Dear Fellow Shareholders,
Overall, the last 12 months have been challenging with VivoPower International’s underperformance clouding strong performance and growth across EdventureCo Group (formerly Everthought Education), Thermoscan and Arowana Funds Management.
FY2018 in Review
For FY2018, we set our annual theme to be Grow Platforms with the following strategic execution priorities:
- VivoPower International – deliver on FY18 forecasts and drive investor relations;
- Everthought Education – scale up platform and secure strategic partnerships;
- Arowana Funds Management – raise 2 new fund vehicles and achieve $200m FUM target;
- Co-Investment Partnerships – secure Australian and international strategic partners;
- Data Analytics – build leadership team and establish profitable platform; and
- Enterprise Office – complete marketing & branding upgrade and secure B Corp accreditation.
We achieved 4 out of the 6 objectives above during FY2018, as VivoPower did not achieve its FY18 forecasts primarily as a result of Trump related tariff uncertainty curtailing the US solar development market whilst Arowana Funds Management fell 19% short of its $200m FUM target, despite year on year FUM growth of 36% and the launch of a new fund product, the Arowana Special Income Opportunities Fund (“ASIOF”).
We delivered on our objective to scale up Everthought Education (now EdventureCo Group) following the acquisition of Australia’s largest ICT training company, DDLS and it has since secured marquee vendor partnerships with Google Cloud and SAP. EdventureCo is also currently engaged in strategic discussions with joint venture partners to expand across the ASEAN region. A key point to note is that there is less than 5% Australian government funding exposure with EdventureCo, a deliberate strategy given past experience.
We also delivered on securing co-investment partnerships in Australia and more so internationally with a number of family office relationships established where we will seek to collaborate and invest in operating companies and/or funds together. The common goal underpinning these relationships is to scale up operating companies globally.
During the year, we also successfully built up Arowana University’s knowledge base and capabilities in artificial intelligence (AI), encompassing data analytics. In addition to leveraging the experience and insights of our advisory board member, Professor Hugh Durrant Whyte, we also now call upon the expertise of our newest board member, Ed Fernandez, who is an AI and machine learning expert and technologist based in Silicon Valley. We have already applied AI and machine learning techniques in acquisition due diligence as well as within our operating companies, specifically EdventureCo and Thermoscan. This will continue to be a focus for us at Arowana and the composition of our team will evolve further with future hires including data scientists, AI and machine learning engineers (conversant in tools such as R, Python, Hadoop, Tableau as well as having advanced Excel skills) that will help us to scale up companies more efficiently and effectively. I do find it ironic that the genesis of Arowana was the turnaround, global scale up and trade sale exit of an AI software business called RuleBurst Haley. November 2008 marks the 10 year anniversary of the sale of RuleBurst Haley to Oracle. Back then, AI was not only unfashionable but unheard of – it was called expert systems in those days. We are now returning to our roots in a sense by focussing on building up a team of software developers, engineers and data scientists.
I am proud to be able to say that we secured B Corp accreditation during FY2018. To attain this certification, Arowana and its operating companies underwent a rigorous and detailed due diligence review of several key business areas over a period of 15 months. These areas include:
- Governance: mission & engagement, corporate accountability, ethics and transparency;
- Workers: benefits, compensation, training & education, communication and flexibility;
- Community: job creation, diversity & inclusion, civic engagement and local involvement;
- Environment: offices, inputs and outputs.
We believe that just as ISO 9001 has become a ubiquitous global quality management standard, B Corp accreditation will become a global ESG investment standard that in time to come, will not be a “nice to have” but an essential pre-requisite demanded by investors. The following is an excerpt from BlackRock (the world’s largest investment group) Co-Founder and Chairman, Larry Fink’s 2018 Annual Letter to CEOs titled A Sense of Purpose:
“In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth, which is why we are increasingly integrating these issues into our investment process”.
A key plank of B Corp certification is that a company’s purpose must be to benefit all of its stakeholders. This is in contrast to the maximise shareholder value maxim that has been the overarching purpose of almost every listed company in the world over the last 30 years. This pivot might be anathema to many investors, especially those focussed on short term returns, but our view is that serving all stakeholders will benefit all including shareholders in the long term. This view is not ours alone – again, we reference Larry Fink’s letter and the following excerpts:
“We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.”
What does B Corp practically mean for Arowana? In terms of our purpose of growing people, growing companies and growing value, there is clear alignment and hence no change. Furthermore, we continue to maintain our long-term commitment to building strong, sustainable businesses that will have a positive impact on economies, industries and the people they employ. Where this long term commitment is confronted with interference from short term challenges such as regulatory changes (for example, Trump’s tariff cuts), we are committed to overcoming them– we do not abandon ship and say it is too hard or not a good use of our time. We remain as stewards to restore and then create more value, as we know from experience that the scaling up journey is non-linear. B Corp also means that we have embraced an even higher level of governance standards that encompass not just regulatory compliance and ethical conduct, but also environmental and social considerations.
In addition, traditionally we have helped businesses that we have control over to grow. As an operator of small-to-medium sized businesses(SMEs), we understand first hand the challenges not just operationally but the external funding pressures particularly in Australia given the current banking environment and regulatory outlook. With the introduction of our private credit lending arm, we can now extend our experience to help other SME’s to grow and by doing so, we will grow our community of entrepreneurs that we support.
In closing, I would like to take this opportunity to thank the Arowana team as they have continued to work hard on various fronts scaling up companies and funds. I would also again like to thank our fellow shareholders for their investment in Arowana and for their continued patience. We are continuing to work and fight hard to deliver value to them over the long term.