TIDMGHS
RNS Number : 7837R
Gresham House Strategic PLC
19 June 2018
Gresham House Strategic plc
Final results for the year ended 31 March 2018
Gresham House Strategic plc ("GHS" or "the Company") is pleased
to announce its final audited results for the year ended 31 March
2018.
GHS invests primarily in UK and European smaller public
companies, applying private equity techniques and due diligence
alongside a value investment philosophy to construct a focused
portfolio expected to be comprised of 10-15 companies. The
Investment Manager aims for a considerably higher level of
engagement with investee company stakeholders, including
management, shareholders, customers, suppliers and competitors,
with the aim of identifying market pricing inefficiencies and
supporting a clear equity value creation plan and targeting above
market returns over the longer-term.
Highlights:
-- Strong investment performance driving a Net Asset Value
("NAV") per share increase of 10.7% during the year to 31 March
2018, and 20.1% since the appointment of Gresham House Asset
Management Ltd ("GHAM") as Investment Manager
-- NAV total return (including dividends paid) of 12.1% during
the year to 31 March 2018 and 21.7% since the appointment of
GHAM
-- NAV per share at an all-time high of 1,227.4p per share as at
1 June 2018, outperforming the FTSE Small-Cap and All-Share
indices
-- Proposed dividend of 17.25p per share (15% growth on previous year)
-- GBP11.1m deployed into new investments during the period - portfolio now 'fully invested'
-- GBP3.6m realisations, including significant completed exits,
all of which crystallised returns above our 15% IRR target at
attractive money multiples
-- Realised profits providing opportunity to grow the dividend
and add further value through NAV discount control
-- Up to GBP1m share buy-back initiated post period end
-- Clear action plans on existing investments identified and
initiated where investment theses are behind plan
Financial highlights:
-- NAV at 31 March 2018 of GBP43.4m (2017: GBP39.5m)
-- Realised gains on investments of GBP1.3m in the year to 31 March 2018 (2017: GBP1.6m)
-- Profit before tax of GBP4.7m (2017: GBP2.8m)*
-- Earnings per share of 127.70p (2017: 76.07p)*
-- Proposed full year dividend per share of 17.25p (2017: 15p)
*Prior year figures are stated on a consolidated Group rather
than Company basis.
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014.
For further information please contact:
Gresham House Strategic plc David Potter 07711 450 391
Gresham House Asset Management Ltd
Investment Manager Graham Bird 0203 837 6270
finnCap Ltd Matt Goode / William Marle
Nominated Adviser and Broker /Emily Watts 0207 220 0500
Attila Consultants Charles Cook / Sorrel Davies 0207 947
4489
Chairman's statement
Dear Shareholder,
I am pleased to report the best year in your Company's short
history since adopting the strategic public equity mandate in
August 2015.
Net Asset Value per share grew 10.7% to 31 March 2018 compared
to the FTSE Small Cap Index performance of minus 0.7% and the FTSE
All-Share Index fall of 2.6%.
When the strategic public equity strategy was launched in the
summer of 2015 the Board noted that seeking undervalued companies
and helping them to realise their full potential would take time
and this has proved to be the case. It is also widely acknowledged
that undervalued companies or those that are out of fashion or
which need help, may go through a "J" curve in terms of stock
market price as, in the early period of investment, the results of
change take a while to materialise. Hence, we have longer term
investment horizons of typically three to five years, in order to
generate superior performance from identifying areas of inefficient
markets.
The recent outperformance of NAV could be evidence that the
value potential of a number of our investments is gaining
recognition. We are confident in the investment management team
which has an extremely long track record, with over 20 years of
outperformance - including 15 years in strategic value-based small
company investment.
Despite this positive news, the deep discount of the share price
to NAV has persisted. Last year, I identified the four main reasons
for this:
-- Our relatively short track record under the new investment mandate
-- Our overweight position in IMImobile
-- The fact that we were not fully invested
-- The size of the Company remaining relatively small
The Board believes that the strengthening NAV performance
coupled with the underlying intrinsic value of the companies in
which we invest demonstrates we are overcoming the first obstacle
in a timely fashion and in line with our three to five year
investment horizon.
The Board has strong confidence in IMImobile and believes that
"backing winners" is the right strategy. We therefore remain strong
supporters of what is presently the best performing asset in the
portfolio whilst cognisant of the portfolio construction aspects of
this substantial weighting.
We are now fully invested and, until we can eliminate the
discount of our share price to NAV, it will be difficult to raise
new funds, although we believe that if the current strong
performance continues this possibility will become more realistic.
In the interim, our Investment Manager remains focused on driving
performance of the portfolio.
Since the financial year end, we have announced a GBP1m share
buyback. At the time of writing, we have seen the share price rise
by circa 12% and the discount has begun to narrow.
We are pleased to see that wealth managers on the shareholder
register (who represent a number of different underlying
shareholders) have tended to increase their stakes, as have the
online investment platforms. The Board is concerned that those
shareholders who invest through platforms do not receive direct
communications from the Company. If you are a shareholder in this
category, we would encourage you to press your platform provider to
share any information they receive from us. The Company's website
has recently been upgraded and is constantly updated with new
information. Contact details are available on the website and GHAM
also operates a number of email distribution lists to which you are
invited to sign up.
During the year our investment management team and brokers have
conducted numerous road shows and presentations designed to widen
familiarity with your Company and similar efforts are made through
public relations. We have seen some benefit from this with a number
of new shareholders joining the register. We are also pleased to
see individuals within the investment management team themselves
buying shares in GHS, a welcome dynamic to increase long-term
alignment with shareholders.
This year, the accounts have been prepared on a Company rather
than consolidated Group basis following the dissolution of the
remaining subsidiary companies. The comparative figures are stated
on a consolidated Group basis. A table showing a reconciliation of
the figures is set out beneath the Statement of Comprehensive
Income.
Our small size does have a negative influence on costs and cost
ratios. Despite this, our total costs, management fees,
administration fees, custody fees, regulatory expenses and Board
fees were contained at a similar level to last year, at circa
GBP1.4m. During the year the Board had a detailed review of all
costs resulting in a number of supplier changes and cost
reductions, which will impact next year's financial statements.
In this context, I would draw your attention to a number of
recent EU regulatory changes broadly under the banner of MIFID II.
These affect how research is conducted and paid for and we fear
that this may lead to a decline in independent research into
smaller companies. There are also prescriptive rules about
information that goes into the new Key Information Document
("KID"), which we are obliged to publish, that is in direct
contradiction to the traditional investment company disclaimer that
'past performance is not a guide to the future'. The KID uses a
mandatory algorithmic approach for providing indications of
potential future returns, a calculation about which we have
significant reservations, and you should remember that there are
other sources of information in the Annual Report, on the website,
analyst reports and journalistic comment. By way of example, the
formulae require use of the last five years' of data, two of which
were prior to the adoption of the new investment policy managed by
GHAM and hence not strictly relevant to the evaluation of the
Company's prospects. This further move away from principles-based
regulation to rules-based regulation makes life more complicated
and expensive for investment companies. The benefits of this 1,000
page document are yet to become apparent.
As a result of profits made on investment realisations during
the year, the Board is pleased to say that it plans (subject to
shareholder approval) to pay a dividend of 17.25p, an increase of
15% on the previous year's dividend, in line with its policy to
return up to 50% of gains on realisations via dividends and/or
share buybacks.
As the hard investment work of the last two and a half years
starts to bear fruit, the Board looks to the future with a degree
of confidence notwithstanding an external environment that still
has many economic and political headwinds.
I would like to thank our Investment Manager, Gresham House
Asset Management Ltd and all our professional advisers for their
diligence during a year of substantial regulatory change. I
appreciate the counsel of my colleagues on the Board. Finally, I
want to thank all of our shareholders for their ongoing
support.
David Potter
Chairman
18 June 2018
INVESTMENT PORTFOLIO TOP 10 HOLDINGS AS AT 31 MARCH 2018
Company Deal type % ownership of % of total Value
the company portfolio
Secondary - growth and
IMImobile re-rating 12.0 44.6 GBP19.3m
-------------------------------- ---------------------- ----------- ---------
Be Heard Growth capital supporting 9.5 8.6 GBP3.8m
Group buy and build strategy +GBP1.8m convertible
loan note
-------------------------------- ---------------------- ----------- ---------
Primary capital - supporting
balance sheet restructure
and providing growth and
Northbridge working capital 11.4 8.0 GBP3.5m
-------------------------------- ---------------------- ----------- ---------
MJ Hudson Pre-IPO growth capital 1.3 5.0 GBP2.2m
+GBP1.8m convertible
loan note
-------------------------------- ---------------------- ----------- ---------
Secondary - operational
gearing, AUM growth and
Miton improved return on capital 2.3 3.9 GBP1.7m
-------------------------------- ---------------------- ----------- ---------
Centaur Secondary - supporting
Media business transformation 2.1 3.6 GBP1.5m
-------------------------------- ---------------------- ----------- ---------
Tax Systems Strategic change and expansion 2.1 3.2 GBP1.4m
-------------------------------- ---------------------- ----------- ---------
Secondary - with primary
growth capital supporting
Quarto Group acquisitions 4.4 3.1 GBP1.3m
-------------------------------- ---------------------- ----------- ---------
Site rollout, earnings
growth, high return on
Escape Hunt capital 4.6 2.4 GBP1.0m
-------------------------------- ---------------------- ----------- ---------
Secondary - margin improvement
SpaceandPeople and strategic refocus 16.2 2.2 GBP0.9m
-------------------------------- ---------------------- ----------- ---------
Investment Manager's report
Introduction
In an echo of the Chairman's statement, I am pleased to be able
to write to shareholders on what has been a busy and productive
year for GHS with the investment team, supported by the GHAM
platform and wider resource, working on various operational and
investment initiatives throughout the year and post period end in
line with our investment philosophy. These are detailed throughout
this Investment Manager's report. The key highlights for the year
include:
-- GBP11.1m deployed into new investments - portfolio now 'fully invested'(1)
-- GBP3.6m realisations, including significant completed
realisations, all of which crystallised returns above our 15% IRR
target at attractive money multiples
-- NAV at an all-time high and ahead of the comparator indices since GHAM took on the mandate
-- Major workstreams on existing investments identified and
initiated to generate returns or recover shareholder value in cases
where there has been underperformance
-- Operational progress across the portfolio and importantly in
our two largest holdings, IMImobile and Northbridge Industrial
Services
-- Successfully growing the dividend 15% to 17.25p and a
continuation of share buybacks post year end
(1) Subject to retention of cash for follow-on investments and
contingencies
In this Investment Manager's report, we write to shareholders
about our high-level views of the UK economy and global equity
markets, summarise the NAV performance and major dealing activity
in the year before discussing activity in our major holdings. The
report ends with our outlook for the year ahead.
Strategic public equity investment strategy
We use the philosophy, approach and techniques adopted by
private equity investors to identify investment opportunities that
we believe can generate a 15% annualised return over the medium to
long-term - typically three to five years. Targeting UK and
European smaller public companies, the strategy focuses on stocks
with characteristics which indicate that the company is
intrinsically undervalued, such as low valuation multiples and
tangible asset cover. There is a strong focus on cash generation,
scope to improve return on capital and where we believe there are
opportunities to enhance value through strategic, operational or
management initiatives.
Our approach is differentiated from other public equity
investment strategies in several ways, including: depth of due
diligence and analysis undertaken; the level of interaction and
constructive engagement with management teams and boards; the
focused and concentrated portfolio; and, the investment horizon in
which we typically seek to support a three to five year value
creation plan with identified milestones and catalysts.
In addition to our financial return criteria, we apply a
qualitative assessment matrix (Quality-score) to investment
opportunities looking at:
-- The attractiveness of the market in terms of its characteristics and dynamics
-- The company's competitive positioning within the market,
including product and service offering, barriers to entry, ability
to grow, pricing power, and client/customer quality
-- The strength, experience and alignment of management
-- The financial characteristics, focusing on areas such as
customer concentration, sustainability of margins, capital
intensity and cashflow characteristics, stability and
predictability
-- The likely attractiveness to other buyers, whether institutional, trade or private equity
-- Our ability to acquire a stake and assist in value creation and enhancement
We also make use of a network of seasoned executives from a
range of professional and commercial backgrounds with whom we
consult, including those who form part of the Gresham House
Advisory Group alongside an experienced decision making forum at
the Investment Committee.
GHAM believes this approach can lead to superior investment
returns exploiting inefficiencies in certain segments of the public
markets. There are over 1,000 companies in the FTSE Small Cap Index
and on AIM. These companies typically suffer from a lack of
research coverage and often have limited access to growth
capital.
In addition to publicly quoted companies, we also have the
flexibility to invest up to 30% of the portfolio in selected
unquoted securities including preference shares, convertible
instruments and other forms of investments enabling us to support
pre-IPO and take private opportunities as well as being able to
invest in different parts of the capital structure.
Market commentary
The past year has been yet another eventful period for the UK
economy and global stock markets with the heady cocktail of Brexit,
snap-elections, a sense of gradual tightening monetary policy,
political uncertainty and last but certainly not least, President
Trump's protectionist rhetoric keeping investors on their toes. The
increasing uncertainty and volatility on the world stage eventually
filtered through to investors in Q1 of 2018 which saw a return of
volatility in global markets as US 10-year yields approached 3% and
global equity markets pared back from near record highs.
Understandably some investors and commentators sought to call
time on one of the longest bull markets in history. However, taking
an objective view of the global economy and UK markets, there
remains much to be positive about and we have seen some recovery
into the second quarter. As we have argued consistently in the
market commentary section of our factsheets this year, we feel UK
markets are well positioned to capitalise on the sustained growth
of the global economy. This view is based on several key
conclusions we hold and explain here:
1) The global economy is in a phase of harmonised and continuing
growth as dovish monetary policy is slowly withdrawn. The global
economic backdrop is growing increasingly supportive with the
return of real earnings growth and a global economy growing at its
fastest rate for seven years. Forecasts are for 3.9% growth this
year as 120 economies (3/4 of global GDP) saw a pickup in growth in
YoY terms(2) . The pickup in growth has been broad based, with
notable upside surprises in Europe and Asia and has been driven by
US tax policy changes, continued supportive monetary policy and a
slow-down in fiscal 'tightening'. Some of the recent global trade
data further supports this picture.
2) UK Recovery - as we stated in our two most recent factsheets,
we believe UK companies and investors are relatively well
positioned to benefit from the stronger global outlook in the
medium-term(3) . This view is based on three key assumptions.
Firstly, we believe the domestic political situation is more
stable than current market sentiment suggests. The benefits of this
for UK companies and the economy are well understood. We also
maintain that, while it may come down to the wire, rationality will
prevail and some sort of amicable Brexit deal or at least extension
to the transition agreement will come to pass ahead of the
deadline. Theresa May and David Davis made progress through the
year towards a transitional deal and talks are now moving to a
trade deal. Our European partners have sounded more conciliatory
and some of the recent recovery in sterling can be attributed to
this. Commentators have seen this as a boon to the UK's economic
prospects, reducing uncertainty and increasing the likelihood of a
softer Brexit environment for 'UK Plc'.
Secondly, the Brexit vote has created an uncertain economic
environment in the UK for the past two years and this has had two
key implications. The first was a significant devaluation in
sterling following the vote which effectively gave the UK a one-off
pricing advantage on exports just as global GDP and demand for
goods and services is starting to tick up. Early evidence suggests
this dynamic is playing out, particularly whilst the UK maintains
access to the Single Market as the exit from the EU and a
transition deal are negotiated. Whilst a weaker currency impacted
domestic inflation and eroded consumer spending power, some early
indications of the benefits can be found in the recent UK
Industrial Production data, which has accelerated its expansion
since Q3 2016 after the vote(4) and 40% of manufacturers are now
planning to expand(5) - the most optimistic outlook since 2014. A
second implication that took slightly longer to emerge was the
problem of deferred investment in the UK both domestically and from
global investors, as most market participants sat on the sidelines,
seeking greater clarity and predictability around the outcome of
Brexit and the minority government. We anticipate that as a greater
element of predictability returns to the UK economy and political
scene, these nerves should subside and there will be an element of
'catch up' in UK GDP in the medium-term - supporting both corporate
Profit and Loss statements and share prices. We note that the UK
has reversed from leading the G7 economy for growth to becoming the
laggard since the Brexit vote.
3) Our third belief is derived from the previous two - we argue
that the UK stock market now represents value on a relative basis.
UK average relative valuations are close to historic lows not
experienced since the 1990s and the UK is now valued at 4% on a
dividend yield basis(6) - one of the highest globally. The drivers
for this are clear and mentioned above, as is our reasoning for why
this presents an opportunity rather than a problem for UK focussed
equity investors and funds.
From an investment style perspective, we believe there is an
unprecedented argument to favour 'value' over 'growth' or
'momentum' investment styles and we believe there are strong
reasons that active investment (stock picking) should form a larger
proportion in investment portfolios than index tracking in the
coming years, reversing the one-way tide that has been evident over
the last few years.
The relative performance of 'value' against 'growth' over a 43
year period highlights the longer term outperformance of 'value'.
Over the period there have only been two occasions in which the
underperformance of value has been more than two standard
deviations away from the trend; one was immediately prior to the
collapse of the dot.com bubble, and the other is now. What is
unprecedented is the prolonged period of underperformance of
'value' which has been experienced since the financial crisis in
2008. This coincides with the period of record low interest rates
and Quantitative Easing (QE) globally. As QE slows and gradually
begins to unwind, coupled with gradually rising interest rates, we
believe there is a strong likelihood that 'value' will again
outperform, as has been evident in other rising interest rate
environments. Our investment philosophy is value-oriented, with our
holdings, on average, trading at substantial discounts to their
peers, whilst our focus on smaller companies means growth
projections are higher than the market as a whole. Hence on a
forward looking basis, the valuation discount is even higher - an
investor is able to buy higher growth for a substantially lower
price by investing in GHS.
(2) IMF World Economic Outlook Update, January 2018
(3) Morgan Stanley, 14 May 2018, Panmure Gordon Economic
Research
(4) UK Industrial Production data, Office for National Statistics
(5) EEF British Manufacturing Survey, 10 January 2018
(6) Morningstar, JP Morgan
Finally, whilst the UK stock market is attractively valued on a
relative basis, stock markets more generally are still on
valuations towards the upper end of their historic ranges. This
means that upward share price movements are more likely to be
driven by earnings growth than further re-rating and it will be
individual performances driving the indices higher, rather than
market momentum more generally. This environment favours a stock
picking strategy focused on company fundamentals. GHS offers a
highly focused stock picking strategy, which we believe has a case
for outperformance over the medium to longer term.
Performance review and attribution
Relative performance to 31 March 2018
12 months 6 months
Since inception to to
to 31 March 31 March 31 March
2018 2018 2018
GHS NAV per share 20.1% 10.7% 2.9%
FTSE Small Cap Ex-Investment
Trusts 12.3% -0.7% -2.3%
FTSE All-Share Ex-Investment
Trusts 8.6% -2.4% -2.7%
Relative Performance
vs FTSE Small Cap Ex-Investment
Trusts 7.8% 11.3% 5.2%
vs FTSE All-Share Ex-Investment
Trusts 11.5% 13.0% 5.6%
Note: Inception August 2015
It has been a pleasing 12 months for the GHS NAV overall. The
financial year started well with the NAV tracking ahead of the
comparator indices for most of the spring and early summer, driven
by the ongoing Northbridge recovery story and IMImobile's share
price strength in early April. This coupled with an ongoing
recovery in the Spaceandpeople share price lifted NAV performance
in April and May. However, all of these gains were given up over
the following six months as two of our investments, Quarto and Be
Heard saw significant share price weakness - these are discussed in
depth in the investment review section. This coincided with some
general weakness across the portfolio including in IMImobile in the
Autumn which pared the gains in Northbridge, Revolution Bars and
ProPhotonix.
During this period, we focused on supporting our major
investments as per our investment strategy, which bore fruit over
the Christmas period and into Q1 2018. Some key initiatives were
around major holdings (IMImobile, Quarto, Be Heard, Northbridge) to
help drive NAV performance and these are detailed later in the
report. Encouragingly, the GHS financial year ended robustly with
NAV per share recovering to near all-time highs (1,186p) under GHAM
as our investment thesis in IMImobile really began to play out and
the Northbridge recovery story solidified. The performance was also
supported by positive contributions from Spaceandpeople, Augean,
Centaur Media, and PCF Group. This drove the NAV back to well ahead
of the comparator indices since GHAM took on the investment mandate
as equity markets became volatile and sold off aggressively while
our performance improved. The NAV per share performance for the
financial year ended at +10.7% whilst the FTSE All Share and FTSE
Small Cap (excluding investment trusts) indices finished -2.4% and
-0.7% respectively.
We are encouraged that the positive performance has continued
into April and May and at the time of writing this report, the NAV
per share sits at or around all-time highs 1,227.4p(7) .
(7) GHS NAV per share as at 1 June 2018
NAV performance attribution
Top 5 and bottom 5 contributors
to and detractors from NAV performance GBP'000 Per share %
----------------------------------------- -------- ---------- -------
NAV at 31 March 2017 39,517 1,071.6
IMImobile Plc 6,604 179.1 16.7%
Northbridge Industrial Services
Plc 937 25.4 2.4%
Revolution Bars Group Plc 689 18.7 1.7%
SpaceandPeople 285 7.7 0.7%
Private & Commercial Finance Group
Plc 138 3.7 0.3%
Redstoneconnect Plc (157) (4.3) (0.4)%
Escape Hunt (216) (5.9) (0.5)%
Universe Group Plc (365) (9.9) (0.9)%
Quarto Group Inc. (899) (24.4) (2.3)%
Be Heard Group Plc (1,427) (38.7) (3.6)%
Other net movements, including
operating costs (1,785) (36.7) (3.4)%
----------------------------------------- -------- ---------- -------
NAV at 31 March 2018 43,355 1,186.2
----------------------------------------- -------- ---------- -------
Data as at 31 March 2018
Performance has been driven by some fairly binary moves within
the portfolio, which is not unusual as various investments are at
different stages of their investment thesis. One of our more
progressed investment theses, IMImobile, was the top performer on a
monetary (+GBP6.6m) and share price basis (+50%) and was the clear
primary driver of this year's performance, contributing +16.7% to
NAV performance in the year. We have been actively engaged with
IMImobile over the past two years, focusing on simplifying the
investment story and helping broaden awareness and coverage within
the investor community. It is pleasing to see that this is now
paying off, backed by strong performance and clear strategic
direction. Similarly, the Northbridge recovery thesis is starting
to take hold and that again was a positive contributor to NAV
(+GBP0.9m), up 37% in the year. Some smaller holdings such as
SpaceandPeople and Tax Systems performed strongly in the year on a
percentage basis (+42%, +19%) also contributing to NAV performance,
albeit to a lesser extent given their weightings(8) .
These significant positive contributors to performance were
pared with some weakness in other investments (Be Heard, Escape
Hunt, Universe Group and Quarto). Be Heard was the weakest share
price performer and the largest detractor from NAV performance in
the period. However, the company is at an early stage in its
development and our investment thesis and we remain confident in
its prospects - this is detailed later in the report. Quarto has
been a frustratingly weak performer over the period, and the issues
the company has faced, as well as the work we are doing to rectify
these issues are detailed later in this report. Overall the NAV per
share ended the year +GBP3.8m and the NAV per share +10.7% for the
year. We discuss the individual investment performances in more
detail below.
Dealing activity
It has been a busy year for the investment team as we brought
the portfolio close to being 'fully invested' whilst rotating some
existing positions to manage the cash position and follow our
investment theses.
We put GBP11.1m of cash to work in the year to 31 March 2018
through a combination of new investments including Centaur Media,
Universe Group, Tax Systems, and Escape Hunt, increases to existing
positions (MJ Hudson, Be Heard, Northbridge) and a number of
toehold positions (Augean, Redstone Connect, ProPhotonix, PCF
Group) as we develop a deeper understanding of those
opportunities.
We also made GBP3.6m of realisations which generated GBP1.3m of
profits for the Company, 50% of which is available under the
current policy to grow the dividend to 17.25p per share this year.
These realisations included some complete exits (Alpha FX,
Revolution Bars) as our investment theses were borne out and target
prices reached.
(8) Bloomberg data as at 29 March 2018
The majority of our investments and realisations are discussed
in detail below in the 'investment review' section of this
report.
Review of Top 10 investments and significant realisations
IMImobile
It has been a pleasing year for our major holding both
operationally and on the market as the company continued to execute
its strategy of organic and acquisitive growth in the digital
services sector, which was confirmed with a bullish trading
statement post period-end in April 2018.
Operationally, the year started strongly with a trading update
at the end of April highlighting continued double digit organic
growth and performance slightly ahead of expectations, driven by
some major contract wins with Telenor and BT as well as a renewal
of the MTN partnership in Africa. Importantly the company flagged
the strengthening market position of the IMI Connect product
following the Infracast acquisition in April 2017. EBITDA cash
conversion was >100% for the sixth year in a row, illustrating
the strong cash generation capability of the group. The subsequent
strong momentum in the shares from those results as well as the
conclusion of certain strategic initiatives within the company in
the previous year (share capital restructure, governance
improvements, repositioning of the product suite and simplification
of the investment story) at the start of the financial year for GHS
represented key milestones and provided an opportunity for the
crystallisation of some profit on the investment as we facilitated
some liquidity to help broaden the shareholder register in August
2017.
The latter half of 2017 saw IMImobile (IMI) post another set of
strong interim results, continuing the good progress of FY17 with
cash generation and organic growth maintained - driven by growth in
Europe, India and South-East Asia and particularly strong
integration of the Infracast acquisition. Two further acquisitions
were announced, Sumotext in the USA and Healthcare Communications
in the UK, the former of which provides an entry point to the US
market and the latter of which cements IMI as the UK leader in its
field in the health sector. The interims provided a catalyst for
some of the market awareness work we had been working on over the
medium-term, and this had a positive impact. Shortly after the
results, an interview with Tony Dalwood on IMI published in the
Telegraph 'Questor' column, along with the placing out of a large
stake held by Tosca (a perceived overhang on the share price) to a
new set of investors that Gresham House and its advisory network
had helped the company to engage, drove the share price to the new
highs of around 250p.
2018 has seen the company continue its positive momentum and
growth trajectory. The acquisition strategy is contributing
meaningfully to this momentum. We have met the Healthcare
Communications team and the market opportunity in the more
defensive healthcare sector is clear, providing a complementary
revenue stream to IMI's existing offering and giving the company
leadership in another key consumer vertical. All three acquisitions
made in FY18 have performed well and management's track record of
M&A to date has been excellent. We see further opportunity
through this channel.
The year ended as it started for the business - strongly. In the
run up to their FY18 results we engaged Gresham House's PR advisers
with an initiative to support where we can with market awareness
and coverage of the company as its major shareholder. These efforts
gained traction with Gresham House facilitating coverage in a
number of high-profile financial publications, which contributed to
the share price performance which reached its highest level since
IPO. Post period-end the company published a trading statement
ahead of its preliminary results citing revenue ahead of
expectations with significant new business success across the
portfolio, notably for IMI Connect. We believe this has set up a
solid foundation for FY19.
Northbridge
It was a year of transition for Northbridge, now our second
largest holding in the portfolio. 2017/18 saw the company (and
sector) stabilise from the significant market downturn of the past
3 years and more recently move into what now appears to be a
stronger recovery.
The GHS financial year began with Northbridge announcing its
preliminary results at the end of April, with numbers in line with
forecasts - but still representing declines as business activity
had failed to pick up in 2016/17 as hoped. More positively the
results confirmed the execution of significant cost cutting efforts
in the year, allowing the company to generate GBP1.8m cash from
operations and maintain a level of operational gearing in the event
of recovery. As a part of our efforts to support the Northbridge
recovery story - and our engaged investment philosophy - we
introduced Nitin Kaul who was invited to join the board in May as a
NED. Nitin has brought a wealth of industry experience and network
of industry contacts, notably in the Far East, to the company.
The pre-close trading update in August cited some increased
stability in the market but no material signs of recovery. More
positively, the company was about to take its first orders on a
Malaysian JV it had entered earlier that year, and this opportunity
remains substantial. Whilst not expected to impact numbers until
2018, the JV opened a new revenue stream and geography for
Northbridge where existing equipment could be deployed. There were
also some early stage indicators or 'green-shoots' from other areas
in the sector and supply chain, namely from global kit
manufacturers like Caterpillar and upticks in activity in the US
more generally - however this had not fed through to the
Northbridge order book at that stage. Again, as a part of our
supportive and engaged investment strategy we had introduced the
company to Hazel Capital (now Gresham House New Energy) over the
summer. Hazel Capital's Energy Storage Systems required load banks
and this is opening a potential new market and diversification
opportunity for Northbridge.
It was in the final quarter where the sector recovery story
which underpins our investment thesis really began to emerge from
early indicators and data-sets into increased business activity.
Meetings with management in the new year highlighted a brightening
picture both for the industry and the company. The traditional
markets for load banks as well as newer, emerging areas such as
Data centres and Energy Storage System work have provided
resilience and growing opportunity and the JV in Malaysia that took
its first orders in September 2017 has been tracking well. We are
now looking to support the company with marketing and IR as the
improving story emerges to increase investor and market awareness
of the equity story - the first of these efforts was a joint
interview with Graham Bird (GHS Fund Manager) and Eric Hook (NBI
CEO) on Share Talk in April.
We evidenced our growing conviction for our Northbridge
investment thesis and the recovery story with a significant
additional investment into the company which we completed post
period-end but had been working on for the preceding 3 to 4 months.
We played a leading role in a comprehensive refinancing package
which has enabled the company to fully repay one of its bankers and
to secure favourable, new three-year debt facilities from its lead
banker, RBS. We initiated, structured and completed a GBP4m
convertible loan note issue the majority of which was covered by
Gresham House managed funds. GHS subscribed for c.GBP2m of the
issue. The bonds carry an 8% cash paid coupon and have a conversion
price of 125p over a 3yr 3m term. We are extremely pleased with
this example of how the Strategic Public Equity strategy can source
and deliver unique deals and generate shareholder value for
investors, whilst supporting our investee companies.
Be Heard
Strategically, Be Heard had a successful year during which we
have begun to see the evidence of the opportunity that lies in
being able to offer a comprehensive set of digitally focused
marketing services. Within the financial markets, the year has been
more challenging, with adverse sentiment in the advertising sector,
coupled with some teething problems experienced by Be Heard as a
young, start-up business which together contributed to a weak share
price performance. This has highlighted significant work to be done
by the Gresham House team this year to support the investment
through this period and this remains the case going into the new
financial year as we look to realise the original thesis which we
maintain is still achievable - offering material upside from the
current situation.
A core component of the growth story entailed a buy-and-build
strategy to create a network of digital marketing capabilities. The
acquisition of The Corner, in November completed the suite of
capabilities that Peter Scott had initially identified and the
group has gone on to win a number of significant new clients.
Importantly, 13 clients are now using more than one of the Be Heard
service offerings and the recent global mandate awarded by Blu, was
a major win under the Be Heard name.
Adverse sector sentiment contributed to a challenging fund raise
to finance the acquisition of The Corner. GHS engaged in this
process and led a GBP3m convertible loan note issue providing the
principal funding. The loan note pays an 8% cash coupon and is
convertible into ordinary shares at a price of 3.5p at any time
over its four-year term.
A slower than expected December, coupled with a contract delay
and certain cost overruns led to a GBP600k downgrade to EBITDA
forecasts for the year in early January and this precipitated a 30%
fall in the share price. This was obviously extremely frustrating
news given the previous encouraging commentary from management and
the seemingly avoidable nature of the miss. Putting the news in
context, the company delivered 24% organic growth in the year, 50%
growth in trading EBITDA and 100% increase in group EBITDA,
highlighting the otherwise successful year from an operational
point of view. Nevertheless, the news triggered an immediate
internal review within the Gresham House investment team that
generated a number of key action points on this investment, with
the aim of fully understanding the issues the company faced and
then establishing how we can support efforts to rectify problems
and recover value. The role of CEO and Chairman has now been split,
with David Morrison who was introduced by Gresham House taking on
the chairman role and Peter Scott becoming CEO. The company
immediately set out to find a dedicated CFO, and we were delighted
that Simon Pyper agreed to take the role from April this year.
Significant improvements have also been made to the financial
forecasting and reporting environment, so we believe there is a
substantially stronger control environment now in place.
The outlook for digitally focused marketing remains very
positive and we believe that Be Heard is well positioned to take
advantage of the shifts in the way large corporations are
allocating their marketing budgets. Whilst the share price
performance has been disappointing, a significant portion of our
investment is through the convertible loan note, offering an
attractive yield and a privileged position in the capital
structure. 2018 will be a year of greater internal focus as Be
Heard aims to deliver on its potential.
MJ Hudson
It was an important year of development for MJ Hudson, our first
unquoted investment in the fund as the company sought to
consolidate the group formed in 2016, continue the bolt-on
acquisition strategy, and manage the ongoing response to Brexit and
its potential impact on the industry.
The company made one small acquisition in the year with added IT
capability which will help it grow its platform business and data
solutions. Frustratingly, a number of other acquisition
opportunities were turned away either on price or for other
reasons, but the company has been able to continue developing its
capabilities organically including two areas of greenfield start-up
activity. We helped fund this growth activity alongside other
investors via an increase in our investment through the convertible
loan note structure and a small equity position. However, the
distraction of Brexit, coupled with frothy valuations in the sector
(as highlighted by JTC's recent IPO on an EV/EBITDA of 16.3x) has
tempered MJ Hudson's acquisitive growth model and this will likely
push out plans for an IPO as the group takes longer to achieve the
necessary scale for a flotation. Organic growth remains robust
within the existing array of services to the alternative asset
management industry and our investment, largely through the
convertible loan note structure which provides us with an
attractive cash return and protected capital growth whilst the
company continues to develop its strategy.
Miton
It was a strong year of operational and strategic success for
Miton Group despite a backdrop of market volatility and regulatory
change and we were encouraged to see our investment thesis play out
and complete. Over the course of 2017, AUM grew organically from
GBP2.9bn to GBP3.8bn, a significant acceleration of the previous
year's growth. This was driven by successful European and US fund
launches and growth in the real assets space, dovetailed with some
impressive performance from existing funds as 87% of funds were
first or second quartile.
In the year, our final outstanding milestones for our investment
in Miton were achieved as board re-organisation was completed
following the completion of operational objectives identified by
the incumbent management team. Operating margins have improved
significantly, helped by the operational gearing in the business
and are now closer to industry norms than was the case when we took
on the investment. AUM has grown strongly, turning around the
declines seen in 2015 and the business has achieved a significant
milestone with AUM exceeding GBP3.8bn. With these achievements
behind him, Ian Dighe announced his intention to step down as
Executive Chairman, with David Barron stepping in as interim CEO.
This process concluded in November 2017 with the appointment of Jim
Pettigrew as Non-Executive Chairman, with David Barron promoted to
Chief Executive - marking the start of a new phase for Miton Group.
This process completed our investment thesis and also saw the
shares hit our target price. Readers will note the sale of a
portion of our investment in Miton in the 'dealing' section of this
report. It should be added that post period-end, we exited the
investment fully, taking advantage of some significant liquidity at
our target price. The result was that our investment comfortably
exceeded our IRR return target, delivering a 26% IRR and a 1.6x
money multiple over the 2.5 year holding period.
The Quarto Group
Quarto has had a difficult year both operationally and in the
markets and has occupied a significant portion of the investment
team's focus and efforts over the past six months as we look to
recover value for shareholders and support the company on a path to
success.
Two legacy, non-core businesses were sold in early 2017,
altering both the group profile and the seasonality of earnings. In
May it transpired that the market had underestimated the dilutive
impact of the sales and the impact on seasonality. Coupled with a
weak H1 performance, influenced partly by a weaker consumer
environment, but more significantly by a number of one-off issues,
this led to a significant downgrade in expectations and triggered
the resignation of CFO Mike Connole. The shares weakened
significantly following the announcement, from around 250p to
130p.
As our shareholders would expect, at this point we became
significantly engaged with company management despite only being a
4.5% shareholder. Brian Porrit was brought in as an interim CFO and
immediately went about a thorough review of the cost base and
control environment. Substantial improvements have been made in
both areas. Towards the end of the year we introduced Andy Cumming
with a view to bolstering the board with banking and restructuring
expertise as the company faced up to its strategic options in the
months ahead, including managing the banks. Andy Cumming was
appointed as a Non-Executive Director in early 2018. He brings a
wealth of commercial banking expertise from his time at Lloyds Bank
and he has already been instrumental in the company's next steps
and strategic thinking.
A second objective was to secure the finance function. As a
result, we supported the Board in its search for a permanent
Finance Director, while maintaining a close working relationship
with interim Finance Director Brian Porrit. We were pleased to see
the appointment of Carolyn Bresh with effect from April for what is
a vital appointment during the current difficulties the business
faces and we will be working closely with Carolyn in the coming
months where appropriate.
Thirdly, with the first two objectives achieved - we have been
engaging management, the Board, the companies' advisers and major
shareholders to explore the best strategic path for the business
going forward - dealing with the leverage the business currently
carries but most importantly recovering maximum value for
shareholders. This process has been complicated by the emergence of
two new significant shareholders over the past 6 months, Laurence
Orbach and C K Lau, each with stakes of over 20%. Their activism
manifested itself in a board room coup at the company's AGM on 17
May, where the Chairman and three other Non-Executive Directors
were voted off the board and Laurence Orbach, C K Lau and two
others were appointed. The CEO, Marcus Leaver has subsequently
resigned. These changes have created significant uncertainty and a
major hurdle towards our ability to effect and influence change. We
remain closely engaged with both shareholders and the company's
advisers to do what we can to ensure broader shareholder interests
are protected.
Centaur Media
Centaur was a new investment made within the year after several
months' work in early 2017, following the company's appearance on
our value screens and subsequent due diligence and engagement with
management. A brief summary of the investment case is as
follows:
-- Value creation is driven by earnings growth and re-rating
from historic 6.2x to industry averages closer to 9.5x EBITDA.
-- There is significant revenue growth potential as the company
faces an inflection point where the decline in traditional
advertising revenue has potentially bottomed out, whilst the newer,
digital subscription, events and consulting revenues continue to
grow strongly.
-- Additive acquisitions create the opportunity to add further
turnover and revenue, creating scale which will put Centaur on the
radar screen of larger institutional investors and potentially
trade buyers.
The business is cash generative and we anticipate cash to be
deployed in further acquisitions over the short term, driving
synergy and scale. It was a progressive year of strategic change
and deal activity at Centaur during the first 12 months of our
investment as the management team continued its ambitious but
increasingly achievable refocus away from legacy print publications
business into a B2B information services platform. The key moment
for the company in the year was the transformational back-to-back
M&A transaction in August where the consumer facing 'home
interest' division was sold to Future Group for GBP32.5m -
significantly ahead of expectations. MarketMakers was purchased
from private ownership to supplement the growing business
engagement services Centaur is building for its clients. The deal
helps accelerate the transformation of Centaur into a pure B2B
focussed business.
The company ended the year in pleasing fashion with an
impressive investor day at one of their flagship events; the
business travel shows where investors were given an extensive
teach-in on the value-add of Market Makers and how the offering
complements Centaur's existing product suite. This was followed up
with a strong set of year-end results a few weeks later that beat
analyst forecasts on cash and profits (EBIT 10% ahead) while
managing to achieve strategic milestones in the year. We are
encouraged that the year started well with 'healthy' bookings for
some key trade events and shows. The share price has been
frustrating over the past 12 months as we feel it has not yet
recognised some of the strategic and operational achievements in
the year.
Tax Systems
Tax Systems was another new investment made in the year. The
company is a leading supplier of corporate tax and associated
software and services to large corporates and the accountancy
profession in the UK and Ireland. It has a 25-year track
record.
We acquired a modest position in the secondary market during May
2017 and the investment case can be summarised as follows:
-- The business is highly cash generative with >90% recurring
revenues and a sticky client base; we expect it to command a high
rating as it becomes an established listed business.
-- Products are not cyclical and are embedded into the regular
processes of a large number of clients; the client base is a
valuable asset.
-- The cash generation will pay down debt and provide dividend
capability, driving equity value; this profile of the business
should be highly attractive to private equity.
-- Historically, it appears to have been managed as a lifestyle
business; under a strong new management team there is a plan to
invigorate the business, cut out unnecessary cost and grow the
range of services sold to the high-quality client base.
As expected, it has been a quiet year for Tax Systems on the
market as the company focusses on the de-gearing story and
maintaining and growing its client base. The year ended with some
in-line results post the GHS year-end and the share price has
reflected this steady but consistent progress, trading up from the
low 70's and forming a strong level of support above 80p.
Escape Hunt
Escape Hunt was another new investment made in the year.
We were originally introduced to Escape Hunt in October 2016 as
a pre-IPO opportunity. The company was then approached by
Dorcaster, a cash shell that was looking to invest in the leisure
sector. Negotiations and due diligence ensued and ultimately
culminated in a reverse takeover and re-Admission to AIM in April.
Gresham House was instrumental in pricing the issue as a lead and
early engaged investor.
Escape Hunt was founded by Paul Bartosik in July 2013. It sits
within the leisure and entertainment sector and provides
'experiential entertainment'. It is a leader in the provision of
'escape games' currently operating 36 sites (209 games rooms) in 26
countries on 6 continents.
The investment team spent several months getting to know the
management of Escape Hunt; incoming CEO Richard Harpham (formerly
of Pret a Manger) and a new UK MD Andrew Jacobs (Giraffe
restaurants). The investment opportunity centres on the following
key themes:
-- Strong growth in experiential activity - notably escape rooms
- driven by a shift in consumer spending.
-- A significant change in the profit opportunity for the
business as it shifts from a franchise operation to owner-managed
in certain territories; this significantly amplifies the accessible
profit pool.
-- Highly attractive return on capital characteristics; payback
on the average site is less than 12 months with significant
opportunity to deploy capital.
-- Attractive cashflow and financial characteristics; players
pay in advance, employee costs are largely variable as staff work
part time on an 'as needed' basis.
-- We are backing a highly credible management team with strong
track records of delivering a similar model of growth at well-known
consumer brands in the UK and overseas, as noted above. The
business model has extremely attractive cash flow characteristics
and return on capital dynamics.
-- The opportunity to build value around a global brand; unique
in the industry and that can become an asset to covet.
The business has since launched its first sites in the UK,
albeit that it has taken longer to sign the right sites than
initially expected. However, the team has remained disciplined and
focussed on getting the right locations and we remain confident of
the future prospects.
SpaceandPeople
It has been a year of continued recovery for SpaceandPeople as
the company focussed on its core business and geography, avoiding
the distractions of new ventures and international geographies that
previously impacted performance negatively. As mentioned in the
last annual report, we took the opportunity to increase our
position in the company in early 2017 and engaged the company
heavily with strategic advice, participating in their strategy
offsite. By May the company was able to release a trading update
citing profit and revenue ahead of management expectations -
raising PBT estimates significantly to GBP1.1m.
The company then had a quiet 6 months, focussing on extending
the gains from the strategic refocus and improving its operations
over the summer and into Christmas. In January the company provided
the market with a bullish trading update confirming the return to
profitability, an intention to recommence dividends, and an
important contract renewal. This invigorated the share price
further as the recovery story continued to play out. With the
company approaching a full 12 months of recovery, we have now begun
to engage the Board on the company's strategic future.
Realisations completed in the period
Revolution Bars
Revolution Bars Group (RBG) was an investment we entered and
exited within the year as a part of our 'toehold' policy of
building small initial stakes while we undertook more in depth due
diligence, which was introduced and discussed with last year's
annual report.
RBG flagged up on our value screens following a profits warning
in early 2017 as the rollout of its Revolution de Cuba restaurant
chain - designed to complement the existing revolution bars
business, stalled. The share price almost halved to 110p and this
put this business on an attractive EBITDA rating of sub 4x. The
investment team also felt the markets had overreacted on the
announcement and a lot of negativity was now 'priced in' meaning
the potential future value of the business (once this hiccup was
overcome) was being ignored or at least mispriced.
As a result, the team did some initial desktop due diligence and
held internal discussions, which produced two key action points for
the team:
1) To take a 2% position in the fund to capitalise on the share
price weakness in the short term.
2) To prioritise some more extensive due diligence so that the
opportunity could be brought to investment committee and a more
significant holding could be considered.
We managed to secure the 'toehold' position at an average
in-price of 120p for a total consideration of GBP720k while deeper
due diligence began over the summer. However, before our due
diligence process could conclude, Stonegate pubs bid for Revolution
Bars at 203p per share. This was then followed up with a rival
merger proposal from The Deltic Group in a cash and paper deal. We
sought to capitalise on the share price strength these counter
offers created and crystallise some strong returns and sold down
roughly two-thirds of our position at 206p. This proved to be
prudent as both offers failed to conclude and the share price
subsequently fell back towards pre-bid levels. We exited the
remainder of our investment securing shareholders a 144% IRR and a
1.5x money multiple.
Alpha FX
Alpha FX (Alpha) ended up as a very short-term holding, but
still managed to produce above target returns for our shareholders.
We met Alpha six months before their IPO roadshow as a possible
pre-IPO opportunity. The business then decided to float instead, so
we were able to build on our initial interest in the business, and
followed this initial positive meeting up with a site visit. We
were extremely impressed with the company's operating systems. The
shorter timetable of the IPO constrained us to an initial 'toehold'
position while we undertook more extensive due diligence.
Unfortunately, we were heavily scaled back at IPO due to
significant demand for the shares and the valuation of the company
increased quickly and materially after IPO. The size of the holding
(GBP400k) and the quickly escalating valuation made further work
unwarranted and we subsequently sold the shares within a month of
the IPO for +25% return and 1.25x money multiple.
Outlook
We enter the 2018/19 financial year invigorated from a year of
significant activity and excited at some of the challenges and
opportunities ahead of us - some of which we discuss in this
report. Other opportunities remain in our investment pipeline and
we look forward to being able to discuss these with shareholders in
due course.
While we continue to believe equity markets are expensive
compared to historic ranges, which suggests that equity indices as
a whole are likely to generate lower returns from this point,
opportunities remain and the UK is attractively positioned on a
value basis relative to other economies and markets. We feel this
creates opportunities for our existing holdings and new investment
ideas in the medium term.
We maintain the view that there is a compelling argument for
investors to be switching out of over-owned and highly valued
'growth' and 'momentum' stocks into 'value' investments that have
been overlooked for much of the past 11 years. We have seen some
early evidence of this in some of our holdings but the general
trend has remained strongly in favour of growth stocks this year.
The smaller companies that our investment strategy focuses on have
continued to face barriers to access capital and these
inefficiencies in the market have helped create the attractive
opportunities we have capitalised on this year and we expect this
to continue to be the case in the medium term. We believe the
changes brought about by MiFID II will increase the size of this
opportunity for us and we therefore look forward with continued
optimism.
Statement of Comprehensive Income
for the year ended 31 March 2018
Year ended Year ended
31 March 31 March
2018 2017
Note GBP '000 GBP '000
---------------------------------------------- ----- ----------- -----------
Continuing operations
Gains on investments at fair value
through profit or loss
Realised gains 1,277 1,614
Unrealised gains 4,285 2,314
---------------------------------------------- ----- ----------- -----------
8 5,562 3,928
Revenue
Bank interest income 2 28
Loan note interest income 324 81
Portfolio dividend income 162 173
Other income - 13
---------------------------------------------- ----- ----------- -----------
488 295
Administrative expenses
Salaries and other staff costs 3 (138) (138)
Other costs 4 (1,235) 11,892
---------------------------------------------- ----- ----------- -----------
Total administrative expenses (1,373) 11,754
---------------------------------------------- ----- ----------- -----------
Profit before taxation 4,677 15,977
Taxation 5 - (716)
Withholding tax expense (8) (28)
Profit for the financial year 4,669 15,233
---------------------------------------------- ----- ----------- -----------
Attributable to:
- Equity shareholders of the Company 4,669 15,233
Basic and Diluted earnings per ordinary
share for profit from continuing operations
and for profit for the year (pence) 6 127.70p 413.15p
---------------------------------------------- ----- ----------- -----------
As at 31 March 2018 the financial statements are presented on a
standalone basis for the first time, due to the liquidation of all
subsidiaries in the prior year. The Company's comparative figures
as at 31 March 2017 include subsidiary balances of GBP13.144m which
were written off and net off when preparing the consolidated
accounts. The below reconciles the Company only results to the
Consolidated Group results for the year to 31 March 2017:
Profit for the financial year to 31 March
2017 for the Company (GBP'000) 15,233
Less subsidiary balances written back in
the year due to voluntary liquidation (GBP'000) (13,144)
Add back taxation eliminated on consolidation
(GBP'000) 716
Profit for the financial year to 31 March
2017 for the Group as previously stated
(GBP'000) 2,805
-------------------------------------------------- ---------
Basic and Diluted earnings per ordinary
share for profit from continuing operations
and for profit for the year for the Group
(pence) 6 76.07p
-------------------------------------------------- ---------
There are no components of other comprehensive income for the
current year (2017: None).
Statement of Financial Position
as at 31 March 2018
31 March 31 March
2018 2017
Note GBP '000 GBP '000
----------------------------------- ----- --------- ---------
Non-current assets
Investments at fair value through
profit or loss 8 40,449 27,003
----------------------------------- ----- --------- ---------
40,449 27,003
Current assets
Trade and other receivables 9 71 249
Cash and cash equivalents 3,044 12,987
----------------------------------- ----- --------- ---------
3,115 13,236
----------------------------------- ----- --------- ---------
Total assets 43,564 40,239
----------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 10 (209) (722)
----------------------------------- ----- --------- ---------
Total liabilities (209) (722)
----------------------------------- ----- --------- ---------
Net current assets 2,906 12,514
----------------------------------- ----- --------- ---------
Net assets 43,355 39,517
----------------------------------- ----- --------- ---------
Equity
Issued capital 11 1,837 1,932
Share premium 13,060 13,063
Revenue reserve 17,670 13,829
Capital redemption reserve 10,788 10,693
----------------------------------- ----- --------- ---------
Total equity 43,355 39,517
----------------------------------- ----- --------- ---------
These financial statements were approved and authorised for
issue by the Board of Directors on 18 June 2018. Signed on behalf
of the Board of Directors.
David Potter Charles Berry
Chairman Director
Statement of Cash Flows
for the year ended 31 March 2018
Year ended Year ended
31 March 31 March
2018 2017
Note GBP '000 GBP '000
-------------------------------------------- ------ ----------- -----------
Cash flows from operating activities a (928) (1,194)
Net cash outflow from operations
-------------------------------------------- ------ ----------- -----------
Net cash outflow from operating activities (928) (1,194)
Cash flows from investing activities
Purchase of financial investments (12,539) (8,099)
Sale of financial investments 8 4,355 5,770
Proceeds from liquidation of subsidiary - 142
Net cash outflow from investing activities (8,184) (2,187)
Cash flows from financing activities
Dividends paid (548) -
Share buy back (283) -
-------------------------------------------- ------ ----------- -----------
Net cash outflow from financing activities (831) -
Change in cash and cash equivalents (9,943) (3,381)
Opening cash and cash equivalents 12,987 16,368
-------------------------------------------- ------ ----------- -----------
Closing cash and cash equivalents 3,044 12,987
-------------------------------------------- ------ ----------- -----------
Note
a) Reconciliation of profit for the year to net cash outflow from
operations
GBP'000 GBP'000
-------------------------------------------- ------ ----------- -----------
Profit for the financial year 4,669 15,233
Gains on investments 2 (5,562) (3,928)
Non-cash items:
Investments in subsidiaries written-off - 392
Intercompany liability written-off - (13,500)
-------------------------------------------- ------ ----------- -----------
Tax expense - 716
-------------------------------------------- ------ ----------- -----------
Operating results (893) (1,087)
Change in trade and other receivables 18 (67)
Change in trade and other payables (53) (40)
Net cash outflow from operations (928) (1,194)
-------------------------------------------- ------ ----------- -----------
Statement of Changes in Equity
for the year ended 31 March 2018
Ordinary Capital
Share Share Revenue Redemption Total
D shares Capital Premium Reserve Reserve Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- --------- --------- --------- ------------ --------
Balance at 31 March 2016 10 1,922 13,063 (1,404) 10,693 24,284
-------------------------------- --------- --------- --------- --------- ------------ --------
Profit and total comprehensive
income for the year - - - 15,233 - 15,233
Balance at 31 March 2017 10 1,922 13,063 13,829 10,693 39,517
-------------------------------- --------- --------- --------- --------- ------------ --------
Share buyback - (17) (3) (280) 17 (283)
Dividends paid out - - - (548) - (548)
Treasury share cancellation - (78) - - 78 -
Profit and total comprehensive
income for the year - - - 4,669 - 4,669
Balance at 31 March 2018 10 1,827 13,060 17,670 10,788 43,355
-------------------------------- --------- --------- --------- --------- ------------ --------
Notes to the Financial Statements
1 Basis of preparation and significant accounting policies
Gresham House Strategic plc (the "Company") is a company
incorporated in the UK and registered in England and Wales
(registration number: 3813450). The financial statements for the
year ended 2018 have been prepared on a standalone basis for the
first time. The financial statements for the year ended March 2017
were prepared on a consolidated basis and included the financial
statements of the Company and its subsidiaries (together 'the
Group'). The accounting policies applied are consistent with the
prior year.
Basis of preparation
The financial statements for the year ended 31 March 2018 have
been prepared in accordance with International Financial Reporting
Standards ('IFRS') approved by the International Accounting
Standards Board ('IASB'), as adopted by the European Union and with
those parts of the Companies Act 2006 applicable to companies
reporting under IFRS.
The financial statements are prepared on a historical cost basis
except for the revaluation of certain financial instruments stated
at fair value. Standards and interpretations applied for the first
time have had no material impact on these financial statements.
The following new standards, interpretations and amendments
which will or may have an effect on the Company, are effective for
annual periods beginning on or after 1 January 2018 and have not
yet been applied in preparing these financial statements. The
Company intends to adopt these standards, if applicable, when they
become effective.
-- IFRS 9 'Financial Instruments' will eventually replace IAS 39
in its entirety. The standard addresses the classification,
measurement and derecognition of financial assets and liabilities,
introduces new rules for hedge accounting and a new impairment
model for financial assets This standard becomes effective for
accounting periods beginning on or after 1 January 2018. If IFRS 9
had been applied to the current reporting period, it would not have
had a significant impact on the financial statements.
-- IFRS 15, 'Revenue from contracts with customers' deals with
revenue recognition and establishes principles for reporting useful
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's contracts with
customers. Revenue is recognised when a customer obtains control of
a good or service and thus has the ability to direct the use and
obtain the benefits from the good or service. The standard replaces
IAS 18, 'Revenue' and IAS 11, 'Construction contracts' and
associated interpretations. The standard has been adopted by the EU
and is effective for annual periods beginning on or after 1 January
2018 and earlier application is permitted. The Company has assessed
the impact of IFRS 15. Revenue recognition under IFRS 15 is
expected to be consistent with current practice for the Company's
revenue. If IFRS 15 had been applied to the current reporting
period, it would not have had a significant impact on the financial
statements.
-- IFRS 16, 'Leases' will primarily affect accounting by lessees
and will result in the recognition of most leases in the statement
of financial position. The standard removes the current distinction
between operating and finance leases and requires recognition of an
asset (the right to use the leased item) and a financial liability
to pay rentals for virtually all lease contracts. The only
exceptions are short-term and low-value leases. It substantially
retains the lessor accounting from IAS 17. The standard replaces
IAS 17, 'Leases' and associated interpretations. The standard has
been adopted by the EU and will become effective for accounting
periods beginning on or after 1 January 2019. The Company has
assessed the impact of IFRS 16, and has concluded that the standard
will not have a significant impact.
Annual Improvements to IFRSs 2014-2016 Cycle
-- IAS 28 'Investments in Associates and Joint Ventures' The
amendment clarified that the election to measure at fair value
through profit or loss an investment in an associate or a joint
venture that is held by an entity that is a venture capital
organisation, or other qualifying entity, is available for each
investment in an associate or joint venture on an
investment-by-investment basis, upon initial recognition. The
amendment is effective for annual periods beginning on or after 1
January 2018.
Basis of preparation
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Directors' report and Investment Manager's
report. The key risks facing the business and management's policy
and practices to manage these are further discussed in note 12. In
assessing the Company as a going concern, the Directors have
considered the forecasts which reflect the Directors' proposed
strategy for portfolio investments and the current economic
outlook. The Company's forecasts and projections, taking into
account reasonably possible changes in performance, show that the
Company is able to operate within its available working capital and
continue to settle all liabilities as they fall due for the
foreseeable future.
The Directors have considered the use of the going concern basis
for the preparation of these financial statements within the
context of the Company's stated investment strategy. The strategy
targets superior long-term returns through a policy of
constructive, active engagement with investee companies, adopting
private equity techniques to manage risk. The Investment Manager
(Gresham House Asset Management Limited or GHAM) targets smaller,
predominantly quoted UK companies which it believes can benefit
from strategic, operational or management initiatives and applies
structured investment appraisal, due diligence and risk management
on these companies. Accordingly the Directors remain of the view
that the going concern basis of preparation is appropriate.
Financial instruments:
Trade debtors and creditors
Trade debtors and creditors are accounted for at transaction
value when asset or liability is incurred. The fair value equals
the carrying amount as these are short term in nature.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks and other short-term highly liquid investments
that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Financial Investments
Investments are included at valuation on the following
basis:
(a) Quoted investments are recognised on trading date and valued
at the closing bid price at the year end.
(b) Unquoted investments where a significant third party funding
event has taken place during the year ended 31 March which
establishes a new value for that investment are carried at that
value.
(c) Investments considered to be mature are valued according to
the Directors' best estimate of the Company's share of that
investment's value. This value is calculated in accordance with
International Private Equity Valuation (IPEV) guidelines and
industry norms and includes calculations based on appropriate
earnings or sales multiples.
(d) All other unquoted investments are valued at the Directors'
best estimate of the Company's share of that investment's value,
taking into account any temporary loss in value. For new
investments, the cost of investment is generally considered to be
its fair value.
The Directors consider that a substantial measure of the
performance of the Company is assessed through the capital gains
and losses arising from the investment activity of the Company.
Consequently, for measurement purposes, financial investments,
including equity, loan and similar instruments, are designated at
fair value through profit and loss, and are valued in compliance
with IAS 39 'Financial Instruments: Recognition and Measurement',
IFRS13 'Fair Value Measurement' and the International Private
Equity and Venture Capital Valuation Guidelines as recommended by
the British Venture Capital Association.
Gains and losses on the realisation of financial investments are
recognised in the statement of comprehensive income for the period
and taken to retained earnings. The difference between the market
value of financial investments and book value to the Company is
shown as a gain or loss for the period and taken to the statement
of comprehensive income.
Revenue
Dividends receivable on unquoted equity shares are brought into
account when the Company's right to receive payment is established
and there is no reasonable doubt that payment will be received.
Interest receivable is included on an effective interest rate
basis. Dividends receivable on quoted equity shares are brought
into account when the right to receive payment is established and
the amount of the dividend can be measured reliably.
Taxation
The tax expense included in the statement of comprehensive
income comprises current and deferred tax. Current tax is the
expected tax payable based on the taxable profit for the period,
using tax rates that have been enacted or substantially enacted by
the reporting date. Deferred tax is recognised on differences
between the carrying amounts of assets and liabilities in the
accounts and the corresponding tax bases used in the computation of
taxable profit, and are accounted for using the statement of
financial position liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition of other assets and
liabilities in a transaction that affects neither the tax profit
nor the accounting profit. The carrying amount of deferred tax
assets is reviewed at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised. Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Foreign exchange
Transactions denominated in foreign currencies are translated
into the functional currency at the rate ruling at the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are retranslated at the
rates ruling at that date. These translation differences are dealt
with in the statement of comprehensive income.
The financial statements of foreign subsidiaries are translated
into sterling at the actual rates of exchange and the difference
arising from the translation of the opening net investment in
subsidiaries at the closing rate is dealt with in reserves.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates. Management believes
that the underlying assumptions are appropriate and that the
Company's financial statements are fairly presented. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in Note 13. Within Gresham House Strategic
plc this relates to the unquoted investments.
Segmental analysis
Segmental analysis is not applicable as there is only one
operating segment of the business - investment activities. The
performance measure of investment activities is considered by the
Board to be profitability and is disclosed on the face of the
statement of comprehensive income.
2 Statement of Comprehensive Income
The Company's profit for the year was GBP4.669m (2017: Company
profit of GBP15.233m; 2017 Group profit of GBP2,805m). The apparent
decrease in Company income over the year is due to the fact that
the previous year's Company accounts were inclusive of intercompany
balances that have been cleared post liquidation of
subsidiaries.
The Company has recognised realised and unrealised investment
gains through the statement of comprehensive income of GBP5.562m
(2017: GBP3.928m).
3 Information regarding Directors and employees
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------- ------------ ------------------------
Directors' remuneration summary
Basic salaries 125 125
Social security costs 13 13
138 138
-------------------------------------------------------------- ------------ ------------------------
Year ended 31 March Year ended 31 March
2018 2017
------------------------------------ ------------------------------------
Social Social
Security Security
Emoluments costs Total Emoluments costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ ----------- --------- ------------ ----------- ---------
Analysis of Directors'
remuneration
C Berry 25 - 25 25 - 25
D Potter 50 - 50 50 - 50
H Sinclair 25 - 25 25 - 25
K Lever 25 - 25 25 - 25
Social security costs - 13 13 - 13 13
125 13 138 125 13 138
------------------------ ------------ ----------- --------- ------------ ----------- ---------
The Company has no other employees other than the Directors
listed above.
Year ended Year ended
31 March 31 March
2018 2017
No. No.
----------------------------------------------- ---------------------- --------------------
Average number of persons employed (including
Directors)
Investment and related administration 4 4
4 4
----------------------------------------------- ---------------------- --------------------
4 Other costs
Profit for the year has been derived after taking the following
items into account:
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
------------------------------------------------------ ----------- -----------
Auditors remuneration
Fees payable to the current auditor for the
audit of the Company's annual financial statements 28 28
Fees payable to the Company's current auditor
and its associates for other services:
Other services relating to taxation 8 10
Analysis of other costs:
Professional fees 420 394
Management and secretarial fee 741 697
Other general overheads 74 123
------------------------------------------------------ ----------- -----------
Other costs 1,235 1,252
------------------------------------------------------ ----------- -----------
Gain on waiver of intercompany creditor - (13,144)
------------------------------------------------------ ----------- -----------
Other costs after gain on waiver of intercompany
creditor 1,235 (11,892)
------------------------------------------------------ ----------- -----------
5 Taxation
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
--------------------------------------------- ----------- -----------
UK corporation tax
Corporation tax liability at 19% (2017: 20%) - -
--------------------------------------------- ----------- -----------
Current tax - -
Deferred tax - -
Total tax - -
--------------------------------------------- ----------- -----------
Factors affecting the tax charge for the current period
The tax assessed for the year is different than that resulting
from applying the standard rate of corporation tax in the UK: 19%
(2017: 20%)
The differences are explained below:
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
------------------------------------------ ----------- -----------
Current tax reconciliation
Profit before taxation 4,677 15,977
------------------------------------------ ----------- -----------
Current tax charge at 19% (2017: 20%) 889 3,195
Effects of:
Expenses not deductible for tax purposes - 6,775
Non-taxable income (1,087) (10,054)
Deferred tax not recognised 198 819
Exempt dividend income - (19)
Total tax - 716
------------------------------------------ ----------- -----------
Deferred tax
There remains an unrecognised deferred tax asset in respect of
tax losses and other temporary differences. The unrecognised
deferred tax asset is GBP27.0m (2017: GBP26.8m) for the Company.
The increase in the balance for unrecognised deferred tax is due to
an increase to management expenses carried forward available for
deduction against future income. The assessed loss on which no
deferred tax has been recognised amounts to GBP159m (2017:
GBP158m).
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
---------------------------- ------------ ------------------
Company deferred tax asset
Balance at 1 April - 716
Movement in the year - (716)
Balance at 31 March - -
---------------------------- ------------ ------------------
The movement in the year is taken to the statement of
comprehensive income.
6 Earnings per share
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. 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.
Year ended Year ended
31 March 31 March
2018 2017
GBP'000 GBP'000
----------------------------------------------- ----------------------- ----------------------
Earnings
Profit for the year 4,669 15,233
----------------------------------------------- ----------------------- ----------------------
Number of shares ('000)
Weighted average number of ordinary shares in
issue for basic EPS 3,656 3,687
----------------------------------------------- ----------------------- ----------------------
Weighted average number of ordinary shares in
issue for diluted EPS 3,656 3,687
----------------------------------------------- ----------------------- ----------------------
Earnings per share
Basic EPS 127.70p 413.15p
----------------------------------------------- ----------------------- ----------------------
Diluted EPS 127.70p 413.15p
Earnings for the Group for the year to 31 March
2017
Profit for the year (GBP'000) 2,805
-------------------------------------------------- -------
Weighted average number of ordinary shares in
issue for basic and diluted EPS ('000) 3,687
-------------------------------------------------- -------
Earnings per share (basic and diluted) 76.07p
-------------------------------------------------- -------
As at 31 March 2018, the total number of shares in issue was
3,654,504 (2017: 3,687,504). During the year, the Company cancelled
all 155,771 Treasury shares, leaving 3,654,504 shares in issue, of
which nil remained in Treasury. In April and May 2017, 33,000
shares were bought back (2017: nil). There are no share options
outstanding at the end of the year.
7 Dividends
The Company paid GBP548,175 in dividends to shareholders in the
year ended 31 March 2018 (2017: Nil).
8 Investments at fair value through profit or loss
Value Value
at Year ended 31 March 2018 at
------------------------------------------
31 March Disposals 31 March
2017 Additions at valuation Revaluations 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ------------ ------------- ------------- -----------
Investments in
quoted companies 25,966 8,908 (2,881) 4,290 36,283
Other unquoted
investments 1,037 3,171 (37) (5) 4,166
------------------------------ ------------ ------------ ------------- ------------- -----------
Total investments at fair
value through profit or
loss 27,003 12,079 (2,918) 4,285 40,449
----------------------------- ------------ ------------ ------------- ------------- -----------
Investments in quoted companies have been valued according to
the quoted share price as at 31 March 2018.
Investments in other unquoted investments represent the
investment in MJ Hudson ('MJH') Convertible Bond that was purchased
on 4 November 2016, further investments in MJH Convertible Bond on
9 August 2017 and 30 September 2017, which is valued at fair value
which approximates to cost plus premium interest and an investment
in MJH Equity that was purchased on 8 August 2017, which is valued
at fair value which approximates to cost. An investment in Hanover
Equity Partners II LP that was purchased on 11 July 2017, which is
valued at fair value as disclosed in the NAV of the fund. An
investment in Be Heard Group plc Bond that was purchased on 28
November 2017, which is valued at cost.
The revaluations above are shown on the face of the statement of
comprehensive income as realised and unrealised gains or losses on
investments at fair value through profit or loss.
Value at Value at
31 March 31 March
2018 2017
GBP'000 GBP'000
--------------------------------------------- -------------------- -----------------
Opening valuation 27,003 21,777
Acquisitions 12,079 7,228
Unrealised and realised gains on valuations 5,562 3,928
Disposals (4,195) (5,930)
Closing valuation 40,449 27,003
--------------------------------------------- -------------------- -----------------
9 Trade and other receivables
Company Company
31 March 31 March
2018 2017
GBP'000 GBP'000
------------------------- -------------------- --------------------
Other debtors 63 229
Prepayments and accrued
income 8 20
71 249
------------------------- -------------------- --------------------
10 Trade and other payables
Company Company
31 March 31 March
2018 2017
GBP'000 GBP'000
----------------------- --------------------- ---------------------
Trade creditors 83 154
Social security and
other taxes 6 6
Other creditors 40 500
Accruals and deferred
income 80 62
209 722
----------------------- --------------------- ---------------------
Included in other creditors is GBP0.04m that relates to the
acquisition of further equity in Centaur Media plc, an existing
investment, in March 2018. This was settled in April 2018 (2017:
GBP0.5m that relates to the acquisition of further equity in
Private & Commercial Finance Group plc).
11 Issued capital
Company Company
31 March 31 March
2018 2017
GBP'000 GBP'000
---------------------------------------- --------- -------------
Called up, allotted and fully paid:
3,654,504 (2017: 3,843,275) ordinary
shares of 50p (2017: 50p) 1,827 1,922
10,000 (2017: 10,000) D shares of 100p
(2017: 100p) 10 10
1,837 1,932
---------------------------------------- --------- -------------
As at 31 March 2018, the total number of shares in issue were
3,654,504 (2017: 3,843,275) with Nil (2017: 155,771) of these
shares held in Treasury. During the year, the Company cancelled all
155,771 Treasury shares, leaving 3,654,504 shares in issue, of
which nil remained in Treasury. During the year the Company bought
back 33,000 shares (2017: nil).
The average share price of Gresham House Strategic plc quoted
ordinary shares in the year ended 31 March 2018 was 859.13 pence.
In the year the share price reached a maximum of 931.00 pence and a
minimum of 812.50 pence. The closing share price on 31 March 2018
was 827.50 pence.
The Company's shares are listed on London's AIM market under
reference GHS.
12 Financial instruments and financial risk management
The Company invests in quoted companies in accordance with the
investment policy and Strategic Private Equity investment strategy.
In addition to investments in smaller listed companies in UK, the
Company maintains liquidity balances in the form of cash held for
follow-on financing and debtors and creditors that arise directly
from its operations. As at 31 March 2018, GBP36.3m of the Company's
net assets were invested in quoted investments, GBP4.2m in unquoted
investments and GBP3.0m in liquid balances (31 March 2017: GBP27.0m
in investments and GBP13.0m in liquidity).
In pursuing its investment policy, the Company is exposed to
risks that could result in a reduction in the value of net assets
and consequently funds available for distribution by way of
dividend or for re-investment.
The main risks arising from the Company's financial instruments
are due to fluctuations in market prices (market price risk),
currency risk and cash flow interest rate risk, although credit
risk and liquidity risk are also discussed below. The Board
regularly reviews and agrees policies for managing each of these
risks and they are summarised below. These have been in place
throughout the current and preceding years.
All financial assets with the exception of investments, which
are held at fair value through profit or loss, are categorised as
loans and receivables and all financial liabilities are categorised
as amortised cost.
a) Market risk
i) Price risk
Market price risk arises from uncertainty about the future
valuations of financial instruments held in accordance with the
Company's investment objectives. These future valuations are
determined by many factors but include the operational and
financial performance of the underlying investee companies, as well
as market perceptions of the future of the economy and its impact
upon the economic environment in which these companies operate.
This risk represents the potential loss that the Company might
suffer through holding its investment portfolio in the face of
market movements, which was a maximum of GBP40.5m (2017:
GBP27.0m).
The investments in equity and fixed interest stocks of unquoted
companies that the Company holds are not traded and as such the
prices are more uncertain than those of more widely traded
securities.
The Board's strategy in managing the market price risk is
determined by the requirement to meet the Company's investment
objective. Risk is mitigated to a limited extent by the fact that
the Company holds investments in several companies. At 31 March
2018, the Company held interests in 16 companies (2017: 8
companies). The Directors monitor compliance with the investment
policy, review and agree policies for managing this risk and
monitor the overall level of risk on the investment portfolio on a
regular basis.
Market price risk sensitivity
The Board considers that the value of investments in equity
instruments is ultimately sensitive to changes in quoted share
prices, insofar as such changes eventually affect the enterprise
value of unquoted companies. The table below shows the impact on
the return and net assets if there were to be a 20% (2017: 20%)
movement in overall quoted share prices.
2018 2017
GBP'000s GBP'000s
Profit Profit
and and
net assets net assets
------------------------------------------------------- ----------- -----------
Decrease if overall share prices fell by 20%
(2017: 20%), with all other variables held constant. (7,257) (5,193)
Decrease in earnings, and net asset value per
Ordinary share (in pence) (198.52)p (140.85)p
Increase if overall share prices rose by 20%
(2017: 20%), with all other variables held constant. 7,257 5,193
Increase in earnings, and net asset value per
Ordinary share (in pence) 198.52p 140.85p
---------------------------------------------------------- ----------- -----------
The impact of a change of 20% (2017: 20%) has been selected as
this is considered reasonable given the current level of
volatility, observed both on a historical basis, and market
expectations for future movement.
ii) Currency risk
The Company does not hold any significant assets or liabilities
denominated in a currency other than sterling, the functional
currency. The transactions in foreign currency for the Company are
highly minimal. Therefore currency risk sensitivity analysis was
not performed as the results would not be significantly affected by
movements in the value of foreign exchange rates.
iii) Cash flow interest rate risk
As the Company has no borrowings, it only has limited interest
rate risk. The impact is on income and operating cash flow and
arises from changes in market interest rates. Some of the Company's
cash resources are placed on interest paying current account to
take advantage of preferential rates and are subject to interest
rate risk to that extent.
b) Credit risk
Credit risk is the risk that a counterparty will fail to
discharge an obligation or commitment that it has entered into with
the Company.
The Company's maximum exposure to credit risk is:
31 March 31 March
2018 2017
GBP'000s GBP'000s
--------------------------- --------- ------------------------
Loan stock investments 3,625 1,000
Cash and cash equivalents 3,044 12,987
Trade and other debtors 71 249
6,740 14,236
--------------------------- --------- ------------------------
Credit risk relating to loan stock investments in unquoted
companies is considered to be part of market risk.
The Company's cash balances are maintained by major UK clearing
banks.
c) Liquidity risk
The Directors consider that there is no significant liquidity
risk faced by the Company. The Company maintains sufficient
investments in cash to pay accounts payable and accrued expenses.
All liabilities are current and repayable upon demand.
Fair values of financial assets and financial liabilities
Financial assets and liabilities are carried in the statement of
financial position at either their fair value (investments), or the
statement of financial position amount is a reasonable
approximation of the fair value (dividends receivable, accrued
income, accruals, and cash at bank).
As at 31 March 2018, all investments, except for the investment
in MJH Group Holdings Limited loan notes and MJH Group Holdings
Limited equity, Be Heard Group Holdings Limited loan notes and HAEP
II LP investment (Level 3), fall into the category 'Level 1' under
the IFRS 7 fair value hierarchy (2017: all investments, except for
the investment in Quester Venture Partnership and MJH Group
Holdings Limited loan notes (Level 3)). A reconciliation of fair
value measurements in Level 1 is set out in Note 8 to these
financial statements.
Level 3 unquoted equity and loan stock investments are valued in
accordance with International Private Equity and Venture Capital
Guidelines as follows:
31 March 2018 31 March 2017
---------------------------------- --------------------------------
Material investments Material investments
included GBP'000s included GBP'000s
---------
Fair value MJH Group Holdings 2,226 MJH Group Holdings 1,037
Be Heard Group
Holdings 1,788
HAEP II LP 152
-------------------------------------------------- ---------- --------------------- ---------
Contracted sales proceeds
in post balance sheet
period None - MJH Group Holdings -
--------------------------- ---------------------- ---------- --------------------- ---------
4,166 1,037
-------------------------------------------------- ---------- --------------------- ---------
In October 2016, an agreement was entered into with MJH Group
Holdings Limited to purchase loan notes for a value of GBP1.0m.
This price has been used as the best indicator of fair value for
this investment as at 31 March 2018. The purchase was completed in
November 2016.
In August 2017, an agreement was entered into with MJH Group
Holdings Limited to purchase loan notes for a value of GBP0.6m.
This price plus premium interest has been used as the best
indicator of fair value for this investment as at 31 March 2018.
The purchase was completed in August 2017.
In August 2017, an agreement was entered into with MJH Group
Holdings Limited to purchase equity for a value of GBP0.4m. This
price has been used as the best indicator of fair value for this
investment as at 31 March 2018. The purchase was completed in
October 2017.
In September 2017, an agreement was entered into to acquire MJH
Holdings Limited loan notes from a value of GBP0.05m from an
existing loan note holder. This price plus premium interest has
been used as the best indicator of fair value for this investment
as at 31 March 2018. The purchase was completed in August 2017.
In November 2017, an agreement was entered into with Be Heard
Group plc to purchase loan notes for a value of GBP1.8m. This price
has been used as the best indicator of fair value for this
investment as at 31 March 2018. The purchase was completed in
November 2017.
In July 2017, an agreement was entered into with Hanover Equity
Partners II LP to purchase a holding for a value of GBP0.2m. This
NAV valuation has been used as the best indicator of fair value for
this investment as at 31 March 2018. The purchase was completed in
July 2017.
Valuation policy: Every six months, the investment manager
within Gresham House Asset Management Limited is asked to revalue
the investments that he looks after and submit his valuation
recommendation to the Investment Committee and the Finance Team.
The Investment Committee considers the recommendation made, and
assuming the finance team confirm that the investment valuation
calculations are correct, submits its valuation recommendations to
the Board of GHS to consider. The final valuation decision taken by
the Board is made after taking into account the recommendation of
the Manager and after taking into account the views of the
Company's auditors.
The valuation policy for the holding in Hanover Equity Partners
II limited is based on the NAV of the fund.
The quoted investments have been valued by multiplying the
number of shares held with the closing bid price as at 31 March
2018. As such, there are no unobservable inputs that have been used
in valuing investments.
Capital disclosures
The Company's objective has been to maximise shareholder value
from all assets, which in recent years has been to realise its
portfolio at the most advantageous time and return the proceeds to
shareholders.
The capital subscribed to the Company has been managed in
accordance with the Company's objectives. The available capital at
31 March 2018 is GBP43.4m (31 March 2017: GBP39.5m) as shown in the
statement of financial position, which includes the Company's share
capital and reserves.
The Company has no borrowings and there are no externally
imposed capital requirements other than the minimum statutory share
capital requirements for public limited companies.
13 Related party transactions
The related parties of Gresham House Strategic plc are its
Directors, persons connected with its Directors and its Investment
Manager.
Details of related party transactions between the Company and of
non-salary related transactions involving Directors are detailed
below.
During the year to 31 March 2018, Gresham House Strategic plc
was charged management fees of GBP742k (2017: GBP697k) by Gresham
House Asset Management Limited (GHAM). As at 31 March 2018, the
Company had a balance of GBP64k (2017: GBP121k) owing to GHAM.
As at 31 March 2018, the following shareholders of the Company,
that are related to GHAM, had the following interests in the issued
shares of the Company as follows:
A L Dalwood 27,597 Ordinary shares
G Bird 22,651 Ordinary shares
Gresham House Holdings Ltd 706,806 Ordinary shares
The Company 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 GBP7.5m with the SPE Fund LP.
Under the terms of the agreement, the Company allocated
3,875,969 IMImobile plc ("IMO") shares at 193.5p per share
(GBP7.5m) to the co-investment structure.
Of these, 2,374,431 IMO shares were sold generating cash
proceeds of GBP4.6m; this sale comprised a sale of 300,308 ordinary
shares in IMO to Gresham House plc ("GHE") co-investment account
and 2,074,123 ordinary shares to the SPE Fund LP at a price of
193.5p per share (being the closing mid-market price on 15 August
2016).
Dependent on the level further commitments that were made to the
SPE Fund LP, up to a further 1,113,941 ordinary shares in IMO, that
the Company held, were to be automatically sold, and these shares
were valued in the Company's accounts at the lower of the closing
bid price and 193.5p per share.
The SPE LP Fund was closed to new investors on 15 February 2018
with no further commitments having been made. Consequently, the
1,113,941 shares that had been held subject to the contingent sale
are now valued at bid price with the rest of the Company's holding
in IMO.
GHS's commitment under the co-investment agreement remains at
GBP7.5m. as at 31 March 2018, 62% of the commitment had been
fulfilled leaving a residual commitment of GBP2.8m. All investments
held pursuant to the co-investment agreement are held directly by
the Company.
The entering into the co-investment agreement and the sale of
IMO shares to GHE and the SPE Fund LP are both deemed to be related
party transactions under Rule 13 of the AIM Rules for Companies.
The Directors of the Company consider, having consulted with the
Company's nominated adviser, FinnCap Ltd, that the terms of the
co-investment agreement and the sale of IMO shares are fair and
reasonable insofar as its shareholders are concerned.
There are no other related party transactions of which we are
aware in the year ended 31 March 2018.
14 Subsequent events note
The Company has appointed a new depositary in INDOS as at 1 May
2018.
On 11 April 2018, the Company fulfilled a further 11% of its
co-investment commitment with the SPE Fund LP. The remaining
commitment as at 18 June 2018 is GBP2.025m.
Following the year end the Company undertook a share buyback
exercise. In the period up to 18 June 2018, the Company purchased
and cancelled a total of 99,174 ordinary shares at an average price
of 936 pence per share, leaving the new total number of shares in
issue as 3,555,330 (2017: 3,654,504). None of these shares are held
in Treasury.
There were no other material events after the statement of
financial position that have a bearing on the understanding of the
financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SFIEFAFASEEM
(END) Dow Jones Newswires
June 19, 2018 02:00 ET (06:00 GMT)
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