Oakley Capital Investments Limited (OCI) Earnings Call Transcript & Summary

Good morning. My name is Steven Tredget. So I'm a partner at Oakley Capital and it's my pleasure to welcome you to the Oakley Capital Investments 2022 Full Year Results Webcast. Before we start the presentation, can I remind you that questions can be submitted in writing during the webcast by following the questions tab at the top of this broadcast window and we will tackle as many of these as possible at the end of the session. Turning our attention to OCI's performance in the 12 months to December 2022 and as we will recount, a forecast portfolio of European tech enabled businesses has delivered another year of performance. You'll be familiar with the 2022 headline numbers. The strong portfolio value growth delivered a 128p increase in the NAV per share taking us to 662p and net assets to now over the GBP 1 billion mark. This is based on the portfolio being independently fully revalued to the end of December. And when including the dividends paid, it amounts to a total NAV return of 24%. As this NAV per share bar chart shows, last year's performance is consistent with OCI's long-term returns with a 5-year compounding average annual return standing at 23%. Arguably most importantly, OCI has the highest 5-year total shareholder return of any investment company standing at 216%. As we look at this chart, it's worth reminding ourselves that the current Oakley strategy and investment team were fully formed from around 2015, '16 onwards and from this point, OCI cash was deployed at a much higher level and earlier Oakley Investments began to mature and produce significant returns setting the momentum with the performance that followed. The NAV growth we have already highlighted was a result of a GBP 240 million increase in the portfolio value. Of this value uplift, 65% was created by the increase in EBITDA generation of the portfolio companies. The 35% was a result of an increased multiple being applied to that EBITDA. Let's look at this in more detail starting with the earnings. The key stat is the portfolio company's average organic weighted EBITDA growth in the year of 22%. This was achieved against economic headwinds, high inflation and supply chain disruption and most notable a tough comparable period with average EBITDA in 2021 growing by a COVID boosted 30%. There are 4 characteristics, which are most responsible for this enduring performance despite the macro environment and these are the characteristics which are most commonly shared by an equity portfolio company. They are firstly, digitally disruptive companies, which means they take market share and do not rely on market growth. Secondly, they are founder owned. We are backing proven business leaders with the same long-term alignment as ourselves. Thirdly, they typically have a recurring or subscription nature to their revenues so their earnings and cash flows are highly predictable. And fourthly, each were benefiting from a clear enduring megatrend such as the shift of businesses and consumers to online solutions or the global demand for quality and accessible education. Two portfolio companies examples of that high EBITDA growth that in turn significant NAV contribution are IU Group, which added 64p to the NAV per share in the period. This is a university with a mission to democratize education by offering high quality flexible and affordable online degree tuition to adults around the world. It's a scalable platform that is now delivering over 550 different learning offerings and saw enrollments increase 20% in the last 12 months such that today the university has over 100,000 paying students and EBITDA growth of 40%. And secondly in Germany, Wishcard Technologies Group added 8p to NAV. The company is a leading consumer technology company in the gift voucher and employee incentive solutions sector and it continued to deliver that strong performance in 2022 achieving 20% growth in both voucher sales and earnings. Those that have had a chance to read the results release this morning would note we have moved our KPIs like the average EBITDA growth to a weighted average from a simple straight average. Some will naturally assume that our averages were already weighted, for others this will be a long overdue change and for those suspicious of any change, we provide a link in results which give us simple averages and the recent history of both. The reason for switching now is, as we'll see in a few slides' time, there is a growing range of exposure to each of the invested companies. For example we have 2 with a look for exposure of over GBP 100 million, we had 10 that had between GBP 30 million and GBP 70 million of exposure and 7 under GBP 10 million. With 35% of the portfolio, value growth was due to multiple expansion and the vast majority of this, circa 90% was as a result of uplifts based on agreed exits. So the weighted average multiple increased from 15.3x to 15.9x in the year was done to 5 assets in the period, which were completed and averaged 70% above the prevailing book value. The 2 companies that contributed the most to NAV as a result of multiple expansion were one, Contabo. The web hosting service provider added 26p to NAV per share as a result of Fund IV selling its stake in a 105% premium to the previous carrying value. The leading cloud hosting platform used by SMEs and developers continues to perform well with 24 data centers across 4 continents serving over 300,000 customers. Fund V has acquired a minority stake in Contabo to benefit from the anticipated future performance, which is currently tracking EBITDA growth of 40%. And secondly, Oakley agreed to the strategic combination of portfolio company Grupo Primavera with a software provider institute. Grupo Primavera is Iberia's leading independent business service software provider while Cegid is a global leading provider of cloud-based management solutions. The combination establishes Cegid's leadership in Iberia and offers exciting expansion opportunities for Grupo Primavera by delivering Cegid's presence in Latin America. As we consider the ability of the portfolio companies to continue increasing in value despite the backdrop, it is worth reminding ourselves that the Oakley funds hold a majority investment in 17 of the portfolio companies. Controlled investments combined with 20 years of experience allows Oakley to influence outcomes and create value. We've outlined 4 of the strategies we are most prolific at. All enable us to drive value regardless of the economic cycle or operating environment. To touch on 2 of these. Firstly is the improvement in the quality of earnings. This is best illustrated through the work done with TechInsights, which is a technical content platform for silicon microchips. The quality of the company's earnings has been transformed. With circa 20% of revenue subscription base at acquisition in 2017 growing to circa 70% today, 1 of the key drivers of the equity valuation increase since we've owned it. And secondly, buy and build. Of the 40 platform investments the Oakley Funds have made to-date, they have acquired between them over 125 company bolt-ons, deals which have been responsible for 1/4 of realized returns to date. I'm often asked about how NAV and its robustness and there is not much written about PE valuations and whether they've been kept artificially high and still lag the public markets even after its recent recovery. I can't speak for all of PE, but I can point out the following with regards to the Oakley portfolio. 11 of the portfolio companies so 42% of the companies have been priced by a third-party investment on a corporate action that took place within the year. And to clarify when I talk about investment on action, this is something that would have taken months of due diligence on behalf of us or another PE sponsor and would involve a level of detail that is not available in the public markets when considering the value of business. Those 11 and the remainder of the portfolio have all been independently valued and audited as at December. Thirdly, we have a long-standing track record of selling assets above the book value. That premium on exit stands at 54% since inception and it's been higher in recent years. And fourthly, Oakley has arranged recent secondary sales of Oakley Fund positions for some of its investors in the year. These are being sold at between 10% to 0% discount to the fund NAV. When comparing PE valuations to the public market, I would also highlight the following. There's disparity between the new economy equity digital portfolios of ourselves and our direct listed PE peers compare the same. The first yield share constituents, which in many cases won't include comparable companies. The public market typically demands a 20% to 30% control premium to take a company further. So in theory, PE holding should rate above public peers or they don't. A point I made in previous presentations is that an investment adviser like Oakley is not incentivized by unrealized gains so it's not motivated to overstate the value of a holding. And finally, with quasi permanent capital, PE is unlikely to face the untimely selling pressure that can befall a mid-cap listed company. We've always maintained that we are relatively modest in our use of debt and that with asset-light companies enjoying high cash conversion, we have companies which can comfortably support that and quickly delever. At the year-end, the average portfolio company net debt to EBITDA stood at 4.3x, changing little in the course of the year which compares to a PE industry average of circa 7x. As a rule, Oakley tends to use a majority of equity at the point of making an investment and then refinances laterally following performance. To illustrate the relatively low reliance on debt, the pie chart here shows the 4 contributing factors to realized returns to-date with the largest by far at 48% being organic growth as we discussed and as we discussed earlier, M&A has been 24% of the value created. A multiple expansion of 15% is a contributing factor, but not relied upon for returns. The most notable use of debt at 2% of realized returns is nominal. Here we break down the GBP 1.2 billion of asset value into the exposure to the underlying portfolio companies, which now stand at 26%. You can see the asset value is fairly evenly split between the 3 focused sectors of technology, consumer and education with education being the largest. As touched on earlier, as we run our winners, there's increasing disparity between the look for exposure to the larger flagship fund holdings and recent investments in lower mid-market companies. IU Group, which we spoke to earlier, is by far the largest equity holding with a GBP 243 million exposure to the online university. This is encouraging given it remains 1 of the Top 3 fastest growing companies within the portfolio. OCI retains 2 direct holdings, 1 in the debt and equity of Time Out and the other in the debt of North Sails, both the sales manufacturing division and their power division. It is pleasing to report improving and profitable growth in both companies after both suffered significantly at the hands of the pandemic and required additional support from OCI as a result. To put that into context with North Sails, it went from a nominal level of EBITDA in 2021 to producing something in the region of GBP 28 million of EBITDA exceeding our expectations in 2022. Time Out is listed so there's little we can give you that's additional to what's in the public markets except to say that the business is emerging strongly. There's been a significant announced pipeline of new markets that are opening, profitability has returned to the group and on the 30th of March the company will be announcing its interim results. Here we have taken the 26 companies and analyzed them for potential impact from the most notable macro risks acknowledging that no portfolio is unscathed in these circumstances. For example the small number of consumer companies with manufactured goods bear the threat of continued supply chain constraints. One of those companies most notably affected by this has been Windstar in Germany. And then we've got 2 companies serving the web hosting industry. It's unavoidable for them to avoid the exposure to high energy costs for example. The most notable and avoidable impact is that of inflation. Cost and wage inflation and the possible reduced demand as a result of the rising cost of living will stand to impact some 60% of the portfolio companies. But in our favor is factors like one, many of those companies provide lower cost business or consumer solutions like for example fitness [ after Monday ] and that's really because 70% of them deploy those products or services digitally. Two, in a rising cost environment, consumer marketplaces like price comparison websites can foster. And three, with pricing power and many of these companies have been on price rises given the relatively low cost of mission critical service like for example that provided by web hosting software provider [ book price ]. The analysis also demonstrates that the portfolio offers a fair degree of resilience to external factors as it did in 2022. With OCI's commitment to a third Oakley Fund strategy in 2022, it's worth highlighting the overriding strategy of Oakley and its medium-term plans. We started with the mid-market flagship buyout funds now to Fund V, then came the lower mid-market origin funds and then the VC PROfounders. Rather than moving up the scale to raise much larger funds to invest in much larger companies, Oakley has looked to invest across the company life cycle partnering as it always has done with ambitious and proven founders. Possible next steps include a growth tech strategy and a continuation fund to allow clients to add larger exposure to outperforming companies that become too large for the funds. Although the OCI exposure to a PROfounder is very limited at this stage reflecting the size of the VC fund, it's worth providing some background. The strategy was launched in 2009 and now on the third and larger funds, the team has built a track record of scale that warrants the OCI commitments. Now include 5x realized return is thanks to 12 successful exits from 50 investments that have been made to-date. Such successes have included [ Technical Guide ] and Facile. In short base seed funds by growth start-ups that leverage technology to transform those broken customer experiences, Fund III has made 3 investments today which include a platform that provides CFO and reporting solutions to SMEs and a B2B mental health solutions for employees. Following the addition of PROfounders III, let's look where this leads us with regard to total commitment. OCI has outstanding equity funded commitments of GBP 929 million as at the 31st of December. The majority of this is its commitment to the recently launched Fund V. The second bar on the chart in grey breaks this down into the expected timing of the drawdowns, i.e., when will the Oakley funds need the cash committed to them. There is GBP 210 million expected to be drawn in the next 12 months, GBP 519 million set to be called after 12 months and over a 5-year period and finally, over GBP 200 million that is not expected to be called. Set against these commitments are GBP 210 million of liquid resources, which is GBP 110 million of cash and GBP 100 million of unused credit facility. Whilst this gives us ample near-term cover; we expect exits, refinancings and the repayment of direct debt over the next 12 to 18 months to generate further proceeds. And whilst it's hard to specifically forecast activity and over the prior page, that assumes that normal business kind of continues in the market. In reality distributions from the funds is result realizations that the purple bars in this chart have consistently broadly matched or exceeded the capital calls required to fund the investments, the black bars. And 2022 proved no different with broadly GBP 200 million of capital calls and GBP 200 million of distributions. The high activity level came in the year when fee activity in general were lower. So we're demonstrating here the quality and the visibility of the investments realized. And 2, when it comes to origination, we continue to unlock opportunities by being the partner of choice for business founders. On the subject of future exits, the average hold period of a realized investment in the Oakley funds is 3.6 years and the weighted average of the portfolio is 3.3 years. So whilst the exact timing of exits is unknown, there are plenty of maturing assets within the portfolio. To add to this, we continue to attract more attention from the larger PE sponsors who currently sits on record levels of dry powder within their funds, over 3 trillion according to the recent Bain report. Turning to new investments and the foundation for the future OCI NAV growth. Oakley unearthed 4 attractive new platform investments in the year and made follow-on investments in 3 companies we wish to continue to back deploying a total of GBP 271 million. The new founder-led arrivals included vLex, Spain's fastest-growing legal data company led by its founding brothers and it offers a cloud-based online subscription platform giving easy access to legal and regulatory information to over 2 million users. Affinitas, a roll-up vehicle in the fragmented premium private school space in a sector that we obviously know well. And Phenna, 1 of the fastest-growing TICC business, testing and inspection, globally with revenue growth of circa 100% CAGR over the last 3 years. It provides specialist testing and inspection services across infrastructure, build environment, niche industrial, pharmaceutical and certification and compliance divisions. The business operates across 12 countries in 4 continents. Since signing that deal halfway through the last year, the group has completed 13 acquisitions reducing its entry multiple by 3 turns and increasing its EBITDA run rate by circa 50%. To close the presentation rather than summarizing bullets what we've already told you or repeating what we have said consistently about outlook for the last few years, we thought we'd leave you with a photo depicting portfolio company Vice Golf. Why? Let's take a consumer business that could be on the sharp end of recession. On the surface, it's hard to be optimistic about golf ball sales in 2023. Custom balls are up. It's a product that can be easily replaced. There is large dominant players. There's low barriers to entry. E-commerce is suffering softness post its COVID spike and a consumer recession that could dent kind of further discretionary spend. So it's not too dissimilar to the challenges facing any consumer company. And yes, Vice has a D2C big box solution that is disrupting the golf ball market selling premium products at 40% discount to alternative balls. It maintains high margins, avoids the cost of the pro golf shops with a brand that shuns the traditional additional golf image and appeals to a young emerging player. The company drives awareness with an expertise and influencer marketing much like a number of our consumer brands. And when it comes to value creation, product expansion is enabling them to leverage the brand across equipment and apparel. And then to add a bit about Netflix has given golf the drive to survive F1 treatment with its PGA Tour series called Swing, which is proving incredibly popular and attracting new players to the game. All this means that Vice Golf is currently growing its revenues by over 30%. So yes, we will encounter further headwinds. But like Vice, we have a portfolio of resilient well-positioned companies with robust valuations and we're confident that they will continue to deliver outperformance for OCI shareholders in 2023 and beyond. We've only just released the full year results, but it won't be long until we give you another NAV update in April when the portfolio will be revalued to the end of March and for further transparency and communication, we have an online Capital Markets Day, which is scheduled in May. So that brings us to the end of the formal part of the presentation and we'd like to open up the webcast to Q&A. My colleague, James Isola, has been monitoring your questions as they come in. And James, over to you.

Thanks, Steve. [Operator Instructions] So many thanks for those of you who have already sent some questions in. We've had quite a few on the current landscape for private equity so let's start there. Steve, could you speak about the current PE or private equity environment for investment opportunities, pricing and likely exits?

Certainly. I mean there's always a danger of just giving Oakley's perspective of the broader PE market because obviously we don't see every deal and we don't compete typically in auctions. But I think one, let's talk about fundraising activity. Yes, it has declined year-on-year, but it's still at relatively record levels and I think it's like 1 of the second or third highest in history so that's capital still being drawn to PE. Secondly, on activity levels and pricing. I mean I think we'd observe activity levels have fallen, but pricing hasn't and I think those 2 points are related. So why not multiple contraction? I think for premium assets, we are seeing -- I must say pretty much these are high quality revenues, hugely differentiated market leaders, the kind of characteristics we might associate with an Oakley portfolio company. Those deals still happen. That is totally available for them that may be 25 bps more to cost, but there's scarcity in those assets. The market still got high demand for those, there's no multiple contraction and I guess also it talks to the still record dry powder for those kind of assets. So we're seeing no multiple contraction to those premium assets of which there's relative scarcity. And then we speak to second tier assets and here I'm talking about most of the companies. We're talking here about decent assets that the trading is still performing for these companies. But in the second tier assets, you get uncertainty in debt. Buyers want a discount, sellers don't want to sell and won't sell, won't accept the discount so are sitting back. And so we're either seeing those companies not come to auction or failing at auction. And so that's why you're seeing ratings held relatively high, but activity levels falling. And if you speak to advisers and I suspect advisers in the public markets, there is a brewing kind of pipeline of opportunities being prepared for 2023 and if you talk to the Big 4 accounts, they are very busy doing preparatory work. So when it comes to that slightly more competitive intermediated part of the market, we've always -- we do not source a lot through that avenue. It obviously serves us and serves the exit companies. But as far as that competitive part of the market, we're still being patient and waiting for further value to come when it comes to the origination. But origination for us still remains the same. It's about founder-owned bilateral agreements being the first institutional capital into businesses that are profitable, fast growing; but with founders not looking to price maximize, looking to bring on a partner to help them professionalize. Interestingly, when it comes to bolt-on activity there, as you've seen, we've been quite active and that again is because it's the founder and lower end of the market. Interestingly where the market opportunities for us is that where debt has been cheap and widely available to all and so private equity becomes an alternative solution. Plus of course many of these companies will have the wrong balance sheet structure now and are looking to restructure.

Next question is about EBITDA growth. Although still high, average EBITDA growth slowed year-on-year. Is this a cause for concern and reflective of a longer-term trend?

I think the first thing, as I mentioned earlier, is that -- well, I guess there's a couple of things to make. One is what's a typical average EBITDA. It's a relatively blunt instrument and we always said that we should hope that Oakley portfolio companies should be generating depending on where they are in their life cycle so it's 15% to 30% EBITDA growth and the average has moved between that range. So this is very much still at the upper end of that range. Secondly, when we talk about 30% EBITDA growth, we are referring there to that which was achieved in 2021, which for consumer digital companies, they really had the boost of adoption caused by the pandemic and the lockdown. So we've got a very strong comparable period to the fact that we've grown consistently on top of that I see as a positive. Now that's not to say and we've been open about this and particularly in the previous slide we talked about headwinds. There are companies, which we're seeing some revenue or margin compression because of the wider macro challenges. But those companies have and will continue to prove more resilient than most of the businesses that you could acquire in the public market.

We've had quite a few questions about the discount so we'll move on to that and I'll amalgamate some of these questions. What do you feel is a fair discount if at all and how confident are you that you can close a discount and how will you do that? Is part of the answer more buybacks?

So I'll start the question by saying just when it comes to discounts, the consistent driver of shareholder returns for any investment company, but particularly for a listed PE, is asset growth. So if you look, we're 1 of the highest NAV growth -- had 1 of the highest NAV growth. If you look at our performance over the last 12 months share performance, it is 1 of the highest, us and the other significant growth in the period. And if you look at prior years, those that have outperformed from a shareholder return, it's the NAV growth and not the discount which has driven it and I want that to be the focus. I mean it's easy for me to say the discount is going to close and that's a wonderful addition. Also I spoke to about 5-year shareholder returns, they've been achieved and they are the highest of any investment company on the U.K. stock market and that's been achieved despite the fact they're discounted to NAV. So I think we need to put the discount in context and I think that there is an overdue focus on it being what is going to drive return. It's not what's driving returns now. Do I think that should be one? Absolutely not. I mean it's hard to justify in any way any kind of discount. I mean if the NAV was flat and consistently flat over time that it should at least be trading at par maybe. But these NAVs have grown consistently over time and so therefore, the share price should reflect that. And any normal company would look to the future expected performance of those companies and value them accordingly and reflect that in the valuation. Here none of that's happening. There's a look in the rearview mirror, also look at the system performance of those assets, the increasing transparency we provide around those assets. That average EBITDA growth, which is going nowhere, which continues to drive the performance of these businesses. So I firmly believe that companies like ourselves should be trading on a premium. And so whilst I say it's not the driver, we do focus on it and particularly the OCI Board looks at ways to engage on how to tackle it. That's really always that should be done. I mean there is just generally what a listed PE can do for itself, which is continue to create confidence in valuations and that's in kind of making sure that we're using a fair market methodology. We provide -- we prove the integrity of our valuation by the information that we provide and hopefully over time, we continue to show that these are robust valuations that regardless of what's happening in the wider public market still stand up. When we think more about OCI specific measures, there's 3 areas. So there's reporting of frequency. Now look, we tried ourselves now on being voted 1 of the best in class for our reporting and we continue to think ways of improving our transparency. The move to KPIs that are now weighted is a good example of that and providing as much detail on different KPIs. There's much history around as possible and also giving access to the portfolio companies, particularly at the Capital Markets Day when we can. It moves to -- we've only been doing that now for 2 or 3 quarters, I think that helps. And as much as we can constantly provide the market, provide that insight into the underlying portfolio companies the better. Then the key 1 is around performance and scale. If we continue even in the face of a possible deep European recession, if we can continue to deliver NAV returns we've done in the last 5 to 10 years, then I think reputation cements itself and set ratings. Bear in mind that the discount of NAVs just cut across the entire 14 of the 16 investment company sectors are all on discounts. The set-off has been wide and hasn't been selective. So it's not -- mostly discounts don't exist because of a specific view on a company. They exist because there's been sell-down investment companies in general. And also OCI has in the past been a relative winner within the listed PE space. It doesn't help in terms of the kind of investors that can invest in it. Now with an asset value over GBP 1 billion and market cap is moving itself over GBP 1 billion, that scale should help in terms of the investors and the liquidity it can then attract. And then finally, there are a couple of specific OCI points that need addressing. We do have these direct investments. They are on par with the long-term future of Oakley and the sooner they can be realized, the better. And particularly around North Sails debt, there is the ambition to realize that since possibly got the performance now, this is going through a restructuring as we speak. Hopefully potentially attract new equity investment. In doing so, there will be the opportunity to refinance the debt that OCI has paid. And then finally, and then the question share buybacks. Yes, they are clearly [indiscernible] discount. We obviously do a buyback to close discount. You do a buyback because it's shareholder enhancing. It increases the NAV per share. And the reason that we fully commit to doing that, it also has the benefit of giving that confidence in the NAV because if you're willing to buy the shares, it's sending a very strong message and the price that stands now is a particularly attractive point to be buying the shares. The thing that determines when we could buy the shares is entirely driven around cash and so that is down to kind of what realizations are expected and when and what upcoming commitments to the funds or draw capital calls in the funds were anticipated. So when we're not doing a buyback, it's not because suddenly the program has come into a lull or we've changed our minds. It's purely around our use of cash.

Steve, you partly answered the next question, which is about the intentions with regards to direct debt holdings in Time Out and North Sails. But we have a follow-on couple of questions about providing an update on prospects for both businesses. If you could talk a little bit about that?

Yes, certainly. So let's start with -- I did touch on it. Let's start with Time Out. As I said, it's a listed business so I can't provide new information that's not already in the public market, but the interim results are on the 30th of March. The key story there is a business that is fully emerging. In 2019 it was really well positioned. They opened this physical Time Out food markets, the first one of which was in Lisbon was doing incredibly well. So the media business was turning and almost exclusively did so and everything looked fair to Time Out. And then of course the company dedicated to going out during the lockdown was not ideal. When all the markets closed, they opened, they closed, opened, they closed and the marketing environment was obviously very difficult during that time as well. You now find a business which is really starting to matter. There's 7 markets opened., There's 8 new markets signed, of which 4 or 5 of those have been in the last 6 months in major -- so rather than just relying on programmatic digital advertising, talking about cross channels so websites and physical solutions and obviously some stuff within the market that is delivering GBP 0.5 million, GBP 1 million type marketing solutions to big brands like Maybelline and Mastercard and the like. So I think we could be particularly optimistic about the position that Time Out finds itself in and of course it's now had a refinancing so it's just set there from that perspective. There is a modest amount of debt that unfortunately they weren't able to pay it down because of the terms of the new refinancing, but it's short term and it's GBP 5 million that has to be repaid by the end of this calendar year. And then when it comes to North Sails, I mean the group has had a post-COVID transformation. It was making modest EBITDA -- it made $30 million of EBITDA in 2022 I mean exceeding our expectations. Sail making and the mast business are back and they're doing somewhere in the region of $26-plus million of EBITDA and then you've got axis poles plus the wind surfing area of the business, which really emerged within COVID and that's producing in the region of 5 million to 7 million. And then you've got a parallel which for the first time is profitable and contributing meaningfully and doing about 3 million of EBITDA. So I think we've been really kind of happy with the way that North has emerged. We always knew there was a high quality asset that dominated the premium sailing world. The bits that we wanted to do was find the other ways to grow verticals around that brand and it ties with surfing apparel. We are finally achieving that.

The next question is about commitments and cash and liquidity. Can you comment on the outstanding commitments versus the available cash and credit facility and perhaps some comment around the maturity profile of businesses? And linked to that, the GBP 200 million commitments figure not expected to be called separately. Can you provide a bit more commentary on how you arrive at that number?

Well, I think hopefully -- and subsequent to that question we submitted, we took you through 2 slides in detail on the level of commitments and the level of cash and liquidity. So hopefully, we've provided the clarity around that. I mean in short to repeat some of those messages. I mean one, a big chunk has only just be committed so we're not expecting a large amount of act to be drawn immediately. And of course in the current market with uncertainty and particularly around because we haven't seen a lot of multiple compression or we haven't seen much dislocation yet from a difficult economic environment, we're not in a rush to deploy capital. In contrast, as I talked about, premium assets are still attracting a lot of attention and so the dynamics should be more around exits rather than investments. But in terms of if normal course of business, you'd expect the funds to deploy around or to draw on commitments for us of around GBP 200 million next year commitments that we comfortably cover. And then we expect typical activity levels. If you're getting typical investment activity numbers, you tend to check typical divestment activity levels that balance, which is the point of the slide we provided. And on that basis, you would expect and we anticipate significant proceeds from possible exits or realizations. And it's more likely to be 1 or 2 assets rather than the large number of deals that took place within 2022. Was there anything I didn't answer, James?

The GBP 200 million commitment is not expected to be called, just a bit more color on that?

What does that mean? I mean that's a pretty conservative number. I mean it potentially could be higher than that. Why might you not get deals called. First off, do you have fund facilities which help smooth over the drawdown so you don't get your capital call every single time the investment is made or a bolt-on is made within the company. So they offset some of that and you could see realizations long before you set out to pay back those kind of fund facilities. Also typically, funds are deployed up to about 80%. They're very rarely deployed up to 100%. It's not like a public market fund where you can invest in small increments, can invest the exact amount. We're talking about 10 portfolio companies where you'll deploy relatively big checks. So the science is you get all of that plus you need yourself the capacity and flexibility to have additional funding in adjusting pace. And so that's why you can confidently predict that's based on historic drawdowns that you won't need to draw down the full amount.

The next question is about IU Group and enrollments. Can you tell us what the split in enrollment growth is between domestic and international or any other relevant splits you think would be useful for us? And secondly, what is the outlook for growth? Is IU Group still on course of targeting 175,000 students by the end of 2024?

So starting with new enrollment. If you look at new enrollments, circa 25% of those are international. So to give you some context. This was originally a German books business. The investment thesis for us that this was an opportunity to have a disruptive player in the German market. Why Germany? Because 2 things really. One was that this solution was provided by a number of small state-backed companies. There wasn't really a holistic high quality solution within the German market so there was an opportunity to invest in a disruptor. Secondly, this isn't about taking school leavers and giving them an alternative to go into a campus university. The reason why Germany was particularly strong in this area was because this is about taking adults average age -- current average age is about 27, but let's say average age is 35 who don't come from necessarily an academic background. They're working and they may have families and they're looking to do higher education for the first time or reeducating themselves. In Germany particularly, there's been a high historic bias towards apprenticeships and the kind of learning in job and so there is this overall some individuals that are looking to maybe get degrees for the first time, but need the flexibility of doing those around their now existing commitments. So that was the thesis. What's been exceptional about how well that's worked, but also how it's applied and how it's been adopted as a solution globally? Why it's now become a leading European universities? And circa 25% of new cohorts are now international and it's the fastest-growing element of student signups. The German growth still continues and where that's coming from. I think we thought that would be very much focused on the developing countries, countries like Africa and parts of Asia which is true, it is. But we're also seeing it's just a popular in other developing nations. So in answer to the question, yes, those student number targets still remain. The growth is still continuing as we speak, enrollments this year so far have exceeded expectations. And finally, there's other ways in which we can encourage growth and those are the ability to issue degrees in other jurisdictions. They soon will be able to do that from the U.K. to Greece and we're also looking at other Western countries where we hope to have degree awarding soon.

We've got a question about AI or artificial intelligence. Please could you tell us your view on the impact of AI across the mid-market tech opportunity set and is there any impact expected in the portfolio?

I mean it's wonderful that they think we are the foremost experts on that. Interestingly enough, 1 of the growth strategies we're looking at is around generative AI. So it's a subject that we have thought a lot about as an investment house. I think there's absolutely no denying the level of disruption that this could cause and we're seeing 2 things. An evolution in enterprise software. As millennials are kind of taking control of businesses now when you think about the size of them and the workforce, they are expecting software to look and operate like those they have been used to on their phone. So there has to be a complete change in software, which is now client facing and so you're seeing an evolution of software. One of the things that's driving that is generative AI and the way that the software can be designed and also generative solutions. In terms of impacts within the portfolio, I mean there's no immediate impact except for the fact that they're alive to possible AI solutions. Interestingly, we talk about IU, they are deploying AI in delivery of their courses and what's interesting about that is how you could so quickly surpass what a relatively blunt lecture hall approach to universities to degree tuition, which is monitoring how a student is responding to what kind of topics and what kind of learning materials and being able to adapt those learning materials to their lives and it's kind of testing and information delivery really transforms the way that people can learn in a much more sophisticated way than education has been delivered historically.

We've got 5 minutes left. We're going to try and squeeze in 2 last questions. First one is there has been a market fall in public markets in the last couple of months particularly in tech. How has that -- to what extent has that impacted valuations?

Look, I think tech is a very large sector firstly. Secondly, there are all types of tech particularly when it comes to sales and we touched on this in our reported accounts and the bad tech, good tech. I think the tech whose valuations have been maintained are the over 20% margin profitable businesses on which you can establish a cash flow generation multiple. Those that have suffered are the most speculative revenue base valued businesses where understandably particularly would fall away in the level of venture capital in upward driven kind of rounds kind of process, which really stopped in 2022. Understandably, some of those companies, the valuations of those are short. I think within really where I'm going with this is that those companies with high margins, high levels of growing cash generation that those multiples have remained relatively robust. And I guess to repeat a previous point, we're also not guessing on what we think those valuations are based on. There is not only a lot of [ people present ], but there are actions within the group. Nearly 50% of the portfolio as an event in which price those companies as a result of an investment or an action that took place in the last 6 to 12 months.

A last question to squeeze in. Who are your typical buyers when you exit the business?

For last number of years, they have been the large sponsors. So the likes of EQT have invested in 2 of our consumer digital platforms, Silver Lake invested into our companies, KKR invested into Contabo, CTC into a number of our temps. So large global PE sponsors who not only have -- that are particularly attracted to the side of our assets and particularly that digitally disruptive to our business, but don't want to do the messy early stages of putting these business together, professionalizing them, growing them; but when they reach that scale, they're incredibly interested. And those increasing relationships with those large sponsors is proving to be successful for us. The majority of the portfolio today will have some level of engagement by each of those companies with a number of sponsors. The kind of companies that are very well known within the PE space now or increasingly so and so there's a lot of engagement. And a lot of the transactions we've done, we've not started a process but are often preemptively approached by 1 of the large PE players.

Thank you, Steve. I'm afraid we're going to have to bring our Q&A to a close as we've run out of time. Steve, any closing words you'd like to make before we go.

Thank you very much for joining us. As I'm sure James always told me, please e-mail us if you have any outstanding questions to the OCI Investor Relations website. This e-mail is on the website -- Investor Relations email which is on the OCI website. Our next update, as I said, will be Q1 NAV report of 26 of April. And there ends today's webcast.