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The underlying business performance of the Oakley Funds’ portfolio companies and Direct Investments is a key focus for both the Committee and OCI’s Auditor.”
Richard Lightowler Chair of the Audit Committee
Other Audit Committee members:
Fiona Beck Committee member
Caroline Foulger Committee member
Activities in 2024
- Oversight of financial reporting, including the Annual Report and Half-year Report, and quarterly result and other material announcements.
- Assessment of significant financial reporting judgements and estimates, specifically understanding, considering and challenging as necessary, the valuation approach undertaken to determine the fair value of the Oakley Funds and OCI’s Direct Investments.
- Evaluation of External Audit including the assessment of audit quality, year-end audit opinion, performance and skills of the external auditor and an assessment of the confirmation of independence and approval of non-audit fees.
- Initiation of audit tender process ahead of KPMG’s required rotation in 2027.
Objectives for 2025
- Conduct the audit tender in preparation for the appointment of a new external auditor, expected for the FY26 year-end.
- Review of Oakley’s internal control environment as the Oakley Group undertakes a transformation agenda in support of a centralised data and system architecture.
- Continued oversight in respect of core responsibilities.
Role of the Audit Committee
The principal role of the Audit Committee is to consider the following matters and make appropriate recommendations to the Board to ensure that:
- the integrity of financial reporting and the Annual Report, 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 independence, objectivity and effectiveness of the appointed Auditor is monitored and reviewed. The Committee additionally reviews the Auditor’s performance in terms of quality, control and value and considers whether shareholders would be better served by a change of Auditor; and
- the financial reporting internal control systems of the Company are adequate and effective.
2024 Report
The Committee held four meetings during 2024, each aligned to the external reporting timetable of OCI. Ahead of each, a meeting was held with the Chief Financial Officer and Group Finance Director of Oakley, providing an opportunity to understand and challenge any considerations related to the financial and non-financial results of OCI.
During the year, the Audit Committee continued its focus on significant judgements and estimates in the accounts, with the most significant estimates in the Company’s Financial Statements being the fair value of the unquoted investments in the Oakley Funds and the fair value of OCI’s Direct Investment in North Sails. This focus is replicated by OCI's external auditors, with the same being identified as a significant risk for the purposes of the FY24 audit.
OCI's unquoted investments in the Oakley Funds amounted to £998 million, representing 72% of OCI's portfolio and its investment in North Sails amounted to £154 million and represented 13% of OCI's portfolio at the year-end (with Time Out making up the remaining 6% of Direct Investments). This follows the conversion of $107 million of preferred equity in North Sails into ordinary equity, facilitating OCI and its shareholders in benefitting from the future returns of North Sails given its recent positive trading momentum and acquisitions; $77 million remains held in preferred equity and attracting a coupon of 5% from 1 January 2025.
Recognising the importance of these significant judgements and estimates on OCI's year-end results, the Audit Committee considered the following key elements in its assessment of fair values of Oakley Funds:
- valuation approach to underlying portfolio companies – understanding input data, assumptions and methodologies used;
- consistency in valuation approach;
- investments being valued in accordance with the International Private Equity and Venture Capital ('IPEV') Valuation Guidelines;
- results of independent, third-party valuation engagement commissioned by the Investment Adviser, which produces an annual independent valuation of each portfolio company;
- results of independent, third-party valuation of North Sails commissioned by the Company;
- results of back-testing comparing realisations against carrying values on disposal;
- internal controls, including the work of the Valuation Committee at the Investment Adviser; and
- results of the independent audit, including detailed discussions with the audit team.
The Audit Committee worked closely with Risk Committee to understand the impact of emerging and incumbent risks in portfolio valuations. The Audit Committee considered macroeconomic trends, specifically the decline in borrowing costs and the consequential availability of credit facilities and the impact on valuation multiples as well as sector-specific matters. Further, consideration was given to persistent geopolitical risk which remained a significant factor in 2024 including the Russia-Ukraine and Middle East conflict. Middle East, straining international relations, and increasing concerns over the impact of China-Taiwan dynamics on European technology manufacturing reliant on Asian imports.
The Audit Committee concluded that the valuation process was effective in providing fair value estimates for the entire portfolio, noting further that the valuations were all within the ranges provided by the independent, third-party valuation adviser. It also noted that the valuation process, internal controls and accounting principles used were consistent with previous years.
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The Audit Committee has initiated a tender process for the appointment of a new auditor given our responsibility to ensure the independence, objectivity and effectiveness of the appointed Auditor.”
Richard Lightowler Chair of the Audit Committee
During the year, Oakley undertook significant implementation projects in respect of the process, system and data ecosystem related to both external and internal financial reporting to produce more insightful and standardised reporting across the Oakley Group. Given OCI’s relationship with Oakley and the engagement of Oakley as OCI’s Operational Services provider and Administrator of the Company, the Audit Committee made it a priority to ensure it had sufficient oversight of these projects, including the impact on key financial reporting controls. Accordingly, the Committee reviewed formal updates provided by the Oakley Group Finance Team and had regular discussions with the Finance Team on the broader transformation agenda, concluding that the financial reporting internal controls are adequate and effective, and is pleased with the enhanced value creation cultivated by the updated financial reporting.
The Committee also receives regular reporting from the Oakley Compliance function, and in line with its annual process, the Management Engagement Committee conducted a formal assessment of the performance of Oakley, including the operating effectiveness of financial reporting controls and reports back to the Board, with no material issues noted during the period.
During the year, the Audit Committee reviewed and approved the publication of the quarterly NAV, and the Half-yearly Report and Accounts and the dividend declarations. The Audit Committee also approved the FY24 Annual Report, confirming to the Board that financial and narrative reporting is fair, balanced and understandable.
The Committee is responsible for oversight of the external Audit, including (but not limited to): assessment of audit quality, including the audit team’s qualifications, expertise, resources and the overall effectiveness of the audit process; approval of their remuneration; approval of their terms of engagement; assessing annually the audit team's independence and objectivity and monitoring the Auditor’s compliance with relevant ethical and professional guidance on the rotation of audit partners and specialists.
The Company’s Auditor is KPMG Audit Limited ('KPMG' or the ‘Auditor’), located in Hamilton, Bermuda, which has been the Company’s Auditor since 2007. Given the Audit Committee’s responsibility to review the performance of the Auditor annually, the Audit Committee met with KPMG three times via their contribution at Audit Committee meetings including in executive session. The Audit Committee chair also met with KPMG privately outside of the Committee meetings and has access to Oakley’s assessment of their performance through conversations and reports provided by Oakley’s Chief Financial Officer and Group Finance Director. Together, this interaction supported the Audit Committee’s conclusion that the audit was effective and that there should be a resolution to shareholders to recommend the reappointment of KPMG at the 2024 AGM.
The Audit Committee voluntarily applies the AIC Corporate Governance Code and aspects of UK Companies Act 2006, as OCI is a UK listed company. Given that, under EU audit reform and UK adopted law, there is a 20-year maximum audit tenure for all UK Public Interest Entities, the final year-end audit for KPMG will be 31 December 2026. Consequently, the Audit Committee has initiated a tender process to appoint a new auditor.
OCI has a non-audit policy for approval of permissible non-audit services, which must be approved in advance by the Audit Committee, at which consideration is given to the impact on independence, potential conflicts of interest, the nature of the work being performed, the ability of the team conducting the work and its relationship to the audit team, and the quantum of fees in relation to the audit fee, in accordance with the Company’s non-audit services policy.
OCI’s FY24 audit fee was £0.17 million (2023: £0.17 million) and Non-audit fees paid to KPMG amounted to £0.02 million (2023: £0.005 million). Accordingly, the Audit Committee concluded that there is no threat to KPMG’s independence. Further, KPMG confirmed to the Audit Committee that it is satisfied that it acted in accordance with relevant ethical and regulatory requirements regarding independence.
The Audit Committee has a responsibility to oversee the internal control environment of OCI and Oakley to assess the likelihood that a control failure could result in a material misstatement in the financial statements, loss to the business, or significant reputational damage, penalties or sanctions.
No material control weaknesses or any suspicions of potential fraud were identified by the Company during the year and up to the date of approval of the Annual Report and Accounts.
The Audit Committee also considers the potential need for an internal audit function on an annual basis and has concluded that, currently, adequate internal Oakley assurance processes exist to satisfy and validate the adequacy of internal controls.
The Company did not receive any whistle-blowing reports during 2024 and continues, along with its key services providers, to implement clear whistle-blowing and anti-bribery and corruption policies.
The Company engages service providers to carry out all significant operating and financial reporting activities. The Management Engagement Committee monitors the performance of all key service providers, including a consideration of their internal controls and compliance activities. The Company receives direct reporting from the service providers on internal controls, the identification of any weaknesses or significant changes in process.
On behalf of the Board.
Richard Lightowler
Chair of the Audit Committee