6.1 Introduction and overview
The Board of Directors, the Company’s Risk Committee (the 'Risk Committee') and the Investment Adviser attribute great importance to professional risk management, proper understanding and negotiation of appropriate terms and conditions and active monitoring, including a thorough analysis of reports and financial statements and ongoing review of investments made. The Company has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy, and has established processes to monitor and control the economic impact of these risks. The Investment Adviser provides the Board of Directors with recommendations as to the Company’s asset allocation and annual investment levels that are consistent with the Company’s objectives. The Risk Committee reviews and agrees policies for managing the risks.
The Company has exposures to the following risks from financial instruments: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and price risk). The Company’s overall risk management process focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Company’s financial performance.
During the year under review, the Risk Committee has continued to identify, assess, monitor and manage risks within the Company, including those that would impact its future performance, solvency, liquidity or reputation. This review includes the monitoring of risk exposure compared with the risk appetite established by the Board.
Key risks and uncertainties of the Company are assessed on a scale, considering their impact and likelihood. The Committee monitors detailed and, wherever possible, quantifiable indicators of the Company’s exposure to risk, segmented into three core categories, summarised in our Principal risks and uncertainties section.
6.2 Credit risk
The Company is subject to credit risk on its unquoted investments and cash. The majority of the Company’s cash balances were held with Barclays and Royal Bank of Scotland, with a minority also held with HSBC and Butterfield Bank. Barclays and Royal Bank of Scotland are rated A1. HSBC and Butterfield Bank are rated at A3 by Moody’s (2023: Barclays, Royal Bank of Scotland and HSBC are rated A1 and Butterfiled Bank was rated A3).
In accordance with the Company’s policy, the Investment Adviser monitors the Company’s exposure to credit risk on cash on a quarterly basis and the Risk Committee regularly reviews the Company’s exposure to credit risk.
OCI has a direct loan to Time Out of £6.8 million and the Investment Adviser continues to monitor the risks arising from this position. As at 31 December 2024, the Loan held was not overdue or impaired. OCI mitigates credit risk on its loan to Time Out Group PLC (0.55% of NAV) through continuous monitoring of the company's performance and liquidity.
6.3 Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by delivering cash or another financial asset, or that such obligations will have to be settled in a manner disadvantageous to the Company. The Company, with advice from the Investment Adviser, manages liquidity through reviews of detailed cash flow projections which estimate the timing and quanta of outflows, including capital calls, and inflows from disposals of portfolio companies held within the Oakley Funds which aim to avoid undue risk of illiquidity.
The unfunded commitments to the Oakley Funds are irrevocable and can exceed cash and cash equivalents available to the Company. Based on current cash flow projections and barring unforeseen events, the Company expects to be able to honour all capital calls by the Oakley Funds. To facilitate the funding of future commitments, the Company expanded its £175 million credit facility to a total committed lending of £225 million for a two-year term. The credit facility has a total withdrawn balance of £106 million, including accrued interest, as at 31 December 2024. The Board of Directors’ assessment of liquidity risk is further detailed in Note 2.
The majority of the investments held by the Company are in Funds which are unquoted and subject to specific restrictions on transferability and disposal. Consequently, the risk exists that the Company might not be able to readily dispose of its holdings at the time of its choosing and that the price attained on a disposal may be below the amount at which such investments were included in the Company’s consolidated balance sheet.
The Company’s consolidated financial liabilities are all repayable within three months after the balance sheet date and are carried at amounts which approximate their expected settlement values. Financial liabilities exclude outstanding capital commitments at year end.
6.4 Market risk
Market risk is the risk that changes in market prices, such as equity prices, foreign exchange rates and interest rates will affect the Company’s income or the value of its holdings of financial instruments. The Company’s sensitivity to these items is set out below.
The following table sets out the concentration of the investment assets and liabilities held by the Oakley Funds as at the reporting date:
2024 % of net assets | 2023 % of net assets | |
|---|---|---|
| Equity investments | ||
Exchange-traded equity investments | 5.7% | 5.7% |
| Unquoted Oakley Funds | 81.4% | 65.3% |
| Unquoted equity investments | 12.6% | 11.8% |
Total equity investments | 99.7% | 82.8% |
| Debt securities |
|
|
| Unquoted debt securities | 0.6% | 0.5% |
Total debt securities | 0.6% | 0.5% |
Total investment assets | 100.3% | 83.3% |
OCI primarily invests in the Oakley Funds, which allocate capital across four key market sectors: education, consumer, technology, and business services. As of 31 December 2024, both direct and indirect equity investments demonstrated a diversified allocation, with no single sector exceeding a 30% concentration.
(a) Interest rate risk
2024 | 2023 | ||||||
|---|---|---|---|---|---|---|---|
Total £'000s | Within one year £'000s | More than one year £'000s | Total £'000s | Within one year £'000s | More than one year £'000s | ||
Exposure to floating rates | |||||||
Unquoted debt security | 6,797 | 833 | 5,964 | 6,098 | 844 | 5,254 | |
Borrowings | (105,638) | (105,638) | – | – | – | – | |
Cash and deposits | 103,358 | 103,358 | – | 207,155 | 207,155 | – | |
Net exposures | |||||||
At year end | 4,517 | (1,447) | 5,964 | 213,253 | 207,999 | 5,254 | |
Maximum in year | 4,902 | (1,014) | 5,916 | 214,931 | 209,832 | 5,099 | |
Minimum in year | 4,146 | (1,879) | 6,025 | 211,547 | 206,162 | 5,385 | |
2024 | 2023 | ||||||
|---|---|---|---|---|---|---|---|
Total £'000s | Exposure to floating interest rates | Fixed interest rates £'000s | Total £'000s | Exposure to floating interest rates | Fixed interest rates £'000s | ||
Maximum in year | 2,099 | 2,099 | – | 214,931 | 214,931 | – | |
Minimum in year | 4,146 | 4,146 | – | 211,547 | 211,547 | – | |
The Company's unquoted debt security carries a variable interest rate of 8% plus average SONIA (2023: 10% plus average SONIA) The debt is subject to interest rate risk as increases and decreases in interest rates will have an impact on its fair value. A 200 basis point increase in interest rates would result in a decrease in the fair value of this loan of £55,154 (2023: £179,956 decrease) and a corresponding decrease of 200 basis points in interest rates would result in an increase in the fair value by £69,820 (2023: £151,518 increase).
The impact of an increase in interest rates of 100 basis points on cash and deposits, based on the closing consolidated balance sheet position over a 12 month period, would have been an increase £1.40 million in profit within the consolidated statement of comprehensive income (2023: £1.86 million). A decrease in interest rates of 100 basis points on cash and deposits would have an equal and opposite effect.
The impact of an increase in interest rates of 100 basis points on borrowings, based on the closing consolidated balance sheet position over a 12 month period, would have been a decrease of £0.96 million in profit within the consolidated statement of comprehensive income (2023: nil). A decrease in interest rates of 100 basis points on borrowings would have an equal and opposite effect.
In addition, the Company has indirect exposure to interest rate fluctuations through changes to the financial performance and valuation in equity investments in the Oakley Funds as certain portfolio companies have issued debt. Short-term receivables and payables are excluded as, due to their short-term nature, the risks due to fluctuation in the prevailing levels of market interest rates associated with these instruments are not significant.
(b) Currency risk
The Company holds significant assets and liabilities denominated in currencies other than its functional currency, which expose the Company to the risk that the exchange rates of those currencies against the pound will change in a manner which adversely impacts the Company’s net profit and net assets attributable to shareholders. The following sensitivity analysis shows the sensitivity of the Company’s net assets to movements in foreign currency exchange rates assuming a 10% increase in exchange rates against the pound. A 10% decrease in exchange rates against the pound would have an equal and opposite effect. The sensitivity analysis below is representative of the year as a whole, since the level of exposure changes as the Company’s holdings change through the purchase and realisation of investments.
EUR | USD | GBP | SEK | DKK | |
|---|---|---|---|---|---|
Indirect Investments (GBP £’000) | 649,959 | 211,288 | 338,681 | 160 | 1,276 |
OCI Share of Fund Facilities (GBP £’000) | (36,676) | (45,138) | (154,534) | – | – |
OCI Share of Other Assets and Liabilities (GBP £’000) | 29,588 | 3,109 | – | – | – |
Direct Investments (GBP £’000) | - | 154,141 | 70,083 | – | – |
Cash (GBP £’000) | 98,541 | 3,352 | 1,465 | – | – |
Credit facility (GBP £’000) | (105,638) | ||||
Direct Loans (GBP £’000) | – | – | 6,797 | – | – |
Debtors, Creditors and Other Assets (£’000) | (1,190) | – | 690 | – | – |
Total exposure (GBP £’000) | 634,584 | 326,752 | 263,182 | 160 | 1,276 |
Percentage exposure | 51.8% | 26.7% | 21.5% | 0.0% | 0.1% |
Impact of 100 bps change in FX rate
EUR | USD | GBP | SEK | DKK | |
|---|---|---|---|---|---|
Total exposure (GBP £’000) | 634,584 | 326,752 | 263,182 | 160 | 1,276 |
Implied FX to GBP | 1.2097 | 1.2521 | 1.0000 | 13.8607 | 9.0210 |
Total exposure local currency (000) | 767,656 | 409,126 | 263,182 | 2,218 | 11,511 |
Adjustments to FX rate of 100bps | 0.01 | 0.01 | 0.01 | 0.01 | 0.01 |
Adjusted FX rate | 1.2197 | 1.2621 | 1.0000 | 13.8707 | 9.0310 |
Adjusted total exposure (GBP £’000) | 629,381 | 324,163 | 263,182 | 160 | 1,275 |
Impact on profit or loss (GBP £’000) | 5,203 | 2,589 | – | – | 1 |
The Investment Adviser monitors the Company’s currency position on a regular basis and reports the impact of currency movements on the performance of the investment portfolio to the Risk Committee quarterly. In accordance with the Company’s investment policy, all Direct Investments in quoted equity securities and debt securities are denominated in pounds, placing currency risk on the counterparty.
(c) Price risk – market fluctuations
The Company’s management of price risk, which arises primarily from quoted and unquoted equity instruments, is through the selection of financial assets within specified limits as advised by the Investment Adviser and approved by the Risk Committee.
For quoted equity securities, the market risk variable is deemed to be the market price itself. A 10% change in the price of those investments would have a £7.0 million (2023: £6.9 million) direct impact on the profit and loss in the consolidated statement of comprehensive income and the net assets attributable to shareholders in the consolidated balance sheet. The impact on net assets per ordinary share is £0.04 (2023: £0.04).
For the investment in the Oakley Funds, the market risk is deemed to be the change in fair value. A 10% change in the fair value of those investments would have a £99.8 million (2023: £78.8 million) direct impact on the profit and loss in the consolidated statement of comprehensive income and the net assets attributable to shareholders in the consolidated balance sheet. The impact on net assets per ordinary share is £0.57 (2023: £0.45).
For the investment in North Sails Group, the market risk is deemed to be the change in fair value. A 10% change in the fair value of this investments would have a £15.4 million (2023: £14.5 million) direct impact on the profit and loss in the consolidated statement of comprehensive income and the net assets attributable to shareholders in the consolidated balance sheet. The impact on net assets per ordinary share is £0.09 (2023: £0.08).
The Company primarily invests in Oakley Funds, which allocate capital across four key market sectors: Technology, Education, Consumer and Business Services.
As of 31 December 2024, both direct and indirect equity investments demonstrated a diversified allocation, with no single sector exceeding a 30% concentration.
The Company is exposed to a variety of market risk factors which may change significantly over time. As a result, measurement of such exposure at any given point in time may be difficult given the complexity and diversity of the investments held by the Oakley Funds.
6.5 Limitations of sensitivity analysis
The sensitivity information included in Notes 6 and 10 demonstrates the estimated impact of a change in a major input assumption, while other assumptions remain unchanged. In reality, there are normally significant levels of correlation between the assumptions and other factors.
It should also be noted that these sensitivities are non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results. Furthermore, estimates of sensitivity may become less reliable in unusual market conditions such as instances when risk-free interest rates fall towards zero.
6.6 Capital management
The Company’s capital comprises ordinary shares with £0.01 par value and carrying one vote each. The holders of the shares are entitled to dividends when declared. The Company has no additional restrictions or specific capital requirements on the issuance and re-purchase of ordinary shares. The movements of capital are shown in the consolidated statement of changes in equity.
The Company’s objectives when managing capital are to safeguard the Company’s assets to achieve positive returns. In order to maintain or adjust the capital structure, the Company may issue shares or may return capital to shareholders through the repurchase of shares or by paying dividends. The effects of the issue, the repurchase and resale of shares are described in Note 18.