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Gresham House Strtgc (GHS)

  Print          Annual reports

Wednesday 08 December, 2021

Gresham House Strtgc

Interim Results

RNS Number : 8988U
Gresham House Strategic PLC
08 December 2021
 

Gresham House Strategic plc
 

Interim results for the six months to 30 September 2021

Gresham House Strategic plc (GHS or the Company) is pleased to announce its unaudited half year results for the period ended 30 September 2021.

Highlights for the period:

§ Unaudited NAV Total Return performance in the six months to 30 September 2021 of 24.4% to 1867.6p/share, materially outperforming the FTSE All-Share Index and the FTSE Small Cap (ex-ITs) Index total returns of 7.9% and 13.5% respectively

§ Total Shareholder Return (TSR) of 20.8% in the six months to 30 September 2021

§ As at period end, TSR since inception in 2015 was 141.5%, outperforming the FTSE All-Share Index by 12.0% per annum as a result of both NAV performance and the discount narrowing

§ Three-year TSR to 30 September 2021 of 79.9%, outperforming the FTSE All Share Index total return by +70.3%

§ A number of profitable exits and a takeover bid of portfolio holdings including Augean (101.2% IRR, 9.0x Money Multiple), Ted Baker (130.7% IRR, 1.9x Money Multiple), and Northbridge Loan Notes (15.1% IRR, 1.5x Money Multiple)1

Simon Pyper , Interim Chairman of Gresham House Strategic plc, commented:

"This is a strong performance from this investment portfolio based on the specialist Strategic Public Equity mandate. We were pleased to see the investment thesis playing out in the bid for Augean and in the share price appreciation at RPS Group, which enabled us to realise our profits. We expect further corporate activity based on the underlying intrinsic values of the holdings.

After the period end the Board, appointed Harwood Capital as Investment Manager to actively manage and re-invest capital. This conclusion was clearly not supported by a substantial proportion of our shareholders, representing a majority of those that ordinarily cast their votes at shareholder meetings. As a result, the Board has agreed to commence an orderly realisation of the holdings and to return all the cash to shareholders and, in order to effect this, has proposed appropriate resolutions which will be put to the forthcoming general meeting of shareholders."

Christopher Mills, Chief Executive Officer Harwood Capital

Harwood took on the investment management mandate on 11 October 2021.  Since that date…

"Augean plc has been sold, as has the holding in RPS Group plc. There has also been a bid for Universe Group plc which when the proceeds are received, will increase the cash balance to approximately £30m. A detailed analysis of the portfolio has been undertaken based on the assumption that shareholders will vote in favour of liquidating the portfolio over the next two years. Whilst some holdings will no doubt be sold in the coming months, it is our view that the majority of the remaining portfolio should be sold over the course of 2023 as by then the impact of COVID will have hopefully abated and this will create the most value for shareholders.

We are mindful of any potential tax liability when realising the remaining assets and will continue to work with the Fund's tax adviser to achieve the optimum exit for shareholders"

The full version of the GHS interim report will be available on its website shortly at  www.ghsplc.com .

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 (MAR). Upon the publication of this announcement, this inside information is now considered to be in the public domain. For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of GHS by Simon Pyper, Interim Chairman.

 

For further information, please contact:

Gresham House Strategic plc

Interim Chairman

 

 

Simon Pyper

 

[email protected]

 

 

 

finnCap

Nominated Adviser

Joint Broker

 

 

 

Carl Homes

William Marle

Mark Whitfeld

 

 

020 7220 0500

07388 380 466

Panmure Gordon (UK) Limited

Joint Broker

 

Tom Scrivens

Michael Bateman

 

020 7886 2500

 

 

 

KL Communications

 

Charles Gorman

Will Sanderson

 

020 3995 6673

 

 

About Gresham House Strategic plc

GHS invests in UK smaller public companies, applying private equity techniques and due diligence alongside a value investment philosophy to construct a portfolio focused in 10-15 companies.

About Harwood

Harwood Capital LLP ("HC LLP") was incorporated in 2003 and is the investment manager for Gresham House Strategic Plc, and of the Harwood Private Equity funds and of Harwood Private Clients.  It is an investment adviser to North Atlantic Smaller Companies Investment Trust Plc.

HC LLP is a wholly owned subsidiary of Harwood Capital Management Limited and is authorised and regulated by the Financial Conduct Authority ("FCA"), authorisation number 224915.

Led by Christopher Mills, the funds managed and advised by HC LLP follow an active value approach towards the businesses in which they invest.

Chairman's statement for the half year to 30 September 2021

Despite this having been a somewhat eventful period for the Company, it was pleasing to see and to report underlying NAV growth for the period. 

With the agreement with the Company's principal shareholder the Board, as constituted, conducted a strategic review with the following clear objectives: 

· To continue to achieve strong investment performance

· To reduce the Company's cost base to be in line with market standards

· To increase the scale of the Company in Net Asset Value ("NAV") terms through additional investment

· To ensure strong corporate governance arrangements are in place between the Board and its Investment Manager to avoid any potential conflict of interest

The conclusion of the Board review was to appoint Harwood Capital to replace Gresham House Asset Management on 10 October 2021.

The outcome of the strategic review did not secure the full support of the Company's shareholders, including our largest shareholder Gresham House PLC. Following negotiations between the Board and Gresham House, who received undertakings from a significant number of shareholders to support their proposals, the Board agreed to put resolutions to a general meeting of shareholders to place the Company into full run-off, returning all capital and to implement certain board changes.

As previously communicated, in May 2021 our previous Chairman, David Potter, resigned from the Board and in November 2021, Helen Sinclair and Charles Berry also stepped down. We thank them for their service. Also as previously communicated, Graham Bird was appointed as non-executive Director in June 2021 and the Board has commenced a process to identify another potential independent non-executive director who may be appointed as Chair. The Board will also consider whether the ongoing composition of the Board should comprise three or four directors. Further announcements in this regard will be made in due course.

Whilst the Company is changing strategy to one of run-off, the Board is confident that there is potential further unrealised value in the portfolio that will be fully returned to shareholders.

Simon Pyper

Interim Chairman, Gresham House Strategic plc

7 December 2021

Investment Manager's report

Introduction

We are pleased to be able to report that during a mixed six months for UK equity markets, the team and portfolio have navigated the challenges of the 're-opening' well and created material value for stakeholders. While UK equity markets and small cap investment sentiment has been subdued versus the euphoria of the previous six months, the team and the investee companies have used this period to drive growth and catalyse execution. This has clearly helped to capture value toward intrinsic worth even as markets and peers saw weakness. This thesis, the team's execution and the hard work by all last year to invest over 40% of NAV into new opportunities during the crisis has driven material outperformance through the reporting period.

We are pleased to have delivered strong NAV returns for GHS investors in the period with a GHS NAV total return performance in the six months to 30 September 2021 of 24.4% to 1867.6p/share, materially outperforming the FTSE All-Share Index and the FTSE Small Cap (ex-ITs) Index total returns of 7.9% and 13.5% respectively. Despite the discount to NAV widening over the period, the GHS Total Shareholder Return (TSR) of 20.8% in the six months also provided outperformance for clients.  

Highlights for the period include:

§ Unaudited NAV Total Return performance in the six months to 30 September 2021 of 24.4% to 1867.6p/share, materially outperforming the FTSE All-Share Index and the FTSE Small Cap (ex-ITs) Index total returns of 7.9% and 13.5% respectively

§ TSR of 20.8% in the six months to 30 September 2021

§ As at period end, TSR since inception was 141.5%, outperforming the FTSE All-Share Index by 12.0% per annum as a result of both NAV performance and the discount narrowing

§ Three-year TSR to 30 September 2021 of 79.9%, outperforming the FTSE All Share Index total return by +70.3%

§ Several profitable exits and a takeover bid of portfolio holdings including Augean (101.2% IRR, 9.0x Money Multiple), Ted Baker (130.7% IRR, 1.9x Money Multiple), and Northbridge Loan Notes (15.1% IRR, 1.5x Money Multiple)

 

Market commentary

The interim reporting period was a tale of two halves for equity markets. Indices coursed higher through the second quarter of 2021 as they further re-calibrated to earnings expectations, valuations and Covid-19 government policy, reflecting the truly unprecedented scale of fiscal stimulus, ease of monetary conditions and how well economies reacted to the crisis. 18 months ago, it would have been remarkable to expect record equity valuations and for the UK to witness, more or less, a full return to normality thanks to the successes of the vaccination programme. Markets entered the third quarter gravitating around three key themes: material GDP growth, 'transitory' inflation, and ever-supportive central banks, extending the clear direction of markets and sentiment. The team invested more than 40% of the portfolio during the volatile 2020 and as a result the portfolio benefitted from those tailwinds.

However, over the summer genuine concerns emerged from a chorus of respected economists and market participants about an increased monetary policy failure risk, and this is a view the team sympathised with. The transitory versus systemic inflation debate and central banks' responses is the key theme that will have implications for equity markets for the rest of 2021 and beyond. This narrative, combined with current record measures for manufacturing, purchasing and other macroeconomic metrics leave us cautious about how the next year for equities will compare to the previous year. Indeed, equity markets meandered through the third quarter of 2021 as expectations for earnings, inflation and monetary policy diverged, ending the quarter on a weak note. This was despite record breaking levels of M&A driving up the ratings of various targets and their peers - including investments in the GHS portfolio. We have previously commented on the remarkable position of markets and macroeconomics vs. the depths of the pandemic. The third quarter certainly saw cause for moderation which was reflected in equity markets. It was particularly notable to see supply side issues feeding through to domestic and global energy markets and some of the first rate-hikes or 'taper talk' at various central banks.

We remain of the belief that monetary policy failure remains a key market risk and our caution over the next year (now nine months) for equities as there is certainly potential for increased volatility. Value is increasingly hard to find but, we believe, company forecasting is now in uncharted waters and that ought to provide our active small cap strategy with further pipeline opportunities in the months ahead as supply issues bite - we have previously discussed the inflationary blind spot facing companies. Having been fully invested for the past 15 months, the team had recently been realising significant profits and cash through a mix of secondary sales and takeovers.  

Portfolio performance

The portfolio is very concentrated and therefore it should be expected that over any shorter period, such as a year, a dominant stock or two will drive performance. 

Performance (all indices are excluding investment trusts)

H1 2021

1 year

3 year

5 year

Since inception

GHS TSR

20.8%

76.0%

79.9%

128.2%

141.5%

GHS NAV Total Return

24.4%

57.0%

55.0%

85.6%

103.9%

FTSE Small Cap Total Return (SMXX)

13.5%

72.4%

38.8%

64.0%

75.5%

FTSE All Share Total Return (ASX)

7.9%

27.8%

9.6%

29.5%

41.4%

 

 

 

 

 

vs FTSE Small Cap Total Return

10.9%

-15.4%

16.2%

21.6%

28.4%

vs FTSE All Share Total Return

16.5%

29.2%

45.4%

56.1%

62.5%

Source: Bloomberg and Company as at 30 September 2021

The NAV Total Return per share rose by 24.4% to 1867.6p/share, materially outperforming the FTSE All-Share Index and the FTSE Small Cap (ex-ITs) Index total returns of 7.9% and 13.5% respectively. From our appointment as investment manager in August 2015 to the end of September 2021, NAV Total Return is 103.9% on an accumulative basis, outperforming the FTSE Small Cap Total Return Index (excluding investment trusts) by 28.4% in the same period.

The H1 share price performance reflected two quarters of consistent catalyst execution across the portfolio that extended the broader NAV recovery in line with equity markets during the first half of the reporting period (CYQ2).

As at period end, the company held investments in 16 UK companies (14 >2.0% NAV). Post-period end cash and cash equivalents in the portfolio has increased materially to £25,170,811 following the realisation of Augean and the disposal of the entire position in RPS by the new manager.* 

Augean plc

£21.6m 

5.6%

33.2%

Northbridge Industrial Services plc

 6.6m

13.4%

10.2%

RPS Group plc

 5.3m

1.6%

8.2%

Flowtech Fluidpower plc

 4.8m

5.8%

7.4%

Centaur Media plc

 4.3m

5.9%

6.6%

National World plc

£3.9m

4.7%

6.0%

Van Elle Holdings plc

£3.3m

6.4%

5.1%

M&C Saatchi

£3.2m

1.6%

4.9%

ULS Technology

£3.2m

6.6%

4.9%

Pressure Technologies plc

£3.1m

13.8%

4.8%

Other investments

£8.7m

-

13.4%

Cash and other working capital items

(£3.0m)

-

(4.6%)

£65.0m

 

100%

 

Top contributors to returns2

Top Five Contributors

 

CTR

Augean plc

 

17.4%

Northbridge Industrial Services plc

 

5.2%

National World plc

 

3.6%

Flowtech Fluidpower plc

 

3.0%

RPS Group plc

 

2.4%

 

 

 

 

Top detractors from returns

Bottom Five Detractors

 

CTR

Universe Group plc

 

-0.2%

Bonhill Group plc

 

-0.6%

ULS Technology plc

 

-0.6%

Pressure Technologies plc

 

-1.1%

Fulcrum Utility Services Ltd

 

-1.1%

 

Portfolio highlights & investment activity

Augean plc - AUG LN (Investment Exit; 101.2% IRR, 9.0x Money Multiple)

Our four-year investment in Augean; the sector leader in modernising hazardous waste management practice providing sustainable waste management solutions, came to a welcome conclusion for shareholders as the business was acquired following a prolonged bidding war. The investment, made by the team in 2017, has generated significant returns from an initial turnaround thesis based on the arbitrage between the distressed multiple the company traded on at the time and the 8-12x EBITDA valuation which private markets tend to pay for such assets. Four years later the business has been acquired at over 10x, generating profits of over c.£22m for GHS shareholders as the investment delivered a 9.0x Money Multiple return and an Internal Rate of Return (IRR) in excess of 100% from a final offer price of 372p per share vs. our original share purchases between 22p and 50p. Our active and engaged investment style allows GHS to 'run our winners' and in-depth ongoing due diligence, alongside Investment Committee input, through the holding period allowed us to capture supernormal returns by retaining our position over the past couple of years and through the takeover offers, at a time when many took profits. Credit and thanks must go to Augean's management team and board for such a recovery in just four years.

Northbridge Industrial Services plc - NBI LN (Investment Exit of Loan Notes; 15.1% IRR)

It was a very busy summer following various operational, strategic and personnel changes at Northbridge, where GHS is the largest shareholder. The company, which manufactures, hires and sells specialist electrical equipment, repeatedly reported improving trading and outlook. This was particularly profound in the Crestchic division which designs, manufactures and hires load banks for test generators and has been generating a return on capital in excess of 20%. Strategically, there has been progress on the disposal process for the more challenged Tasman division and investment to increase capacity at Crestchic. The improving picture was underlined by director share purchases and increased investor relations activity. Most importantly, we secured a profitable exit from 80% of our loan notes held in the company. We redeemed £1.6m of notes which generated a total profit of £790k (quarterly and redemption interest). The remaining 20% was converted at 90p vs. a current market price of 163.50p as at 29 October 2021, leaving GHS with a remaining portfolio weighting of c.10% in Northbridge equity.

The company continued to deliver further upgrades in Q3 adding to momentum. It has been particularly pleasing to see changes that the team have made with the Board feeding through to what matters so quickly - the numbers. Leadership change was cited in Northbridge's interim results as speeding up decision making, and improved investor relations and communications appears to have helped the stock to re-rate. A renewed focus on Return on Investment (ROI) and Return on Capital Employed (ROCE) for the fleet from power markets and the targeted disposal of Tasman are creating the opportunity for additional profitable growth, quickly driving upgrades and interim results cite the opportunity for further growth in the medium term.

Pressure Technologies plc - PRES LN

It was a frustrating period for Pressure Technologies, a business that provides engineering solutions for their products used in harsh operating environments. The turnaround strategy had begun to show encouraging signs especially in the cylinder's division, before metal supply issues and operational disruption led to  a profit warning. Whilst it was reassuring to see share purchases by the Chair and Non-Executive Directors after the announcement performance was still disappointing and management have recalibrated their three-year plan to include, what we feel, is a delay to the underlying growth in the equity story. The business has been the most heavily impacted by Covid-19 of all our holdings and, as shareholders would expect, we are actively supporting the business where we can, working closely with the team and Board. Recovery in Oil & Gas markets and further successes in the Hydrogen sector are key near-term catalysts for the business.

M&C Saatchi plc - SAA LN

Another recovery story has been building in a very different company to Northbridge; M&C Saatchi. Since our investment 12 months ago, the new management team and Board have rapidly got to grips with the two key drivers of margin: costs and turnover. Their self-help initiatives following a troublesome period have quickly driven both profit growth and cash generation. There has been material rationalisation of a bloated cost base and the strategy is narrowing its focus to core revenue opportunities, driving a series of upgrades. We were also impressed to see a rapid use of cash generation to buy out future put option liabilities in order to reduce future dilution to returns.

Ted Baker plc - TED LN (Investment exit - 130.7% IRR 1.9x Money Multiple)

In line with some of the market commentary in factsheets and this report and accounts, we took profits from our investment in Ted Baker in Q3. The drivers for this were threefold. Firstly, retail sector data simply had not rebounded over the summer as much as we had modelled at the point of investment in the 'Covid raise' at 72p and consumer confidence more generally started to stall too. This was sullied further with the company revealing 'under-indexing' in eCommerce on both quantitative and qualitative measures at the interims. It is not controversial to deem online execution key to any B2C business in the post-pandemic world, so this diluted conviction further. Finally, given the above, the material re-rating from 72p to the 150p-202p spread where we sold shares this year represented fair representation of the initial cost reduction efforts and a de-risking of the balance sheet that the raise provided and therefore it was deemed prudent to take profits.

 

Laurence Hulse, Fund Manager, Gresham House Strategic*

*Post period end Harwood Capital were appointed Investment Manager of Gresham House Strategic, replacing Gresham House.

 

Unaudited Condensed Statement of Comprehensive Income

for the six months ended 30 September 2021

 

 

 

 

 

 

 

 

Six months to

Six months to

Year to

 

 

30-Sep-21

30-Sep-20

31-Mar-21

 

 

£'000

£'000

£'000

 

Notes

Unaudited

Unaudited

Audited

 

 

 

 

 

5

17,845

5,350

19,837

 

 

 

 

 

 

 

 

 

Bank interest income

 

-

2

2

Loan note interest income

 

312

1,202

753

Portfolio dividend income

 

55

-

-

Other income

 

-

1

1

 

 

367

1,205

756

 

 

 

 

Investment management fees

10

(562)

(383)

(832)

Performance fees

6

(2,567)

-

(2,294)

Directors fees

10

(84)

(69)

(148)

Other costs

 

(612)

(357)

(707)

 

(3,825)

(809)

(3,981)

 

 

 

 

 

Profit before taxation

 

14,387

5,746

16,612

Taxation

8

(1,500)

-

-

 

 

 

 

 

12,887

5,746

16,612

 

 

 

 

 

Attributable to:

 

 

 

 

- Equity shareholders of the Company

 

12,887

5,746

16,612

 

 

 

 

 

Basic and Diluted earnings per ordinary share for profit from continuing operations and for profit for the period/year (pence)

9

370.23p

165.06p

477.24p

             

 

There are no components of other comprehensive income for the current period (30 September 2020: Nil, 31 March 2021: Nil), all income arose from continuing operations.

Unaudited Condensed Statement of Financial Position

as at 30 September 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

30-Sep-21

30-Sep-20

31-Mar-21

 

 

£'000

£'000

£'000

 

Note

Unaudited

Unaudited

Audited

 

 

 

 

Investments at fair value through profit or loss

5

67,987

38,461

53,888

 

 

67,987

38,461

53,888

 

 

 

 

Trade and other receivables

 

105

72

99

Cash and cash equivalents

 

1,833

3,852

1,605

 

 

1,938

3,924

1,704

 

69,925

42,385

55,592

 

 

 

 

 

 

 

 

 

Trade and other payables

 

(849)

(173)

(641)

Deferred tax liability

 

(1,500)

-

-

Performance fee payable

 

(2,567)

-

(2,294)

 

(4,916)

(173)

(2,935)

 

(2,978)

3,751

 (1,231)

 

65,009

42,212

52,657

 

 

 

 

 

 

 

 

 

Issued capital

 

1,751

1,751

1,751

Share premium

 

13,063

13,063

13,063

Revenue reserve

 

39,321

16,524

26,969

Capital redemption reserve

 

10,874

10,874

10,874

 

65,009

42,212

52,657

 

 

 

 

 

 

 

 

 

 

             

The NAV per share on 30 September 2021 is 1,867.6 pence (30 September 2020: 1,212.7 pence, 31 March 2021: 1,512.8 pence).

 

These financial statements were approved and authorised for issue by the Board of Directors on 7 December 2021. Signed on behalf of the Board of Directors.

 

 

 

 

Simon Pyper   Kenneth Lever

Interim Chair   Director

 

Unaudited Condensed Statement of Cash Flows

 

 

 

 

 

 

 

 

Six months to

Six months to

Year ended

 

 

30-Sep-21

30-Sep-20

31-Mar-21

 

Notes

£'000

£'000

£'000

 

 

Unaudited

Unaudited

Audited

 

 

 

 

Cash outflow from operations

a

(3,233)

(636)

(783)

Dividend income

 

43

 

 

 

(3,190)

(636)

(783)

 

 

 

 

 

 

 

 

 

Purchase of investments

5•

(1,457)

(9,173)

(14,943)

Sale of investments

5•

5,410

7,243

11,334

3,953

(1,930)

(3,609)

 

 

 

 

 

 

 

 

 

Dividends paid

7

(535)

(446)

(867)

 

(535)

(446)

(867)

 

 

 

 

 

Change in cash and cash equivalents

 

228

(3,012)

(5,259)

Opening cash and cash equivalents

 

1,605

6,864

6,864

 

1,833

3,852

 

 

 

 

 

Note

 

 

 

 

 

 

 

 

 

 

 

£'000

£'000

£'000

Profit for the period/year

 

12,887

5,746

16,612

Rolled up interest

 

(164)

(1,020)

(345)

Gains on investment at fair value through profit or loss

5

(17,845)

(5,350)

(19,837)

Portfolio dividends

 

(55)

-

-

Adjustment for accrued interest on redemption/conversion

(48)

-

-

 

(5,225)

(624)

(3,570)

 

 

 

 

 

Decrease/(increase) in trade and other receivables

5

(7)

(33)

Increase/(decrease) in trade and other payables

1,987

(5)

2,820

 

(3,233)

(636)

(783)

 

 

 

 

 

             

 

•The purchase and sale of investments are the cash paid or received during the period and excludes unsettled investments as at 30 September 2021.

 

Unaudited Condensed Statement of Changes in Equity

 

 

 

 

 

 

 

 

 

D shares

Ordinary

Share

Revenue

Capital

Total

 

 

Share

Premium

Reserve

Redemption

Equity

 

 

Capital

 

 

Reserve

 

 

£'000

£'000

£'000

£'000

£'000

£'000

10

1,741

13,063

11,224

10,874

36,912

 

 

 

 

 

 

 

Profit and total comprehensive income

 

 

 

 

 

 

for the period

-

-

-

5,746

-

5,746

10

1,741

13,063

16,970

10,874

42,658

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

-

(446)

-

(446)

10

1,741

13,063

16,524

10,874

42,212

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D shares

Ordinary

Share

Revenue

Capital

Total

 

 

Share

Premium

Reserve

Redemption

Equity

 

 

Capital

 

 

Reserve

 

 

£'000

£'000

£'000

£'000

£'000

£'000

10

1,741

13,063

11,224

10,874

36,912

 

 

 

 

 

 

 

Profit and total comprehensive income

 

 

 

 

 

 

for the year

-

-

-

16,612

-

16,612

10

1,741

13,063

27,836

10,874

53,524

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

-

(867)

-

(867)

10

1,741

13,063

26,969

10,874

52,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

D shares

Ordinary

Share

Revenue

Capital

Total

 

 

Share

Premium

Reserve

Redemption

Equity

 

 

Capital

 

 

Reserve

 

 

£'000

£'000

£'000

£'000

£'000

£'000

10

1,741

13,063

26,969

10,874

52,657

Profit and total comprehensive income

 

 

 

 

 

 

for the period

-

-

-

12,887

-

12,887

10

1,741

13,063

39,856

10,874

65,544

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid

-

-

-

(535)

-

(535)

10

1,741

13,063

39,321

10,874

65,009

 

Notes to the Unaudited Condensed Interim Financial Statements

 

 

Gresham House Strategic plc (the "Company") is a company incorporated in the UK and registered in England and Wales (registration number: 03813450). The information set out in these unaudited condensed interim financial statements for the periods ended 30 September 2021 and 30 September 2020 does not constitute statutory accounts as defined in section 435 of Companies Act 2006. Comparative figures for 31 March 2021 are derived from the financial statements for that year. The financial statements for the year ended 31 March 2021 have been delivered to the Registrar of Companies and contain an unqualified audit report and did not contain a statement under emphasis of matter or statements under section 498(2) or (3) of the Companies Act 2006. These unaudited condensed interim financial statements have been prepared in accordance with the AIM rules.

 

 

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Gresham House Strategic plc transitioned to UK-adopted International Accounting Standards in its Financial Statements on 1 April 2021 and are consistent with those that the Company expects to apply in its financial statements for the year ended 31 March 2022. This change constitutes a change in accounting framework.

 

The principal accounting policies adopted in the preparation of the financial information in these unaudited condensed interim financial statements have changed from those used in the Company's financial statements for the year ended 31 March 2021 as a result of the change in framework. However, there is no impact on recognition, measurement or disclosure in the period reported.

 

These unaudited condensed interim financial statements have been prepared in accordance with IAS 34: Interim Financial Reporting. They do not include all the information required for full annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 March 2021.

 

Going concern

The financial statements are prepared on a going concern basis and the Board considered this and concluded that the use of the going concern basis continued to be appropriate as no formal decision to wind the Company has been taken. This will be voted on by shareholders in the forthcoming general meeting of shareholders. Even if the financial statements were not prepared on a going concern basis there would be no material change to the figures disclosed in the financial statements because the portfolio of investments are valued at fair value.

 

New Standards issued but not yet effective

Standards and amendments will be effective for annual reporting periods beginning on or after 1 January 2023 and which have not been early-adopted by the Company include:

· IAS 1 and IFRS Practice Statement 2 -Disclosure of Accounting Policies

· IAS 8 -Definition of Accounting Estimates

· IAS 12 - Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

These standards and amendments are not expected to have a significant impact on the financial statements in the period of initial application and therefore detailed disclosures have not been provided.

3 - Estimates

 

The preparation of the unaudited condensed interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The valuation of unquoted investments represents the key estimate. Actual results may differ from these estimates.

 

In preparing these unaudited condensed interim financial statements, the significant judgements made by management in applying the Company's accounting policies and the key sources of estimation were the same as those that applied to the Company financial statements as at and for the year ended 31 March 2021. The areas involving a high degree of judgement or complexity, or areas where assumptions and estimates are significant to the unaudited condensed interim financial statements are disclosed in note 5 in relation to the valuation of unquoted investments.

 

4 - Financial risk management

 

The Company's financial risk management objectives and policies are consistent with those disclosed in the Company financial statements as at and for the year ended 31 March 2021.

 

 

The Company's investments are valued using the following basis:

(a)  Quoted investments are recognised on trading date and valued at the closing bid price at the period end.

(b)  Unquoted Investments are valued according to the to the Directors' best estimate of the Company's share of that investment's value. This value is calculated in accordance with the International Private Equity and Venture Capital Valuation Guidelines (the IPEV guidelines) and industry norms which include calculations based on appropriate earnings or sales multiples.

 

The movements in the investments at fair value through profit or loss are as follows:

 

 

 

Additions 

 

Gain on

Revaluation

Transfer 

 

 

Value at

Disposal

disposal/

between

Value at

 

31 March 2021

proceeds

conversion

levels*

30 September 2021

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Investments in quoted companies (Level 1)

47,565

596

(3,428)

725

17,085

  1,739

64,282

Other unquoted investments (Level 3)

6,323

1,019

(1,933)

-

35

  (1,739)

3,705

 

 

 

 

 

 

 

 

53,888

1,615

(5,361)

725

17,120

-

67,987

 

 

 

 

 

 

 

 

* Northbridge Convertible Bond was purchased on 10 April 2018, and a further investment was made on 3 July 2018. 20% of Northbridge Industrial Services plc loan notes were converted into equity shares and 80% were redeemed on 14 June 2021. The strike price of each option was 90 pence for every £1 nominal value converted into 433,207 ordinary shares. The accrued interest (£32,045) and redemption premium (£389,886) on the loan notes up to this period were paid at the time of redemption therefore no further interest is accrued. As a result of this, there was a transfer from Level 3 to Level 1 of £389,886 Northbridge loan notes converted to equity shares.

 

* National World plc Bond was purchased on 11 February 2021. It was fully converted into 12,263,013 equity shares on 7 May 2021. The conversion premium and accrued interest up to the date of conversion were given in the form of equity shares and included in the above. As a result of this, there was a transfer from Level 3 to Level 1 of £1, 348,931 National World plc loan notes converted to equity shares

 

 

Value at

Additions 

Disposal

Gain on

Revaluation

Transfer 

Value at

 

31 March 2020

proceeds

disposal

between levels

30 September 2020

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

Investments in quoted companies (Level 1)

23,558

9,173

(5,204)

108

5,073

-

32,708

Other unquoted investments (Level 3)

6,402

1,020

(1,838)

-

169

-

5,753

 

 

 

 

 

 

 

 

29,960

10,193

(7,042)

108

5,242

-

38,461

 

 

 

 

 

 

 

 

                 

Investments in quoted companies have been valued according to the quoted share price as at 30 September 2021.

 

Level 3 investments have been valued in accordance with the IPEV guidelines, and represent the following:

 

§ The Lakes Distillery Company plc Convertible Bond was purchased on 20 June 2019. It is valued at fair value which approximates to the bond issue amount plus rolled up "payment in kind" notes and capitalised interest.

 

§ Hanover Co-Invest S.C.A. SICAV-RAIF Sub Fund 1 was purchased on 2 September 2021. It is valued based on the NAV of the fund which approximates to the fair value of its underlying investments which are held at fair value.

 

The revaluations and gains on disposals are included in the statement of comprehensive income as gains on investments.

 

The following table analyses investment carried at fair value at the end of the period, by the level in the fair value hierarchy into which the fair value measurement is categorised.  The different levels are defined as follows:

 

(i)  level one measurements are at quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

(ii)  level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and

 

(iii)  level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).

 

The fair value of the Company's investments is summarised as follows:

 

 

 

 

30 September 2021

31 March 2021

 

 

 

£'000

£'000

Level 1

 

 

64,282

47,565

Level 2

 

 

-

-

Level 3

 

 

3,705

6,323

 

 

 

67,987

53,888

 

 

 

Under the terms of the Investment Management Agreement with GHAM, the Company will pay the Investment Manager a performance fee in respect of each performance fee period in which the Net Asset Value per Ordinary Share on the last business day of such performance fee period exceeds both a compounding hurdle growth in Net Asset Value per share of 7% per annum (compounding weekly, the 'Hurdle Net Asset Value per share') and the highest Net Asset Value per share   at which a performance fee was previously paid (the 'High Watermark'). The performance fee shall be calculated at a rate of 15% of the amount by which the Net Asset Value per share exceeds the High Watermark, multiplied by the time weighted number of shares in issue during such performance fee period, provided that the Performance Fee payable will be reduced to ensure that the Net Asset Value per share after the payment of such Performance Fee does not fall below the Hurdle Net Asset Value per share   As a result of the Board terminating the investment management contract with GHAM, this fee became payable as at 11 October 2021. Further details are provided in note 10 and 11.

 

 

 

 

30 September 2021

30 September 2020

31 March 2021

 

 

£'000

£'000

£'000

Performance Fee

 

2,567

-

2,294

 

 

The Company paid £534,664 in dividends to shareholders during the period which represents a final dividend for the year ended 31 March 2021. A final dividend for the year ended 31 March 2020 (£445,553) was paid on 30 September 2020.

 

8 - Taxation

 

The Company has brought forward tax losses of £152m. Tax legislation introduced in April 2020 restricts the amount of brought forward losses that can be used in each tax year if taxable profit including realised gains exceed £5m in any one year.

 

As such, the Company has accrued an estimated tax liability of £1.5m for the period ended 30 September 2021 (31 March 2021: Nil, 30 September 2020: Nil), for the realised capital gains made to date in the current year. The Company does not recognise any deferred tax asset in respect of brought forward losses that can be utilised against taxable profits up to £5m in any one year.

 

Following the period end, certain shareholder resolutions have been proposed (but not yet approved) to liquidate the Company in the next 24 months and return cash to shareholders. As at 30 November 2021, the Company had unrealised capital gains of £11.3m. If all investments were to be liquidated at these values, an estimated tax liability of £1.1m would be applicable, based on the current corporation tax rate. However, the Company believes that certain investments where the Company's shareholding is greater than 10% may be eligible for Substantial Shareholdings Exemption and this would decrease this liability significantly. Furthermore, an orderly exit over the next 24 months is planned for the remaining investments and as such, any realised gains are likely to be crystalised across different tax years, enabling the Company to utilise more of its brought forward tax losses, against future gains. Accordingly, no further tax liability has been recognised for these unrealised gains.

 

 

Basic earnings per share is calculated by dividing the profit/loss attributable to ordinary shareholders by the weighted average number of Ordinary Shares during the period/year. Diluted earnings per share is calculated by dividing the profit/loss attributable to shareholders by the adjusted weighted average number of Ordinary Shares in issue.

 

 

 

 

 

Six months to

Six months to

Year to

 

30-Sep-21

30-Sep-20

31-Mar-21

 

£'000

£'000

£'000

 

 

 

Profit for the period/year

12,887

5,746

16,612

 

 

 

 

 

 

 

Weighted average number of ordinary shares in issue for basic EPS

3,481

3,481

3,481

Weighted average number of ordinary shares in issue for diluted EPS

3,481

3,481

3,481

 

 

 

 

 

 

 

Basic and diluted earnings per share

370.23p

165.06p

477.24p

 

As at 30 September 2021, the total number of shares in issue was 3,480,884 (30 September 2020: 3,480,884, 31 March 2021: 3,480,884). During the period, the Company cancelled nil Treasury shares (30 September 2020: Nil, 31 March 2021: Nil) and no shares were bought back (30 September 2020: Nil, 31 March 2021: Nil). There are no share options outstanding at the end of the period.

 

There are no dilutive or potentially dilutive instruments and therefore basic and diluted earnings per share are the same.

 

10 - Related party transactions

 

The related parties of Gresham House Strategic plc are its Directors, persons connected with its Directors, its Investment Manager and Gresham House plc as a significant shareholder.

 

The Directors' remuneration paid and payable in respect of each Director who served during the financial period to 30 September 2021 were as follows:

 

As at

30 September 2021

As at 30

September 2020

As at

31 March 2021

 

£'000

£'000

£'000

David Potter

24

27

55

Charles Berry

14

14

28

Kenneth Lever

14

14

28

Helen Sinclair

22

14

27

Graham Bird

9

-

-

Social security costs

1

-

10

Total

84

69

148

 

 

The total maximum aggregate annual fees payable to Directors under the Company's Articles of Association (Articles) is £250,000. As per the Company's Articles, Directors are entitled to be paid all reasonable expenses properly incurred in the performance of their duties as Directors including their expenses travelling to and from Board and Committee meetings.

 

On 11 June 2021, David Potter resigned as Chairman of the Board and Helen Sinclair acted as Interim Chair. On 10 June 2021, Graham Bird was appointed to the Board as a non-executive-director. Helen Sinclair resigned as Interim Chair of the Board on 5 November 2021, during this period Charles Berry acted as Interim Chair until his resignation on 22 November 2021, on this date Simon Pyper joined the Board and is now acting as Interim Chair.

 

Details of related party transactions between the Company and of non-salary related transactions involving Directors are detailed below.

 

During the half year to 30 September 2021, Gresham House Strategic plc was charged management fees of £561,753 (30 September 2020: £382,661, 31 March 2021: £832,408) by Gresham House Asset Management Limited (GHAM).

 

The total payable to GHAM is as follows:

 

As at 30 September 2021

As at 30 September 2020

As at 31 March 2021

Performance fee (including VAT)

£2.57 million

Nil

£2.29 million

Management fee

£0.10 million

£0.07 million

£0.08 million

Other miscellaneous

£0.00 million

Nil

£0.01 million

Total

£2.67 million

£0.07 million

£2.38 million

 

The Company has terminated the Investment Management Agreement with GHAM on 11 October 2021. As a result of termination of this agreement by the Board, the estimated performance fee charged and payable was £2,566,903  as at 30 September 2021(30 September 2020: Nil, 31 March 2021: 2,294,456). No payment was made to GHAM in lieu of notice and GHAM is not entitled to any further fees from the date of termination.

 

As at 30 September 2021, the following shareholders of the Company that are related to GHAM had the following interests in the issued shares of the Company:

 

 

As at 30 September 2021

As at 30 September 2020

As at 31 March 2021

A L Dalwood

36,302 Ordinary Shares

33,381 Ordinary Shares

31,183 Ordinary Shares

G Bird

26,543 Ordinary Shares

22,451 Ordinary Shares

22,651 Ordinary Shares

Gresham House plc

812,913 Ordinary Shares

812,913 Ordinary Shares

812,913 Ordinary Shares

 

The Company has signed a co-investment agreement with Gresham House Strategic Public Equity Fund LP (SPE Fund LP), a sister fund to the Company launched by Gresham House Asset Management Ltd (GHAM) on 15 August 2016. Under the agreement, the Company undertook to co-invest £7.5m with the SPE Fund LP. The Investment Period for the SPE Fund LP ended on 15 February 2021 and as a result, no further co-investments will be made.

 

There are no other related party transactions of which we are aware in the six months ended 30 September 2021.

 

11 - Subsequent events note

 

Harwood Capital LLP (Harwood) was appointed as the Alternative Investment Fund Manager ("AIFM") of Gresham House Strategic plc on 10 October 2021 and the agreement with Gresham House Asset Management Limited (GHAM) was terminated on 11 October 2021.

 

The Company's name will be changed to Rockwood Realisation plc, conditional on the resolutions put to shareholders in a circular dated 29 November 2021 being passed.

 

Change of Directorship

 

On 5 November 2021, Helen Sinclair resigned from the Board and Charles Berry was appointed as Interim Chair. On 22 November 2021, Simon Pyper joined Board as Chairman and Charles Berry left the board.

 

Augean plc

 

On 23 September 2021, the boards of Augean and Eleia Bidco announced that they had agreed the terms of a superior recommended cash offer for Augean by Eleia Bidco pursuant to which Eleia Bidco will acquire the entire issued and to be issued share capital of Augean at a price of 372 pence per Augean Share to be implemented by way of a court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the "Scheme").

 

Under the terms of the Scheme, Scheme Shareholders on the register of members of Augean at the Scheme Record Time (6.00 p.m. on 19 October 2021) will be entitled to receive 372 pence for each Scheme Share held at the Scheme Record Time by no later than 3 November 2021.

 

Trading in Augean Shares on AIM was suspended with effect from 7.30 a.m. on 20 October 2021.

 

Footnotes

 

[1] Exit multiples and returns do not take account of any taxes as tax is not levied on individual sales.

 

[2] Before tax.

 

 

 

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