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

Good morning. My name is Steven Tredget, and I'm a partner of Oakley Capital, and it's my pleasure to welcome you to the Oakley Capital Investments 2024 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 video and as -- we tackle as many of these as possible at the end of the session. You can download the presentation to view at your leisure by clicking on the Downloads button at the top of your screen. In today's presentation, we'll examine the current asset breakdown, the drivers of performance despite some challenging conditions and the elements which have hindered NAV growth in the year. We'll speak to the prevailing favorable market for making investments and Oakley's record level of deployment, completing 8 new deals in 2024. And with 5 of the 8 deals being in the technology sector, we'll be joined by Oakley Managing Director, Lovis von Andrian, to discuss the investment strategy for this sector, the traits they have been targeting and introduce us to some of the newest additions to the portfolio, Assured Data Protection. As we turn our attention to cash and commitments, we'll reflect on realizations made in the year despite the slow environment for exits. And finally, we'll look to the year ahead and the factors that we think will deliver stronger NAV growth in 2025 and beyond. Before we look to the future, let's take stock of where we are today, and how the portfolio has been performing. The net asset value at the end of December reached GBP 1.2 billion or GBP 6.95 a share. That's an increase of GBP 0.15 over the year, which when we include dividends, represents a total NAV return of 2% or 6% before the impact of FX. It's a modest NAV growth by OCI standards, but a positive outcome all the same given the macro headwinds. Portfolio value increase was driven circa 75% by EBITDA growth, reflecting a retained cautious approach to valuation multiples. In a couple of slides we also talk to the factors which muted growth in 2024, which we expect to reverse in the year ahead. A review of the historic NAV growth emphasizes the muted performance of the last 2 years, reflecting most the mixed macro backdrop and a more conservative exit environment. However, as I'll make the case today, we expect 2025 to see a return to a more historic NAV CAGR of 15% to 20%. Let's take a look at the asset value and how it breaks down. At a high level, we have cash, North Sails preference shares and just under GBP 1 billion of equity investments. It's worth noting that of these assets, GBP 154 million of preference shares with 0 coupon and was growing in value in 2024. Alongside them, just over GBP 450 million of investments that were made in the last 24 months, which made a limited contribution to NAV growth as expected for this stage in their ownership. We'll talk to this point in more detail shortly. But needless to say, whilst nearly 50% of the asset value was going to sort of a no or muted growth in the prior period, the prospects are different this year with GBP 93 million of the North preferred converted to equity, whose value is anticipated to appreciate given trade and the impact of recent acquisitions, whilst the maturing portfolio will increase the contributors to OCI's performance as valuation uplift typically accelerates through the duration of an Oakley investment as we'll come on to discuss. Let's break down the equity investment first by sector and then geography. We see, as it has been in the recent years that the portfolio companies are reasonably evenly spread across our 4 focus sectors. All 4 sectors have grown in value since December '23, with the largest organic growth being from the technology sector. Most notably, the exposure to business services increased 78%, reflecting the addition of Automotive Repair Group Steer, life science compliance services provider ProductLife Group and the strong organic and acquired growth of Phenna, the U.K.'s largest testing and inspection group. Breaking the portfolio down by geography exposure, the pie tells us a story where Oakley has its longest-standing track records, expertise and founder networks. After many years of investment in activity in our geography of origin, the U.K. actually represents one of the largest proportions of the asset value with 9 companies' headquarters here, reflecting the emergence of attractive deal flow and our building reputation amongst founders and advisers within region and the large opportunity set in the U.K. within business services. Germany at a very close second with 10 of the portfolios domiciled here. Spain and Southern Europe remain a fast-growing region for Oakley, reflecting a large pool of opportunities, less PE penetration and the opening of the Madrid office. One of the regions we have started to be more active in is France, following 2 recent investments, which has been enabled by the appointment of an in-country senior adviser. Based on the currency investments, the offsetting underlying debt in the portfolio comes in cash, the NAV currency exposure splits down 21% pounds, 52% euros and 27% dollars. We're very conscious that this is becoming even harder to read every year, and you can examine the slide at your leisure in the deck. But we now break the asset value down further by the 33 underlying portfolio companies. That with the exception of Time Out, sit within the Oakley Funds. The 5 largest of the investments with the near-term potential for the biggest impact on NAV are Cegid, North Sails, Phenna, IU Group and Steer Automotive. Three of these were the top 5 drivers of growth in 2024, and we expect all 5 to be significant contributors to NAV growth in the current year. Within Venture, the black line at the bottom, Oakley PROfounders and the Oakley Touring Fund made a further 9 investments, 5 from PROfounders and 4 from Touring, taking them to a combined 17 investing companies. Whilst they are, as can be seen, comparatively small collectively, they are nonetheless an exciting possible driver of growth for OCI in the future and give OCI exposure to a highly attractive subset of generative AI-powered software companies. The Oakley Touring Fund even delivered its first realization after only 12 months, the partial sale of SafeBase, delivering a gross 50% IRR. Performance across the portfolio is robust with circa 80% of the companies owned for more than 6 months increasing in value. Looking now at the lead contributors to OCI's NAV growth for the period. Firstly, we have IU Group, which added GBP 0.08 to the NAV per share. IU continued to deliver double-digit growth, thanks to demand of its online degree courses. Student figures have now reached over 150,000 with growth in both the B2C and on-campus segments. IU Group continues to make progress with its acquired international units as well in the U.K. and Canada, achieving a combined revenue growth of 35% in 2024 versus the prior year. Dexters, a business, particularly those of you living in the south of London will be familiar with, it's London's leading independent chartered surveyors estate agent, which added GBP 0.07 to the NAV per share in the period. Dexters group revenues and EBITDA 19% and 22% respectively. Despite the hesitant consumer sentiment across the U.K., the companies continue to see healthy sales income from the buying and selling of properties in the year, whilst the letting revenue, which accounts for over 60% of the overall revenue continued to grow in the year, increasing by 23%. And finally, Phenna, the second largest investment in OCI's underlying portfolio with a look-through value of just over GBP 100 million, added GBP 0.07 to the NAV per share. Phenna continues to perform well and is seeing meaningful end market diversification with the newly created Food and Pharmaceutical division now representing 20% of revenues. The business has also been focused on international expansion during the year with roughly 75% of acquisitions made in '24 located outside of the U.K. Phenna continued executing on its accretive bolt-on pipeline with 8 acquisitions completed at an average of under 6.5x EV EBITDA multiple. So negative drivers of performance, we have Vice Golf, which decreased NAV per share by GBP 0.03, reflecting a soft performance driven by its main D2C channel, which suffered delays in product launches and the shop system migration to Shopify and a suboptimal marketing performance. On the final quarter of the year, however, Vice Golf caught up on its product launches, including new golf ball models and its first generation of golf clubs, completed the Shopify migration, which together has led to a sustained uptick in performance and marketing efficiency. This allowed Vice Golf to significantly narrow, but not fully close the gap that opened up during the high season. With a fully invested technology infrastructure and a significantly strengthened management, the team is driving improvements in operational excellence throughout the organization to carry the recovery into that high season this year. TechInsights declined GBP 0.02, reflecting the challenging year experienced by the semiconductor industry with semiconductor volumes still down 14% versus the market peak in June 2022. The market has, however, started showing signs of recovery with semiconductor volumes up 3% versus the prior year as at December '24. Despite the difficult market conditions, TechInsights delivered positive revenue growth in the last 12 months, driven by growth in its subscription business and supported by healthy renewal rates from existing customers. Recurring revenues now make up to 84% of total revenues. And finally, private schools group, Thomas's, though the impact was small, had a GBP 0.01 negative impact on the NAV per share. This reflects the focus and cost in the year of delivering 2 large CapEx projects. And as part of the group professionalization, Oakley made some adjustments to the EBITDA reporting in the group. In the meantime, the level of enrollment activity for the new Thomas's College in Richmond has been very encouraging. Looking to the average KPIs of the portfolio, earnings grew at an average organic 15% over the last 12 months, thanks to robust trading across the portfolio. This is up from 14% at the half year and reflects the improving prospects across much of the portfolio heading into 2025. This figure doesn't account for growth via M&A, which in companies like Phenna, Steer, Liberty Dental, Affinitas, for example, played a large role in the value creation with their share of over 50 acquisitions during the year. Weighted average EBITDA growth after M&A is 21%. At 4.1x, the average net debt EBITDA remains modest compared to the wider PE market, which averages between 5 to 6x with no debt maturities in the next 2.5 years. The typically asset-light and strong cash generations in the portfolio are reflected in averaging interest cost cover of 3x. Although the pace of Central Bank and interest rate cuts is expected to slow, we are helping portfolio companies to lock in lower borrowing costs now and have secured more than GBP 30 million of annualized interest savings in the year. Finally, the average valuation multiple stands at 16.4x EV EBITDA, unchanged since last year with recent realizations of book value underlying the robustness of the valuation process even in a softer exit environment. Returning to our previous theme, the chart here shows investments made over the last 7 years with the colors denoting which fund vintage they were made. The orange shaded area covers the deals completed in the last 2 years, illustrating the high level of investment activity, making the portfolio the youngest it has been in the last 10 years. This is predominantly thanks to the relatively fast deployment of flagship Fund V, represented here by the dark purple bars. Why might this have impeded NAV performance? And the graph here is an illustrative funnel that shows the money multiple return over the life of the investment for these deals we have realized. So it's unrealized money multiple return through until the end where you see some examples of the realized outcome. It demonstrates how the return builds over the life of a typical Oakley investment. We've included on the graph 5 examples of deals with a variety of outcomes, but whether a 2x money multiple realized outcome or a 13x money multiple, the value accrues in a similar fashion. In the first year, modest or no growth in value is recorded, reflecting the proximity of the purchase and the obvious valuation proof-points at that point in time. The following years see some growth, almost entirely based on earnings growth. And then years 3 and 4 onwards, we see the combination of the impact of value creation, organization maturity and then the multiple expansion as the investment moves closer to an exit or more closer to reflecting the market comps. To illustrate the value potential within the current portfolio, we have plotted the anticipated growth of Fund V through to 2027 based on the base case investment returns for the 10 underlying companies. To remind you, Fund V is a 2022 vintage fund to which OCI has a look-through exposure today of about GBP 400 million. On the basis of the expected outcomes, Fund V alone will be anticipated to contribute between GBP 1.50 and GBP 2.00 to OCI's NAV per share in the next 3 years. This will be driven by an anticipated annual average EBITDA growth of 28% from the fund's underlying companies. While steelmaking in Europe remains below the multiyear average, the opportunity set has never been greater. 96% of European companies with revenue in excess of EUR 100 million are private and in the majority of cases, founder-led. Oakley backed a record number of these businesses during the year. The 8 deals all share many of the characteristics typically to become of an Oakley investment. They are all within our target sectors, are founder-led companies with asset-light business models with each exploiting the long-term megatrends we often talk about, including businesses shift to the cloud and the consumer shift to online solutions. Cybersecurity is one sector that Oakley has long sought to invest in, as working from home and the proliferation of connected devices widens the network perimeter companies need to secure from cyber threats. In the U.K. alone, cyber attacks have tripled in the last 3 years and are expected to grow in frequency and severity as criminals leverage AI as well now to enhance their lines of attack. I-TRACING helps protect some of Europe's most successful businesses in the enterprise and mid-market sectors. Meanwhile, Assured Data Protection is disrupting the managed backup and disaster recovery solution markets, and we'll hear more on them shortly. To emphasize some of the deal characteristics they share, 7 of the 8 of these newly acquired businesses are led by their founders, who wish to remain invested in the business and are choosing a partner to help grow and professionalize the companies they created alongside, which explains why more than half were uncontested deals. These were deals that were the result of a bilateral discussion between ourselves and the founder outside of an auction process. Three of the deals had some kind of deal complexity to navigate. They were carve-outs or some messy ownership structures to get through, factors which would deter most other investors and can contribute to the more favorable pricing that Oakley frequently enjoys. Given the high level of recent investment activity in technology, led by technology-led businesses and its consistent outperformance, we thought we'd invite Lovis, a senior member of the investment team to share Oakley's investment thesis for this sector and tell us more about the most recent addition to the fold.

Thank you, Steven. Before I dive into how Oakley tackles tech, let us recap why we invest in technology businesses in the first place. And put simply, technology businesses on average are simply better businesses than businesses in other sectors. Why do we think so? The revenues that they generate are highly predictable and recurring. The services that they provide are mission-critical and noncyclical, meaning that in a downturn, it is really the last thing that you turn off. The business model is capital-light and highly scalable with a high degree of operating leverage. So simply, you build it once, you sell it many times. And finally, and perhaps most underappreciated is there is a huge amount of white space, particularly in SMEs. And we hear a lot about the impact of AI, but the reality is in most businesses operating in the SME space, Excel is by far the most common solution rather than dedicated software products. And extraordinarily, 2023 was really the first year that cloud spend outstripped on-prem spend amongst all businesses. And so the white space in these sectors is still huge, and so you have highly stable businesses with really favorable macro tailwinds across the whole sector. And the quality of these businesses, of course, means that they also command valuation premium. And so the critical challenge for Oakley is to think how do we gain exposure to these businesses without overpaying for them. And so on the next couple of slides, I'll talk about how we do that. And there's really 2 key tenets to giving us an edge in this sector. The first is really narrow and deep subsector specialization. We know that there are a lot of attractive sectors, and we've mapped out around 100 subsectors across tech. And we know that we can't cover all. And so what we do is we focus on a very narrow subset. You can see 12 or 13 on this page. And we focus very deeply on those. We spend a lot of time building deep sector expertise, building deep networks, allowing us to then really be a value-add partner in those sectors, allowing us to uncover proprietary of market opportunities. And when those opportunities come around, we are ideally placed to move quickly. Now I personally focus on this bottom row, this middle row sector. All of my time is dedicated on hosting, CTO suite and DevOps. It's all the software and services that typically you don't see. These are the things that the IT manager buys. And the work in this sector is also what I've uncovered Assured Data Protection, which I will speak to in a little while. The second tenet of our right to win in the technology sector, if we could go to the next slide, is our track record of partnering with entrepreneurs and being a value-add partner in a very specific way. And you can see here that the businesses that we typically focus on exhibit 2 key characteristics. The first is a high degree of organic growth. These businesses are already growing quickly. And that's because typically, they've developed strong products and have developed a very clear product market fit. However, what they also exhibit is a very high degree of organizational immaturity. These are not well-developed businesses. These are well-developed products, but not well-developed businesses. And what we do is we partner with the entrepreneurs. We provide them with the resources, the skills, the experience to help them scale their businesses, which allows them to continue that organic growth. Now in many instances, the growth, this simply enables them to continue to grow at the rates that they have done and building the framework, structure, processes around that growth to turn it from a young, strong product into a really valuable business and the kind of valuable business that, for example, large cap private equity and strategics really want to buy. How does that look in action? On the next slide, let's talk about Assured Data Protection and practically how that works. As Steve mentioned, Assured Data Protection is the leading managed service provider in a very narrow niche, backup, disaster recovery and cyber resilience. And this deal really came out of the past 10-plus years of our expertise in hosting and cybersecurity. Now in hosting, we've, of course, been incredibly active. In cybersecurity, we have been much less active until recently. But nonetheless, we've really laid the groundwork over the past 7 years to be able to make these kind of investments. And so really it all starts with our sector expertise. Now secondly, it's about the founder. Assured is a founder-owned business, and it's really about partnering with the founder, building that relationship and us investing over 6-plus months into building that relationship and that trust so that we were the preferred party. And the services that Assured provides have been growing incredibly quickly because they're in a market that has really attractive characteristics. It's GBP 1 billion -- so we expect it to be GBP 1 billion size market by 2030, a market that's growing 5x over. And so while the market is relatively small today, Assured is really the leading player in this market and has a strong right to win to at a minimum grow at the rate of the market. Now they have been growing faster than the rate of the market, almost 50% over the past 3 years. And frankly, we'd expect that growth rate to accelerate. With resources we're providing them and the favorable market tailwinds, they have every chance to continue to grow at that rate and perhaps even accelerate. And as I mentioned earlier, the business has a wonderful product, but a high degree of organizational immaturity. There is no finance function, there is no HR function. There is no strategic approach to pricing. And many of the other business processes and the things that we apply in our playbook to businesses, they don't exist in this business, giving us a huge amount of opportunity to help them create value. Now while it's a very attractive market and a well-placed business that's growing quickly, that degree of organizational immaturity carries risk with it because inherently, this is a younger and more immature business. And so a huge amount of effort goes into thinking about how we can derisk these opportunities while still having the opportunity to generate disproportionate outsized returns. And so there's really 2 things that we did on Assured Data Protection to ensure we can derisk the business. The first is alignment. You can see here that the founders rolled over 80% of their investment into the business. So they continue to be heavily aligned and heavily incentivized. And secondly, the structure that we implemented really protect us on the downside. We have a liquidation preference, which means that in a downside scenario, our money would come out fast. And so really, this gives us the certainty that if things don't go to plan, our capital is protected while being exposed to a really attractive high-growth business with a huge amount of potential where we can really generate disproportionate returns. And so we made this investment early -- late last year, and it's early days, but we remain -- we are incredibly bullish that this can generate really outsized returns. I'll hand over back to Steven to continue on North Sails.

Many thanks, Lovis, and we'll bring Lovis back for the Q&A later. We'll turn now, as Lovis mentioned, to the largest overall OCI investment and one of the 2 remaining direct investments, North Sails. As you recall, in 2023, OCI's direct debt stake in North Sails was converted to preferred equity, giving the asset the better security and the first step in the Board's move to maximize the value of the investment. Following this and in response to positive trading momentum, OCI converted $107 million of its preferred equity position into ordinary equity in the final quarter of 2024, a move which is expected to generate increased returns for OCI given the anticipated performance. After the conversion, OCI continues to hold $77 million in preferred equity, which attracted a coupon of 5% from the 1st of January '25. The target is to liquidate the remaining pref in the next 12 to 18 months. OCI retains a further GBP 61 million in an indirect position in North Sails via a stake in Fund II. The group delivered another year of positive performance with healthy order volumes, improving gross margins and significant trading momentum aided by the America's Cup. Most notably during the year, North Sails completed 2 strategic acquisitions buying Quantum Sails and Doyle Sails, both leading designers and manufacturers of high-performance sailing products with presence globally much like North. The potential value creation from these acquisitions is expected to be significant. The combination of strong underlying performance and the recent deals is set to lead North to be one of the leading contributors of NAV growth in 2025. The third section of this presentation analyzes the liquidity of OCI, its outstanding commitments, the corresponding cash available to meet commitments and the prospects for near-term proceeds. Realizations during 2024 delivered GBP 159 million to OCI, a positive outcome given the subdued M&A market and highlights the appeal of the Oakley portfolio. The 3 assets shown on the slide, Idealista, Ocean Technologies and Schulerhilfe were all realized close to the prevailing NAV, underscoring the robustness of the underlying valuations. The Oakley funds have a growing reputation for the timely realization of assets and the subsequent return of capital to its investors. We have shown the look-through proceeds to OCI of annual realizations over the last 12 years. We anticipate this consistency to continue aided by the early signs of a strengthening exit environment with M&A advisers reporting a rise in Q1 activity levels. We'd observed this to be driven by the improving performance of underlying company more generally, pragmatism on pricing by both buyers and sellers and the need for large sponsors to deploy capital. Turning our attention to outstanding Oakley fund commitments, which realizations allowed us to meet. At the year-end, commitments across all Oakley funds totaled GBP 646 million compared with approximately GBP 1 billion of commitments at the 2023 year-end. If we break this down by fund strategy and vintage, the darker section of each bars represents the look-through value invested in the funds and the purple, the outstanding commitments, showing us that the majority of the committed funds that have yet to be drawn from OCI are the youngest vintages and Oakley's biggest funds to date being Flagship V, which is circa 70% invested and Origin II, Oakley's lower mid-market buyout strategy, which is 10% deployed. As a reminder, these are funds which can take up to 5 or more years to invest. To give us a better indication of what we can expect, where we can expect the GBP 646 million to be called, these bars break down if and when the commitments will be called. Starting at the left, there is over circa GBP 200 million that is not expected to be called, GBP 300 million that is set to be called after 12 months and over a 4-, 5-year period and circa GBP 150 million that is expected to be called in the next 12 months. This compares to GBP 225 million of liquidity from cash and available credit facilities, implying that OCI has current liquidity for approximately 2 years of deployment, which is an appropriate and target level of cover. Of course, we can expect cash inflows over the coming years, which leads us over the slide to the sources of that liquidity, which naturally include further realizations, the increase in OCI loan or revolving credit facilities and secondary sell-downs of existing fund positions. We'd expect the first 2 of these to be sources of inflows in the year with buybacks and fund commitments being the likely allocations. With some progress on the former, you can expect a more explicit update on capital allocation from OCI between now and the end of April. And to the final couple of slides and prospects for asset value growth and an improved rating for the shares. Starting without rating point. As we know, discounts proliferate across the sector, and there are no silver bullets and some of the reasons that discounts exist are structural at least for the time being. However, the 3 most likely positive impacts that we as OCI can control in the near term are: One, accelerating NAV growth and realizations at or above NAV to continue to build the confidence in the quality and conservatism in the NAV. Two, the Board has initiated a process to transfer OCI's listing to the main market, the London Stock Exchange, a move which would expand access to a wider range of investors and should help to further boost liquidity. We hope to confirm the timing of this at the H1 NAV update. Three, it's open debate whether it closes a discount, but increased liquidity and therefore, capital return should be possible this year and would, I'm sure, be a welcome -- a well-received outcome. So bring us to the end of the presentation element of this webinar, we'll leave you with 4 factors that will drive OCI share performance in 2025 and beyond. One is the result of the persistence of structural trends, an improved macro backdrop or whether it's the impact of value creation measures, although at an early stage, we are seeing an uptick in trading across the portfolio and expect the 15% organic average weighted earnings growth to rise drive NAV growth as it does. Expect the large number of deals -- secondly, expect the large number of deals in the last 2 years to become bigger contributors to NAV growth as the positions mature. Three, continued realizations will provide further NAV confidence and liquidity. And fourthly, we remain confident in the overall and eventual closure of OCI share price discount to NAV per share as the Board takes measures to address it and investor confidence in OCI's near-term outperformance grows. And whilst I'm here, some dates for the diary, 30th of April is the Q1 NAV update. And on the 14th of May is the Capital Markets Day. So please contact OCI Investor Relations team via the website should you wish to dial into this event. That brings the presentation element of the webinar to a close. Thank you for remaining with us. And at this point, I'll hand over to Rosanna to take us into the Q&A section, and we'll bring Lovis back on screen.

Thank you, Steven, and thank you to everyone who have asked questions already on the portal. We're going to try our best to get through as many as possible. [Operator Instructions] So we're going to start, Steven, on the topic of the pipeline. Do you expect to see a similar level of new deals in 2025? And what sectors and regions are you specifically looking at?

We don't expect quite as high level of executed deals. It's not something we have perfect clarity over, as you might imagine, given the way we source. The guidance we're giving is kind of somewhere in the region of half of the level. So it was GBP 300 million deployed last year and maybe something more in the region of GBP 150 million, but this is a guide. If we look to the pipeline, currently, it really mimics kind of the experience of the last year in terms of -- there's a slight bias towards tech and some extent, business services. And it's across the regions that we know well with a bias more towards kind of U.K. and Southern Europe. I don't know, Lovis, if you want to talk to your expectations around tech?

Yes. I mean, as you said, the pipeline is very full. But given how we source and reaching at deals, it's inherently lumpy and unpredictable. We're not waiting for a banker to send us a mail and a clear process, which makes it much more predictable. We're trying to uncover proprietary opportunities. And so while the pipeline is very full, and there's a real chance that many of these opportunities come to fruition, there's also a realistic prospect that they don't, and they take slightly longer to develop.

Thank you, both. Now on the question, the topic of cybersecurity, we've had a few questions on this, perhaps one for both Steven and Lovis. Why now for cybersecurity? And if it's been a target for a while, why has it taken so long to invest in it?

I'm going to hand over pretty swiftly to Lovis on this, except to say there's a lot of subsectors that we map and have mapped for many, many years. And it kind of reflects the very specific nature of the deals we make and high conviction kind of focused bets. I mean, maybe Lovis, you'll talk to why it's maybe taken 7 years to find our first deal in the space.

Yes. And it's exactly the sort of the narrative I tried to outline in the tech sector. Cybersecurity is an incredibly attractive sector that's growing incredibly quickly and will continue to grow incredibly quickly. But of course, everybody knows this. And so it's a hotly contested, very expensive sector. And so for us, it's important to do the right deal, not just to do any deal that gives us exposure. And that's unpredictable and takes a long time sometimes to uncover. And so within cybersecurity, we had a very narrow focus of the type of opportunities that we thought we wanted to pay for. And those took us a long time to uncover and to develop and to build that relationship. And now that we have started that, we're hopeful that this begin deepens our network in that sector and uncovers more opportunities as has been the case, for example, in hosting, which started in a similar way and then there's been a snowball effect of new opportunities.

Thank you. We've had a few questions picking up on the average EBITDA growth. So could we -- could you give us some more granularity on that average EBITDA growth of 15% and also touching on the fact that the NAV grew pre-FX only 6%?

Well, let's just initially kind of define that growth. There is a range. So first of all, that is a weighted organic figure. It doesn't reflect, as I kind of mentioned earlier, kind of M&A. And whilst all the businesses are growing, there are single digit growers in there. I mean, as a good example, Phenna and Steer, one of the largest contributors to NAV, well, actually, the organic growth is single digit. We expect it to be in the region of kind of over like 5%. It reflects that it's growing faster than the market. The real investment thesis here is that we can grow a business of size, make it international, expand the -- not just the geographies, but the solution it provides with it and also get the great multiple arbitrage of buying businesses sub-6, 7x for a platform that we think if sold could be worth anywhere between 18 to 21x. But from an average EBITDA growth perspective, it would only be contributing 4% over the period. So it gives you some sense. And the highest growers, we've got some, although small, doubling their EBITDA kind of year-on-year. So it's a reasonably kind of blunt measure that is highly a kind of a big range of outcomes. The very interesting and valid question is how does 15% EBITDA growth not mapped to something similar in a way of NAV growth? And there's kind of a couple of points here. Let's go to my original point, which is, well, actually points out 50% of the NAV didn't show much growth for all the reasons we discussed earlier; cash, a pref, young companies where we typically, but not exclusively, where we typically hold them at least in the first year of ownership or first 6 months of ownership close to their NAV at. So there's your kind of first point, which might go some way to comparing 6% NAV pre-FX to 15%. The other thing is the 15% EBITDA growth is a historic number. It is the average growth over the last 12 months and the NAV is typically based on a forecast of the budgeted growth -- earnings growth over the next 12 months. So to illustrate to you, if that forecast for last year was based on an average 20% EBITDA growth, but you only delivered 15%, then your NAV wouldn't grow as much as you might anticipate by the time you get to the end of the year, given the difference in the outcome of the budgeting. And that kind of reflects the last couple of years. The companies have performed, I think at the interim, I talked about 1/3 have performed above budget, 1/3 on and 1/3 below. The difference we're noticing this year is not just that kind of maturity of the businesses, but we're seeing, although it's early in the year, anecdotally, kind of a greater tailwind to the performance of those businesses, which hopefully should be more in line with budget. And therefore, we should hopefully see that EBITDA growth that we report this year being kind of more of a key driver to NAV growth.

Thank you for that answer. And picking up there on performance going forward, which companies do you expect to lead performance this year, so 2025?

I mentioned this earlier. I mean the biggest investments are naturally going to have the biggest impact -- sorry, the biggest look-through investments are clearly going to have some of the biggest impact on NAV growth. And to kind of repeat those in order, it's like North Sails, Phenna, Cegid, IU Group, Steer. And so I'll be very surprised if they weren't up there in the kind of the big drivers this year. Now although there are smaller companies in the portfolio, there's some really fast growers in the portfolio. And of course, we don't know the outcome of the year, but I suspect we'll start to see some of those earlier investments come through. I don't know if you want to comment on any particular in the tech sector, Lovis?

Yes. I think in tech overall, we're bullish on the portfolio for different reasons, frankly. There are some like I-TRACING and Assured that have strong tailwinds that are growing very quickly organically, which, of course, drives performance. There are some which are really driven by M&A that are growing much slower. You have multiple accretive M&A like World Host Group, for example, in a low-growth sector, but you continue to buy very accretive businesses. And then finally, much more mature businesses like WebPros, which aren't growing nearly as quickly. They're growing high single digits, low double digits, but they continue to be -- to continue to grow. They are very large, and they are highly cash-generative. So as I said, we're bullish across the portfolio, but for very different reasons.

Thank you for that. Switching tack slightly to exits. Can you comment on the fact that recent exits have been realized close to NAV or value versus a premium on previous exits historically?

Yes, yes, absolutely. So the average even after the recent exits is the average premium since inception is kind of 25%, 30% premium exit. And naturally call our focus on that because it's an obvious driver to NAV, the positive surprise at exit. And if we look back over prior years, we were getting a lot of unsolicited approaches for our businesses, and they were offering us a value -- maybe we've held the business for 3 or 4 years, and they're offering us the value as if we hold it for 5. And so you were getting that quite big pop at exit. And auctions as well were highly contested. And although -- and 2022 was the kind of last year when that was the case. We should know IU Group was sold at NAV, but we increased the NAV 83% over value, 83% in the prior 12 years because we knew the book value was going to be the focus for the realization. So to the question kind of what are we seeing in M&A now is the recent deals that have been done at or closer to NAV, a reflection of what we anticipate going forward. I think -- and I'll get Lovis to comment on this as well. I think that 2024 and '23 was an improving environment. We certainly saw more approaches, but I'd say there was still a low number of participants within auctions. And as a result, there wasn't maybe the pricing tension, an initial approach, which may have been above NAV. Actually, the outcome was slightly below. And pricing expectations were relatively tight. Now the fact that we managed to sell 3 businesses in that environment, sell them around book value and record an average close to 2.5x money multiple on those 3 businesses. And we should also say they weren't necessarily the 3 -- or far from the 3 best-performing assets in the portfolio, which I think is encouraging that you can still sell those businesses at that level. Now the hope is that as we see with more participants -- with better performance in companies, more participants returning to the M&A market this year, there is early optimism in the amount of deals. And clearly, some hope that that's going to be reflected in takeout values. I don't know if you'd add to that, Lovis?

I honestly don't have much more to say other than to agree that it has been as tough an environment to exit businesses as it's probably ever been and also in part driven by the high cost of debt, of course. And so as Steven said, the competitive dynamics in the processes has been different to what it was in prior years if we think back to what kind of exit or the Contabo exit, it was just a very different environment that, I mean, a much more challenging time to exit businesses. And nonetheless, as Steven said, the fact that we have managed to exit these businesses at a premium is something we're pretty proud of.

Thanks, both. Finally, actually, we'll maybe get through 2 more questions. Whilst the discount remains persistent, what criteria is needed for OCI to initiate buybacks?

It needs the available liquidity. I think there has been -- as the OCI Board has demonstrated over the last years, it had a kind of a active buyback program long before any of its peers. It's bought back somewhere between GBP 100 million to GBP 200 million worth of stock over a kind of last 3-, 4-year period. However, particularly based on the realization environment that we've just been discussing in combination with the fast deployment of the funds, we haven't had that kind of excess level of cash in order to make buybacks. So I guess, in short, with liquidity will come the opportunity for us to take advantage of that persistent discount. And as I highlighted towards the end of the presentation, we hope we'll have some more visibility around that liquidity and the company will take the opportunity to kind of update on its capital allocation sometime between now and the Q1 NAV update at the end of April.

Thanks very much, Steven. And final question now, I think that's all we've got time for is a question on the macro. So there's been a few things on this, but to wrap them into one, how do you think about a trade war? And how would you think that a U.S. recession could impact the portfolio?

I'm always hesitant to kind of give views on direction of macro, geopolitical situations, et cetera, simply because when we make an investment, we do so assuming that we're going to be in a recessionary environment. There's going to be high interest rates, there's going to be no -- there's little macro tailwinds. And we have to demonstrate that each investment can make a gross 2x money multiple in that environment. And that's around value creation and hopefully, businesses that continue to grow regardless of the market backdrop. And that's what although this is a muted NAV growth period for the reasons we discussed, actually, you can tell from businesses growing on average at 15%, these are businesses that are doing just that. There's obviously a lot of focus on the U.S., and its kind of economic prospects and the trade wars. I think the 2 things to point out that in terms of revenue exposure to the U.S., it's about 14% of total revenues. So we have some, determine whether that's going to be a positive or negative driver. Europe is really the kind of jurisdiction that we are most dialed into. And if I think about the kind of businesses that would be impacted, it's a small percentage of total revenues. It's 1%, 2% of revenues of goods sold into the U.S. As you can imagine, it's [ high. ] And it's -- and so you're going to be subject to tariffs Vice, North, Globe-Trotter, Alessi. So I don't necessarily see that as a threat. Lovis, I mean it's a very service-heavy portfolio. So I don't expect us to see much friction in this area. I don't know if you want to comment.

Yes. I mean, as Steven said, it's very difficult and impossible to predict what might be going on. But as Steven said, our direct exposure to tariff, for example, is minimal. We do have revenues in the U.S. and internationally, of course. And what we're very acutely aware of is try to naturally hedge those revenues. And so in most instances where we do have international revenues, we try to match those with international costs in that basis to cancel out any adverse effects. And while there's certainly some risk around the U.S. in particular, there's also a huge amount of opportunity. And so as we think about investments, we -- as I mentioned, we try to derisk these both structurally in the sort of capital structure that we use to protect us, but also, frankly, going back to the sort of macro tailwinds. And if we think about cybersecurity, for example, in disaster recovery, this is such a under-penetrated market that even in a downturn, we expect the penetration of this market to continue. Now of course, it may hamper growth, and it may slow growth, that's, of course, a likely prospect. But fundamentally, we think there remains a business need in most of our sectors that should somewhat protect it in the [ downside. ]

Thank you, Steven and Lovis. I think that's all we've got time for in terms of questions. For those of you who have submitted questions that we've not quite got to them, we will catch up with you separately to address those. Thank you very much. Back to you, Steve.

Thank you, Rosanna, and thank you once again for those that have joined us today. As Rosanna said, we will get in contact with those that -- whose questions we didn't reach. Hopefully, it's a presentation that has helped better understand the performance of 2024, but also outline our kind of increasing optimism for shareholder performance in 2025. Many thanks for joining us today and goodbye.