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Ombu Group another cash guzzler - can Neil Woodford meet his £50 million commitment?

By Tom Winnifrith | Sunday 11 February 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

At 31 December 2017, Ombu Group represented c2.02% of the Woodford Patient Capital Trust (WPCT) portfolio being two separate investments of 2.01 % + 0.01%. The principal activity of Ombu Group, according to its accounts, is providing capital and management support to fast growing companies in the fields of industrial technology, energy technology and water technology.

The group lost £27.776 million and £18.734 million on turnover of £2.261 million and £2.675 million for the years ended 30 September 2015 and 2016. The majority of the increase in the loss was due to impairment of intangible assets of £7.21 million in 2016. However, this is clearly a group some distance away from profitability.

The cash outflow from operating activities was £9.033 million and £11.769 million with £11.918 million and £11.334 million being spent in investing activities, making a total cash drain of £20.951 million and £23.013 million years ended 30 September 2015 and 2016 respectively. A significant proportion of the invested cash went into its associates.

The investment in associates were recorded on the balance sheet at £19.314 million at 30 September 2016 (after an impairment in the year of £3.01 million). Ombu’s share of the losses of associates was £2.082 million. The aggregate results of the associates were a pre-tax loss of £15.320 million (2015 £16.348 million) on turnover of £19.264 million (2015 £14.262 million) which offers little comfort about their reaching profitability in the near future.

The accounts note that on 15 February 2017 Woodford Investment Management invested £8 million (although it doesn’t specify which funds participated).

Interestingly Page 3 of the 2015 accounts indicate that “On 28 October 2015, Woodford Investment Management had acquired 17.2% of the share capital of Ombu Group Limited and committed to invest a further £50 million of new capital into Ombu Group Limited on a draw down basis”.

The latter point raises some interesting questions. Just how big is the Trust’s commitment to invest additional monies into its unquoted investment portfolio? What are the consequences if it is unable to fund such commitments given that the flagship fund is right up againstb its limits of holding unquoted stock and WPCT is well through it.

Over to you nomates...any answers?

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