OCI Annual Report 2012 | Quarterlytics

Plain-text annual report

OAKLEY CAPITAL INVESTMENTS LIMITED ANNUAL REPORT AND ACCOUNTS 2012 O A K L E Y C A P T A L I I N V E S T M E N T S L M T E D I I A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 2 CONTENTS 04 Chairman’s Statement 06 Manager’s Report 12 16 18 20 22 24 26 28 30 Directors’ Report Review of Investments Daisy Verivox Time Out Group Emesa Broadstone Intergenia Headland Media 32 Monument Securities 34 36 38 39 40 42 43 44 45 55 56 Host Europe Independent Auditor’s Report Financial Statements Statements of Assets and Liabilities Schedules of Investments Statements of Operations Statements of Changes in Net Assets Statements of Cash Flows Notes to the Financial Statements Directors and Advisers Notice of Annual General Meeting 03 CONTENTS 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 04 CHAIRMAN’S STATEMENT 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O CHAIRMAN’S STATEMENT I am pleased to report another year of solid progress for the Company. Oakley Capital Private Equity L.P. (the “Limited Partnership”) continued to seek acquisition opportunities to enhance its investment portfolio. In addition, there was a focus during 2012 on improving the market positioning of a number of the Limited Partnership’s portfolio companies and on promoting growth in those companies. The overall trading performance of the portfolio companies, once again, has been good, contributing to uplift to the value of the Company’s investment in the Limited Partnership. This, together with income earned on the Company’s outstanding loans has contributed to an increase in the net asset value per share from £1.71 at 31 December 2011 to £1.81 at 31 December 2012. Within the Limited Partnership’s portfolio companies, Emesa B.V. (“Emesa”) continued to perform strongly in 2012. The Limited Partnership’s Investment Manager was active in the ﬁnal quarter of 2012, working with the management team of Emesa on its disposal. Emesa was successfully sold on 31 January 2013, for an enterprise value of €95 million. The Company received proceeds of £25.6 million providing the Company with a 3.1x return and an IRR of 94%. In the year there were a number of follow-on investments in Broadstone Pensions and Investments Limited (“Broadstone”) and Time Out. The Limited Partnership provided a to Broadstone to fund the roll out of a new client platform; to take on additional staff and for regulatory and working capital. In addition, £3.3 million was provided to fund the acquisition of the pensions and actuarial business of Pope Anderson. further £4.1 million The Limited Partnership provided funding of £4.8 million to Time Out Group Limited (“Time Out London”) to pursue its digital strategy and to ﬁnance the costs of moving the print based magazine from a subscription paid model to a free magazine from September 2012. The Limited Partnership also provided funding of £1.8 million to Time Out New York Limited (“Time Out New York”) to assist with the overhaul of its website and the addition of a bespoke e-commerce platform and to launch the Time Out website in Los Angeles in September 2012. PERFORMANCE The Company’s net asset value increased in the year by £8.6 million to £227.6 million as at 31 December 2012. Of this total net asset value, £117.9 million represented the fair value of investments made by the Company into the Limited Partnership and £24.5 million was investments made directly to the Limited Partnership’s portfolio companies in the form of mezzanine ﬁnance and senior loan notes. The Company also entered into a short-term revolving credit facility with the Limited Partnership to enable it to consolidate in advance of a capital call. At 31 December 2012 the Limited Partnership had borrowed £19.3 million (including accrued interest) under this facility. The balance of £65.8 million was held by the Company as cash and cash equivalents and other assets. investments follow-on funding for Whilst the Company does not generally invest directly in the portfolio companies, other than by the provision of debt ﬁnance, it is possible to “look through” the Limited Partnership to understand the impact of the performance of those portfolio companies on the investment values attributed to the Limited Partnership in the Company. The total fair value of the portfolio company investments has increased both from inception and within the year, approximately 65% of which gets reﬂected in the Company (through its investment in the Limited Partnership). Fair values as at 31 December 2012 have been established in accordance with The International Private Equity and Venture Capital Valuation Guidelines. The fair value of the underlying portfolio investments in the Limited Partnership attributable to the Company has increased by £5.4 million to £117.9 million at 31 December 2012. In addition to its investments in the Limited Partnership, the Company has provided debt ﬁnance directly to a number of the Limited Partnership’s portfolio companies. These typically take the form of mezzanine loans with ﬁxed interest rates of 15%. The Company may also provide secured senior debt to the portfolio companies at interest rates typically of 8.5%. These investments in loan instruments fell by £8.1 million from £32.6 million as at 31 December 2011 to £24.5 million at 31 December 2012, due principally to the repayment of loans by Intergenia and Headland Media. The interest rate on the revolving credit facility with the Limited Partnership is 6.5% of the balance owed by the Limited Partnership to the Company at 31 December 2012 of £19.3 million; £16.2 million was repaid in February 2013 from the proceeds of a capital call. The Company held cash and cash equivalents of £56.0 million at 31 December 2012. 05 CHAIRMAN’S STATEMENT FOLLOW-ON INVESTMENTS OUTLOOK 2013 started very positively for the Limited Partnership with the successful disposal of Emesa. The Investment Adviser to the Limited Partnership expects to consider additional realisation prospects in 2013. The Investment Adviser continues to report a strong it will be deal pipeline and anticipates the in recommending acquisition opportunities current year. that James Keyes Chairman 23 April 2013 Broadstone During 2012, the Limited Partnership provided additional funding to Broadstone in the form of equity ﬁnancing of £7.3 million. The funding provided additional working capital to pursue its turnaround strategy and to fund regulatory capital and to fund the pensions and actuarial the acquisition of consulting business of Pope Anderson LLP, and UBS’s London based corporate pension and beneﬁts consulting team. Time Out London In 2012, the Limited Partnership provided additional funding to Time Out London in the form of equity of £4.8 million to fund working capital. Daisy Group plc (“Daisy”) On 15 April 2012, Daisy announced the completion of the acquisition of Worldwide Group Holdings, a market-leader in audio-conferencing and call-handling technology with a focus on voice services and data connectivity. Post balance sheet events The Limited Partnership successfully completed the sale of Emesa on 31 January 2013. Emesa was sold to a fund managed by Cyrte Investments B.V. for €95 million, after a holding period of 22 months, with the Limited Partnership receiving net proceeds of €51.9 million. Following the sale, the Limited Partnership distributed €45.6 million to Limited Partners, net of performance fees, of which the Company received €29.7 million (£25.6 million), which represents a 3.1x money multiple and an IRR of 94% for the Company. Coincidental with the distribution of Emesa proceeds, the Limited Partnership made a capital call of 7% of total commitments, amounting to €13.12 million (£11.3 million) for the Company lifting total drawn- down capital to 72.5% of total commitments. To date, the Limited Partnership has returned 63% of total commitments to Limited Partners. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 06 MANAGER’S REPORT Manager’s Report 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O MANAGER’S REPORT THE COMPANY AND THE LIMITED PARTNERSHIP The Company provides investors with exposure to Oakley Capital Private Equity L.P. (the “Limited Partnership”), an unlisted UK and European mid- market private equity fund with the aim of providing investors with signiﬁcant long-term capital appreciation. Oakley Capital (Bermuda) Limited (the “Manager”), a Bermudian company, has been appointed manager to the Company and the Limited Partnership. The Manager has appointed Oakley Capital Limited (the “Investment Adviser”) as the investment adviser to the Manager. The Investment Adviser is primarily responsible for advising the Manager on the investment of the assets of the Limited Partnership and the Company. The Limited Partnership’s investment strategy is to invest in sectors that are growing or where consolidation is taking place. Within the core sector interests, the Limited Partnership invests in both performing and under-performing companies, supporting buy-and- build strategies, businesses encountering rapid growth, or businesses undergoing signiﬁcant operational or strategic change. Investing in a diverse range of portfolio companies, the Limited Partnership’s objective is to work proactively with the portfolio companies’ management teams, together with other stakeholders, in order to create substantial shareholder value. The Limited Partnership looks to acquire a controlling in companies with an enterprise value interest of between £20 million and £150 million, though companies with a lower enterprise value are considered where the Manager believes that anticipated returns justify the investment. The Limited Partnership aims to deliver in excess of 25% gross internal rate of return (IRR) per annum on investments. The life of the Limited Partnership is expected to be approximately 10 years, which includes a ﬁve year investment period. MARKET BACKGROUND The Investment Adviser has operated against a backdrop of difﬁcult market conditions almost from the inception of the Limited Partnership. Despite a background of faltering or stagnant economic activity the Limited Partnership’s portfolio companies have, in general, demonstrated good growth and the Investment Adviser anticipates that this will continue. Investor conﬁdence increased during the year against a background of more stability to the currency and ﬁnancial markets. Whilst economic activity in Europe remains subdued, the Investment Adviser has seen growing evidence that banks are concentrating on clearing up their mid-market poor performing portfolios of assets and are selectively lending. One of the Limited Partnership’s investments, Daisy Group plc (“Daisy”), secured in early 2013 a new £200 million debt facility. The Investment Adviser believes that it will continue to see good investment opportunities in 2013. FINANCIAL HIGHLIGHTS Assets at: 31 Dec 2007 31 Dec 2008 31 Dec 2009 31 Dec 2010 31 Dec 2011 31 Dec 2012 % change 2012/2007 Net assets (£m) Net assets per share (£) Share price (mid-market) (p) FTSE All-Share Index FTSE Small-Cap Index 99.4 0.99 101.6 3,287 3,418 99.9 1.08 63.5 2,209 1,854 180.1 1.41 95.0 2,751 2,777 214.9 1.68 145.5 3,063 3,229 218.9 1.71 132.5 2,858 2,749 227.6 1.81 136.5 3,105 3,416 129% 82% 34% (6%) 0% Operational performance Increase in net assets resulting from operations (£m) Net gain per share (£) (0.6) (0.01) 5.1 0.06 55.0 0.47 34.8 0.27 4.0 0.03 11.1 0.09 07 MANAGER’S REPORT 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 08 MANAGER’S REPORT continued ANALYSIS OF MOVEMENTS IN NET ASSET VALUE FOR THE YEAR ENDED 31 DECEMBER 2012 Opening net asset value as at 1 January 2012 Gross revenue Other expenditure Realised gain on investments Net unrealised appreciation of investments (excluding accrued interest) Purchase of treasury shares Closing net asset value as at 31 December 2012 £m 218.9 5.6 (1.4) (1.1) 8.1 (2.5) 227.6 PERFORMANCE The Company’s net asset value increased in the year from £218.9 million at 31 December 2011 to £227.6 million, a rise of £8.7 million. The net asset value at 31 December 2012 is equivalent to £1.81 per share, up from £1.71 at 31 December 2011, an improvement of 10 pence, or 6%. During 2012, the Limited Partnership did not call any capital. However, the Company entered into a revolving credit facility with the Limited Partnership to enable the Partnership to make follow-on investments without the need for a series of capital calls to raise the necessary funds. This provided the Company with an opportunity to utilise excess cash and generate a higher return than it would have done if the cash had been placed on deposit. The interest on the revolving credit facility is 6.5%. The Limited Partnership used the funds for including a follow-on investments into Broadstone, bolt-on acquisition and Time Out, and smaller follow- on investments into Emesa, Monument Securities Limited (“Monument Securities”) and Headland Media Limited (“Headland Media”). As at 31 December 2012, the facility was £19.3 million. outstanding revolving credit MOVEMENTS IN INVESTMENT PORTFOLIO VALUES FOR THE YEAR ENDED 31 DECEMBER 2012 Verivox Verivox Daisy Daisy Emesa Emesa Intergenia Intergenia Time Out Time Out Broadstone Broadstone Headland Headland Media Media Monument Monument Cost at 31 December 2012 Cost at 31 December 2012 D Value at 31 December 2011 Value at 31 December 2011 D Value at 31 December 2012 Value at 31 December 2012 D 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O £m £m – – 5.0 5.0 10.0 10.0 15.0 15.0 20.0 20.0 25.0 25.0 30.0 30.0 09 MANAGER’S REPORT continued The total increase in the year in the investment value of the portfolio companies attributable to the Company was £20.4 million. The change in values of the portfolio companies is attributable to two key factors: (cid:2) £8.8 million as a result of additional funding made by the Limited Partnership into existing portfolio companies: The Limited Partnership injected further equity funding into Broadstone and Time Out London. The investment value of Broadstone was increased from £8.5 million at 31 December 2011 to £13.3 million at 31 December 2012, an increase of £4.8 million. Time Out increased from £12.3 million as at 31 December 2011 to £16.3 million as at 31 December 2012 an increase of £4.0 million. (cid:2) £11.6 million as a result of a net increase in the fair values of the underlying portfolio companies Two of the portfolio companies, Intergenia and Emesa showed marked increases in their fair values in 2012. Intergenia has performed well since its acquisition in December 2011. The web-hosting sector also enjoyed ratings expansion and as a result of these two factors, the investment value of Intergenia was lifted to £25.2 million, an increase of £8.8 million from its carrying value of cost at 31 December 2011. Emesa also performed strongly in 2012, with increases in revenue and EBITDA from 2011. The investment value at 31 December 2012 reﬂected the disposal proceeds at exit. For the Company, this represented a value of £24.1 million at 31 December 2012, an increase of £7.6 million over the value at 31 December 2011. The investment value in Verivox at 31 December 2012 was £23.1 million, a £4.4 million reduction from its value at 31 December 2011. The Investment Adviser has taken a more cautious approach to valuation as a result of the demand-dampening factors which arose in 2011 and continued in the ﬁrst quarter of 2012. In May 2012, a new CEO was appointed who initiated a new growth strategy. Verivox successfully launched price comparison services for two new product verticals, car insurance and savings accounts in 2012. In addition, Verivox ran a successful nationwide TV campaign to improve transaction volumes and gain market share. This campaign is continuing in 2013. On 1 June 2012, Verivox made a distribution returning its cost of investment to the Limited Partners; amounting to £2.7 million for the Company. Though reduced, Verivox’s restated fair value still represents a 7.7x money multiple on cost. There was a small increase to the investment value in Headland Media of £0.3 million to £6.1 million as at 31 December 2012 from £5.8 million at 31 December 2011. fell Daisy’s share price from 95.5 pence on 31 December 2011 to 92 pence on 31 December 2012. This reduced the Company’s investment value in Daisy from £18.3 million to £17.7 million, a decrease of £0.6 million. The combined effect of the changes to the fair values of the portfolio companies resulted in a net increase to the Company of £11.6 million. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 10 MANAGER’S REPORT continued PORTFOLIO INVESTMENT GROWTH 2012 BY SOURCE Opening Opening valuation valuation £107.2m £107.2m Current Current valuation valuation £127.7m £127.7m 50.0 50.0 40.0 40.0 30.0 30.0 20.0 20.0 10.0 10.0 – – £m Acquisitions £m Acquisitions during 2012 during 2012 Net trading Net trading performance performance Ratings Ratings expansion expansion Net Net debt debt Forex Forex movements movements Management Management share share Performance Performance fees fees Total Total increase increase in value in value of the The above chart shows the growth in 2012 of the investment portfolio attributed to its source. The fair value Limited Partnership grew from £107.2 million to £127.7 million, an increase of £20.4 million. The increase in the investment value is primarily due to the improved performance of Emesa and Intergenia, which is reﬂected in both “Net trading performance” and “Ratings expansion” above. As mentioned earlier, Verivox’s investment value fell in the period by £4.4 million. Within this net decline, a downgrade in trading performance was largely mitigated by an improvement in ratings enjoyed by the sector. Indeed, the ratings not only for price comparison websites but also for web-hosting and on-line businesses have increased in 2012 from 2011, thereby resulting in an overall increase in the values for these companies. As a result of the underlying investment growth in 2012, the share attributable to management has also increased which is denoted by a decrease to NAV as seen above. Follow-on investments “Acquisitions during 2012” also contributed to an increase in values. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O COMPANY ASSET TYPES 2012 COMPANY ASSET TYPES 2011 52% Limited Partnership 29% Cash 19% Mezzanine, Senior Loan Finance and revolving credit facility 51% Limited Partnership 34% Cash 15% Mezzanine and Senior Loan Finance At 31 December 2012 the Company’s assets were divided between its investment in the Limited Partnership (52%), cash and cash equivalents (29%) and loans provided directly to portfolio companies (19%). These loans comprise mezzanine and senior ﬁnance loans to the portfolio companies and a short-term revolving credit facility with the Limited Partnership, ensuring that uncalled cash continues to work for the Company earning a positive return. At 31 December 2012 the total value of loans outstanding was £43.9 million (2011: £32.6 million). The net increase in the loans of £11.4 million is due to the new revolving credit facility with the Limited Partnership, which at 31 December 2012 was £19.3 million offset by the repayment of £6.2 million of the Intergenia loan (of £8.4 million) and the repayment in full of the Headland Media loan of £1.6 million. SPLIT OF INVESTMENTS IN LIMITED PARTNERSHIP 2012 SPLIT OF INVESTMENTS IN LIMITED PARTNERSHIP 2011 19% Intergenia 18% Verivox 18% Emesa 14% Daisy 13% Time Out Group 10% Broadstone 5% Headland Media 1% Monument 2% Cash and other net assets 24% Verivox 16% Daisy 15% Emesa 14% Intergenia 11% Time Out Group 8% Broadstone 5% Headland Media 2% Monument 5% Cash and other net assets 2012 shows a moderately more even distribution than 2011 with, in broad terms, a reduction in the inﬂuence of Verivox, being taken up by small increases in Intergenia and Emesa such that all three represent very similar percentages in 2012. The diversiﬁcation of the portfolio distribution by sector shows a similar ﬂattening distribution in 2012 compared to 2011. The relatively high decline in the inﬂuence of consumer services, driven by the adjustment to Verivox’s fair value is taken up by increases in technology (Intergenia) and e-commerce (Emesa). With six sectors, none of which account for over 20% of the total, the sector distribution at the end of 2012 was very evenly balanced. The diversiﬁcation of the geographical spread of the portfolio companies has not changed signiﬁcantly. In 2012, the division was 39% Germany; 37% UK; 19% Netherlands; and 5% in the USA. In 2011 the division was; 41% Germany; 38% UK; 16% Netherlands; and 5% in the USA. PORTFOLIO DISTRIBUTION BY SECTOR 2012 PORTFOLIO DISTRIBUTION BY SECTOR 2011 20% Technology 19% e-Commerce 18% Consumer services 17% Digital media/ Publishing 14% Telecoms 12% Financial services 26% Consumer services 17% Digital media/ Publishing 17% Telecoms 15% Technology 15% e-Commerce 10% Financial services 11 MANAGER’S REPORT continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 12 DIRECTORS’ REPORT Directors’ Report 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O DIRECTORS’ REPORT DIRECTORS’ FUNCTIONS for responsible The Directors are the overall management and control of the Company. The Directors review the operations of the Company at regular meetings and meet at least quarterly. For this purpose, the Directors receive periodic reports from the Manager detailing the Company’s performance, and receive from the Manager such other information as may from time to time be reasonably required by the Directors for the purpose of such meetings. The Limited Partnership is managed by the Manager, and the Directors do not make investment decisions on behalf of the Limited Partnership, nor do they have any role or involvement in selecting or implementing transactions by the Limited Partnership. DIRECTORS The Directors of the Company are: JAMES KEYES James Keyes has been a managing director of Renaissance Capital since 1 October 2008. He established the Bermuda ofﬁce of Renaissance, for which he has responsibility, in 2008. He was previously a partner of Appleby, the offshore law ﬁrm, for 11 years. James joined Appleby in 1993 and was team leader of the Funds and Investment Services Team. Prior to Appleby, he was employed in the corporate department of Freshﬁelds law ﬁrm, and worked in the London, New York and Hong Kong ofﬁces. James attended Oxford University in England as a Rhodes Scholar and graduated with a degree in Politics, Philosophy and Economics (MA with Honours) in 1985. He was admitted as a solicitor in England and Wales in 1991 and called to the Bermuda Bar in 1993. He became a notary public in 1998. James is a resident of Bermuda. TINA BURNS Tina Burns is the tax director for Alterra Capital Holdings Limited. Prior to joining Alterra, Tina was tax consultant with Schroders Private Equity Services in Bermuda. From 1996 to 2006, Tina was a director in the tax services practice of KPMG in Bermuda. Tina joined KPMG in Bermuda in 1995. Prior to joining KPMG in Bermuda, she was a tax senior with KPMG in Atlanta, Georgia. Tina graduated from the University of North Carolina with a Masters of Accounting in 1994, and is a member of the American Institute of Certiﬁed Public Accountants and the Georgia Society of Certiﬁed Public Accountants. Tina is a resident of Bermuda. PETER DUBENS Peter Dubens is the founder of Oakley Capital, a privately owned asset management and advisory funds, group comprising private equity, corporate ﬁnance, capital introduction and venture fund of capital operations managing over US$950 million that was founded in 2002. Peter is the managing partner of Oakley Capital Limited, the investment adviser to the Limited Partnership a European mid-market private equity fund that invests in performing and under- performing companies, supports buy-and-build strategies, rapid growth, or businesses undergoing signiﬁcant operational or strategic change. Peter is also a director of Oakley Capital (Bermuda) Limited (“the Investment Manager”) and Oakley Capital GP Limited, the general partner of the Limited Partnership. During the last 23 years Peter has acquired, restructured and consolidated public and private companies. As executive chairman, he led the formation of two public companies, being 365 Media Group plc and Pipex Communications plc (now Daisy Group plc). The 365 Media platform consolidated 12 businesses within the online sports information and gambling industry and the Pipex platform consolidated 14 businesses within the telecoms and internet industries. 365 Media was sold for over £102 million to BSkyB and the main operating divisions of Pipex were sold for approximately £370 million. Peter is a resident of the United Kingdom. LAURENCE BLACKALL Laurence has had a 30 year career in the information, media and communication industries. After an early career at Virgin and SEMA he went on to pioneer electronic publishing at Frost & Sullivan and then McGraw Hill where he was a vice-president. He then went on to found AIM listed Internet Technology Group plc in 1995 and successfully negotiated its sale in 2000 for a consideration of almost £150 million. Laurence was also in the creation of Pipex Communications plc. He has interests in a range of leisure and TMT businesses and currently holds a number of directorships in public and private UK companies. He has an MA in Marketing. Laurence is a resident of the United Kingdom. instrumental IAN PILGRIM Ian Pilgrim is chief executive ofﬁcer of the Administrator, Mayﬂower Management Services (Bermuda) Limited, a corporation which provides consultancy and other services to hedge funds and is the administrator to the Company and the Limited Partnership. Prior to founding the Administrator in January 2006, he was the managing director of Citco Fund Services (Bermuda) Limited and also served as general counsel to Citco Fund Services from January 2001 until December 2005. Before joining Citco, Ian practiced from January 1997 until December 2000 as a barrister and attorney with M.L.H. Quin & Co. (now Wakeﬁeld Quin) in Bermuda. From 1994 to 1996, he practiced as a solicitor with Allen & Overy in Hong Kong where he 13 DIRECTORS’ REPORT 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 14 DIRECTORS’ REPORT continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O was involved primarily in banking and project ﬁnance, and prior to that from 1991 to 1994 with Deacons in Hong Kong. Ian was admitted to practice as a solicitor in England and Wales in 1989 and in Hong Kong in 1992. He was admitted to the Bar in Bermuda in 1998. He is a director of Oakley Capital (Bermuda) Limited (“the Investment Manager”) and Oakley Capital GP Limited, the General Partner of the Limited Partnership. Ian is a resident of Bermuda. CHRISTOPHER WETHERHILL Christopher Wetherhill founded and was chief executive ofﬁcer of Hemisphere Management Limited (now known as Citi Hedge Fund Services Limited), a ﬁnancial services company in Bermuda, from 1981 until 2000. Since 2000, he has served as a board member of and a consultant to, a number of investment companies. He is a Fellow of the Institute of Chartered Accountants in England and Wales, a member of the Canadian and Bermudian Institutes of Chartered Accountants, a Fellow of the Institute of Directors and a Freeman of the City of London. Christopher is a resident of Bermuda. MANAGER Oakley Capital (Bermuda) Limited was incorporated in Bermuda on 18 June 2007 under the Bermuda Companies Act. The Manager is responsible for the day-to-day management of the assets of the Company pursuant to the Management Agreement. Under the full Management Agreement, discretion, subject to the review by the Directors, to invest the assets of the Company in a manner consistent with the investment objective, approach and restrictions described in the admission document. Oakley Capital (Bermuda) Limited is also manager of the Limited Partnership. the Manager has Peter Dubens and Ian Pilgrim are directors of both the Manager and the Company, and cannot vote on any Board decision relating to the Management Agreement whilst they have an interest. INVESTMENT ADVISER Oakley Capital Limited was incorporated in England and Wales on 12 October 2000 under the Companies Act 1985. The Company and the Manager have appointed the Investment Adviser as investment adviser to the Company and the Manager has appointed the Investment Adviser as investment adviser to the Limited Partnership. The Investment Adviser is authorised and regulated by the FCA. The Investment Adviser is not registered as an “investment adviser” under the US Investment Advisors Act, but may in the future seek to register. Peter Dubens and David Till (who are both Directors of the Investment Adviser) with a team of eight investment professionals are primarily responsible for performing the investment advisory obligations of the Investment Adviser. CORPORATE GOVERNANCE The Directors recognise the importance of sound corporate governance and have adopted policies and procedures which reﬂect those principles of Good Governance and Code of Best Practice as published by the Committee on Corporate Governance (commonly known as the “Combined Code”) as are appropriate to the Company’s size and AIM listing. The that Bermuda, Directors note the country of incorporation of the Company, has no speciﬁc corporate governance regime. remuneration committee, each with The Company has established an audit committee and a formally delegated duties and responsibilities. The audit committee and the remuneration committee are each comprised of all the Independent Directors. The audit committee the remuneration committee is chaired by James Keyes. is chaired by Tina Burns and the terms of The audit committee determines engagement of the Company’s auditors and, in consultation with the auditors, the scope of the audit. The audit committee receives and reviews reports from management and the Company’s auditors relating to the annual accounts and the accounting and internal control systems in the Company. The audit committee has unrestricted access the relationship with, the Company’s auditors. to, and oversees The remuneration committee reviews the scale and structure of the Directors’ remuneration and the terms of their service or employment contracts, including share option schemes and other bonus arrangements if any. The remuneration and terms and conditions of the non-executive Directors are set by the Board. No Director of the Company may participate in any meeting at which discussion or any decision regarding his own remuneration takes place. In addition to establishing an audit committee and a remuneration committee, the Company has established a fund committee, comprising all of the Independent Directors. The fund committee receives and reviews all matters and contracts where there are potential conﬂicts of interest between the Company and the Limited Partnership. No Director, other than the Independent Directors, may participate in any meeting of the fund committee. The fund committee is chaired by James Keyes. 15 DIRECTORS’ REPORT continued The Board complies with Rule 21 of the AIM Rules relating to Directors’ dealings as applicable to AIM companies and also takes all reasonable steps to ensure compliance by the Company’s applicable employees (if any) and has adopted a share dealing code for this purpose. DIRECTORS’ INTERESTS Christopher Wetherhill is the beneﬁcial owner of 140,000 shares of the Company and Laurence Blackall is the beneﬁcial owner of 200,000 shares of the Company, otherwise none of the Directors nor any member of their respective immediate families, nor any person connected with a Director, has any interest whether beneﬁcial or non-beneﬁcial in the share capital of the Company. DIRECTORS’ REMUNERATION The emoluments of the individual Directors for the year were as follows: James Keyes Tina Burns Peter Dubens Laurence Blackall Ian Pilgrim Christopher Wetherhill £30,000 £30,000 £nil £30,000 £30,000 £30,000 The above fees do not include reimbursed expenses. SUBSTANTIAL SHAREHOLDINGS As at 2 April 2013, the Company has been notiﬁed by the following that they have a disclosable beneﬁcial interest in 3% or more of the issued ordinary share capital of the Company: AS A PERCENTAGE OF VOTING RIGHTS Invesco Perpetual Ruffer LLP Rothschild Bank, Zurich Blackrock Investment Management Henderson Global Investors Henderson Volantis Capital 31.4% 17.9% 10.0% 7.0% 7.0% 6.8% 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 16 REVIEW OF REVIEW OF INVESTMENTS INVESTMENTS REVIEW OF INVESTMENTS SUMMARY Assets at fair value Investment in Limited Partnership Mezzanine loans: Headland Media Broadstone Time Out Senior loans: Verivox Time Out Intergenia Revolving credit facility Total investments 1Repaid to the Company in full in 2012 2Part repayment to the Company in 2012 in the Limited invests principally The Company Partnership. The primary objective of the Limited Partnership is to invest in a diverse portfolio of private mid-market UK and European businesses, aiming to provide investors with signiﬁcant long-term capital appreciation. By 31 December 2012, the Company had invested by way of capital calls a total of £102.2 million in the Limited Partnership since inception. In 2012, the Company also provided the Limited Partnership with a short-term revolving credit facility to fund follow-on investments into existing portfolio companies, of which £19.3 million was outstanding at 31 December 2012. The Limited Partnership made no capital calls during follow-on 2012, choosing investments via facility and as a result, the percentage of capital called at 31 December 2012 remained at the 31 December 2011 level of 65.5%. instead to the revolving credit fund the At 31 December 2012, the Limited Partnership’s Investment Adviser appointed a third-party valuer to determine fair value of the portfolio companies taking account of the ﬁnancial information provided by the Investment Adviser. As a result of this assessment, the fair value of the Limited Partnership increased by £5.3 million from £112.6 million as at 31 December 2011 to £117.9 million as at 31 December 2012. Of this increase, £12.9 million is attributable to the net increase in fair values of the underlying portfolio companies, particularly Emesa and Intergenia; follow- on investments made by the Limited Partnership in Broadstone and Time Out group and smaller follow-on investments in Emesa, Headland Media and Monument Securities. The total follow–on investments on a look 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O Fair value 2012 (£m) Fair value 2011 (£m) 117.9 112.6 – 1 6.0 9.3 – 7.1 2.2 2 19.3 1.6 6.0 9.4 – 7.2 8.4 – 161.8 145.2 through basis for the Company accounted for an investment increase of £9.3 million. Verivox made a cash distribution of the total invested cost back to the Limited Partnership amounting for the Company to £2.7 million, which results in a decrease in value in the Limited Partnership. The Limited Partnership cash and net assets decreased by £2.2 million. Also offsetting the increase in value of the Limited Partnership is the revolving credit facility with the Company which is shown as a liability in the Limited Partnership. The Company’s share of this on a look through basis is a liability of £12.9 million. Whilst this is shown as a liability in the Limited Partnership’s books, for the Company the gross value of the facility represents an investment asset which is earning interest at 6.5% per annum. In addition to its investments in the Limited Partnership, the Company has provided loans directly to a number of the portfolio companies. At 31 December 2011, Headland Media had a mezzanine loan of £1.6 million outstanding. This was repaid in full in February 2012. At 31 December 2012, the Company had an outstanding mezzanine loan with Broadstone via Fitzwilliam Holdco Limited of £6.0 million with an interest rate of 15.0% per annum maturing no later than November 2015. The Company provided both mezzanine ﬁnance and senior debt ﬁnance to Time Out London. The mezzanine ﬁnance amounted to £6.2 million. The interest rate is 15.0% per annum maturing no later than November 2015. The senior loan notes amounted to £5.0 million and have an annual interest rate of 8.5% and are due to be repaid no later than March 2016. The Company also provided mezzanine loans and senior debt ﬁnance to Time Out New York. The mezzanine ﬁnance was £3.1 million at an interest rate of 15.0% per annum maturing no later than May 2016. The senior loan notes amounted to £2.1 million at an interest rate of 8.5% per annum maturing no later than May 2014. Both the mezzanine loan and senior loan note are subject to withholding tax, reducing the effective rates of interest to 10.5% and 5.95% respectively. In December 2011, the Company provided senior debt ﬁnance to Intergenia of £8.4 million (€10.0 million). The loan notes have an annual interest rate of 8.5% and are due to be repaid in November 2013. During 2012, Intergenia repaid £6.2 million (€8.0 million) of the debt plus interest. From time to time, the Company provides bridging loans to the Limited Partnership. The loans are used by the Limited Partnership to fund short-term cash demand. These take the form of a revolving credit facility and generally have a term of six months and an interest rate of 6.5%. The revolving credit facility is underwritten by capital calls. The interest generated from the facility exceeds the interest earned on the Company’s bank deposits, allowing the Company to earn higher returns on part of its cash reserves. During 2012, the Company provided to the Limited Partnership £19.3 million at an interest rate of 6.5%. £16.2 million of the revolving credit facility was repaid in February 2013. The following pages under Review of Investments provide a summary in relation to each of the Limited Partnership’s portfolio companies, including those which have been sold. In these summaries, the values of the Company’s interest in the relevant portfolio company represent the values attributable to the Company on a look through basis. 17 REVIEW OF INVESTMENTS 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 19 REVIEW OF INVESTMENTS continued Sector: Telecoms Location: United Kingdom Investment date: 21 July 2009 Website: www.daisygroupplc.com TRANSACTION DETAILS On 21 July 2009, Host Europe sold Vialtus, one of its three operating divisions, for £42.0 million to Daisy Group plc (“Daisy”). In consideration for the disposal of Vialtus, Host Europe received £13.0 million of cash and £29.0 million worth of ordinary shares in Daisy representing 36.25 million Daisy ordinary shares. Daisy is listed on the London Stock Exchange under AIM. BUSINESS OVERVIEW Daisy is a leading provider of integrated voice and data services to small and medium sized businesses providing customers with access to a combined product set from a single platform. Daisy’s strategic objective is to consolidate the fragmented mid-market telecommunications sector with the aim of building a business of considerable scale. Following the acquisition of Vialtus Solutions, Daisy completed 14 acquisitions and has developed to become an industry-leading provider of uniﬁed communications to the SME and mid-market business sector in the UK. BUSINESS UPDATE On 28 November 2012 Daisy announced its interim results for the six months ended 30 September 2012. Revenues were £178 million which were £2 million higher than those in the previous six month period. Adjusted EBITDA increased from £26.6 million in the six months to 30 September 2011 to £27.3 million for the six months to 30 September 2012. Cash conversion remained strong with free cash ﬂow of £17 million being generated in the six months to 30 September 2012. In April 2012, the Group completed the acquisition of the audio-conferencing specialist Worldwide Group Holdings Limited for an initial cash consideration of £28.4 million. In order to complete the acquisition, the Group increased its borrowing facility by a further £25 million taking total bank facility to £140 million. On 10 April 2013, Daisy announced its intention to declare a maiden dividend of 4.0 pence per ordinary share in respect to the year to 31 March 2013. The Daisy share price on 31 December 2012 was 92 pence; down from 95.5 pence at 31 December 2011. The share price at 31 December 2012 was used to establish the fair value of the investment. DAISY GROUP Enterprise value at acquisition N/A Total equity held 13.6% Value of Company’s interest at acquisition Fair value of the Company’s interest N/A £17.7m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 21 REVIEW OF INVESTMENTS continued Sector: Online consumer Location: Germany Investment date: 4 December 2009 Website: www.verivox.de TRANSACTION DETAILS On 4 December 2009, the Limited Partnership acquired 51% of Verivox, Germany’s largest independent online consumer energy price comparison site, funded using a combination of debt and preferred equity. The Limited Partnership’s contribution was €5.3 million in preferred shares and this contribution was fully repaid to the Limited Partnership from operating cash ﬂow on 1 June 2012. In addition, the Company provided €13.0 million in the form of mezzanine ﬁnance and a bridging loan. These loans were fully repaid from operating cash ﬂow in the ﬁrst 16 months of ownership. In accordance with management performance, at exit, following repayment of the loans and preferred equity, including accrued interest, the economic gain is to be divided between the Limited Partnership and management in the ratio 40.5: 59.5. BUSINESS OVERVIEW Verivox GmbH (“Verivox”) is Germany’s leading consumer energy and telecoms price comparison website with a 13 year history. The company receives commission from energy suppliers when consumers elect to switch providers through its website. Verivox is a well recognised brand in Germany and is regularly quoted by media as an independent source of energy price data. The company has also been certiﬁed by Germany’s three leading consumer protection and standards bodies. Verivox differentiates itself from competitors by having contractual relationships with over 150 suppliers and by providing users with details of the lowest cost energy supplier even when the company does not represent that supplier. BUSINESS UPDATE Trading in 2012 started slowly as a result of the continuation of the factors which depressed switching levels in the second half of 2011. These were primarily; a loss of consumer conﬁdence in the sector following the insolvency of a highly active new entrant in the German energy supply market; and the sacriﬁce by a number of energy suppliers of their anticipated price increases in 2011, which previously provided a stimulus to consumer switching. A new CEO was appointed on 1 May 2012 who has subsequently introduced a number of initiatives to improve Verivox’s positioning and proﬁtability. Verivox has successfully launched price comparison services for two new products, car insurance and savings accounts and has launched a nationwide TV advertising campaign to improve transaction volumes and market share. Verivox also updated its website to improve the conversion rate of its visitors to customers. The fair value of Verivox as at 31 December 2012 is based on its forecast EBITDA for 2013. PERFORMANCE Revenue for the year to 31 December 2012 was €42.8 million with an EBITDA of €15 million. VERIVOX Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Fair value of the Company’s interest £23.0m 51% £14.8m1 £23.1m 1Includes £11.8 million debt provided by the Company at acquisition, since repaid. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 22 REVIEW OF INVESTMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 23 REVIEW OF INVESTMENTS continued Sector: Digital media/publishing Investment dates: 25 November 2010 and 26 May 2011 Location: United Kingdom and USA Website: www.timeout.com TRANSACTION DETAILS In November 2010, the Limited Partnership acquired 50% of Time Out Group Limited (“Time Out London”), the international multi-channel publisher. The balance is held by Tony Elliott, the founder. The Limited Partnership subscribed for total equity of £9.3 million to 31 December 2011 and the Company provided loan funding in the form of mezzanine ﬁnance of £6.2 million and senior debt of £5 million. Of this funding, £1.7 million was used to provide a loan to Tony Elliott, secured against 10% of the Company’s equity held by him. During 2012 the Limited Partnership provided additional funding of £4.8 million to assist Time Out with its strategic objectives and to provide working capital. In addition, Tony Elliott repaid £1.0 million of the loan provided to him, the proceeds of which were re- invested by the Limited Partnership in Time Out London, as a result of which the Limited Partnership’s equity stake increased to 51% on a fully diluted basis. On 26 May 2011, the Limited Partnership acquired 65.7% of Time Out America LLC (“Time Out New York”) on a fully diluted basis. The Limited Partnership subscribed for equity of £9.3 million ($15 million) and the Company provided a mezzanine loan of £3.1 million and a senior loan of £2.1 million. The investment was anticipated to be synergistic and would enhance the Fund’s previous investment in Time Out London to create a global digital media group. In combination, Time Out New York and Time Out London control the worldwide rights to the Time Out brand (excluding Chicago). During 2012, the Limited Partnership provided additional funding of £1.8 million to Time Out New York to provide working capital and to assist with the rollout of a new platform. BUSINESS OVERVIEW Time Out was established in 1968 by Tony Elliott and today is a globally recognised brand in the publishing industry that publishes city-based magazines and travel guides and is beginning to build an online presence. The development of the internet has presented Time Out with an opportunity to transition the business from a magazine listings business to a real-time digital provider of entertainment information and qualiﬁed editorial opinions, with an added transactional capability. Globally, the Time Out group is present in 35 cities across the world, with a worldwide audience of 16 million across both print and digital channels. BUSINESS UPDATE During 2012, the Time Out New York website was re-launched on the new Global Platform providing additional content and a better user experience which will form the basis of Time Out’s worldwide digital growth. In addition the ﬁrst Time Out iPad application was launched covering London and New York and further improvements were made to the mobile applications. As a result of the digital investment, Time Out London has seen strong digital brand growth with corresponding growth in digital advertising and e-commerce revenues. The London website had ﬁve million monthly unique users at the year end. Digital revenues for the year were 79% up year on year. In September 2012, Time Out London re-launched as a free magazine resulting in an increase in weekly circulation from 50,000 to 305,000 in the ﬁnal four months of 2012. The increase in circulation has driven growth in print advertising revenues and signiﬁcantly increased the overall reach of the Time Out brand. Following the fair value exercise at 31 December 2012, it has been decided to value Time Out at its total cost as the business is still in its development phase. PERFORMANCE Revenue for the year to 31 December 2012 was £28 million with an EBITDA loss of £3.1 million. Time Out London’s total revenues were up by 12% compared to the previous year. Trading in New York has been slower than anticipated. TIME OUT GROUP Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Fair value of the Company’s interest £32.4m Time Out London 51.0% Time Out New York 65.7% £25.8m £32.7m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 25 REVIEW OF INVESTMENTS continued Sector: e-Commerce Location: Netherlands Investment date: 24 March 2011 Website: www.emesa.nl TRANSACTION DETAILS On 24 March 2011, the Limited Partnership acquired 68% of Emesa B.V. (“Emesa”), a leading e-commerce company active in the Dutch online leisure market. The Limited Partnership provided £10.4 million and the Company provided senior debt of £8.7 million and a mezzanine loan of £4.7 million. Emesa’s management and its main founder retained a signiﬁcant stake in Emesa. On 22 December 2011, Emesa repaid its senior debt and mezzanine loan, including interest, in full. The repayment was funded from a reﬁnancing using external bank debt. Since acquisition, the Limited Partnership provided a further £2.4 million to fund part of the deferred consideration and to provide working capital to support the German operation. BUSINESS OVERVIEW Emesa was founded in 2004 and has grown signiﬁcantly to become a leading online consumer auction platform in the European leisure industry. Emesa enables online customers to ﬁnd and book leisure deals such as short holidays, weekend breaks, spa/beauty visits, event tickets and restaurant visits through its websites. Emesa operates three websites in the Netherlands and in 2012 received over 2.3 million transactions with a current run rate of over two million customer transactions per annum. BUSINESS UPDATE Emesa continued to trade well in the Netherlands, outperforming the budget for 2012. Management pursued a revised strategy in Germany, targeting partnerships with key media players to provide trafﬁc and content. As a result, the cost base in Germany was reduced. Emesa’s value at 31 December 2012 was valued at its exit value. PERFORMANCE Net revenue for the year to 31 December 2012 was €34.0 million with an EBITDA of €8.6 million for the Group. POST BALANCE SHEET EVENTS On 31 January 2013, the Fund announced the disposal of Emesa to Cyrte Investments B.V. for a gross consideration of €95 million. The consideration was used to pay bank debt; vendor loan note, locked box adjustments and management interests resulting in net proceeds to the Limited Partnership of €51.9 million. The Company received proceeds of €29.7 million (approx £25 million) as a result of the disposal of Emesa. This represents a 3.1x multiple for the Company and an IRR of 94%. EMESA Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Fair value of the Company’s interest £30.0m 68% £20.1m1 £24.1m 1Includes £13.4 million debt provided by the Company at acquisition, repaid in December 2011. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 27 REVIEW OF INVESTMENTS continued Sector: Financial services Location: United Kingdom Investment date: 4 November 2010 Website: www.broadstoneltd.co.uk TRANSACTION DETAILS On 4 November 2010, the Limited Partnership announced that it had acquired 84.4% of Broadstone Pensions and Investments Limited (“Broadstone”), formerly known as BDO Wealth Management Limited, the UK-wide independent provider of investment advice and solutions to private individuals and corporates, from BDO LLP. The Limited Partnership has provided initial equity of £7.0 million and the Company provided a mezzanine loan of £6.0 million. The Limited Partnership provided additional funding in the form of equity of £6.2 million during 2011 and £7.3 million in 2012. The funding provided additional working and regulatory capital and £3.3 million was used to fund the acquisition of Pope Anderson. BUSINESS OVERVIEW Broadstone, a top 40 UK wealth manager with high quality clients, operates across two divisions; Private Client Services and Corporate Pensions and Beneﬁts Services. Broadstone’s wide breadth of offering means that it is operating in the mass afﬂuent and high net worth segments. BUSINESS UPDATE Since acquisition the business has made a signiﬁcant investment in people and technology. The business recruited two new senior directors in each of its divisions to drive revenue growth. The business has engaged a number of consultants who can bring value and assets to Broadstone. On 7 November 2012 Broadstone completed the acquisition of the pensions and actuarial consultancy business of Pope Anderson LLP. The business is expected to generate around £4 million of revenue per annum and will add approximately £1 million of annual EBITDA. The Pope Anderson acquisition also provided Broadstone with a northern base from which to operate. In addition, Broadstone engaged the corporate pension and beneﬁts team formerly with UBS, London. The fair value of the Limited Partnership’s investment in Broadstone remains at cost but has increased from its value at 31 December 2011 due to the bolt-on acquisition, additional funding and exchange movements. PERFORMANCE Broadstone’s year end is 30 June. Total revenues for the 12 months to 30 June 2012 were £13.4 million with an EBITDA loss of £1.7 million. The business has invested in a scalable client asset platform whilst seeking to grow the business through both organic growth and acquisition. BROADSTONE Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Fair value of the Company’s interest £20.6m 84% £12.8m £19.3m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 29 REVIEW OF INVESTMENTS continued Sector: Technology Location: Germany Investment date: 31 December 2011 Website: www.intergenia.de TRANSACTION HISTORY On 31 December 2011, the Limited Partnership acquired a 51% stake in the business currently conducted by Intergenia AG (“Intergenia”), a leading web hosting company providing managed, dedicated and cloud hosting. The transaction valued Intergenia at a total enterprise value of £72 million (including transaction costs). The Limited Partnership provided £25.2 million of equity ﬁnancing and the Company provided senior debt of £8.4 million. £6.2 million of debt plus interest was repaid during 2012, leaving a balance of £2.2 million. Intergenia’s management and its founders retain a signiﬁcant stake in the company. BUSINESS OVERVIEW Intergenia was founded in 1998 with a head ofﬁce based in Cologne. Intergenia trades under three different hosting brands: PlusServer, Serverloft and SERVER4YOU. The Company has an industry-leading low-cost infrastructure due to its data centre in Strasbourg which is one of Europe’s most efﬁcient. The Company has 7,000 sq m of leasehold-owned data centre space split between Strasbourg, France and St. Louis, USA. Intergenia has a geographically diversiﬁed customer base composed predominantly of SME customers and is one of the German market leaders in dedicated hosting to SME customers. Intergenia also runs WorldHostingDays, the largest series of hosting conferences worldwide. BUSINESS UPDATE Intergenia reported a strong trading performance in 2012. During the ﬁrst quarter of 2012, management launched a new product range for SERVER4YOU and Serverloft which has been well received. Intergenia appointed a new CEO, CMO (Chief Marketing Ofﬁcer), CFO, and CTO (Chief Technology Ofﬁcer) during 2012 signiﬁcantly strengthening the management team. Management successfully launched a new high bandwidth hosting product. Intergenia began to build-out another data room in its Strasbourg data centre which is forecast to provide European capacity through to 2015. PERFORMANCE Intergenia has traded well in 2012 with revenues of €30.5 million (2011: €26.7 million) and EBITDA of €13.3 million (2011: €12.4 million). In the year, Intergenia was able to repay £6.2 million of its senior debt plus interest out of operating cash ﬂow to the Company leaving a balance of £2.2 million. INTERGENIA Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Fair value of the Company’s interest £72.0m 51% £24.8m £27.4m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 30 REVIEW OF INVESTMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 31 REVIEW OF INVESTMENTS continued Sector: Digital media Location: United Kingdom Investment date: 25 January 2008 Website: www.headlandmedia.com TRANSACTION DETAILS During 2008, the Limited Partnership via a newly incorporated company, Headland Media Limited (“Headland Media”) acquired Teamtalk Satellite Limited and Teamtalk Broadcast Limited, Good Morning News and Walport International. In 2009, the business acquired Shipboard Video Express Inc and in 2010, Headland Media acquired Newslink Service Limited. The Limited Partnership provided total equity funding of £4.4 million. The Company also provided mezzanine funding and as at 31 December 2011 had £1.6 million of mezzanine loan outstanding, which was fully repaid in February 2012. BUSINESS OVERVIEW Headland Media is a business-to-business media content provider with ofﬁces in the UK, Europe and the US. Headland Media is the leading provider of news digest services to the hotel and shipping sectors and is a provider of entertainment and training services to offshore industries and other remote locations with specialist communication needs. Headland Media distributes media content to around 13,000 destinations using proprietary distribution channels and has an audience of approximately 20 million listeners and 250,000 readers. Revenue is derived (one-off installation) charges. Headland Media has a loyal customer base and provides services to 1,600 hotels and 7,600 cruise and merchant ships. (subscription) revenue and non-recurring from recurring BUSINESS UPDATE Headland Media launched a number of new products in 2012 including a social network product for mariners to allow Headland Media to engage with crew and a streaming only music platform for smaller retailers and leisure clients. A new pay-as-you-go news digest platform has been developed for budget cruise lines. Headland Media has continued to grow its hotel business with 347 new hotels added in the year. PERFORMANCE Headland Media’s ﬁnancial performance for the year to 31 December 2012 was slightly behind budget due to the effect of the weak Euro. On 16 February 2012, Headland Media repaid the Company its £1.6 million mezzanine debt and interest in full which was funded by £1.0 million of bank debt and the remaining balance from internally generated cash. Revenues for the year to 31 December 2012 were £8.1 million (2011: £8.4 million) and EBITDA was £2.2 million (2011: £2.2 million). HEADLAND MEDIA Enterprise value at acquisition £7.9m Total equity held 80% Value of Company’s interest at acquisition Fair value of the Company’s interest £5.9m £6.1m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 32 REVIEW OF INVESTMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 33 REVIEW OF INVESTMENTS continued Sector: Financial services Location: United Kingdom Investment date: 31 March 2008 Website: www.monumentsecurities.com TRANSACTION DETAILS The Limited Partnership acquired 51% of Monument Securities Limited (“Monument Securities”) which was funded by equity of £2.8 million. The Limited Partnership provided additional funding in the form of equity of £0.6 million during 2012. BUSINESS OVERVIEW Monument Securities is an independent equity, derivatives and ﬁxed income broker with a history in excess of 20 years. The company provides services to institutions, fund managers, market professionals, corporates and hedge funds. Monument Securities is a member of the NYSE, Euronext, LIFFE, Eurex, the London Stock Exchange and the International Capital Markets Association and is regulated by the Financial Services Authority. BUSINESS UPDATE Trading volumes and overall levels of market activity continued to be depressed for much of 2012. Accordingly, a cost cutting programme was instigated involving closing down a research project, cancellation of various data systems and a number of redundancies. The fair value at 31 December 2012 has been assessed at its initial cost. PERFORMANCE Total revenue for 2012 was £4.2 million compared to £6.4 million for 2011. Losses were held at £0.3 million (2011: £0.2 million). HEADLAND MEDIA Enterprise value at acquisition £5.6m Total equity held 51% Value of Company’s interest at acquisition Fair value of the Company’s interest £1.8m £1.8m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O DISPOSALS 35 REVIEW OF INVESTMENTS continued Sector: Technology Location: United Kingdom Investment date: 2 April 2008 Website: www.hosteurope.com DISPOSAL DETAILS On 15 September 2010 the Limited Partnership announced the disposal of Host Europe to Montagu Private Equity, subject to approval by Germany’s Federal Cartel Ofﬁce (Bundeskartellamt). Having received this approval, the sale was completed on 28 October 2010. Total consideration for the sale was £222 million. The consideration was used to repay third-party debt; to pay Host Europe management in respect of their interests; to meet transaction costs; and to repay debt due to the Company of £16.9 million plus accrued interest. As a result of the disposal, on 10 November 2010, the Limited Partnership distributed £111.9 million of proceeds to the Limited Partners, including £72.7 million to the Company. Prior to the sale of Host Europe, the shares it held in Daisy Group plc (“Daisy”) were extracted and continue to be held by the Limited Partnership. These 36.25 million shares, representing 14% of Daisy were acquired as part of the consideration for the disposal of Host Europe’s Vialtus division in July 2009. Host Europe was acquired by the Limited Partnership at a total transaction value of £128 million. The consideration was satisﬁed by a mixture of cash, vendor loan note and bank loans and mezzanine ﬁnancing from the Company. The Limited Partnership contributed £48.0 million. Outstanding mezzanine loans due to the Company at the time of the disposal, amounting to £19.9 million (including accrued interest), were repaid on 28 October 2010. RETURN The exit value of the investment in Host Europe was £111.9 million against an invested cost of £48.0 million, generating a money multiple of 2.3x and an IRR of 48% to the Limited Partners. The Company received a total distribution of £92.6 million from the disposal comprising a return on its investment through the Limited Partnership of £72.7 million and the repayment of outstanding mezzanine ﬁnance owed by Host Europe of £19.9 million. HOST EUROPE Enterprise value at acquisition Total equity held Value of Company’s interest at acquisition Exit value of the Company’s interest £128.0m 83% £51.0m £92.6m 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O Independent Auditor’s Report 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 37 INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT To the Board of Directors and Shareholders of Oakley Capital Investments Limited We have audited the accompanying ﬁnancial statements of Oakley Capital Investments Limited (the “Company”), which comprise the statements of assets and liabilities, including the schedules of investments as of 31 December 2012 and 2011, and the related statements of operations, changes in net assets and cash ﬂows for the years then ended, and the related notes to the ﬁnancial statements. Management’s responsibility for the ﬁnancial statements Management is responsible for the preparation and fair presentation of these ﬁnancial statements in accordance with US generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of ﬁnancial statements that are free from material misstatement, whether due to fraud or error. Auditors’ responsibility Our responsibility is to express an opinion on these ﬁnancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the ﬁnancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁnancial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risk of material misstatement of the ﬁnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of signiﬁcant accounting estimates made by management, as well as evaluating the overall presentation of the ﬁnancial statements. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the ﬁnancial statements referred to above present fairly in all material respects, the ﬁnancial position of Oakley Capital Investments Limited as of 31 December 2012 and 2011, and the results of its operations and its cash ﬂows for the years then ended in accordance with US generally accepted accounting principles. KPMG Chartered Accountants Hamilton, Bermuda 23 April 2013 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 38 FINANCIAL STATEMENTS Financial Statements 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) Assets Investments (cost 2012: £102,333,819; 2011: £93,752,827) Cash and cash equivalents Accrued interest and accounts receivable Other receivables Total assets Liabilities notes 5, 7 3 2012 £ 2011 £ 161,806,610 145,143,787 56,036,923 70,108,870 10,087,914 3,961,377 33,993 15,638 227,965,440 219,229,672 Accounts payable and accrued expenses 4 401,043 300,960 Total liabilities 401,043 300,960 Net assets attributable to shareholders 227,564,397 218,928,712 Represented by: Share capital Share premium Retained earnings Less: Treasury stock (2,063,650 shares at cost) Number of shares outstanding 1,281,250 1,281,250 119,276,094 119,276,094 109,519,050 98,371,368 230,076,394 218,928,712 (2,511,997) – 227,564,397 218,928,712 126,061,350 128,125,000 9 9 Net asset value per share 1.81 1.71 Signed on behalf of the Board on 23 April 2013 Ian Pilgrim Director Tina Burns Director The notes following form an integral part of these ﬁnancial statements. 39 FINANCIAL STATEMENTS 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 40 FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O SCHEDULES OF INVESTMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) 31 December 2012 Fair value as a percentage of net assets Percentage interest Principal amount/ Quantity Cost £ Fair value £ Investments in Limited Partnership Bermuda Oakley Capital Private Equity L.P. 51.83% 65.15% 58,354,206 117,940,422 Unquoted debt securities Investments in senior loan notes United Kingdom Time Out London Interest at 8.5% p.a. Maturity date March 2013 United States Time Out New York Interest at 8.5% p.a. Maturity date May 2014 Germany Intergenia Interest at 8.5% p.a. Maturity date November 2013 Total senior loan notes Investments in mezzanine loans United Kingdom Broadstone Interest at 15% p.a. Maturity date November 2015 Time Out London Interest rate at 15% p.a. Maturity date November 2015 United States Time Out New York Interest rate at 15% p.a. Maturity date May 2016 Total mezzanine loans Investments in revolving loan facility Bermuda 2.20% £5,000,000 5,000,000 5,000,000 0.92% $3,400,000 2,109,020 2,091,000 0.95% 4.07% €2,660,415 2,226,236 2,157,331 9,335,256 9,248,331 2.64% £6,000,000 6,000,000 6,000,000 2.72% £6,200,000 6,200,000 6,200,000 1.35% 6.71% $5,000,000 3,101,500 3,075,000 15,301,500 15,275,000 Oakley Capital Private Equity L.P. 8.50% £19,342,857 19,342,857 19,342,857 Total revolving loan facility 8.50% 19,342,857 19,342,857 Total Investments 71.11% 102,333,819 161,806,610 The notes following form an integral part of these ﬁnancial statements. SCHEDULES OF INVESTMENTS (continued) FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) 31 December 2011 Fair value as a percentage of net assets Percentage interest Principal amount/ Quantity Cost £ Fair value £ Investments in Limited Partnership Bermuda Oakley Capital Private Equity L.P. Unquoted debt securities Investments in senior loan notes United Kingdom Time Out London Interest at 8.5% p.a. Maturity date March 2013 United States Time Out New York Interest at 8.5% p.a. Maturity date May 2014 Germany Intergenia Interest at 8.5% p.a. Maturity date November 2013 Total senior loan notes Investments in mezzanine loans United Kingdom Headland Media Interest at 15% p.a. Maturity date December 2014 Broadstone Interest at 15% p.a. Maturity date November 2015 Time Out London Interest rate at 15% p.a. Maturity date November 2015 United States Time Out New York Interest rate at 15% p.a. Maturity date May 2016 Total mezzanine loans Total Investments 51.41% 65.01% 61,328,362 112,553,747 2.28% £5,000,000 5,000,000 5,000,000 1.00% $3,400,000 2,109,020 2,195,040 3.82% 7.10% €10,000,000 8,368,000 8,353,000 15,477,020 15,548,040 0.74% $2,500,000 1,645,945 1,614,000 2.74% £6,000,000 6,000,000 6,000,000 2.83% £6,200,000 6,200,000 6,200,000 1.47% 7.78% 66.29% $5,000,000 3,101,500 3,228,000 16,947,445 17,042,000 93,752,827 145,143,787 The notes following form an integral part of these ﬁnancial statements. 41 FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 42 FINANCIAL STATEMENTS continued STATEMENTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) Investment income Interest Withholding tax on interest Total income Expenses Management fees Performance fees Professional fees Other Interest Total expenses notes 2012 £ 2011 £ 5,821,871 5,570,248 (210,897) (117,436) 5,610,974 5,452,812 665,995 81,465 330,617 331,392 6,595 591,481 – 339,923 339,023 1,721 1,416,064 1,272,148 4 4 6,10 Net investment income 4,194,910 4,180,664 Realised and unrealised gains (losses) on foreign exchange and investments Net realised (losses) gains on foreign exchange Net change in unrealised (losses) gains on foreign exchange Net realised losses on sales of investments Net change in unrealised appreciation (depreciation) on investments Net realised and unrealised gains (losses) on foreign exchange and investments Net earnings (409,762) (26,119) (693,178) 8,081,831 502,413 12,362 (524,533) (189,536) 6,952,772 (199,294) 11,147,682 3,981,370 Net earnings per share 9 0.09 0.03 The notes following form an integral part of these ﬁnancial statements. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 43 FINANCIAL STATEMENTS continued STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) 2012 £ 2011 £ Net increase in net assets resulting from operations Net investment income 4,194,910 4,180,664 Net realised (losses) gains on foreign exchange Net change in unrealised (losses) gains on foreign exchange Net realised losses on sales of investments Net change in unrealised appreciation (depreciation) on investments (409,762) (26,119) (693,178) 8,081,831 502,413 12,362 (524,533) (189,536) Net increase in net assets resulting from operations 11,147,682 3,981,370 Net decrease in net assets resulting from capital transactions Share repurchase Net decrease in net assets resulting from capital transactions (2,511,997) (2,511,997) – – Net increase in net assets 8,635,685 3,981,370 Net assets at beginning of year 218,928,712 214,947,342 Net assets at end of year 227,564,397 218,928,712 The notes following form an integral part of these ﬁnancial statements. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 (Expressed in British Pounds) 2012 £ 2011 £ Cash ﬂows from operating activities Net increase in net assets resulting from operations 11,147,682 3,981,370 Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities: Net realised and unrealised (gains) losses on foreign exchange and investments Payments for purchases of investments Proceeds on disposal of investments Change in accrued interest receivable Change in other receivables Change in accounts payable and accrued expenses (6,952,772) 199,294 (19,582,473) (80,448,664) 10,308,303 28,299,047 (6,126,537) (3,147,238) (18,355) 100,083 13,915 (219,356) Net cash used in operating activities (11,124,069) (51,321,632) Cash ﬂows from ﬁnancing transactions Payments for shares repurchased Cash used in ﬁnancing transactions Net effect of foreign exchange Net decrease in cash and cash equivalents (2,511,997) (2,511,997) – – (435,881) 514,775 (14,071,947) (50,806,857) Cash and cash equivalents at beginning of year 70,108,870 120,915,727 Cash and cash equivalents at end of year 56,036,923 70,108,870 Interest paid during the year 6,595 1,721 The notes following form an integral part of these ﬁnancial statements. 44 FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 45 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2012 AND 2011 1. THE COMPANY Oakley Capital Investments Limited (the “Company”) is a closed-ended investment company which was incorporated under the laws of Bermuda on 28 June 2007. The principal objective of the Company is to achieve capital appreciation through investments in a diversiﬁed portfolio of private mid-market UK and European businesses. The Company achieves its investment objective primarily through an investment in Oakley Capital Private Equity L.P. (the “Limited Partnership”), an exempted limited partnership established in Bermuda on 10 July 2007. The manager is Oakley Capital (Bermuda) Limited (the “Manager”) and the investment adviser is Oakley Capital Limited (the “Investment Adviser”). The Company and the general partner of the Limited Partnership have two directors in common. The Company listed on the AIM market of the London Stock Exchange on 3 August 2007. 2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of presentation The accompanying ﬁnancial statements are prepared in accordance with US generally accepted accounting principles. b) Use of estimates The preparation of ﬁnancial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the ﬁnancial statements and the reported amounts of increases and decreases in net assets during the reporting period. Actual results could differ from those estimates. c) Investment valuation Limited Partnership Security transactions are accounted for on a trade date basis based on the capital drawdown and proceeds distribution dates received from the Limited Partnership. The Company’s investment in the Limited Partnership is valued at the balance on the Company’s capital account in the Limited Partnership as at the reporting date. Any difference between the capital introduced and the balance on the Company’s capital account in the Limited Partnership is recognised in net change in unrealised appreciation and depreciation on investments in the Statements of Operations. The Limited Partnership values its investments at fair value and recognises gains and losses on security transactions using the speciﬁc cost method. Mezzanine loans, bridge loans, senior loans and revolving credit facilities Mezzanine loans, bridge loans, senior loans and revolving credit facilities are initially valued at the price the loan was granted. Subsequent to initial recognition the loans are valued on a fair value basis taking into account market conditions and any appreciation or depreciation in value. Realised gains and losses are recorded when the security acquired is realised. The net realised gains and losses on sale of securities are determined using the speciﬁc cost method. The Company is subject to the provisions of the FASB guidance on Fair Value Measurements and Disclosure (ASC 820). ASC 820 deﬁnes fair value, establishes a framework for measuring fair value in accordance with US generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 establishes a hierarchical disclosure framework which prioritises and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics speciﬁc to the investment. Investments with readily available active market quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O The hierarchy of inputs is summarised below. Level 1 – quoted prices in active markets for identical investments Level 2 – other signiﬁcant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit spreads, etc.) Level 3 – signiﬁcant unobservable inputs (including the Investment Adviser’s own assumptions in determining the fair value of investments) The inputs and methodologies used in valuing the securities are not necessarily an indication of the risks associated with investing in those securities. Securities traded on a national stock exchange are valued at the last reported price on the valuation date and are categorised as Level 1 within the fair value hierarchy. When prices are not readily available, or are determined not to reﬂect fair value, the Company may value these securities at fair value as determined in accordance with the procedures approved by the Investment Adviser in consultation with the Manager. Level 2 securities are valued using representative brokers’ prices, quoted prices for similar investments, published reports or, third-party valuations. Level 3 securities are valued at the discretion of the Investment Adviser in consultation with the Manager. In these circumstances, the Manager will attempt to use consistent and fair valuation criteria and may obtain independent appraisals. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is signiﬁcant to the fair value measurement. d) Income recognition Interest income and expenses are recognised on the accruals basis. e) Foreign currency translation Investments and other monetary assets and liabilities denominated in foreign currencies are translated into British Pound amounts at exchange rates prevailing at the reporting date. Capital drawdowns and proceeds of distributions from the Limited Partnership in foreign currencies and income and expense items denominated in foreign currencies are translated into British Pound amounts at the exchange rate on the respective dates of such transactions. Foreign exchange gains and losses on other monetary assets and liabilities are recognised in the net realised and unrealised gain or loss from foreign exchange in the Statements of Operations. The Company does not isolate unrealised or realised foreign exchange gains and losses arising from changes in the fair value of investments. All such foreign exchange gains and losses are included with the net realised and unrealised gain or loss on investments in the Statements of Operations. f) Cash and cash equivalents The Company considers all short-term deposits with a maturity of 90 days or less as equivalent to cash. 46 NOTES TO THE FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 47 NOTES TO THE FINANCIAL STATEMENTS continued 3. CASH AND CASH EQUIVALENTS Cash and cash equivalents at 31 December 2012 and 2011 consist of the following: Cash Short-term deposits 2012 £ 2011 £ 14,437,917 1,010,856 41,599,006 69,098,014 56,036,923 70,108,870 4. MANAGEMENT AND PERFORMANCE FEES (a) The Company has entered into a Management Agreement with the Manager to manage the Company’s investment portfolio. The Manager will not receive a management fee from the Company in respect of funds either committed or invested by the Company in the Limited Partnership or any successor fund managed by the Manager. The Manager will receive a management fee at the rate of 1% per annum in respect of those funds that are not committed to the Limited Partnership or any successor fund (but including the proceeds of any realisations), which are invested in cash, cash deposits or near cash deposits and a management fee at the rate of 2% per annum in respect of those funds which are invested directly in co-investments. The management fee is payable monthly in arrears. During the year ended 31 December 2012, the Company incurred management fees of £665,995 (2011: £591,481). As at 31 December 2012, management fees in the amount of £38,641 were payable to the Manager (2011: £105,892). The Manager may also receive a performance fee of 20% of the excess of the amount earned by the Company over and above an 8% hurdle rate per annum on any monies invested as a co-investment with the Limited Partnership or any successor limited partnership. Any co-investment will be treated as a segregated pool of investments by the Company. If the calculation period is greater than one year, the hurdle rate shall be compounded on each anniversary of the start of the calculation period for each segregated co-investment. If the Manager does not exceed the hurdle rate on any given co-investment, that co-investment shall be included in the next calculation so that the hurdle rate is measured across both co-investments. No previous payments of performance fee will be affected if any co-investment does not reach the hurdle rate of the return. During the year ended 31 December 2012, the Company incurred performance fees of £81,465 (2011: £nil). (b) The Manager has entered into an Investment Adviser Agreement with the Investment Adviser to advise the Manager on the investment of the assets of the Company. The Investment Adviser will not receive a management or performance fee from the Company. Any fees due to the Investment Adviser will be paid by the Manager out of the management fees it receives from the Company. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 48 NOTES TO THE FINANCIAL STATEMENTS continued 5. FAIR VALUE OF FINANCIAL INSTRUMENTS The following is a summary of the inputs used in valuing the Company’s assets carried at fair value: Investments in Securities Quotes prices (Level 1) Other signiﬁcant observable inputs (Level 2) 31 December 2012 £ 31 December 2011 £ – – – – Signiﬁcant unobservable inputs (Level 3) 161,806,610 145,143,787 The instruments comprising investments in securities are disclosed in the schedules of investments. The Company has an investment in a private equity limited partnership. The investment is included at fair value based on the Company’s balance on its capital account in the Limited Partnership. The valuation of non-public investments requires signiﬁcant judgment by the Limited Partnership’s Investment Adviser in consultation with the Manager of the Limited Partnership due to the absence of quoted market values, inherent lack of liquidity and the long-term nature of such assets. Private equity investments are valued initially based upon transaction price. Valuations are reviewed periodically utilising available market data to determine if the carrying value of these investments should be adjusted. Such market data primarily includes observations of the trading multiples of public companies considered comparable to the private companies being valued. In addition, a variety of additional factors are reviewed by the Limited Partnership’s Investment Adviser, including, but not limited to, ﬁnancing and sales transactions with third parties, current operating performance and future expectations of the particular investment, changes in market outlook and the third-party ﬁnancing environment. Because of the inherent uncertainty of valuing unquoted private equity investments, the estimated fair values may differ from the values that would have been used had a ready market for such investments existed and such differences may be material. Mezzanine loans, bridge loans, senior loans and revolving credit facilities are initially valued at the price the loan was granted. Subsequent to initial recognition, the loans are valued on a fair value basis taking into account market conditions and any appreciation or depreciation in value. The fair values have been determined based on a discounted cash ﬂow valuation approach consistent with prior years. The discount rate used to value the mezzanine loans is 15% (2011: 15%), the secured loans 8.5% (2011: 8.5%) and the revolving credit facility 6.5%. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 49 NOTES TO THE FINANCIAL STATEMENTS continued The following is a reconciliation of Level 3 investments for which signiﬁcant unobservable inputs were used to determine fair value: Investment in Limited Partnership Fair value at beginning of year Purchases Proceeds on disposal Realised loss on disposal Net change in unrealised appreciation (depreciation) on investments Investment in Securities 2012 £ Investment in Securities 2011 £ 112,553,747 73,977,584 239,616 39,049,714 (2,737,153) (476,619) 8,360,831 – – (473,551) Limited Partnership, fair value at end of year 117,940,422 112,553,747 Unquoted debt securities Fair value at beginning of year Purchases Proceeds on disposal Net realised loss on disposal Net change in unrealised (depreciation) appreciation on investments 32,590,040 19,730,655 19,342,857 41,398,950 (7,571,150) (28,299,045) (216,559) (279,000) (524,533) 284,013 Unquoted debt securities, fair value at end of year 43,866,188 32,590,040 Fair value at end of year 161,806,610 145,143,787 The net change in unrealised appreciation or depreciation on investments relates to investments held at the respective year end. Of the investments held by the Limited Partnership, 15% (2011: 19%) are classiﬁed as Level 2 investments and 85% (2011: 81%) are classiﬁed as Level 3 investments by the Limited Partnership. 6. ADMINISTRATION FEE Under the terms of the Administration Agreement dated 30 July 2007 between Mayﬂower Management Services (Bermuda) Limited (the “Administrator”) and the Company, the Administrator receives an annual administration fee at prevailing commercial rates. During the year ended 31 December 2012, the Company incurred administration fees of £157,060 (2011: £161,296), which is included in professional fees in the Statements of Operations. 7. INVESTMENTS Limited Partnership The Company has committed substantially all of its capital to the Limited Partnership and its successor fund, Oakley Capital Private Equity II L.P. The Limited Partnership’s primary objective is to invest in a diversiﬁed portfolio of private mid-market UK and European businesses, aiming to provide investors with signiﬁcant long- term capital appreciation. The investment in the Limited Partnership is denominated in Euros. The Limited Partnership has an initial period of ten years from its ﬁnal closing date of 30 November 2009; however the life of the Limited Partnership may be extended, at the discretion of the General Partner, by up to three additional one year periods, to provide for the orderly realisation of investments. The Limited Partnership will make distributions as its investments are realised. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 50 NOTES TO THE FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O The Company’s share of the total capital called by the Limited Partnership to 31 December 2012 was £99,534,618 (€122,745,860) (2011: £101,932,105 (€122,485,000), representing 65.15% of the Company’s total capital commitment. During the year ended 31 December 2012 the Company acquired Centrecourt Ventures Inc.’s interest in the Limited Partnership comprising a commitment of €398,260, accounting for 0.14% of the Limited Partnership’s committed capital. As at 31 December 2012, the Company accounted for 65.15% of the total capital and commitments in the Limited Partnership (2011: 65.01%). The Company may also make co-investments with the Limited Partnership based on the recommendations of the Manager. At 31 December 2012 all of the Limited Partnership’s investments are carried at fair value. The Limited Partnership appointed a third-party valuer to determine the fair value of certain underlying businesses, taking into account ﬁnancial information provided by the Limited Partnership’s investment adviser. Limited Partnership’s investments The Limited Partnership made follow-on investments in six of the portfolio companies in 2012. These investments were in Emesa, The Time Out Group, Broadstone, Monument Securities and Headland Media. The Company also increased its investment in the Limited Partnership through a revolving credit facility advanced to the Limited Partnership. Headland Media Headland Media Limited (“Headland Media”) is a leading business-to-business media content provider of news digest services to the hotel and shipping sectors; as well as a leading provider of entertainment and training services to offshore industries. Monument Securities Monument Securities Group Limited (“Monument Securities”) is a global equity, derivatives and ﬁxed income broker with a 20-year history. Monument Securities provides services to institutions, fund managers, market professionals, corporate and hedge funds. Verivox The Limited Partnership, through V VX (Bermuda) Limited, acquired 51% of Verivox Holdings Limited, an online consumer energy price comparison service in Germany. The company receives commissions from energy suppliers when consumers elect to switch providers through its website. Broadstone The Limited Partnership through its wholly owned subsidiary, Fitzwilliam Holdco Limited, acquired 84.4% of Broadstone, the UK-wide independent provider of investment advice and solutions to private individuals and corporates, from BDO LLP. Time Out London and Time Out New York The Limited Partnership acquired 50% of Time Out Group Limited (“Time Out London”), the international multi- channel publisher. Time Out provides services across traditional print, digital channels and live events. The Limited Partnership acquired 65.7% of Time Out America LLC (“Time Out New York”). In combination, Time Out New York and Time Out London control the worldwide rights to the Time Out brand (excluding Chicago). Emesa On 25 March 2011, the Company acquired 68.0% of Sun Cooperatief U.A. (“Emesa”), an e-commerce company active in the Dutch online leisure market. Emesa enables online customers to ﬁnd and book leisure deals such as short holidays, weekend breaks, spa/beauty visits, event tickets and restaurant visits through its websites. Intergenia On 20 December 2011, the Limited Partnership acquired a 51% stake in Intergenia AG (“Intergenia”), a web hosting company providing managed, dedicated and cloud hosting. The Limited Partnership acquired the investment in Intergenia through a fully owned subsidiary, WHDI (Bermuda) Limited. Certain directors of the Company and the general partner of the Limited Partnership are also directors of the investee companies. 51 NOTES TO THE FINANCIAL STATEMENTS continued Mezzanine ﬁnancing investments Headland Media As part of the Limited Partnership’s acquisition of Newslink through Headland Media, the Company provided £1.6 million of debt ﬁnance, in the form of a secured mezzanine instrument. The instrument carries a ﬁxed interest rate of 15% and was due in December 2014. The debt was fully repaid on 16 February 2012. Time Out London As part of the Limited Partnership’s acquisition of Time Out Group Limited, the Company provided debt ﬁnance of £6.2 million in the form of a mezzanine loan to TO (Bermuda) Limited. The instrument carries a ﬁxed interest rate of 15% maturing on 30 November 2015. The fair value of the loan is considered to approximate its amortised cost at 31 December 2012. Broadstone As part of the Limited Partnership’s acquisition of Broadstone, the Company provided debt ﬁnance of £6.0 million in the form of a mezzanine loan to Fitzwilliam Holdco Limited. The instrument carries an interest rate of 15% and matures on 30 November 2015. The fair value of the loan is considered to approximate its amortised cost at 31 December 2012. Time Out New York As part of the Limited Partnership’s acquisition of Time Out New York, the Company provided debt ﬁnance of £3.1 million ($5.0 million) to TONY OCIL (Bermuda) Limited in the form of a mezzanine loan. The instrument carries a ﬁxed interest rate of 15% before withholding tax and 10.5% after withholding tax and matures on 26 May 2016. Interest income on the loan is shown net of withholding tax. The fair value of the loan is considered to approximate its amortised cost at 31 December 2012. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 52 NOTES TO THE FINANCIAL STATEMENTS continued 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O Senior loan notes Time Out London As part of the Limited Partnership’s acquisition of Time Out Group Limited, the Company provided a secured senior loan of £5.0 million to Time Out Group BC Limited. The instrument carries a ﬁxed interest rate of 8.5% and matures on 31 March 2013. The fair value is considered to approximate its amortised cost at 31 December 2012. Time Out New York As part of the Limited Partnership’s acquisition of Time Out New York, the Company provided a secured senior loan of £2.1 million ($3.4 million) to TONY OCIL (Bermuda) Limited. The instrument carries a ﬁxed interest rate of 8.5% before withholding tax and 5.95% after withholding tax. The instrument matures no later than May 2014. The fair value is considered to approximate its amortised cost at 31 December 2012. Intergenia As part of the Limited Partnership’s acquisition of Intergenia, the Company provided a secured senior loan of £8.4 million (€10.0 million) to Intergenia GmbH. The instrument carries a ﬁxed interest rate of 8.5%. The instrument matures no later than November 2013. On 8 March 2012 £6.0 million (€7.4 million) of this loan was repaid. The fair value is considered to approximate its amortised cost at 31 December 2012. Bridge ﬁnancing investments Oakley Capital Private Equity L.P. On 24 March 2011, the Company provided a bridging loan to the Limited Partnership of £12 million at an interest rate of 6.5% and a maturity date of 29 July 2011. The loan was repaid in full on 15 April 2011. On 24 November 2011, the Company provided a bridging loan of £3 million at an interest rate of 6.5% and a maturity date of 29 February 2012. The debt was repaid in full on 8 December 2011. The fair value is considered to approximate its amortised cost. Revolving credit facility Oakley Capital Private Equity L.P. On 19 March 2012, the Company provided a revolving loan facility of £23 million to the Limited Partnership at an interest rate of 6.5%. As at 31 December 2012 £19.3 million of the funding had been provided from the facility. The fair value is considered to approximate its amortised cost at 31 December 2012. Details of a subsequent repayment of the facility are included in Note 13. 8. CAPITAL COMMITMENT The total capital commitment made by the Company in the Limited Partnership is £151,961,249 (€187,398,260) (2011: £156,197,795 (€187,000,000)). The Limited Partnership may draw upon the capital commitment at any time, subject to two weeks’ notice, on an as needed basis. Since inception, capital in the amount of £99,534,618 (€122,745,860) (2011: £101,932,105 (€122,485,000)) was called by the Limited Partnership. As at 31 December 2012, the amount of capital commitment available to be called by the Limited Partnership was £52,426,631 (€64,652,400) (2011: £54,265,690 (€64,515,000)). During the year ended 31 December 2012 the Company acquired Centrecourt Ventures Inc.’s interest in the Limited Partnership of €398,260, accounting for 0.14% of the Limited Partnership’s committed capital. On 5 April 2011, the Limited Partnership issued a capital call for €18.7 million (£16.5 million) representing 10% of the outstanding commitments of €187 million. On 23 November 2011, the Limited Partnership issued a further capital call of €26.2 million (£22.5 million) representing 14% of the outstanding commitments of €187 million. No capital calls were made by the Limited Partnership during 2012. The total funded commitment as at 31 December 2012 was €122.5 million (2011: €122.5 million) representing 65.5% (2011: 65.5%) of the Company’s total commitments. 53 NOTES TO THE FINANCIAL STATEMENTS continued 9. SHARE CAPITAL (a) Share capital The authorised share capital of the Company consists of 200,000,000 Ordinary Shares with the issued share capital of the Company consisting of 100,000,000 Ordinary Shares. (b) Secondary placing On 9 March 2009, a secondary placing took place whereby the Company issued 28,125,000 shares, which were sold at a price of 64 pence per share; raising £18,000,000. (c) Share repurchase On 2 October 2008, the Board of Directors authorised a repurchase programme of 7,589,000 shares. Under a tender offer, the Company repurchased 7,589,000 shares for £4,576,316 at a price of 60 pence per share and held them as treasury stock. All of the rights of the treasury shares were suspended (including economic participation, voting and dividend distribution rights). On 21 October 2009, an additional placing took place whereby the Company re-issued the 7,589,000 shares previously repurchased at a price of 94 pence per share raising £7,133,660. On 3 July 2012, the Company repurchased 603,650 shares at a price of 114 pence per share, on 5 July 2012 the Company repurchased an additional 1,355,000 shares at a price of 125 pence and ﬁnally on 9 July 2012 the Company repurchased an additional 105,000 shares at 122 pence per share. Directly attributable costs of £1,987 were incurred in relation to the shares repurchased. At 31 December 2012, a total of 2,063,650 shares are held as treasury stock. Shares of common stock are: Common stock 2012 2011 Balance at beginning of year 128,125,000 128,125,000 Shares repurchased Balance at end of year (2,063,650) – 126,061,350 128,125,000 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 54 NOTES TO THE FINANCIAL STATEMENTS continued 10. RELATED PARTIES Certain Directors of the Company are also Directors, Members and/or shareholders of the Manager, Oakley Capital Corporate Finance LLP (“Oakley Finance”), Palmer Capital Associates (International) Limited and the Administrator; entities which provide services to and receive compensation from the Company. These agreements are based on normal commercial terms. The Company has a ﬁnancial advisory agreement with Oakley Finance. During 2012, the Company incurred ﬁnancial advisory fees of £25,000 (2011: £25,000), which is included in professional fees in the Statements of Operations. 11. TAXATION Under current Bermuda law the Company is not required to pay any taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that in the event of such taxes being imposed, the Company will be exempt from such taxation at least until the year 2035. The Company was not required to recognise any amounts for uncertain tax positions under FASB ASC 740-10 during the year ended 31 December 2012. 12. INDEMNIFICATIONS AND WARRANTIES In the ordinary course of business, the Company may enter into contracts or agreements that may contain indemniﬁcations or warranties. Future events could occur that lead to the execution of these provisions against the Company. Based on its history, experience and assessment of existing contracts, management feels that the current likelihood of such an event is remote. 13. SUBSEQUENT EVENTS The Directors have evaluated subsequent events from the year end through 23 April 2013 which is the date the ﬁnancial statements were available to be issued. The following events have been identiﬁed for disclosure. The Limited Partnership successfully completed the sale of Emesa on 31 January 2013. The Limited Partnership distributed €29.7 million (£25.6 million) to the Company on 15 February 2013. Coincidental with the distribution of Emesa proceeds, the Limited Partnership made a capital call of 7% of total commitments, which for the Company was €13.1 million (£11.3 million) bringing the total drawn down capital to 72.5% of total capital commitments. As at 31 December 2012, the revolving credit facility provided to the Limited Partnership was £19.3 million. On 25 February 2013, £16.2 million of the revolving credit facility was repaid. On 14 February 2013, the Company provided debt ﬁnance to Daisy Data Centre Solutions Limited in the form of a mezzanine loan facility of £4.5 million. The mezzanine loan facility carries a ﬁxed interest rate of 15%, maturing no later than 14 February 2014. On 5 April 2013 the £5 million senior loan note provided to Time Out Group BC Limited matured and its term was extended to 31 March 2016. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O DIRECTORS AND ADVISERS DIRECTORS James Michael Keyes Independent Director and Chairman Laurence Charles Neil Blackall Independent Director Christine (Tina) Michelle Burns Independent Director Peter Adam Daiches Dubens Director Ian Patrick Pilgrim Director Christopher Wetherhill Independent Director ADVISERS Registered Ofﬁce 102 St. James Court Smiths FL04 Bermuda Manager to the Company and the Limited Partnership Oakley Capital (Bermuda) Limited 102 St. James Court Smiths FL04 Bermuda Investment Adviser to the Manager Oakley Capital Limited 3 Cadogan Gate London SW1X 0AS United Kingdom Legal Advisers to the Company Simpson Thacher & Bartlett LLP City Point 1 Ropemaker Street London EC2Y 9HU United Kingdom CREST Depositary Computershare Investor Services PLC PO Box 82 The Pavilions Bridgwater Road Bristol BS99 7NH United Kingdom Administrator to the Company and the Limited Partnership Mayﬂower Management Services (Bermuda) Limited 102 St. James Court Smiths FL04 Bermuda Legal Advisers to the Company as to Bermuda Law Conyers Dill & Pearman Limited Clarendon House 2 Church Street Hamilton HM CX Bermuda Nominated Adviser and Broker to the Company Liberum Capital Limited Level 12, Ropemaker Place 25 Ropemaker Street London EC2Y 9AR United Kingdom Auditors to the Company and the Limited Partnership KPMG Crown House 4 Par la Ville Road Hamilton HM08 Bermuda Branch Registrar Computershare Investor Services (Jersey) Limited Queensway House Hilgrove Street St Helier Jersey JE1 1ES 55 DIRECTORS AND ADVISERS 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O NOTICE OF ANNUAL GENERAL MEETING NOTICE is hereby given that the 2013 Annual General Meeting of the Members of the Company will be held at 102 St. James Court, Smiths FL04, Bermuda on: 24 June 2013 at 11.00 a.m. (Bermuda time) AGENDA 1. To elect a Chairman, if necessary. 2. To read the Notice convening the Meeting. 3. To lay before the Members the Company’s audited report and accounts for the ﬁnancial year ended 31 December 2012. 4. To re-appoint KPMG of Crown House, 4 Par la Ville Road, Hamilton HM08, Bermuda as auditors for the ensuing year, and to authorise the Directors to ﬁx their remuneration. 5. To note the retirement by rotation as Directors of the Company of Peter Dubens and Laurence Blackall at the Meeting in accordance with Bye-law 105 of the Company’s Bye-laws. 6. To: a) determine the minimum and maximum number of Directors as not less than two (2) and not more than twelve (12); b) re-elect Peter Dubens as a Director of the Company so to serve until the next Annual General Meeting or until his successor is elected or appointed; c) re-elect James Keyes as a Director of the Company so to serve until the next Annual General Meeting or until his successor is elected or appointed; d) re-elect Laurence Blackall as a Director of the Company so to serve until the next Annual General Meeting or until his successor is elected or appointed; e) re-elect Christopher Wetherhill as a Director of the Company so to serve until the next Annual General Meeting or until his successor is elected or appointed; f) re-elect Tina Burns as a Director of the Company so to serve until the next Annual General Meeting or until her successor is elected or appointed; g) re-elect Ian Pilgrim as a Director of the Company so to serve until the next Annual General Meeting or until his successor is elected or appointed; h) authorise the Directors from time to time to ﬁll any vacancies on the Board; and i) confer general authority on the Directors to appoint alternative Directors. Copies of the letters of appointment of the Directors of the Company will be available for inspection for at least 15 minutes prior to the Meeting and during the Meeting itself. 14 May 2013 BY ORDER of the Directors Mayﬂower Management Services (Bermuda) Limited Secretary 56 NOTICE OF ANNUAL GENERAL MEETING 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 57 NOTICE OF ANNUAL GENERAL MEETING NOTES 1. The Company has established the date of this Notice as the record date (the “Record Date”) for the purposes of the Meeting, and accordingly only the registered holders of the Company’s Ordinary Shares who are entered in the Company’s Register of Members as at the Record Date are entitled to receive notice of, and attend and vote at, the Meeting. 2. A member is entitled to appoint one or more proxies to attend the Meeting, and, on a poll, vote instead of that member. A proxy need not be a Member. 3. Enclosed is a Form of Proxy appointing the Chairman, failing which the Secretary, of the Meeting or some other person to vote your shares with respect to any and all matters coming before the Meeting. To be valid the Form of Proxy must be received no later than 11.00 a.m. Bermuda time on 21 June 2013 at: Mayﬂower Management Services (Bermuda) Limited Secretary Oakley Capital Investments Limited 102 St. James Court Smiths FL04 Bermuda Email: ipilgrim@mayﬂower.bm Fax: (441) 542 6724 Please return the completed Form of Proxy by scanned e-mail or by facsimile. 4. The Company advises that it knows of no other items to be brought before the Meeting other than the agenda items speciﬁed in the Notice. However, should any other items be presented at the Meeting of which the Company is not aware, it is the intention that the Proxy-holder vote at his/her discretion. 5. The giving of a proxy does not preclude the right to vote in person, should the Member giving the proxy so desire, as the proxy may be revoked at any time, provided Notice of Revocation is received by the Company at the address given in paragraph 3 above before commencement of the Meeting. Notice of Revocation may be served by scanned e-mail or by facsimile. 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O 58 FOR YOUR NOTES 2 1 0 2 S T N U O C C A D N A T R O P E R L A U N N A D E T M L S T N E M T S E V N I I I I L A T P A C Y E L K A O Designed by addtotaste.com and printed by Portman Lodge Limited O A K L E Y C A P T A L I I N V E S T M E N T S L M T E D I I A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 2 Oakley Capital Investments Limited is registered in Bermuda with company number 40324. Registered ofﬁce: 102 St. James Court, Smiths FL04, Bermuda

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