(R)
cashflow modelling tool, suggests UK Smaller Companies in aggregate
are trading on a wide 28% discount to their intrinsic Quest(R) Fair
Value, compared with a 20-year average premium of 41%. This
top-down analysis suggests substantial re-rating potential for UK
Smaller Companies. In stark comparison, US equities remain
expensive trading at more than a 50% premium to Quest(R) Fair Value
- expensive in absolute terms but also compared with their
long-term premium over time, and also against all other equity
markets, most of which are trading on discounts to Fair Value. Over
the past 15 years or so we have found that Quest(R) valuations have
proven to be excellent indicators of long-term intrinsic value.
Such potential upside in UK Smaller Companies is similar to see
from a bottom-up perspective in our portfolio. In early October,
shares in the top 10 portfolio companies were trading at around a
50% discount to their average 10-year EV/Sales and price to book
ratios. This is indicative of the level of distress in our markets,
and the lack of investor interest.
Unlike large cap US equities, UK Small and Mid Cap stocks did
not re-rate to very high multiples during the period of zero
interest rates. Therefore, we see the implied potential 100% rating
upside as markets normalise as a credible possibility.
Not surprisingly in this environment we are not short of new
investment ideas. Given the uncertain demand environment, we
continue to have a strong preference for investing in companies
with multiple opportunities for "self help", particularly gross and
operating margin improvement. As well as making these businesses
stronger and more sustainable, such actions help mitigate the risks
of a softening in demand. If the environment remains more benign
than feared, then there is the potential for these self-help
actions to amplify companies' organic progression.
We continue to focus on the prospect for absolute returns over a
3-5 year period, rather than attempting to outperform the market in
the short term. Whilst in the short term some of these decisions
have not been optimal, we continue to believe that they are the
right ones for the long term. In such an environment where capital
is scarce, it is not surprising that we are seeking higher
potential returns than we would do through the cycle.
Managing assets in a closed ended fund through this market
environment is, in our view, a major competitive advantage.
Firstly, we are focused on seeking an optimal long-term capital
return from a fixed capital base, rather than worrying about the
risk of potentially quite significant redemptions and forced
selling to meet the redemption calls. Secondly, this enables us to
consider investing in less liquid companies which open ended fund
managers are either not willing, or not permitted to invest in.
This has led swathes of the market in our view to be materially
underpriced. Ironically as markets improve and companies re-rate to
become larger, leading to better liquidity, we would not be
surprised to see today's selling institutions buying back in.
At some point we see sentiment towards the UK turning, the
buyers' strike ending and valuations normalising. This should
provide a material tailwind to our absolute performance, which
overall has been absent since we launched. Once the market can get
confidence in the level of trough earnings, it can price them,
moving from trough rating on trough earnings, to a normalised
rating, and finally to a potential recovery rating. Any improvement
in sentiment or liquidity can drive sudden and sharp movements in
UK Smaller Companies. It is impossible to time such a turn in the
"animal spirits" or even the specific event or events which will
catalyst it. But we are strongly of the view it will come.
Even if this does not happen in 2024, we believe that corporate
acquirers from overseas will take a more active interest in
acquiring global companies listed in the UK given current ratings,
particularly those in the industrials sector where they have
material US earnings and significant synergies are on offer.
We do not anticipate a swathe of companies being taken private
by Private Equity ("PE"), unless a bidding PE house has an asset in
its portfolio which can offer significant cost savings on
acquisition of a target. We understand that lending margins are
around 700 basis points for senior debt, leading to total cost of
debt being just below the low teens. This fundamentally changes the
multiples that PE funds can afford to pay to generate their
required returns. As a result, interest rates normalising appears
to have levelled the playing field somewhat between private and
public equities. It is possible that at some point the private
market "premium" which emerged in the last decade may reduce or
even disappear as the investment community accepts that zero
interest rates will not be back for some time.
Private equity allocations are still high amongst institutional
investors due to the delay in marking to market, allied with
realisations slowing. We do wonder whether, for family offices and
long-term endowments, the pendulum is starting to swing back to
quoted equities ex US, which appear to offer material absolute and
relative long-term value. Given the niche size of our market, we do
not believe it would take much in the way of new allocations to
change the balance of buying and selling.
We would like to thank all of the shareholders for their ongoing
support, particularly during such challenging times.
Stuart Widdowson | Ed Wielechowski
Portfolio Managers
Odyssean Capital LLP
29 November 2023
Portfolio of Investments
as at 30 September 2023
Cost Valuation % of
Company Sector Country of Listing GBP'000 GBP'000 Net Assets
--------------------------- ------------------ ------------------- ------- --------- ----------
Elementis Industrials UK 17,621 23,598 12.9%
NCC Group TMT UK 29,581 22,382 12.3%
Xaar Industrials UK 17,124 20,256 11.1%
Ascential TMT UK 20,262 19,855 10.9%
XP Power Industrials UK 14,572 16,756 9.2%
Spire Healthcare Healthcare UK 9,483 11,675 6.4%
Gooch and Housego Industrials UK 10,308 9,887 5.4%
Wilmington TMT UK 5,303 9,480 5.2%
Flowtech Fluidpower Business Services UK 10,912 9,240 5.1%
Benchmark Holdings Healthcare Norway/UK 9,832 8,742 4.8%
--------------------------- ------------------ ------------------- ------- --------- ----------
Top 10 equity investments 151,871 83.3%
-------------------------------------------------------------------- ------- --------- ----------
Other equity investments* 26,799 14.6%
-------------------------------------------------------------------- ------- --------- ----------
Total equity investments 178,670 97.9%
-------------------------------------------------------------------- ------- --------- ----------
Cash and other net current
assets 3,811 2.1%
-------------------------------------------------------------------- ------- --------- ----------
Net assets 182,481 100.0%
-------------------------------------------------------------------- ------- --------- ----------
* Other equity investments include six investments, each
represents between 1.3% and 4.7% of NAV. These are spread across
our core focus sectors and all offer scope to scale, subject to
further due diligence and pricing remaining attractive.
DISTRIBUTION OF INVESTMENTS
as at 30 September 2023
Portfolio holdings
(% of net assets)
Elementis 12.9%
NCC Group 12.3%
------
XAAR 11.1%
------
Ascential 10.9%
------
XP Power 9.2%
------
Spire Healthcare 6.4%
------
Gooch and Housego 5.4%
------
Wilmington 5.2%
------
Flowtech Fluidpower 5.1%
------
Benchmark Holdings 4.8%
------
Other equity investments 14.6%
------
Cash and other net current
assets 2.1%
------
Sector exposure
(% of net assets)
Industrials 46.0%
Healthcare 11.2%
------
TMT 30.9%
------
Business Services 9.8%
------
Cash and other net current
assets 2.1%
------
Geographical revenue exposure
(% of invested capital)
UK 24.4%
US 33.8%
------
Europe 21.4%
------
Rest of the World 20.4%
------
Market capitalisation
(% of invested capital)
Below GBP150m 24.4%
GBP150m - GBP750m 50.3%
------
Over GBP750m 23.2%
------
Cash and other net current
assets 2.1%
------
Interim Management Report and Statement of Directors'
Responsibilities
Interim Management Report
The important events that have occurred during the period under
review, the key factors influencing the financial statements and
the principal factors that could impact the remaining six months of
the financial year are set out in the Chairman's statement and the
Portfolio Manager's Report.
Principal Risks and Uncertainties
The principal risks and uncertainties associated with the
Company are set out on pages 35 to 41 of the Annual Report and
Accounts for the year ended 31 March 2023, which is published on
the Company's website. Such risks and uncertainties are as
applicable for the remaining six months of the Company's financial
year as they have been for the period under review. The risks can
be summarised under the following headings: investment performance
not being comparable to the expectations of investors, share price
performance, loss of personnel or reputation of the Portfolio
Manager, material changes within the Portfolio Manager's
organisation, valuation of unquoted investments, reliance on the
performance of third-party service providers, global risk, UK
regulatory and legal risk, governance risk, ESG and climate change
risk, market risks (including market price risk, currency risk and
interest rate risk), liquidity risk and credit risk.
The Board notes that equity markets experienced volatility
during the period due to uncertainties linked to the impact of
inflation, the potential for stagflation, the prospect of a
recession, the pace at which interest rates will rise, allied with
geopolitical risk from the Russian incursion into Ukraine. The
Directors have considered the impact of the continued uncertainty
on the Company's financial position and, based on the information
available to them at the date of this report, have concluded that
no adjustments are required to the accounts as at 30 September
2023. Developments continue to be closely monitored by the
Board.
Related Party Transactions
During the first six months of the current financial year no
material transactions with related parties other than those set out
in the notes to the financial statements have taken place which
have affected the financial position of the performance of the
Company.
Going Concern
The Directors believe, having considered the Company's
investment objectives, risk management policies, capital management
policies and procedures, nature of the portfolio and expenditure
projections, that the Company has adequate resources, an
appropriate financial structure and suitable management
arrangements in place to continue in operational existence for the
foreseeable future and, more specifically, that there are no
material uncertainties relating to the Company that would prevent
its ability to continue in such operational existence for at least
twelve months from the date of the approval of this Half Year
Report. For these reasons, they consider there is reasonable
evidence to continue to adopt the going concern basis in preparing
the accounts.
Responsibility Statement
The Directors confirm that to the best of their knowledge:
- the condensed set of financial statements contained within the
Half Year Report has been prepared in accordance with International
Accounting Standard ("IAS") 34, 'Interim Financial Reporting';
- the Half Year Report and condensed financial statements give a
true and fair view of the assets, liabilities, financial position
and return of the Company; and
- the Interim Management Report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during
the first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first
six months of the current financial year and that have materially
affected the financial position or performance of the Company
during that period; and any changes in the related party
transactions that could do so.
The Half Year Report has not been reviewed or audited by the
Company's Auditors.
This Half Year Report contains certain forward-looking
statements. These statements are made by the Directors in good
faith based on the information available to them up to the date of
this report and such statements should be treated with caution due
to the inherent uncertainties, including both economic and business
risk factors, underlying any such forward-looking information.
For and on behalf of the Board
Jane Tufnell
Chairman
29 November 2023
Condensed Income Statement
for the six months ended 30 September 2023
Six months ended Six months ended
30 September 2023 30 September 2022
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- ----- -------- -------- -------- -------- -------- --------
Income 3 784 - 784 1,059 - 1,059
Net losses on investments at
fair value - (4,231) (4,231) - (14,454) (14,454)
Portfolio management fee 4 (901) - (901) (802) - (802)
Other expenses 5 (416) - (416) (363) - (363)
----------------------------- ----- -------- -------- -------- -------- -------- --------
Loss before taxation (533) (4,231) (4,764) (106) (14,454) (14,560)
----------------------------- ----- -------- -------- -------- -------- -------- --------
Taxation 6 - - - - - -
----------------------------- ----- -------- -------- -------- -------- -------- --------
Loss for the period (533) (4,231) (4,764) (106) (14,454) (14,560)
----------------------------- ----- -------- -------- -------- -------- -------- --------
Basic and diluted loss per
ordinary share (pence) 7 (0.5) (3.7) (4.2) (0.1) (14.5) (14.6)
----------------------------- ----- -------- -------- -------- -------- -------- --------
The total column of the statement is the Income Statement of the
Company prepared in accordance with International Financial
Reporting Standards ("IFRS") as adopted by the United Kingdom. The
supplementary revenue and capital columns are presented for
information purposes as recommended by the Statement of Recommended
Practice ("SORP") issued by the AIC.
All items in the above Statement derive from continuing
operations. No operations were acquired or discontinued during the
period.
There is no other comprehensive income, and therefore the profit
for the period after tax is also the total comprehensive income for
the period.
The notes form part of these financial statements.
Condensed Statement of Changes in Equity
Special
Share Share distributable Capital Revenue
Six months ended 30 September
2023 capital premium reserve reserve reserve Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------- ------- ------------- -------- ------- --------
Opening balance as at 1
April 2023 1,129 40,556 85,475 53,968 77 181,205
Net proceeds from share
issuance 39 6,001 - - - 6,040
Total comprehensive loss
for
the period - - - (4,231) (533) (4,764)
------------------------------ ------- ------- ------------- -------- ------- --------
As at 30 September 2023 1,168 46,557 85,475 49,737 (456) 182,481
------------------------------ ------- ------- ------------- -------- ------- --------
Special
Share Share distributable Capital Revenue
Six months ended 30 September
2022 capital premium reserve reserve reserve Total
(unaudited) GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------ ------- ------- ------------- -------- ------- --------
Opening balance as at 1
April 2022 962 13,244 85,475 58,263 (128) 157,816
Net proceeds from share
issuance 78 12,517 - - - 12,595
Total comprehensive income
for
the period - - - (14,454) (106) (14,560)
------------------------------ ------- ------- ------------- -------- ------- --------
As at 30 September 2022 1,040 25,761 85,475 43,809 (234) 155,851
------------------------------ ------- ------- ------------- -------- ------- --------
The notes form part of these financial statements.
Condensed Balance Sheet
as at 30 September 2023
As at As at
30 September 31 March
2023 2023
GBP'000 GBP'000
Notes (unaudited) (audited)
-------------------------------------------- ----- ------------ ---------
Non-current assets
Investments at fair value through profit or
loss 9 178,670 180,394
-------------------------------------------- ----- ------------ ---------
Current assets
Trade and other receivables 25 1,146
Cash and cash equivalents 4,551 1,370
-------------------------------------------- ----- ------------ ---------
4,576 2,516
-------------------------------------------- ----- ------------ ---------
Total assets 183,246 182,910
-------------------------------------------- ----- ------------ ---------
Current liabilities
Trade and other payables (765) (1,705)
-------------------------------------------- ----- ------------ ---------
Total liabilities (765) (1,705)
-------------------------------------------- ----- ------------ ---------
Total assets less current liabilities 182,481 181,205
-------------------------------------------- ----- ------------ ---------
Net assets 182,481 181,205
-------------------------------------------- ----- ------------ ---------
Represented by:
Share capital 10 1,168 1,129
Share premium 46,557 40,556
Special distributable reserve 10 85,475 85,475
Capital reserve 49,737 53,968
Revenue reserve (456) 77
-------------------------------------------- ----- ------------ ---------
Total equity attributable to equity holders
of the Company 182,481 181,205
-------------------------------------------- ----- ------------ ---------
Basic and diluted net asset value per share
(pence) 8 156.2 160.4
-------------------------------------------- ----- ------------ ---------
The notes form part of these financial statements.
Condensed Cash Flow Statement
for the six months ended 30 September 2023
Six months Six months
ended ended
30 September 30 September
2023 2022
GBP'000 GBP'000
(unaudited) (unaudited)
-------------------------------------------------------- ------------ ------------
Reconciliation of loss before taxation to net cash
outflows from operating activities
Loss before tax (4,764) (14,560)
Losses on investments held at fair value through profit
and loss 4,231 14,454
Decrease in receivables 372 35
Increase/(decrease) in payables 4 (2,416)
-------------------------------------------------------- ------------ ------------
Net cash outflow from operating activities (157) (2,487)
-------------------------------------------------------- ------------ ------------
Investing activities
Purchases of investments (14,571) (37,423)
Sales of investments 11,869 34,123
-------------------------------------------------------- ------------ ------------
Net cash outflow from investing activities (2,702) (3,300)
-------------------------------------------------------- ------------ ------------
Financing activities
Net proceeds from share issuance 6,040 12,143
-------------------------------------------------------- ------------ ------------
Net cash inflow from investing activities 6,040 12,143
-------------------------------------------------------- ------------ ------------
Increase in cash and cash equivalents 3,181 6,356
-------------------------------------------------------- ------------ ------------
Reconciliation of net cash flow movements in funds
Cash and cash equivalents at the beginning of period 1,370 5,197
Exchange rate movement - (21)
Increase in cash and cash equivalents 3,181 6,335
-------------------------------------------------------- ------------ ------------
Cash and cash equivalents at end of period 4,581 11,532
-------------------------------------------------------- ------------ ------------
The notes form part of these financial statements.
Notes to the Financial Statements
for the six months ended 30 September 2023 (unaudited)
1. General information
Odyssean Investment Trust PLC is a listed public limited company
incorporated in England and Wales. The registered office of the
Company is 25 Southampton Buildings, London WC2A 1AL.
2. Accounting policies
a) Basis of preparation/statement of compliance
The interim financial information covers the period from 1 April
2023 to 30 September 2023 and has been prepared in accordance with
IAS 34, 'Interim Financial Reporting'.
The Company's annual financial statements for the year ended 31
March 2023 were prepared in conformity with IFRS as adopted by the
United Kingdom, which comprise standards and interpretations
approved by the International Accounting Standards Board ("IASB"),
and as applied in accordance with the SORP for the financial
statements of investment trust companies and venture capital
trusts, except to any extent where it is not consistent with the
requirements of IFRS.
The accounting policies used by the Company followed in these
half-year financial statements are consistent with the most recent
Annual Report for the year ended 31 March 2023.
The interim financial information is being sent to shareholders
and copies will be made available to the public at the registered
office of the Company and on the Company's website:
www.oitplc.com.
b) Functional and presentation currency
The condensed financial statements are presented in GBP
Sterling, which is the Company's functional currency. All amounts
have been rounded to the nearest thousand, unless otherwise
indicated.
c) Comparative information
The financial information contained in this Half Year Report
does not constitute statutory accounts as defined in the Companies
Act 2006. The financial information contained within this report
relates to the following periods: 1 April 2023 to 30 September 2023
(unaudited and unreviewed by the Company's Auditor) and 1 April
2022 to 30 September 2022 (unaudited and unreviewed by the
Company's Auditor); and as at 31 March 2023 (audited) for the
Balance Sheet. The comparative figures for the period 30 September
2022 are not the Company's statutory accounts for that financial
year. The Company's statutory accounts are for the year ended 31
March 2023 and were reported on by the Company's Auditor and
delivered to the Registrar of Companies. The report of the Auditor
was (i) unqualified, (ii) did not include a reference to any
matters to which the Auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
d) Going concern
The financial statements have been prepared on a going concern
basis and on the basis that approval as an investment trust company
will continue to be met.
The Directors have made an assessment of the Company's ability
to continue as a going concern and are satisfied that the Company
has adequate resources to continue in operational existence for the
foreseeable future (being a period of at least 12 months from the
date on which these financial statements were approved).
Furthermore, the Directors are not aware of any material
uncertainties that may cast significant doubt upon the Company's
ability to continue as a going concern, having taken into account
the liquidity of the Company's investment portfolio and the
Company's financial position in respect of its cash flows, debt and
investment commitments.
3. Income
Six months ended Six months ended
30 September 2023 30 September 2022
(unaudited) (unaudited)
Income Capital Total Income Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- -------- -------- --------
Income from investments
UK dividends 598 - 598 1,025 - 1,025
Overseas dividends 126 - 126 - - -
------------------------ -------- -------- -------- -------- -------- --------
724 - 724 1,025 - 1,025
------------------------ -------- -------- -------- -------- -------- --------
Other income
Bank interest received 60 - 60 34 - 34
------------------------ -------- -------- -------- -------- -------- --------
Total income 784 - 784 1,059 - 1,059
------------------------ -------- -------- -------- -------- -------- --------
4. Portfolio management fee
Six months ended Six months ended
30 September 2023 30 September 2022
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ------- ------- ------- ------- ------- -------
Portfolio management fee 901 - 901 802 - 802
Performance fee - - - - - -
------------------------- ------- ------- ------- ------- ------- -------
901 - 901 802 - 802
------------------------- ------- ------- ------- ------- ------- -------
The Company is liable to pay a performance fee depending on the
performance of the Company over a three-year period and thereafter
a rolling three-year period as set out in the Company's prospectus
dated 26 March 2018. Based on the performance of the Company to 30
September 2023, no performance fee (2022: no performance fee) has
been accrued in the NAV and included in Trade and Other Payables in
the Balance Sheet.
Pursuant to the terms of the Portfolio Management Agreement, the
Portfolio Manager is entitled, with effect from Initial Admission,
to receive an annual management fee equal to the lower of: (i) 1.0%
of the net asset value (calculated before deduction of any accrued
but unpaid management fee and any performance fee) per annum; or
(ii) 1.0% per annum of the Company's market capitalisation. The
annual management fee is calculated and accrues daily and is
payable quarterly in arrears.
The Company's performance is measured over rolling three-year
periods ending on 31 March each year (each a "Performance Period"),
by comparing the net asset value total return per ordinary share
over a Performance Period against the total return performance of
the NSCI ex IT plus AIM Index (the "Comparator Index"). The third
Performance Period ran from 1 April 2022 to 31 March 2023 and no
performance fee was paid to the Investment Manager (Performance fee
period to 31 March 2022: GBP2,436,000).
A Performance Fee is payable if the net asset value per ordinary
share at the end of the relevant Performance Period (as adjusted
to: (i) add back the aggregate value of any dividends per ordinary
share paid (or accounted as paid for the purposes of calculating
the net asset value) to shareholders during the relevant
Performance Period; and (ii) exclude any accrual for unpaid
Performance Fee accrued in relation to the relevant Performance
Period) (the "Net Asset Value Total Return per Share") exceeds
both:
(i) (a) the net asset value per ordinary share at Initial
Admission, in relation to the first Performance Period; and (b)
thereafter the net asset value per ordinary share on the first
business day of a Performance Period; in each case as adjusted by
the aggregate amount: of (i) the total return on the Comparator
Index (expressed as a percentage); and (ii) 1.0% per annum over the
relevant Performance Period (the "Target Net Asset Value per
Share"); and
(ii) the highest previously recorded net asset value per
ordinary share as at the end of the relevant Performance Period in
respect of which a Performance Fee was last paid (or the net asset
value per ordinary share as at Initial Admission, if no Performance
Fee has been paid) (the "High Watermark"),
with any resulting excess amount being known as the "Excess
Amount".
The Portfolio Manager will be entitled to 10% of the Excess
Amount multiplied by the time weighted average number of ordinary
shares in issue during the relevant Performance Period to which the
calculation date relates. The Performance Fee will accrue
daily.
Payment of a Performance Fee that has been earned will be
deferred to the extent that the amount payable exceeds 1.75% per
annum of the net asset value at the end of the relevant Performance
Period (amounts deferred will be payable when, and to the extent
that, following any later Performance Period(s) with respect to
which a Performance Fee is payable, it is possible to pay the
deferred amounts without causing that cap to be exceeded or the
relevant net asset value total return per share to fall below both
the relevant target net asset value per share and the relevant High
Watermark for such Performance Period, with any amount not paid
being retained and carried forward).
Subject at all times to compliance with relevant regulatory and
tax requirements, any Performance Fee paid or payable shall:
- whereas at the relevant calculation date, the ordinary shares
are trading at, or at a premium to, the latest published net asset
value per ordinary share; be satisfied as to 50% of its value by
the issuance of new ordinary shares by the Company to the Portfolio
Manager (rounded down to the nearest whole number of ordinary
shares) (including the reissue of treasury shares) issued at the
latest published net asset value per ordinary share applicable at
the date of issuance;
- whereas at the relevant calculation date, the ordinary shares
are trading at a discount to the latest published net asset value
per ordinary share; be satisfied as to 100% of its value in cash
and the Portfolio Manager shall, as soon as reasonably practicable
following receipt of such payment, use 50% of such Performance Fee
payment to make market purchases of ordinary shares (rounded down
to the nearest whole number of ordinary shares) within four months
of the date of receipt of such Performance Fee payment,
(in each case "Restricted Shares").
Each such tranche of Restricted Shares issued to, or acquired
by, the Portfolio Manager will be subject to a lock- up undertaking
for a period of three years post issuance or acquisition (subject
to customary exceptions).
At no time shall the Portfolio Manager (and/or any persons
deemed to be acting in concert with it for the purposes of the
Takeover Code) be obliged, in the absence of a relevant whitewash
resolution having been passed in accordance with the Takeover Code,
to receive, or acquire, further ordinary shares where to do so
would trigger a requirement to make a mandatory offer pursuant to
Rule 9 of the Takeover Code. Where any restriction exists on the
issuance of further ordinary shares to the Portfolio Manager, the
relevant amount of the Performance Fee may be paid in cash.
In addition, the Portfolio Manager is entitled to reimbursement
for all costs and expenses properly incurred by it in the
performance of its duties under the Portfolio Management
Agreement.
The Company may terminate the Portfolio Management Agreement by
giving the Portfolio Manager not less than six months' prior
written notice. The Portfolio Manager may terminate the Portfolio
Management Agreement by giving the Company not less than six
months' prior written notice.
5. Other expenses
Six months Six months
ended ended
30 September 30 September
2023 2022
GBP'000 GBP'000
(unaudited) (unaudited)
Directors' fees* 62 46
Company Secretarial and Administration fee 201 178
Audit fee 38 20
Other expenses 115 119
------------------------------------------- ------------- -------------
416 363
------------------------------------------- ------------- -------------
* Peter Hewitt is not receiving a Director fee in respect of his
services to the Company. Each of the Directors has agreed to use
their applicable Directors' fees (net of applicable taxes) to
acquire ordinary shares in the secondary market, subject to
regulatory requirements. In relation to any dealings, the Directors
will comply with the share dealing code adopted by the Company in
accordance with the Market Abuse Regulation. The Board will be
responsible for taking all proper and reasonable steps to ensure
compliance with the share dealing code by the Directors.
6. Taxation
The Company has an effective tax rate of 0%, as investment gains
are exempt from tax owing to the Company's status as an investment
trust, and there is expected to be an excess of management expenses
over taxable income and thus there is no charge for corporation
tax.
7. Loss per ordinary share
The capital, revenue and total loss per ordinary share are based
on the net loss shown in the Condensed Income Statement and the
weighted average number of ordinary shares during the period of
114,753,839 (2022: 99,555,787).
There are no dilutive instruments in issue and therefore no
difference between the basic and diluted loss per ordinary
share.
8. Net asset value per ordinary share
The basic net asset value per ordinary share is based on net
assets of GBP182,481,000 (2022: GBP155,851,000) and on 116,807,053
(2022: 104,045,053) ordinary shares, being the number of ordinary
shares in issue at the period end.
There are no dilutive instruments in issue and therefore no
difference between the basic and diluted total net asset per
ordinary share.
9. Investments at fair value through profit or loss
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following three levels:
- Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2 - Inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices).
- Level 3 - Inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data from investments actively traded in organised
financial markets, fair value is generally determined by reference
to Stock Exchange quoted market bid or closing prices at the close
of business on the Condensed Balance Sheet date, without adjustment
for transaction costs necessary to realise the asset.
As at 30 September 2023 As at 31 March 2023
(unaudited) (audited)
Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
Quoted at fair value 178,670 171,050 7,620 - 180,394 174,832 5,562 -
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
Total 178,670 171,050 7,620 - 180,394 174,832 5,562 -
--------------------- ------- ------- ------- ------- ------- ------- ------- -------
There were no transfers between levels during the period and
during the year ended 31 March 2023, GBP5,562,000 of level 1
investments were transferred to level 2.
10. Share capital and reserves
Six months ended Year ended
30 September 2023 31 March 2023
(unaudited) (audited)
Number of Number of
Shares GBP'000 Shares GBP'000
--------------------------------------- ----------- ------- ----------- -------
Issued and fully paid:
Ordinary shares of 1p:
Balance at the beginning of the period 112,945,053 1,129 96,248,053 962
New shares issued during the period 3,862,000 39 16,697,000 167
--------------------------------------- ----------- ------- ----------- -------
Balance at the end of the period 116,807,053 1,168 112,945,053 1,129
--------------------------------------- ----------- ------- ----------- -------
Special distributable reserve
Upon initial placing and subsequent issuance of the Company's
ordinary shares on 1 May 2018 and 27 June 2018 respectively, the
Company accumulated a premium account of GBP85,495,000. Following
approval of the Court, effective on 8 August 2018, the share
premium account was cancelled and the balance after cancellation
cost of GBP20,000 was transferred to the special distributable
reserve.
11. Related party transactions
The amount incurred, in respect of portfolio management fees,
during the period to 30 September 2023 was GBP901,000 (30 September
2022: GBP802,000), of which GBP449,000 was outstanding at 30
September 2023 (30 September 2022: GBP420,000).
The amount incurred in respect of Directors' fees during the
period to 30 September 2023 was GBP62,000 (2022: GBP46,000) of
which GBPnil was outstanding at period end (2022: GBPnil).
Glossary
AIC
Association of Investment Companies.
CTA
Corporation Tax Act 2010.
Premium/discount (APM)
A description of the difference between the share price and the
net asset value per share. The size of the discount is calculated
by subtracting the share price from the NAV per share and is
usually expressed as a percentage of the NAV per share. If the
share price is higher than the net asset value per share the result
is a premium. If the share price is lower than the net asset value
per share, the shares are trading at a discount.
30 September 31 March
2023 2023
Premium/(discount) calculation (unaudited) (audited)
------------------------------- ------------ ---------
Closing NAV per share (p) 156.2 160.4
Closing share price (p) 156.2 164.0
------------------------------- ------------ ---------
Premium (%) - 2.2%
------------------------------- ------------ ---------
FCA
Financial Conduct Authority.
IPO
Initial public offering.
LSE
London Stock Exchange.
M&A
Mergers and acquisitions.
NAV
NAV stands for net asset value and represents shareholders'
funds. Shareholders' funds are the total value of a company's
assets at current market value less its liabilities.
NAV total return per share (APM)
NAV total return is the closing NAV per share including any
cumulative dividends paid as a percentage over the opening NAV.
Six months
ended Year ended
30 September 31 March
2023 2023
(unaudited) (audited)
----------------------------------------------- -------------- ----------
Opening NAV per ordinary share (p) 160.4 164.0
Closing NAV per ordinary share (p) 156.2 160.4
----------------------------------------------- -------------- ----------
NAV total (loss)/return per ordinary share (%) (2.6)% (2.2)%
----------------------------------------------- -------------- ----------
NSCI ex IT plus AIM Index
Numis Smaller Companies ex Investment Trusts plus AIM Index.
Ongoing charges ratio (APM)
Based on total expenses, excluding finance costs and certain
non-recurring items for the period or year, and average daily net
asset value.
Six months
ended Year ended
30 September 31 March
2023 2023
(unaudited) (audited)
------------------------------------------------- -------------- ----------
Total expenses per note 4 and
note 5 (GBP'000) 1,317 2,503
Annualised total expenses (GBP'000) 2,634 2,503
Average net asset value (GBP'000) 181,655 172,320
------------------------------------------------- -------------- ----------
Ongoing charges (%) 1.45% 1.45%
------------------------------------------------- -------------- ----------
TMT
Technology, media and telecom.
Total assets
Total assets are the sum of both fixed and current assets with
no deductions.
ENDS
Frostrow Capital LLP
Company Secretary
0203 008 4913
29 November 2023
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IR XKLLLXFLFFBQ
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November 30, 2023 02:00 ET (07:00 GMT)
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