TIDMGHE
RNS Number : 6826A
Gresham House PLC
28 March 2017
28 March 2017
Gresham House plc ("Gresham House" or "the Company")
(AIM: GHE)
Audited Results for Year Ended 31 December 2016
Delivering on Strategy, and Another Year of Significant
Development with 50% Growth in Assets Under Management
-- Assets under management ("AUM") in the year to 31 December
2016 increased 50% to GBP363 million (2015: GBP242 million)
-- Revenue growth of over 200% in the year to 31 December 2016
to GBP4.3 million (2015: GBP1.4 million), and reduced adjusted
operating loss in the year to GBP1.6 million (2015: GBP3.1
million)
-- Organic growth includes Gresham House Forestry LP and Gresham
House Strategic Public Equity LP, with potential value from carried
interest arrangements
-- New strategic shareholders invested to align with the Group
and support long-term growth, including the recently announced plan
for the new Gresham House British Strategic Investment Fund
-- Strong balance sheet with GBP26.9 million of
tangible/realisable assets at year end (2015: GBP27.7 million) and
a further GBP7.3 million received on the issuance of shares to a
new strategic shareholder, Berkshire Pension Fund, in March
2017
Platform
Strategic Equity
-- Gresham House Asset Management ("GHAM") appointed investment
manager to LMS Capital with AUM of GBP68 million at 31 December
2016
-- Gresham House Strategic Public Equity LP ("SPE LP") launched
with committed AUM of GBP24 million at first close on 15 August
2016
-- Gresham House Strategic plc ("GHS") has seen NAV grow 6% over
the period from 14 August 2015 to 31 December 2016, including a
significant cash weighting
Real Assets
-- Gresham House Forestry AUM grown by 20% to GBP247 million at
31 December 2016 (2015: GBP205 million)
-- Gresham House Forestry Fund LP launched with committed
capital of GBP15 million at first close on 31 October 2016
Process
-- Investment in compliance and regulatory functions
-- Integration and rebranding of Gresham House Forestry
completed in the year and performance in line with achievement of
15% return on invested capital acquisition criteria
-- LMS's transition to GHAM as an external manager progressing
to plan, implementing cost savings and GHAM value-add
-- Investment teams are performing well and delivering growth across the strategies
People
-- Continued investment in a strong and dedicated team
appointing a new Finance Director, Chief Operating Officer and
General Counsel, plus the lead fund manager for Gresham House
Forestry and experienced Investment Directors in the Strategic
Equity division
-- Chief Technology Officer also joined in February 2017
Post reporting period
-- Continued development in 2017, with Berkshire Pension Fund
becoming a 20% strategic shareholder.
Tony Dalwood, CEO of Gresham House, comments:
"In 2015 we established the foundations of a specialist asset
manager and 2016 has seen us build Gresham House into a credible
specialist player whilst developing the brand. This has been
enhanced by progress in early 2017, which has generated additional
momentum that will drive further growth in the coming year. Our
priority is to generate sustainable and increasing profits through
growth in AUM. The positive recent developments accelerate our path
to profitability in the nearer term and hence long-term value
creation for shareholders. We continue to work on a number of
organic and acquisition initiatives, including the recently
announced Gresham House British Strategic Investment Fund with
local government pension schemes and other long term
investors."
Enquiries:
Gresham House plc
Anthony (Tony) Dalwood
Kevin Acton +44 20 3837 6270
Liberum Capital Ltd
Neil Elliot
Jill Li +44 20 3100 2000
Montfort Communications greshamhouse@montfort.london
Gay Collins +44 7798 626282
Rory King +44 203 770 7906
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public domain. If
you have any queries on this, then please contact John-Paul
Preston, Chief Operating Officer of the Company (responsible for
arranging release of this announcement) on +44 (0)203 837 6274.
Chairman's Statement
Activity in the year
Gresham House's development as a specialist asset manager has
continued in the year and I am pleased to advise shareholders that
the Company continues to deliver well against our stated
strategy.
Activity in the year has highlighted the progress made by the
management team, with assets under management growing 50% through
both organic and acquisition activity. Each of these elements of
growth has been approached in a diligent manner to ensure that the
investment management contracts acquired and funds launched are in
line with the Company's stated strategy to operate in alternative
and illiquid assets classes, which aim to generate superior returns
for clients and shareholders over the longer term.
Results
The Group has reduced its adjusted operating loss to GBP1.6
million in the year from a GBP3.1 million loss last year,
demonstrating great progress on the journey towards profitability.
We continue to build the Group from a solid balance sheet and have
the ability to approach opportunities from a strong position.
This performance is notable against a background of difficult
economic and political conditions during 2016, following Britain's
vote to leave the European Union in June and the US election
results in November. The weakening of sterling and slow growth
prospects for markets in general has impacted many companies. We
are still operating in uncertain times, however the Board is keen
to ensure that the business continues to be managed in a risk
focussed manner. We are not materially exposed to foreign currency
movements or interest rates and are using the current conditions to
ensure that we continue to invest in the value driven areas of the
market.
The management team
We have experienced some changes at the Board level in the year
and I would like to take this opportunity to thank Michael Phillips
on behalf of shareholders and the Board for his efforts in building
Gresham House and his important role in the early stages of the
Company's development. Mike stepped down from his role as Strategic
Development Director at the end of the year to focus on his other
business interests.
Shareholders will recall that we announced on 19 April 2016 that
Kevin Acton would be joining us as Finance Director. Kevin took up
his position on 6 June 2016 and very much hit the ground running;
he has been a very valuable addition to the team and it has been a
great pleasure working with him since then.
The Gresham House team has grown in the year to match the
management's ambitions and provide a sound infrastructure to
support the new funds launched and the investment management
contracts acquired. The hard work and dedication of the whole team
has driven the business to where it is today and I believe that we
have the right people in place to continue to deliver against our
strategic goals.
Shareholders
I am also pleased to welcome a number of new, long-term
strategic shareholders to our share register in the year. Our
supportive shareholder base has enabled the Company to use its
balance sheet to develop to date and we are excited about the
prospect of continuing to grow the business with this solid support
behind us.
The announcement on 21 February 2017 and issuance of ordinary
shares to the Royal County of Berkshire Pension Fund ("Berkshire"),
highlight that Gresham House is building its name as an established
specialist asset manager and becoming attractive to a wider
audience of investors. We also look forward to working with
Berkshire as the cornerstone investor in our new Gresham House
British Strategic Investment Fund, in which we are already getting
interest from local authority pension funds.
Annual General Meeting
Our Annual General Meeting this year is being held at 11.00am on
18 May 2017 at Travers Smith, 10 Snow Hill, London, EC1A 2AL. Given
how much has happened during the year and subsequently the Board
would encourage shareholders to attend and hear directly from the
management team on the progress to date. I therefore hope to see as
many of you as possible there.
Outlook
Overall it has been a very productive year for the Company and
we have the ambition to deliver further growth in 2017. We will
continue to harness our existing relationships and grow the
business in line with our stated strategy and I look forward to
updating you with further progress later in the year.
Anthony Townsend
Chairman
27 March 2017
Chief Executive's Statement
It has been a further year of significant development for the
Group. Having firmly established Gresham House as a specialist
asset manager focused on alternative and illiquid assets we have
made progress on our journey to scale the business. This was a key
objective we set out at the beginning of last year. We continue to
focus on addressing the demand for long-term alternative investment
strategies and providing alternatives asset management solutions to
institutions, family offices, charities and endowments. We are
delivering against our stated strategy of growing the business
organically and through acquisitions that enhance the platform. The
Gresham House brand is gaining increased recognition from investors
and the market as a result.
Building on the solid foundations we have established for a
long-term sustainable and successful group, the management team
continues to focus on the three pillars of "Platform, Process and
People".
The Gresham House Platform
The demand for illiquid assets is increasing and so too are the
opportunities for Gresham House. We have formed a scalable platform
to offer a range of alternative investment products through our two
specialist divisions: Strategic Equity covering public and private
equity and Real Assets. This has resulted in significant growth of
50% in Assets Under Management ("AUM") to GBP363 million in the
year to 31 December 2016 (2015: GBP242 million).
Growing AUM and thereby sustainable management fees including
associated performance fees or carried interest is critical to the
Group's success. The growth in AUM during the year has increased
revenues by over 200% to GBP4.3 million (2015: GBP1.4 million). The
annualised management fees for the funds being managed at the end
of December 2016 is GBP3.9 million from zero at the beginning of
our journey in December 2014.
The Strategic Equity division has continued to develop and the
team now manages three funds. Gresham House Asset Management
Limited ("GHAM") was awarded the mandate in August 2015 to manage
Gresham House Strategic plc ("GHS"), the AIM quoted company
investing and actively engaging with management teams of
undervalued smaller UK public companies. Subsequent to this, in
August 2016 we launched the Gresham House Strategic Public Equity
Fund LP ("SPE LP") with GBP24 million committed capital and
co-investment. Following shareholder approval, GHAM was also
appointed as investment manager to LMS Capital plc ("LMS") in
August 2016, the London Stock Exchange listed private equity
company with a Net Asset Value ("NAV") of GBP68 million at 31
December 2016.
The Real Assets division, currently comprising Gresham House
Forestry Limited (formerly Aitchesse Limited), the specialist asset
manager of UK commercial forestry, accounted for AUM of GBP247
million at the end of the year (2015: GBP205 million). The first
close of the Gresham House Forestry Fund LP ("GHF LP") was in
October 2016 and the subsequent purchase of a portfolio of six
forests in West Scotland added GBP15 million to AUM in the year. We
have also seen promising growth in the value of forests managed by
Gresham House, making up the remaining GBP232 million of AUM.
The importance of technology in the daily lives of individuals
is increasingly significant within asset management. Gresham House
has identified an opportunity to materially enhance the client
service proposition and create value through utilising digital
platforms. We are therefore pleased to have recently added a new
strategic objective to our development plan based around a new
addition to our team, Andy Hampshire, who has joined us as Chief
Technology Officer from Lloyds Development Capital. Andy has been
tasked with creating value through developing a client platform to
provide a high-quality service for investors that facilitates
co-investment opportunities.
The Gresham House Process
To continue to build a successful business and meet client
expectations, we have robust processes in place that require us to
maintain exceptionally high standards in delivering sustainable
value creation over the long term. Our view is that the investment
discipline needed to manage funds is also required to manage the
Group and as significant shareholders ourselves, the management
team is focused on value creation for all shareholders over the
long-term. The Investment Committee adds to this discipline and
provides external challenge and an independent industry expert view
to ensure that potential acquisitions or capital allocation
considered by the management team exceed Group hurdles.
We have drawn on the Investment Committee's experience in the
year and are benefitting from the acquisitions that we have made to
date. All of these are meeting or performing ahead of the Group's
investment return requirement to deliver long-term return on
capital of 15%.
Process is also essential to integrating new businesses into the
Gresham House family. The integration and rebrand of Gresham House
Forestry was completed in the year, with the forestry team now
fully embedded in the Group. The transition for LMS from
self-managed to an externally managed company is progressing well
and we continue to work closely with the board of LMS and increase
our direct interaction and engagement with LMS' portfolio
companies. This has included members of the GHAM team joining
investee company boards.
The Gresham House People
Gresham House is a people business and behind the platform and
process we have built a strong and dedicated team supporting a
culture built on long-term shareholder value, alignment and
teamwork.
As mentioned in our Interim Results announcement on 28 September
2016, over the year, we made several key hires within the senior
management team, a number of whom have previously worked with
existing members of the Gresham House team.
Kevin Acton joined as Finance Director and John-Paul Preston as
Chief Operating Officer in 2016, both adding to the strength of the
senior management team.
The specialist investment teams have also been enhanced with the
addition of several significant appointments. Richard Davidson
joined as the Chairman of the Investment Committee of the forestry
business and Pardip Khroud was appointed as an Investment Director
in the Strategic Equity division. Nick Friedlos and Tony Sweet have
also joined as Investment Directors, following the appointment of
GHAM as investment manager to LMS.
As set out above, Andy Hampshire also joined us as our Chief
Technology Officer in February 2017.
I would like to thank Mike Phillips for his contribution to
establishing the initial foundations of Gresham House. Mike stepped
down from his role as Strategic Development Director at the end of
the year.
Outlook
Gresham House is well positioned to offer a range of specialist
products to address the increasing demand in the alternative
market.
The Company has developed significantly under the new management
team in a relatively short two year period and momentum is driving
us into the coming year. Long-term shareholder value creation
continues to be at the forefront of the Board's strategic
focus.
Growth in AUM to generate sustainable profit growth remains a
priority and we are pleased with the developments to date, as shown
by the 50% AUM growth in 2016, which gives us greater visibility on
near-term profitability.
We continue to work on a number of initiatives for both organic
and acquisition growth. The recently announced Gresham House
British Strategic Investment Fund, with the Royal County of
Berkshire Pension Fund ("Berkshire") acting as a cornerstone
investor, is a good example of the Group's ambition to innovate and
grow. This new platform for the Group aims to provide solutions to
pension schemes and endowments who want to access smaller niche
alternative investments with longer term investment horizons in a
more engaged and cost efficient manner.
The ambition of the Group has also been recognised externally
with a number of new strategic long-term investors becoming
shareholders, including LMS in the year and recently Berkshire in
March 2017. This helps to create a supportive and long term
investor base from which to grow the business. We are also pleased
that the Gresham House Forestry acquisition is achieving the
Group's intended long term hurdles of 15%.
We aim to close both the SPE LP and GHF LP funds in the second
half of 2017 alongside managing both GHS and LMS portfolios to
achieve their target returns for their respective shareholders.
There is also a renewed focus on realising value from the legacy
portfolio, with both the Southern Gateway site and the remaining
land at Newton-le-Willows entering marketing processes.
As we have grown the team alongside AUM we have also reviewed
our London office needs. In February 2017, the London office moved
to flexible office space at Octagon Point near St Paul's in London,
with sufficient space to foreseeably accommodate the team for the
next 18 month's development.
2017 strategic initiatives aim to achieve operating
profitability in the near-term with a focus on achieving attractive
operating margins in the medium term. We have a strong balance
sheet with longer term asset management contracts, and we are
growing additional value through balance sheet carried interests in
the asset management products we manage.
We have a busy year ahead of us and I am confident that we have
the right team in place to achieve our goals including growing the
brand and client satisfaction. These initiatives alongside an
aligned and capable management team are supporting the execution of
the growth vision, with the near term aim of achieving
profitability.
Anthony Dalwood
Chief Executive Officer
27 March 2017
Financial Review
Financial performance for the year ended 31 December 2016
2016 2015
GBP'000 GBP'000
Income 4,264 1,358
-------- --------
Property outgoings (290) (339)
Administration overheads (excluding
amortisation and depreciation) (5,459) (2,700)
Finance costs (442) (144)
Gains/(losses) on investments/property
and associates 342 (1,229)
Adjusted operating loss (1,585) (3,054)
-------- --------
Amortisation and depreciation (1,433) (4)
Movement in fair value of deferred
receivable/contingent consideration (51) -
Exceptional items - (773)
-------- --------
Net operating loss after exceptional
items (3,069) (3,831)
-------- --------
The Group's operating loss after exceptional items has decreased
to GBP3,069k from GBP3,831k in the prior year. To measure the
Group's performance, we focus on the trading profits, which is
defined as the adjusted operating loss. The adjusted operating loss
for the year to 31 December 2016 has reduced to GBP1,585k from
GBP3,054k a year earlier. This non-GAAP measure reflects the
Group's improved trading performance before the deduction of
amortisation, depreciation, the fair value movement in contingent
consideration and deferred receivable and exceptional items in the
year. There has been a substantial improvement in income generated,
primarily driven by AUM growth throughout the year. The cost base
has also increased as the business has scaled and the right
infrastructure and team are put in place. It should be noted that
the balance sheet improvement in the period, from the gains on
investments/property, are primarily driven by the share of profits
recognised by the Group from its holding in GHS at GBP628k.
The net operating loss after exceptional items of GBP3,069k
(2015: GBP3,831k) includes the deduction of amortisation and
depreciation of GBP1,433k (2015: GBP4k), the increase in the fair
value of the contingent consideration for Gresham House Forestry of
GBP253k (2015: nil), the fair value movement in deferred receivable
from Persimmon on the sale of Newton-le-Willows of GBP202k (2015:
nil) and no exception items (2015: GBP773k).
Income
2016 2015
GBP'000 GBP'000
Asset management income 3,202 333
Rental income 741 746
Dividend and investment
income 249 228
Other income 72 51
-------- --------
Total income 4,264 1,358
-------- --------
Asset management income
In line with the growth in AUM outlined in the Chief Executive's
Report there has been a substantial increase in asset management
fee income to GBP3,202k in the year to 31 December 2016 (2015:
GBP333k). This was the result of new funds being launched and
investment management contracts acquired as part of Gresham House's
development as a specialist asset manager. The annualised asset
management fee income for funds managed as at 31 December 2016 is
GBP3.9 million.
The Real Assets division delivered income from the forestry
business of GBP2,120k in the year (2015: GBP206k related to six
weeks' income). This is the first full year of the forestry
business being part of the Group and also recognises the launch of
GHF LP in October 2016, which generated management fee and
transaction fee income of GBP249k.
Strategic Equity earned fees from all three of the funds managed
by the division, totalling GBP1,082k in the year (2015: GBP127k).
The Group earned management fee income of GBP542k from its contract
with GHS, reflecting NAV growth and a full year of management
services (2015: GBP127k). SPE LP, the sister fund to GHS, had its
first close on 15 August 2016 and subsequently the Group earned
GBP61k of management fees in the later part of 2016. The LMS
management contract was awarded on 16 August 2016 and delivered
management and transition fee income in the year of GBP479k.
Rental income
The legacy property portfolio includes the Southern Gateway site
and the remaining land at Newton-le-Willows, which generated
GBP741k in the year (2015: GBP747k). Southern Gateway rental income
was GBP724k (2015: GBP738k), representing improvements in rent from
a number of tenants being offset by a vacant period of six months.
The vacant area of the site has since been let at a premium to its
original rent.
Dividend and investment income
Dividend and investment income of GBP249k (2015: GBP228k) mainly
represents interest earned on the Attila loan of GBP238k, which was
earned and paid in the period (2015: GBP95k).
Property outgoings
The cost of managing the legacy property portfolio has reduced
to GBP290k in 2016 (2015: GBP339k) as we rationalised the use of
external consultants on the site and focused on readying the site
for sale.
Administrative overheads
Administrative overheads excluding amortisation, depreciation
and the fair value movement in contingent consideration payable and
deferred receivable have grown to GBP5,459k in the year (2015:
GBP2,700k). The development and transformation of Gresham House to
a specialist asset manager has required investment in people and
infrastructure to grow AUM. The increase of GBP2,759k is primarily
driven by the growth of the business and costs relating to people,
office and also recognising the first full year of the forestry
business.
The Gresham House team has grown from 23 to 26 at the end of
2016 as we put in place the right support and investment team to
deliver the ambitious growth plan. The Gresham House Forestry team
has remained consistent with a team of eleven people throughout the
year and the growth in headcount has therefore been in the Group
and Strategic Equity teams, with key hires including the Finance
Director, Chief Operating Officer and Investment Directors. People
costs have consequently increased by GBP1,925k from GBP1,760k to
GBP3,685k at the end of 2016. It should be noted that a cost
reduction exercise has been identified including synergies, and is
in the process of being implemented.
Office costs have also increased as the business has scaled.
Early in 2016 the London office moved to flexible office space at
Cheapside in London as an interim step to accommodate the increase
in headcount and activity, which contributed to office costs of
GBP307k (2015: GBP131k).
This is the first full year of owning Gresham House Forestry
Limited and the administrative overheads from the business of
GBP441k are now included in the Group income statement (2015:
GBP32k).
Finance costs
In April 2016, the group refinanced the existing Co-operative
bank facility of GBP2.85 million with a new Kleinwort Benson Bank
facility of GBP7.0 million. The finance costs associated with both
of these loans over the year was GBP442k (2015: GBP144k). Further
details of the Kleinwort Benson Bank facility are included in the
borrowings section of this Financial Review.
Gains/(losses) on investments
2016 2015
GBP'000 GBP'000
Share of associates' profits 628 -
Gains/(losses) on investments
held at fair value (147) (485)
Fair value movement on investment
properties (242) (586)
Profit/(loss) on disposal
of investment properties 103 (158)
Total gains/(losses) on
investments 342 (1,229)
The gains/(losses) on investments table above represents the
investment that the Group has made in the funds that it manages as
well as the legacy investments in property and securities.
The share of associates' profits relates to the 19.2% holding
that the Group has in GHS. The last results announcement from GHS
was on 25 November 2016 for the six month period to 30 September
2016. Under associate accounting, the Group has therefore
recognised its share of the profits in the period of GBP628k.
The fair value movement on investments reflects the Group's
co-investment with SPE LP in IMI Mobile, which reduced in value by
GBP113k in the period to 31 December 2016.
The capital expenditure at Southern Gateway has been offset by
slower general market conditions and therefore although the
valuation increased by GBP100k a value decrease of GBP242k was
noted in the year (2015: GBP586k decrease).
The Group did however receive an overage payment of GBP103k in
the year relating to the sale of the Vincent Lane site in 2013 as a
result of housing sales in excess of the sale and purchase
agreement.
Amortisation and depreciation
The acquisition of Aitchesse Limited (now Gresham House Forestry
Limited) in November 2015 and the LMS investment management
contract in August 2016 requires the recognition of goodwill and
other intangible assets. In line with the Group's accounting
policies, the intangible assets are amortised over their useful
lives. This is the first full year over which the intangible assets
are being amortised, with GBP1,364k being recognised as
amortisation.
Depreciation of GBP69k in the year (2015: GBP4k) has a lesser
impact on the Group's income statement and relates primarily to
motor vehicles used by the forestry business.
Fair value movement in deferred receivable and contingent
consideration
Persimmon purchased the Newton-le-Willows site in September 2015
and agreed a schedule of payments to the Group with annual
instalments up until 22 March 2019. The deferred receivable is
initially recognised at fair value and the GBP202k movement in the
fair value in the year represents the reduction in time to payment,
in line with International Financial Reporting Standards. Further
details of the repayment profile are included in note 14 to the
financial statements.
The fair value movement in the contingent consideration payable
to the sellers of Aitchesse has increased by GBP253k in the year as
there is less impact from the discount applied over time. Further
details are in the following section.
Exceptional items
There were no exceptional items in the year compared to GBP773k
in 2015. The 2015 exceptional items related to the re-admission to
AIM and the acquisition of Aitchesse.
Financial position
2016 2015
GBP'000 GBP'000
Assets
Investments* 8,873 7,470
Property 10,000 9,900
Deferred receivable - Persimmon 5,180 5,916
Cash 2,802 4,390
------------ ----------
Tangible/realisable
assets 26,855 27,676
Intangible assets 6,630 6,588
Other assets 2,037 1,559
------------ ----------
Total assets 35,522 35,823
Liabilities
Borrowing 5,896 2,850
Contingent consideration 3,237 2,726
Other creditors 2,256 4,421
------------ ----------
11,389 9,997
Net assets 24,133 25,826
============ ==========
*IFRS requires the consolidation of the Gresham House Forestry
Friends and Family Fund LP. This has been adjusted here for the
GBP491k non-controlling interest to show the Group's position on an
investment basis.
Tangible/realisable assets
The above highlights the strong balance sheet position that the
Group has at the end of 2016. The tangible/realisable assets
supporting this total GBP26.9 million (2015: GBP27.7 million),
comprising investments, property, accrued income receivable from
Persimmon on the sale of the Newton-le-Willows site and cash.
Investments
Investments include the value of the Group's holding at the end
of the year in GHF LP of GBP1.2 million, co-investment in SPE LP of
GBP468k and the Group's associate holding in GHS of GBP6.5 million
(2015: GBP5.9 million). The remaining balance of GBP675k related to
the legacy portfolio at the end of 2016. Good progress has been
made in the year with realisations of GBP918k to 31 December 2016
from an opening value at the beginning of the year of
GBP1,568k.
Property
The value of the property portfolio of Southern Gateway GBP7.75
million (2015: GBP7.65 million) and the remaining land at
Newton-le-Willows GBP2.25 million (2015: GBP2.25 million) have both
been valued independently at the end of the year. Both are now in
active sales processes and we envisage selling these properties in
the coming year.
Deferred receivable - Persimmon
The Persimmon deferred receivable relates to the instalments
that are due from Persimmon annually up to 22 March 2019. In the
year GBP0.9 million was paid early by Persimmon as a result of
selling houses quicker than expected. The next instalment due on 22
March 2017 has therefore been reduced by this amount, and a further
GBP0.1 million received early in January 2017, to GBP1.0 million.
The deferred receivable have been fair valued as this was
designated at fair value through profit or loss at inception.
Intangible assets
Intangible assets of GBP6.6 million (2015: GBP6.6 million)
relate to the Aitchesse Limited (now Gresham House Forestry
Limited) acquisition and the LMS management contract award. The
intangible assets recognised at the end of the year for Aitchesse
of goodwill, management contracts and customer relationships
totalled GBP5.5 million. The performance of the business has
supported the goodwill recognised and the management contract and
customer relationships have been amortised in line with their
expected useful lives.
The LMS contract has been recognised at a fair value of GBP1.4
million at acquisition, including acquisition costs, in August 2016
and amortised over three years, reducing to GBP1.2 million as at 31
December 2016.
Borrowing
In April 2016 the Group refinanced the loan that was in place
with the Co-operative Bank (GBP2.85 million), which was secured on
the property portfolio. A new facility with Kleinwort Benson Bank
Limited was agreed to lend the Group GBP7.0 million with security
over the Group's property portfolio as well as deferred receivable
due from Persimmon. The facility is repayable over three years,
matching the deferred receivable settlement by Persimmon. Interest
is charged at LIBOR plus 4.5%.
Contingent consideration
The contingent consideration payable to the original owners of
Aitchesse requires EBITDA generation by the Aitchesse business of
between GBP1.7 million and GBP3.5 million in the period from 1 July
2015 to 28 February 2018. The current assessment is that the
maximum EBITDA is expected to be achieved, with the Group incurring
a full deferred consideration, which after discounting indicates a
fair value of GBP3.0 million (2015: GBP2.7 million).
The remaining GBP258k relates to the fair value of the second
tranche payment due to LMS for the management contract in August
2018.
Kevin Acton
Finance Director
27 March 2017
Strategic Report
This report has been prepared by the Directors in accordance
with the requirements under section 414 of the Companies Act 2006.
The purpose of this report is to inform shareholders about how the
Group fared during the year ended 31 December 2016.
Short forms and abbreviations are defined above in the
Chairman's and Chief Executive's Reports.
Strategic objective
Gresham House is a specialist asset manager focussed on
alternative and illiquid asset classes, aiming to generate superior
returns for clients and shareholders over the longer term.
Shareholder value creation will be driven by long-term growth in
earnings as a result of increasing AUM and returns from invested
capital.
Gresham House currently manages investments and co-investments
through its investment management platform on behalf of
institutions, family offices, charities and endowments and private
individuals.
Gresham House's strategy is to grow AUM organically and through
appropriate acquisitions, using its balance sheet to acquire
businesses, attract talent, seed new funds and create new divisions
with the aim of creating a sustainable and profitable business
together with carried interest and performance fees.
Business model
The Group's business model as a specialist asset manager focuses
on alternative investment strategies in illiquid assets over
long-term horizons and clear alignment between shareholders and the
management team.
Specialist asset management vehicle
Gresham House, with its FCA regulated subsidiary Gresham House
Asset Management Limited, provides investors with the opportunity
to access a London Stock Exchange listed vehicle and so benefit
from the sustainable management fees earned from its specialist
asset management business. An experienced team with strong track
records in their respective specialist sectors lead the
business.
Alignment
Alignment with shareholders is critical to delivering value. The
management team and close advisors ensure alignment by directly
owning 5% of the business and the wider team is motivated to grow
the value of Gresham House plc through long-term incentive schemes.
It is also important for Gresham House to be aligned with the
investors in the funds that it manages and therefore the Group
typically holds a stake in these funds. This approach when combined
with the talent at Gresham House and the development of a
best-in-class client technology platform will allow Gresham House
to deliver value to its shareholders and clients alike.
Developing asset classes
The Strategic Equity and Real Assets divisions currently house a
number of funds that have either been launched organically or been
acquired through existing businesses and management contracts. The
Group will continue to develop the business by growing AUM through
the purchase of existing companies, the raising of new funds and
from sustainable management fee income from the two current
divisions and any subsequent divisions that are yet to be
established.
Key performance indicators
The key indicators of performance relevant for the Group are the
trading profits of the investment management business, measured
through the adjusted operating profit metric and AUM.
In the year to 31 December 2016 the adjusted operating loss had
reduced to GBP1,585k (2015: GBP3,054k) and included net gains
totalling GBP342k from associates, losses from investments and
(2015: GBP1,229k losses).
AUM grew to GBP363 million by the end of the year (2015: GBP242
million), further detail is included in the business review
below.
Business review
Assets under Management
The AUM of the Group has grown by over 50% in the year to GBP363
million at 31 December 2016 (2015: GBP242 million).
Growth in AUM has been both organic, through the raising of SPE
LP (GBP24 million committed and co-investment) and GHF LP (GBP15
million), as well as acquisition, with the award of the LMS
investment management contract (GBP68 million).
Real Assets - "Uncorrelated with traditional asset classes"
The Group's Real Assets division was established with the
acquisition of Aitchesse Limited (now Gresham House Forestry
Limited) in November 2015. The Real Assets division targets asset
classes that are uncorrelated with traditional debt and equity
classes and forestry is a great example of this. Forestry is a
physical asset that generates income, provides inflation protection
and is unaffected by the performance of financial markets, since
trees continue to grow irrespective of the economic environment
Gresham House Forestry is a specialist asset manager that
manages over 30,000 hectares of UK commercial forestry on behalf of
endowments, family offices, limited partnerships and high-net-worth
investors. The forestry business has completed its first full year
of results since the acquisition and is now integrated with the
Gresham House business. The figures below demonstrate that it has
experienced good growth in the year to 31 December 2016.
The forestry business' 20% growth in AUM in the year to
GBP247million (2015: GBP205 million) was driven by the increase in
value of the existing forests managed by the team, combined with
new forest acquisitions and the launch of the Gresham House
Forestry Fund LP ("GHF LP") on 31 October 2016.
GHF LP targets net returns of 10% per annum, with expected
annual distribution of 2% to 4% from timber sales. GHF LP had its
first close with GBP15 million of commitments and finance raised,
which included GBP1.25 million from Gresham House. GHF LP has
subsequently invested in six forests at a price of GBP12.3 million
as at 31 December 2016 and is targeting a final close in the second
half of 2017 at a size of GBP50 million.
Market conditions for Forestry continue to be favorable with GBP
remaining weak and timber prices high. The UK timber harvest
accounts for only 25% of the 60 million tonnes of timber used each
year in the UK. Imports are therefore a key part of the timber
industry in the UK. A large portion of these imports come from
Scandinavia and a weak GBP against the Swedish Krone makes imported
timber more expensive, benefiting the UK forestry market. The UK
government has also renewed its commitment to house building and
with the timber content of new houses continuing to rise, this is
further positive news for UK forestry.
While timber prices are back to their 2014 highs, fuel prices
are not. This dynamic has had a positive impact on UK forestry
returns since the costs of harvesting and haulage are considerable
and are significantly affected by the price of fuel.
Strategic Equity - "Bridging public and private markets"
The Strategic Equity division focuses on inefficient areas of
public and private markets to capture value over the long-term.
This division covers both public market and private equity
investment opportunities.
Gresham House applies its Strategic Equity approach to small
public and private companies in the UK that are typically below
GBP100m in size, generate healthy cash flows and produce good
return on capital, but have been overlooked by the market,
so-called "value stocks".
Given the current economic backdrop and political uncertainty we
believe the UK market is expensive relative to historic ranges with
the valuation of companies within the FTSE All-Share Index, as a
multiple of prospective earnings, trading close to 10 year
highs.
It is also clear that much of the uplift in company valuations
in the UK over the last 12 months has been down to market
re-rating, and then dividend pay-out rather than supported by
earnings growth.
Gresham House Asset Management flagged this concern at the
beginning of 2016 in its H1 2016 Investment Perspectives
publication titled "Alpha generation from investing in value
companies" that highlighted that while value stocks generally
remain overlooked we are beginning to see a rotation away from
growth and momentum stocks that are highly priced and into value.
Earlier this year GHAM published its H1 2017 perspectives flagging
the attractions of smaller companies that tend to be valued
significantly below their larger peers, reiterating that within
that opportunity set, those stocks with value characteristics offer
significant scope to generate superior returns over the
long-term.
Investment in smaller, value stocks requires a considerably
higher level of engagement with investee company stakeholders.
First, in order to identify market pricing inefficiencies, and
catalysts for value creation, and then to support a clear strategic
plan to create equity value over the long term (3-5 years) thereby
targeting above market returns.
The Strategic Equity division provides access to this investment
strategy through three vehicles, Gresham House Strategic plc
("GHS") and Gresham House Strategic Public Equity LP ("SPE LP"),
both of which primarily target public markets, and LMS Capital plc
("LMS"), which targets direct private equity in the UK.
Gresham House Strategic plc
GHS was the first investment mandate awarded to GHAM in August
2015 and the Group holds a 19.2% interest in GHS creating alignment
between the two.
The existing GHS portfolio managed by GHAM continues to perform
well with low volatility in difficult macro-economic and
geo-political conditions. NAV growth to 31 December 2016 was 6%
since GHAM's appointment on 14 August 2015. A resilient performance
relative to the FTSE Small-Cap Index (excluding investment trusts)
, which also grew by 7% over the same period. Through buying GHS
shares which currently trade at a 25% discount to the NAV per
share, investors gain exposure to a portfolio of eight companies
that are attractively valued at c.6x EV/EBITDA (stripping out cash
from the portfolio) and growing earnings in excess of 30%*
*Using the latest corporate broker forecasts for the underlying
portfolio companies and stripping out the cash position in the
company. Gresham House EV is based on the market capitalisation and
cash position as at 20 March 2017, the latest data available.
Gresham House Strategic Public Equity LP
SPE LP held its first close on 15 August 2016 with commitments
and co-investment agreements of GBP24 million and is targeting a
final close in the second half of 2017. SPE LP is a sister fund to
GHS and will invest and divest alongside, utilising the same
investment committee and investment team. Gresham House has entered
into a co-investment agreement with SPE LP and has committed to an
amount of GBP1.5 million.
LMS Capital plc
GHAM was appointed as the investment manager of LMS in August
2016. Over the past seven months there has been significant
progress in the transition to external management and the
generation of targeted annualised cost savings for LMS. Through
this period, members of the investment team have actively engaged
with underlying portfolio companies.
LMS is listed on the main market of the London Stock Exchange.
It has a private equity portfolio that includes small to medium
sized private and public companies in the consumer, energy and
business services sectors, with investments held both directly and
indirectly through third party investment funds. LMS had been
undergoing a realisation programme ahead of GHAM's appointment in
August 2016 and the adoption of a new investment policy focused
predominantly on private equity investment. As the manager, GHAM
will aim to achieve shareholder objectives through a staged
approach.
The mandate to manage LMS involves maximising long-term value.
This includes appropriate realisations of the existing portfolio
and returning a further GBP11 million to shareholders alongside
reinvestment in direct private equity investments in the UK in the
longer term and focusing on options to scale LMS thereafter.
Gresham House paid a first tranche consideration of GBP1 million
in Gresham House plc ordinary shares for the management contract in
August 2016, with a second tranche amount of up to GBP1.25 million
being payable in two years' time. The second tranche is payable on
a sliding scale from zero to GBP1.25 million when the NAV in two
years' time is between GBP67.5 million and GBP85 million. The
investment management contract is for a minimum term of three
years. Management fees of 1.5% per annum are earned on the average
annual NAV of LMS of up to GBP100 million, 1.25% where NAV is
greater than GBP100 million but lower than GBP150 million and 1.0%
where NAV is greater than GBP150 million. Performance fees of 15%
will be payable where new investments have had cumulative compound
growth in excess of 8% per annum, with the first measurement being
the period to 31 December 2017. No new investments have been made
in the period to 31 December 2016.
LMS announced its annual results for the year to 31 December
2016 on 14 March 2017 and the positive foreign currency impact of
the US dollar from LMS' US portfolio has been offset by weak
trading performance in some of LMS' portfolio companies. As such,
the year-end NAV was reduced to GBP68 million.
GHAM has engaged with portfolio companies and is working with
the management teams to identify catalysts for growth, to drive
long-term value creation and to reverse the disappointing portfolio
performance in 2016. As stated above the company has committed to
return up to GBP11 million to LMS shareholders from realisations of
the existing portfolio and is focused on progressing and initiating
sale processes for certain holdings. Alongside any return to
shareholders we will look to reinvest in direct private equity
opportunities at the smaller end of the market, leveraging the
expertise and experience of our investment team and new investment
committee.
Legacy portfolio
The orderly disposal of the legacy portfolio has been ongoing in
the year to 31 December 2016. The majority of the legacy portfolio
relates to property, namely the Southern Gateway site and the
remaining land at Newton-le-Willows, with a combined gross value of
GBP10 million as at 31 December 2016 (2015: GBP9.9 million).
Southern Gateway
The Southern Gateway site is approximately 370,000 square feet
of mixed commercial and warehouse property in Speke, Liverpool and
is now in an active marketing process. During the year a number of
initiatives have been implemented to improve the value of the site
in preparation for sale. The current gross valuation of GBP7.75
million (2015: GBP7.65 million) has been assessed by an independent
valuer and factors in the improvement initiatives as well as the
general market conditions, which have been felt in the property
market since the Brexit vote in the summer. We have entered a
process to realise value in the short-term.
Newton-le-Willows
The majority of the Newton-le-Willows site was sold to Persimmon
Homes in September 2015 for housing development. We have since been
working on preparing the remaining land at Newton-le-Willows for
sale and have recently applied for planning permission to build 82
homes. The valuation as at 31 December 2016 for the land is GBP2.25
million (2015: GBP2.25 million) as assessed by an independent
valuer. The land is now in an active sales process and we are also
aiming to realise value in the short-term.
Remaining securities
We have made good progress in disposing of the legacy security
portfolio, realising GBP918k in the year. We continue to seek value
as we dispose of these assets and focus on the current business as
a specialist asset manager.
Financial Tables
Group Statement of Comprehensive Income
FOR THE YEARED 31 DECEMBER 2016
2016 2015
Notes
GBP'000 GBP'000
Income 1
Asset management income 3,202 333
Rental income 741 746
Dividend and interest income 249 228
Other operating income 72 51
--------- ---------
Total income 4,264 1,358
Operating costs 3
Property outgoings (290) (339)
Administrative overheads (6,892) (2,704)
Net operating loss before exceptional items (2,918) (1,685)
Finance costs 6 (442) (144)
Exceptional items * - (773)
--------- ---------
Net operating loss after exceptional items (3,360) (2,602)
Gains and losses on investments:
Share of associate's profit 16 628 -
Movement in fair value of investment property 11 (139) (744)
Gains and (losses) on investments held at fair value 10 (147) (485)
Movement in fair value of contingent consideration (253) -
Movement in fair value of deferred receivable 202 -
Operating loss before taxation (3,069) (3,831)
Taxation 7 33 -
---------
Total comprehensive income (3,036) (3,831)
========= =========
Attributable to:
Equity holders of the parent (3,027) (3,807)
Non-controlling interest (9) (24)
--------- ---------
(3,036) (3,831)
========= =========
Basic and diluted loss per ordinary share (pence) 8 (30.3) (40.5)
========= =========
* Exceptional items in 2015 relate to professional fees incurred
in respect of the re-admission to AIM and the acquisition of
Aitchesse Limited which took place on 23 November 2015 and on the
reorganisation of the Group's legacy subsidiaries.
Statements of Changes in Equity
Group
YEARED 31 DECEMBER 2016
Equity
Ordinary Share attributable
share Share warrant Retained to equity Non-controlling Total
Notes capital premium reserve reserves share-holders interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2015 2,463 1,688 64 21,611 25,826 - 25,826
Comprehensive income for
the year
Loss for the year - - - (3,027) (3,027) (9) (3,036)
--------- --------- --------- ---------- --------------- ---------------- --------
Total comprehensive
income
for the year - - - (3,027) (3,027) (9) (3,036)
Contributions by
and distributions
to owners - - - - - - -
Non controlling
interest in Gresham
House Friends &
Family Fund LP - - - - - 500 500
Share warrants
issued 25 - - 255 - 255 - 255
Share based payments 26 - - - 73 73 - 73
Issue of shares 24 83 923 - - 1,006 - 1,006
--------- --------- --------- ---------- --------------- ---------------- --------
Total contributions
by and
distributions
to owners 83 923 255 73 1,334 500 1,834
--------- --------- --------- ---------- --------------- ---------------- --------
Balance at 31
December
2016 2,546 2,611 319 18,657 24,133 491 24,624
========= ========= ========= ========== =============== ================ ========
YEARED 31 DECEMBER 2015
Equity
Ordinary Share attributable
share Share warrant Retained to equity Non-controlling Total
Notes capital premium reserve reserves share-holders interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2014 2,336 12,508 64 12,934 27,842 - 27,842
Comprehensive income for
the year
Loss for the year - - - (3,807) (3,807) (24) (3,831)
--------- --------- --------- ---------- --------------- ---------------- --------
Total comprehensive
income for the year - - - (3,807) (3,807) (24) (3,831)
Contributions by
and distributions
to owners
Transfer of
non-controlling
interest deficit - - - (24) (24) 24 -
Issue of shares 24 127 1,688 - - 1,815 - 1,815
Cancellation of
share premium 27 - (12,508) - 12,508 - - -
--------- --------- --------- ---------- --------------- ---------------- --------
Total contributions
by and
distributions
to owners 127 (10,820) - 12,484 1,791 24 1,815
--------- --------- --------- ---------- --------------- ---------------- --------
Balance at 31
December
2015 2,463 1,688 64 21,611 25,826 - 25,826
========= ========= ========= ========== =============== ================ ========
Company
YEARED 31 DECEMBER 2016
Ordinary Share
share Share warrant Retained Total
Notes capital premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December 2015 2,463 1,688 64 16,939 21,154
Comprehensive income for the year
Loss for the year - - - (786) (786)
--------- --------- --------- ---------- --------
Total comprehensive income for the year - - - (786) (786)
Contributions by and distributions
to owners
Issue of shares 24 83 923 - - 1,006
Share warrants issued 25 - - 255 - 255
--------- --------- --------- ---------- --------
Total contributions by and distributions
to owners 83 923 255 - 1,261
Balance at 31 December 2016 2,546 2,611 319 16,153 21,629
========= ========= ========= ========== ========
YEARED 31 DECEMBER 2015
Ordinary Share
share Share warrant Retained Total
Notes capital premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December 2014 2,336 12,508 64 6,946 21,854
Comprehensive income for the year
Loss for the year - - - (2,515) (2,515)
--------- --------- --------- ---------- --------
Total comprehensive income for the year - - - (2,515) (2,515)
Contributions by and distributions
to owners
Issue of shares 24 127 1,688 - - 1,815
Cancellation of share premium 27 - (12,508) - 12,508 -
--------- --------- --------- ---------- --------
Total contributions by and distributions
to owners 127 (10,820) - 12,508 1,815
Balance at 31 December 2015 2,463 1,688 64 16,939 21,154
========= ========= ========= ========== ========
Statements of Financial Position
AS AT 31 DECEMBER 2016
Group Company
Notes 2016 2015 2016 2015
Assets GBP'000 GBP'000 GBP'000 GBP'000
Non current assets
Investments - securities 10 2,834 1,568 1,116 1,568
Investment property 11 - 9,559 - -
Tangible fixed assets 12 179 154 13 -
Investment in subsidiaries 15 - - 16,292 2,822
Investment in associate 16 6,530 5,902 - 5,902
Intangible assets 13 6,630 6,588 - -
Long-term receivables 14 4,095 5,916 - -
20,268 29,687 17,421 10,292
-------- ---------- -------- ---------
Current assets
Trade receivables 17 1,259 665 - -
Accrued income and prepaid expenses 917 1,081 219 383
Deferred receivable 14 1,139 - - -
Other current assets 18 - - 9,734 11,568
Cash and cash equivalents 2,802 4,390 858 372
Non-current assets held for sale
Property investments 11 9,628 - - -
-------- ---------- -------- ---------
Total current assets and non-current
assets held for sale 15,745 6,136 10,811 12,323
---------- -------- ---------
Total assets 36,013 35,823 28,232 22,615
-------- ---------- -------- ---------
Current liabilities
Trade and other payables 19 2,229 4,390 87 1,435
Short term borrowings 20 1,015 2,850 1,377 26
3,244 7,240 1,464 1,461
Total assets less current liabilities 32,769 28,583 26,768 21,154
Non-current liabilities
Deferred taxation 21 - - - -
Long term borrowings 22 4,881 - 4,881 -
Other creditors 23 3,264 2,757 258 -
-------- ---------- -------- ---------
8,145 2,757 5,139 -
Net assets 24,624 25,826 21,629 21,154
======== ========== ======== =========
Capital and reserves
Ordinary share capital 24 2,546 2,463 2,546 2,463
Share premium 27 2,611 1,688 2,611 1,688
Share warrant reserve 27 319 64 319 64
Retained reserves 27 18,657 21,611 16,153 16,939
Equity attributable to equity
shareholders 24,133 25,826 21,629 21,154
Non-controlling interest 27 491 - - -
Total equity 24,624 25,826 21,629 21,154
======== ========== ======== =========
Basic and diluted net asset value
per ordinary share (pence) 28 236.9 262.2 212.4 214.7
======== ========== ======== =========
The loss after tax for the Company for the year ended 31 December
2016 was GBP786,000. The financial statements were approved and
authorised for issue by the Board and were signed on its behalf
on 27 March 2017
Kevin Acton
Finance Director
Group Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2016
Notes 2016 2016 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from operating
activities
Dividend income received 7 48
Interest received 470 317
Rental income received 728 549
Other cash payments (4,542) (2,940)
-------- --------
Net cash utilised in
operations 29 (3,337) (2,026)
Corporation tax paid (204) -
Interest paid on loans (226) (175)
-------- --------
(430) (175)
-------- --------
Net cash flow from operating
activities (3,767) (2,201)
Cash flow from investing
activities
Acquisition of Aitchesse
Limited - (1,074)
Purchase of investments (1,831) (5,000)
Sale of investments 918 -
Sale of investment properties - 2,222
Deferred proceeds received 1,041 -
on sale of investment
properties
Expenditure on investment
properties (353) (329)
Purchase of fixed assets (125) (24)
Sale of fixed assets 37 15
Purchase of contracts (148) -
-------- --------
(461) (4,190)
Cash flow from financing
activities
Repayment of loans (4,454) (428)
Receipt of loans 6,833 -
Share issue proceeds 6 -
LMS warrants issued 255 -
-------- --------
2,640 (428)
-------- --------
Decrease in cash and cash equivalents (1,588) (6,819)
Cash and cash equivalents at start
of year 4,390 11,209
Cash and cash equivalents at end
of year 2,802 4,390
======== ========
Company Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2016
Notes 2016 2016 2015 2015
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from operating
activities
Investment income received 7 48
Interest received 470 316
Other cash payments (883) (1,711)
-------- --------
Net cash flow from operating
activities 29 (406) (1,347)
Interest paid on loans (194) -
-------- ---------
Net cash flow from operating
activities (600) (1,347)
Cash flow from investing
activities
Purchase of investments (581) (5,000)
Sale of investments 918 -
Investment in subsidiary (1,250) (2,500)
Advanced to Group undertakings (4,789) (8,621)
Repaid by Group undertakings 1,314 6,957
Purchases of fixed assets (16) -
-------- --------
(4,404) (9,164)
Cash flow from financing
activities
Repayment of loans (1,604) -
Receipt of loans 6,833 -
Share issue proceeds 6 -
LMS warrants issued 255 -
-------- --------
5,490 -
-------- ---------
Increase / (decrease) in cash and cash
equivalents 486 (10,511)
Cash and cash equivalents
at start of year 372 10,883
Cash and cash equivalents
at end of year 858 372
======== =========
Principal Accounting Policies
The Group's principal accounting policies are as follows:
(a) Basis of preparation
The financial statements of the Group and the Company have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union and those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS.
The Group has considerable financial resources and ongoing
investment management contracts. As a consequence, the directors
believe that the Group is well placed to manage its business risks
successfully. The directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Thus, the directors continue to adopt
the going concern basis of accounting in preparing the financial
statements.
The following standards and interpretations which have not been
applied in these financial statements were in issue but not yet
effective at year end. The following standards and interpretations
which have not been applied in these financial statements were in
issue but not yet effective at year end. The Directors do not
anticipate that the adoption of these standards and interpretations
will have a material impact on the Group's financial statements in
the period of initial application, other than presentation or
disclosure, and a full assessment will be conducted subsequent to
the year end:
(i) IFRS 9 Financial Instruments
(ii) IFRS 10 (amended) Consolidated Financial Statements
(iii) IFRS 11 (amended) Accounting for Acquisitions of Interests in Joint Operations
(iv) IFRS 12 (amended) Disclosures of Interest in Other entities
(v) IFRS 14 Regulatory Deferral Accounts
(vi) IFRS 15 Revenue From Contracts With Customers
(vii) IFRS 16 Leases
(viii) IAS 16 (amended) Property, Plant and Equipment
(ix) IAS 28 (amended) Investments in Associates and Joint Ventures
(x) IAS 38 (amended) Intangibles
(b) Basis of consolidation
Subsidiaries
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control. The
consolidated financial statements incorporate the financial
statements of the Company and its subsidiary undertakings made up
to the year-end as if they formed a single entity. All intra-group
transactions, balances, income and expenses are eliminated on
consolidation.
Associates
Where the Group has significant influence, it has the power to
participate in (but not control) the financial and operating policy
decisions of another entity, it is classified as an associate.
Associates are initially recognised in the Group Statement of
Financial Position at cost. Subsequently, associates are accounted
for using the equity method, where the Group's share of
post-acquisition profits and losses and other comprehensive income
is recognised in the Group Statement of Comprehensive Income.
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Where there is objective evidence that the investment in an
associate has been impaired, the carrying amount of the investment
will be tested for impairment in the same way as other
non-financial assets.
(c) Presentation of Statement of Comprehensive Income
As permitted by section 408 of the Companies Act 2006, the
Company has not presented its own Statement of Comprehensive
Income. Details of the Company's results for the year are set out
in note 27, the loss for the year being GBP786,000 (2015:
GBP2,515,000).
(d) Segment reporting
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reviewed by the Board in order to allocate resources to
the segments and to assess their performance.
The Group's reportable segments, which are those reported to the
Board are, "Real Assets", "Strategic Equity", "Legacy Property" and
"Central".
(e) Revenue recognition
Revenue is recognised to the extent that it is probable that the
economic benefits will flow to the Group and the revenue can be
reliably measured. Revenue is measured at the fair value of the
consideration received or receivable is stated net of value added
tax and is earned within the United Kingdom.
(i) Asset management income
Revenue represents management and advisory fees for the
provision of fund management and forestry management services and
is recognised in the Statement of Comprehensive Income when the
services are performed net of VAT.
(ii) Rental income
Rental income comprises property rental income receivable net of
VAT, recognised on a straight line basis over the lease term and
excludes service charges recoverable from the tenant.
(iii) Dividend and interest income
Income from listed securities is recognised when the right to
receive the dividend has been established. Interest receivable is
recognised when it is probable that the economic benefits will flow
to the Group and the amount of revenue can be reliably measured.
Interest income is accrued on a time basis by reference to the
principal outstanding.
(iv) Performance fees
Performance fees will be recognised on the date of entitlement
in accordance with the management contract.
(f) Expenses
All expenses and interest payable are accounted for on an
accruals basis.
(g) Property, plant and equipment
Each class of property, plant and equipment is carried at cost
less, where applicable, any accumulated depreciation.
The carrying amount of property, plant and equipment is reviewed
annually by the directors to ensure it is not in excess of the
recoverable amount from those assets. The recoverable amount is
assessed on the basis of the expected net cash flows which will be
received from the assets' employment and subsequent disposal.
The depreciable amount of all fixed assets are depreciated on a
straight line basis over their estimated useful lives to the Group
commencing from the time the asset is held ready for use, and are
depreciated using rates of between 2% and 25%.
(h) Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit before tax as reported in
the Statement of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the Statement of
Financial Position date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
statement of financial position liability method. Deferred tax
liabilities are 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. Deferred tax is
also provided for on revaluation surpluses on investment
properties.
The carrying amount of deferred tax assets is reviewed at each
Statement of Financial Position 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 assets 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
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.
(i) Operating leases and hire purchase contracts
Amounts payable under operating leases are charged directly to
the Statement of Comprehensive Income on a straight line basis over
the period of the lease. The aggregate costs of operating lease
incentives provided by the Group are recognised as a reduction in
rental income on a straight line basis over the lease term.
(j) Investments
Financial assets designated as at fair value through profit and
loss ("FVTPL") at inception are those that are managed and whose
performance is evaluated on a fair value basis, in accordance with
the documented investment strategy of the Company. Information
about these financial assets is provided internally on a fair value
basis to the Group's key management. All equity investments that
were previously classified as held at fair value through profit or
loss have been reassessed as at the date the Company became a
trading company. The equity investments which do not meet the
definitions of an associate or subsidiary remain held at fair value
through profit and loss.
(i) Properties
Property investments are included in the Statement of Financial
Position at fair value and are not depreciated.
Sale and purchase of property assets is generally recognised on
unconditional exchange except where completion is expected to occur
significantly after exchange. For conditional exchanges, sales are
recognised when the conditions have been satisfied. Profits and
losses are calculated by reference to the carrying value at the end
of the previous financial year, adjusted for subsequent capital
expenditure and less directly related costs of sale.
(ii) Assets held for sale
Non-current assets held for sale are measured at the lower of
carrying amount and fair value less costs to sell (except where the
exemptions of paragraph 5 of IFRS 5 apply) and are classified as
such if their carrying amount will be recovered through a sale
transaction rather than through continuing use. Investment property
that is held for sale is measured at fair value in accordance with
paragraph 5 of IFRS 5.
This is the case when the asset is available for immediate sale
in its present condition subject only to terms that are usual and
customary for sales of such assets and the sale is considered to be
highly probable. A sale is considered to be highly probable if the
appropriate level of management is committed to a plan to sell the
asset and a further active programme to locate a buyer and complete
the plan has been initiated. Further, the asset has to be marketed
for sale at a price that is reasonable in relation to its current
fair value. In addition, the sale is expected to qualify for
recognition as a completed sale within one year from the date that
it is classified as held for sale.
(iii) Securities
Purchases and sales of listed investments are recognised on the
trade date, the date on which the Group commit to purchase or sell
the investment. All investments are designated upon initial
recognition as held at fair value, and are measured at subsequent
reporting dates at fair value, which is either the market bid price
or the last traded price, depending on the convention of the
exchange on which the investment is quoted. Fair values for
unquoted investments, or for investments for which there is only an
inactive market, are established by taking into account the
International Private Equity and Venture Capital Valuation
Guidelines as follows:
(i) Investments which have been made in the last 12 months are
valued at cost in the absence of overriding factors;
(ii) Investments in companies at an early stage of development
are also valued at cost in the absence of overriding factors;
(iii) Where investments have gone beyond the stage in their
development in (ii) above, the shares may be valued by having
regard to a suitable price-earnings ratio to that company's
historical post-tax earnings or the net asset value of the
investment; and
(iv) Where a value is indicated by a material arm's length
market transaction by a third party in the shares of a company,
that value may be used.
(iv) Loans and receivables
Unquoted loan stock is classified as loans and receivables in
accordance with IAS 39 and carried at amortised cost using the
Effective Interest Rate method. Movements in both the amortised
cost relating to the interest income and in respect of capital
provisions are reflected in the Statement of Comprehensive Income.
Loan stock accrued interest is recognised in the Statement of
Financial Position as part of the carrying value of the loans and
receivables at the end of each reporting period.
(k) Exceptional items
The Group presents as exceptional items on the face of the
Consolidated Statement of Comprehensive Income those material items
of income and expense which, because of the nature and expected
infrequency of the events giving rise to them, merit separate
presentation to allow shareholders to understand better the
elements of financial performance in the year so as to facilitate
comparison with prior years and to assess better trends in
financial performance.
(l) Intangible assets
(i) Goodwill
Goodwill, representing the excess of the cost of acquisition
over the fair value of the Group's share of the identifiable
assets, liabilities acquired, is capitalised in the Statement of
Financial Position. Following initial recognition, goodwill is
stated at cost less any accumulated impairment losses.
Goodwill will be reviewed for impairment annually or more
frequently if events or changes in circumstances indicate that the
carrying value may be impaired.
(ii) Management contracts and client relationships
Intangible assets, such as management contracts and client
relationships acquired as part of a business combination or
separately, are capitalised where it is probable that future
economic benefits attributable to the assets will flow to the Group
and the fair value of the assets can be measured reliably.
They are recorded initially at fair value and then amortised, if
appropriate, over their useful lives. The fair value at the date of
acquisition is calculated using discounted cash flow methodology
and represents the valuation of the net residual income stream
arising from the management contracts or distribution agreements in
place at the date of acquisition. The management contracts and
client relationships are included in the Statement of Financial
Position as intangible assets. Intangible assets with a finite life
have no residual value and are amortised on a straight-line basis
over their expected useful lives as follows:
-- Client relationships arising on acquisition - 5 years
-- Management contracts arising on acquisition - 1 to 3 years
depending on the specific management contract details
Amortisation methods, useful lives and residual values will be
reviewed at each reporting date and adjusted if appropriate.
At each period end date, reviews are carried out of the carrying
amounts of intangible assets to determine whether there is any
indication that the assets have suffered an impairment loss. If any
such indication exists, the recoverable amount, which is the higher
of value in use and fair value less costs to sell, of the asset is
estimated in order to determine the extent, if any, of the
impairment loss.
If the recoverable amount of an asset or cash-generating unit
("CGU") is estimated to be less than its net carrying amount, the
net carrying amount of the asset or CGU is reduced to its
recoverable amount. Impairment losses are recognised immediately in
the Statement of Comprehensive Income. The Group assesses at the
end of each reporting period whether there is any indication that
an impairment loss recognised in prior periods may no longer exist
or may have decreased. If any such indication exists, the Group
estimates the recoverable amount of that asset. In assessing
whether there is any indication that an impairment loss recognised
in prior periods for an asset may no longer exist or may have
decreased, the Group considers, as a minimum, the following
indications:
(a) Whether the asset's market value has increased significantly
during the period;
(b) Whether any significant changes with a favourable effect on
the entity have taken place during the period, or will take place
in the near future, in the technological, market, economic or legal
environment in which the entity operates or in the market to which
the asset is dedicated; and
(c) Whether market interest rates or other market rates of
return on investments have decreased during the period, and those
decreases are likely to affect the discount rate used in
calculating the asset's value in use and increase the asset's
recoverable amount materially.
(m) Financial instruments
Financial assets and financial liabilities are recognised on the
Consolidated Statement of Financial Position when the Group becomes
a party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amount
reported in the Consolidated Statement of Financial Position when
there is a legally enforceable right to settle on a net basis, or
realise the asset and liability simultaneously and where the Group
intends to net settle.
(i) Trade and other receivables
Receivables are short term in nature. Trade and other
receivables are recognised and carried at the lower of their
invoiced value and recoverable amount. Provision is made when there
is objective evidence that the Group will not be able to recover
balances in full.
(ii) Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash
equivalents are short term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
(iii) Non-current receivables
Deferred receivables are recognised at the discounted value of
those receipts.
(iv) Dividends payable
All dividends are recognised in the period in which they are
approved by shareholders.
(v) Bank borrowings
All bank loans are initially recognised at cost, being the fair
value of the consideration received, less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or
premium on settlement. Interest costs on loans are charged to the
Statement of Comprehensive Income as incurred.
(vi) Trade and other payables
Trade payables are not interest-bearing and are stated at their
nominal value. Other payables are not interest-bearing and are
stated at their nominal value as any discounting of expected cash
flows is considered to be immaterial.
(vii) Borrowing costs
Unless capitalised under IAS 23, Borrowing Costs, all borrowing
costs are recognised in the Consolidated Statement of Comprehensive
Income in the period in which they are incurred. Finance charges,
including premiums paid on settlement or redemption and direct
issue costs and discounts related to borrowings, are accounted for
on an accruals basis and charged to the Consolidated Statement of
Comprehensive Income using the effective interest method.
(viii)Contingent consideration
Contingent consideration arises when settlement of all or any
part of the cost of a business combination or other acquisition,
for example management contract, is deferred. It is stated at fair
value at the date of acquisition, which is determined by
discounting the amount due to present value at that date.
Estimates are required in respect of the amount of contingent
consideration payable on acquisitions, which is determined
according to formulae agreed at the time of the business
combination, and normally related to the future earnings of the
acquired business. The directors review the amount of contingent
consideration likely to become payable at each period end date, the
major assumption being the level of future profits of the acquired
business. Contingent consideration payable is discounted to its
fair value in accordance with applicable International Financial
Reporting Standards.
(n) Pensions
Payments to personal pension schemes for employees are charged
against profits in the year in which they are incurred.
(o) Share based payments
The Group issued equity-settled share-based payments to certain
directors and employees. Equity-settled share based payments are
measured at fair value (excluding the effect of non-market based
vesting conditions) at the date of grant. The fair value determined
at the grant date of the equity-settled share based payments is
expensed on a straight-line basis over the vesting period, based on
the Group's estimate of the shares that will eventually vest and
adjusted for the effect of non-market based vesting conditions.
Fair value is measured using a Black-Scholes option pricing
model. The expected life used in the model has been adjusted, based
on management's best estimate, for the effect of
non-transferability, exercise restrictions and behavioural
considerations.
A liability equal to the portion of the goods or services
received is recognised at the current fair value determined at each
period end date for cash-settled share based payments.
(p) Non-controlling interests
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and for
acquisitions post 3 October 2010 following adoption of IAS 27,
Consolidated and Separate Financial Statements (Revised 2008), the
non-controlling interests' share of changes in equity since the
date of the combination.
Prior to the adoption of IAS 27 (Revised 2008) losses
attributable to non-controlling interests in excess of the
non-controlling interests' share in equity were allocated against
the interests of the Group except to the extent that the
non-controlling interests have a binding obligation and is able to
make an additional investment to cover such losses. When the
subsidiary subsequently reports profits, the non-controlling
interests do not participate until the Group has recovered all of
the losses of the non-controlling interests it previously
reported.
(q) Critical accounting estimates and judgments
The preparation of financial statements in conformity with
generally accepted accounting principles 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 reporting
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results may
ultimately differ from those estimates. The estimates and
assumptions that have significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are those used to determine:
(i) Consolidation of third party funds managed by the Group;
(ii) Value of investment properties;
(iii) Value of investments at fair value through profit and
loss; and
(iv) Impairment in the value of loans.
Consolidation of third party funds managed by the Group
When assessing whether the Group controls funds that are managed
on behalf of third parties, the Group is required to assess whether
it has power over these funds; exposure, or rights, to variable
returns from its involvement with the fund; and has the ability to
use its power over the funds to affect the amount of the Group's
returns. This can also be considered when the Group is acting in
its capacity as agent or principal. An agent is acting on behalf of
third party investors, whereas a principal is acting for its own
benefit.
IFRS 10 provides guidance for considering the assessment of
whether fund managers are acting as agent or principal, and
therefore whether the Group should consolidate the funds that it
manages or not. The key considerations when assessing this are
decision making authority of the fund manager, rights held by third
parties, remuneration and exposure to returns. The following
provides further detail on the directors' assessment of control
over the funds that are managed by Gresham House Asset Management
Limited ("GHAM"), the FCA regulated entity within the Group.
Gresham House Strategic Public Equity LP ("SPE LP") is managed
by GHAM, a subsidiary of Gresham House plc. GHAM in its role as
investment advisor is exposed to variable returns through its
management fee, however the Company is not directly invested in SPE
LP. The limited partners of SPE LP have the ability to remove the
manager without cause, one year after the final close of SPE LP on
obtaining limited partner special consent. The directors'
assessment indicates that GHAM is acting as agent for SPE LP and
therefore should not consolidate SPE LP.
Gresham House Forestry Fund LP ("GHF LP") is managed by GHAM.
GHAM is exposed to variable returns through its management fee and
acquisition fees, as well as the Company's limited partnership
interest in Gresham House Forestry Friends and Family LP ("GHFF"),
a vehicle which in turn is a limited partner in GHF LP.
The limited partners of GHF LP have the ability to remove the
manager without cause, one year after the final close of GHF LP on
obtaining limited partner special consent. There are a number of
limited partners that would be required to co-ordinate to remove
the manager. The directors' assessment of this right indicates that
the manager is acting as agent for GHF LP and therefore should not
consolidate GHF LP.
The directors' assessment of GHFF however indicates that it is
in a controlling position and therefore should consolidate this in
the Group financial statements.
Gresham House Strategic plc ("GHS") is managed by GHAM and the
Company also holds 19.2% of the ordinary share capital as at 31
December 2016. The directors consider that the Company exercises
significant influence over GHS, but not control, through its
holding and the investment management agreement in place with GHAM.
GHS has therefore been classified as an associate.
Value of investment properties
The value of investment properties is based on independent third
party valuations. These valuations are based on the 'investment
method' of valuation. This approach involves applying
market-derived capitalisation yields to current and market-derived
future income streams with appropriate adjustments for income voids
arising from vacancies or rent free periods. These capitalisation
yields and future income streams are derived from comparable
property and leasing:
(i) transactions are considered to be the key inputs in the
valuation. Other factors that are taken into account in the
valuations include the tenure of the property, tenancy details and
ground and structural conditions; and
(ii) The fair value of consideration paid has been derived by
applying appropriate discount rates to the consideration paid at
the time of acquisition. In respect of the contingent
consideration, fair value adjustments have been made to the
estimated consideration payable and has been adjusted to fair value
of the date of acquisition applying appropriate discount
factors.
Value of investments at fair value through profit and loss
The investments which are held at fair value through profit and
loss in unquoted companies require judgement to be exercised, with
reference to the valuation policy and International Private Equity
Valuation guideline.
Impairment in the value of loans
Impairment reviews of the loans held by the Group require a
careful assessment of the performance and financial position of the
company involved from the best information that is available. This
assessment requires the exercise of judgement to conclude whether
an impairment is appropriate to the loans held by the Group.
Notes on the Consolidated Financial Statements
Basis of preparation
The financial statements set out in the announcement do not
constitute the Company's statutory accounts for the year ended 31
December 2016 or the year ended 31 December 2015. The financial
information for the year ended 31 December 2016 and the year ended
31 December 2015 are extracted from the statutory accounts of
Gresham House plc.
The auditor, BDO LLP has reported on the accounts for both
periods; their report was unqualified.
The financial statements have been prepared on a going concern
basis.
The full statutory accounts will be available on the Company's
website at www.greshamhouse.com and will be posted to shareholders
shortly.
The financial statements of the Group and the Company have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union and those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS.
The accounting policies used by the Group in these condensed
financial statements are consistent with those applied in its
financial statements for the year to 31 December 2015. Other
standards and interpretations have been issued which will be
effective for future reporting periods but have not been adopted in
these financial statements.
Notes to Accounts
1 INCOME
2016 2015
GBP'000 GBP'000
Asset management income
Fund management income 1,082 127
Forestry management income 2,120 206
-------- --------
3,202 333
-------- --------
Income from investments
Rental income 741 746
Dividend income - Listed UK 7 48
Interest receivable: Banks 4 40
Other 238 140
990 974
-------- --------
Other operating income
Reversal of provision against loans 5 -
Management fees receivable 67 51
72 51
-------- --------
Total income 4,264 1,358
======== ========
Total income comprises
Asset management income 3,202 333
Rental income 741 746
Dividends 7 48
Interest 242 180
Other operating income 72 51
-------- --------
4,264 1,358
======== ========
2 SEGMENTAL REPORTING
For the year ended 31 December 2015, the Group invested in
securities and maintained its investment in commercial properties,
and during the course of the year, the strategy that the new
management team had set out started to take shape.
From August 2015 onwards, the Group's asset management company,
Gresham House Asset Management Limited began to generate fund
advisory fees and then, upon FCA regulation, fund management fees
from its management of Gresham House Strategic plc. In November
2015, the Group acquired the forestry management business of
Aitchesse Limited (now Gresham House Forestry Limited) and
generated fees from the management of forestry.
During 2016 the Group continued to grow its Strategic Equity
division through the appointment of Gresham House Asset Management
Limited as investment manager to LMS Capital plc, and the launch of
Gresham House Strategic Public Equity LP. The Real Assets division
also launched the Gresham House Forestry Fund LP in the year.
Accordingly, management reporting is split under the headings
"Real Assets", "Strategic Equity", "Legacy Property" and
"Central".
All activity and revenue is derived from operations within the
United Kingdom.
2 SEGMENTAL REPORTING - continued
31 December 2016
Real Strategic Legacy
Assets Equity Property Central Consolidated
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Asset management income 2,120 1,082 - - 3,202
Income from investments 1 1 741 247 990
Other operating income - - 27 45 72
Total revenue 2,121 1,083 768 292 4,264
Share of associate's profit - 628 - - 628
Gains and losses on investments
at fair value (31) (113) - (3) (147)
Movement in fair value
of property investments - - (139) - (139)
Total income and gains 2,090 1,598 629 289 4,606
Segment expenses (1,422) (1,647) (451) (2,229) (5,749)
Finance costs - - - (442) (442)
Adjusted operating profit/(loss) 668 (49) 178 (2,382) (1,585)
======== ========== ========== ========
Depreciation and amortisation (1,441)
Profit on disposal of
tangible fixed assets 8
Movement in fair value
of contingent consideration (253)
Movement in fair value
of deferred receivable 202
-------------
Loss before taxation (3,069)
=============
31 December 2015
Real Strategic Legacy
Assets Equity Property Central Consolidated
Revenue GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Asset management income 206 127 - - 333
Income from investments 1 1 747 225 974
Other operating income - - 27 24 51
Total revenue 207 128 774 249 1,358
Gains and losses on investments
at fair value - - - (485) (485)
Movement in fair value
of property investments - - (744) - (744)
Total income and gains 207 128 30 (236) 129
Segment expenses (138) (531) (459) (1,911) (3,039)
Finance costs - - - (144) (144)
Adjusted operating profit/(loss) 69 (403) (429) (2,291) (3,054)
======== ========== ========== ========
Exceptional operating
expenses (773)
Depreciation and amortisation (10)
Profit on disposal of
tangible fixed assets 6
Loss before taxation (3,831)
=============
2 SEGMENTAL REPORTING - continued
Other information
31 December 2016
Real Strategic Legacy
Assets Equity Property Central Consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 2,853 8,914 15,775 8,471 36,013
Segment liabilities (296) (144) (526) (10,423) (11,389)
-------- ---------- ---------- --------- -------------
2,557 8,770 15,249 (1,952) 24,624
-------------
Capital expenditure 1,865 581 311 16 2,773
Depreciation and amortisation 1,250 157 5 3 1,415
Non-cash expenses other
than depreciation - - - 73 73
31 December 2015
Real Strategic Legacy
Assets Equity Property Central Consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 1,154 8,379 17,157 9,199 35,889
Segment liabilities (606) (7) (4,733) (4,717) (10,063)
-------- ---------- ---------- -------- -------------
548 8,372 12,424 4,482 25,826
-------------
Capital expenditure 53 6,361 359 - 6,773
Depreciation 1 - 3 - 4
3 OPERATING COSTS
Operating costs comprise the following: 2016 2015
GBP'000 GBP'000
a) Property outgoings:
Wages and salaries 49 50
Social security costs 6 6
Other operating costs (net of service charges recoverable
from tenants
of GBP803,000 (2015: GBP724,000)) 235 283
---------- --------
290 339
========== ========
b) Administrative overheads:
Directors' emoluments (excluding benefits in kind and
share based payments) 968 880
Auditor's remuneration * 106 200
Amortisation 1,364 -
Depreciation 77 10
Profit on disposal of assets (8) (6)
Wages and salaries 2,234 647
Social security costs 428 177
Operating lease rentals - land and buildings 3 24
Share based payments 73 -
Other operating costs 1,647 772
---------- --------
6,892 2,704
========== ========
Staff costs (including directors' emoluments) were:
Wages, salaries and fees 3,100 1,577
Social security costs 434 183
Pension costs 151 -
---------- --------
3,685 1,760
========== ========
3 OPERATING COSTS - continued
* A more detailed analysis of auditor's remuneration 2016 2015
is as follows:
GBP'000 GBP'000
Audit fees 106 99
Auditor's other fees -other services 12 101
-------- --------
118 200
======== ========
The directors consider the auditor was best placed to provide
these other services. The Audit Committee reviews the nature and
extent of non-audit services to ensure that independence is
maintained.
GBP12,000 of costs for other services above are pertaining to
non-audit services relating to the appointment of Gresham House
Asset Management Limited as investment manager to LMS Capital plc,
which have been capitalised in the financial statements.
The average number of persons employed by the Group, including
the executive directors, was 26 (2015: 12). The Company has no
employees.
The Group has no commitments under operating leases for the
current and prior year.
4 DIRECTORS' EMOLUMENTS
The emoluments of the directors are disclosed in the
Remuneration Report.
The directors are considered to be the Group's only key
management personnel. Employers' National Insurance Contributions
in respect of the directors for the year were GBP137,000 (2015:
GBP89,000).
5 Business combinations during the period
There were no new business combinations that took place during
the year ended 31 December 2016.
On 20 November 2015, shareholders approved the acquisition of
Aitchesse Limited (Aitchesse) in a general meeting. The Group
acquired 100% of the issued share capital of Aitchesse, a Scottish
company whose principal activity is the management of forestry.
Further details on this transaction can be found in the 2015 Annual
Report.
6 FINANCE COSTS
2016 2015
GBP'000 GBP'000
Interest payable on loans and overdrafts 293 137
Finance fees 149 7
442 144
======== ========
7 TAXATION
2016 2015
GBP'000 GBP'000
(a) Analysis of charge in period:
UK Corporation tax at 20% (2015: 20.25%) - -
Overprovision in prior year (33) -
Total tax credit (33) -
======== ========
(b) Factors affecting tax credit for period:
Loss on ordinary activities before tax multiplied
by standard rate of corporation tax in the UK
of 20% (2015: 20.25%) (614) (776)
Tax effect of:
Investment losses not taxable 29 98
Dividend income not taxable (1) (10)
Amortisation not taxable 238
Expenses disallowed 69 153
Other gains and losses not taxable (138) -
Movement in losses carried forward 384 535
Actual tax credit (33) -
======== ========
The Group has unutilised tax losses of approximately GBP11.2
million (2015: GBP6.0 million) available against future corporation
tax liabilities. The potential deferred taxation asset of GBP2.2
million (2015: GBP1.2 million) in respect of these losses has not
been recognised in these financial statements as it is not
considered sufficiently probable that the Group will generate
sufficient taxable profits from the same trade to recover these
amounts in full.
8 EARNINGS PER SHARE
(a) Basic and diluted loss per share
2016 2015
Total net loss attributable to equity holders
of the parent (GBP'000) (3,027) (3,807)
Weighted average number of ordinary shares in
issue during the period 9,976,412 9,404,614
Basic and diluted loss per share attributable
to equity holders of the parent (pence) (30.3) (40.5)
========== ==========
No shares were deemed to have been issued at nil consideration
as a result of the shareholder and supporter warrants granted.
The shareholder, supporter warrants and LMS warrants are not
dilutive as the exercise price of the warrants is 323.27p which is
higher than the average market price of ordinary shares during the
year (see note 25).
(b) Adjusted earnings per share
Adjusted earnings per share is based on adjusted loss after tax,
where adjusted loss is stated after charging interest but before
depreciation, amortisation, exceptional items and items relating to
previous years. The fair value movement in the contingent
consideration payable and deferred receivable has also been
adjusted for as similar to amortisation, these do not relate to the
trading profits of the business.
Adjusted loss for calculating adjusted earnings per share:
2016 2015
GBP'000 GBP'000
Operating loss before taxation for the year (3,069) (3,831)
Add back:
Exceptional operating expenses - 773
Depreciation and amortisation 1,441 10
Profit on disposal of tangible fixed assets (8) (6)
Movement in fair value of deferred consideration 253 -
Movement in fair value of deferred receivable (202) -
-------- --------
Adjusted loss before and after tax (1,585) (3,054)
Non-controlling interest 9 24
-------- --------
Adjusted loss after tax attributable to equity holders
of the parent (1,576) (3,030)
======== ========
Adjusted loss per share (pence) (15.8) (32.2)
======== ========
9 DIVIDS
No dividends have been paid or proposed in the year (2015:
nil).
10 INVESTMENTS - SECURITIES
An analysis of total investments is as follows:
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Listed securities - on the London
Stock Exchange - 105 - 105
Securities dealt in under AIM 468 - 468 -
Securities dealt in under NEX
Exchange 31 51 31 51
Unlisted securities 2,335 1,412 617 1,412
-------- --------
Closing value at 31 December 2,834 1,568 1,116 1,568
======== ======== ======== ========
Investments valued at fair value
through profit and loss 2,217 157 499 157
Loans and receivables valued
at amortised cost 617 1,411 617 1,411
-------- -------- -------- --------
2,834 1,568 1,116 1,568
======== ======== ======== ========
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Opening cost 6,094 6,300 6,094 6,542
Opening net unrealised losses (4,526) (3,345) (4,526) (3,587)
-------- -------- -------- --------
Opening value 1,568 2,955 1,568 2,955
Movements in the year:
Purchases at cost 2,331 6,361 581 6,361
Sales - proceeds (918) (7,263) (918) (7,263)
Sales - realised gains & (losses)
on sales (2,942) (26) (2,942) (268)
Net unrealised gains & (losses) 2,795 (459) 2,827 (217)
Closing value 2,834 1,568 1,116 1,568
======== ======== ======== ========
Closing cost 4,565 6,094 2,815 6,094
Closing net unrealised losses (1,731) (4,526) (1,699) (4,526)
-------- -------- -------- --------
Closing value 2,834 1,568 1,116 1,568
======== ======== ======== ========
Gains and losses on investments held Group Company
at fair value
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Net realised gains & (losses) on disposal (2,942) (26) (2,942) (268)
Net unrealised gains & (losses) 2,795 (459) 2,827 (217)
Net losses on investments (147) (485) (115) (485)
======== ======== ======== ==========
An analysis of investments is as follows: Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Equity investments 2,217 52 499 52
Fixed income securities - 105 - 105
Unquoted loan stock 617 1,411 617 1,411
-------- --------
2,834 1,568 1,116 1,568
======== ======== =========== ============
Further information on the measurement of fair value can be
found in note 31.
11 INVESTMENT PROPERTY
Investment properties have been classified as follows: Group
2016 2015
GBP'000 GBP'000
Non-current assets - 9,559
Non-current assets held for sale 9,628 -
-------- --------
9,628 9,559
======== ========
The orderly disposal of the legacy investment property portfolio
has been ongoing in the year to 31 December 2016 and an active
sales process is underway. These assets are now expected to be
realised in the short term and as such have been classified as
non-current assets held for sale.
A further analysis of total investment properties is as
follows:
Group
2016 2015
Net book value and valuation GBP'000 GBP'000
At 1 January 9,559 16,675
Additions during the year - expenditure on existing
properties 311 359
Disposals during the year - proceeds (103) (6,731)
Profit / (loss) on disposal of investment properties 103 (158)
Movement in fair value during the year (242) (586)
At 31 December 9,628 9,559
======== ========
Investment properties are shown at fair value based on current
use and any surplus or deficit arising on valuation of property is
reflected in the Statement of Comprehensive Income.
All investment properties were valued by Jones Lang LaSalle
Limited, Chartered Surveyors, as at 31 December 2016 at a combined
total of GBP10 million. These external valuations were carried out
on the basis of Market Value in accordance with the latest edition
of the Valuation Standards published by the Royal Institution of
Chartered Surveyors.
The gross property valuation has been adjusted for the fixed
rental uplift as follows:
2016 2015
GBP'000 GBP'000
Gross valuation 10,000 9,900
Rent free receivable (372) (341)
9,628 9,559
======== ========
Operating leases
The future minimum lease payments receivable under
non-cancellable operating leases are as follows:
2016 2015
GBP'000 GBP'000
Not later than one year 723 657
Between 2 and 5 years 1,271 1,441
Over 5 years 914 682
2,908 2,780
======== ========
Rental income recognised in the Statement of Comprehensive
Income amounted to GBP741,000 (2015: GBP746,000).
The commercial leases vary according to the condition of the
units let. The commercial units are leased on terms where the
tenant has the responsibility for repairs and running costs for
each individual unit (other than roof repairs in certain
circumstances) with a service charge payable to cover estate
services provided by the landlord.
The cost of the above properties as at 31 December 2016 is as
follows:
Group
GBP'000
Brought forward 9,576
Additions during the year 311
9,887
========
11 INVESTMENT PROPERTY - continued
Capital commitments
Capital expenditure contracted for but not provided for in the
financial statements for the Group was GBP118,000 (2015: GBP16,000)
and for the Company was nil (2015: nil).
Movement in fair value of investment Group
properties
2016 2015
GBP'000 GBP'000
Realised gains/(losses) on disposal
of investment property 103 (158)
Decrease in fair value (242) (586)
-------- --------
Movement in fair value of investment
property (139) (744)
======== ========
Further information on the measurement of fair value can be
found in note 31.
12 TANGIBLE FIXED ASSETS
Group 2016 2015
Office Motor Leasehold Motor Leasehold
equipment vehicles property Total vehicles property Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
cost
As at 1 January - 154 10 164 - - -
Additions 16 115 - 131 98 - 98
Additions on
acquisition
of subsidiary - - - - 92 10 102
Disposals during the
year - (32) - (32) (36) - (36)
----------- ------------ ------------ ---------- ---------- ---------- --------
As at 31 December 16 237 10 263 154 10 164
=========== ============ ============ ========== ========== ========== ========
Depreciation
As at 1 January - 10 - 10 - - -
Charge for the year 3 73 1 77 10 - 10
Disposals during the
year - (3) - (3) - - -
----------- ------------ ------------ ---------- ---------- ---------- --------
As at 31 December 3 80 1 84 10 - 10
=========== ============ ============ ========== ========== ========== ========
Net book value as
at 31 December 13 157 9 179 144 10 154
=========== ============ ============ ========== ========== ========== ========
Company
2016 2015
Office Office
equipment equipment
GBP'000 GBP'000
Cost
As at 1 January - -
Additions 16 -
As at 31 December 16 -
=============== =============
Depreciation
As at 1 January - -
Charge for the year 3 -
As at 31 December 3 -
=============== =============
Net book value as at 31 December 13 -
=============== =============
13 INTANGIBLE ASSETS
Group
2016 2015
Customer Customer
Goodwill relationships Contracts Total Goodwill relationships Contracts Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1
January
2016 2,942 3,072 574 6,588 - - - -
Additions - - 1,406 1,406 2,942 3,072 574 6,588
As at 31
December
2016 2,942 3,072 1,980 7,994 2,942 3,072 574 6,588
=========== ============== =========== ======== =========== ============== =========== ========
Amortisation
As at 1
January
2016 - - - - - - - -
Charge for
the year - 615 749 1,364 - - - -
As at 31
December
2016 - 615 749 1,364 - - - -
=========== ============== =========== ======== =========== ============== =========== ========
Net book
value as
at 31
December 2,942 2,457 1,231 6,630 2,942 3,072 574 6,588
=========== ============== =========== ======== =========== ============== =========== ========
On 16 August 2016, Gresham House Asset Management ("GHAM") was
appointed the investment manager of LMS Capital plc ("LMS"). The
Company issued a first tranche of 332,484 new ordinary shares to
LMS with a value of GBP1 million on 16 August 2016 and will issue a
second tranche of new ordinary shares on the second anniversary of
the appointment up to a value of GBP1.25 million subject to certain
performance conditions. The fair value of the contract at 16 August
2016 was estimated at GBP1,258,000, with a further GBP148,000 of
associated acquisition costs and has been recorded as an addition
to contracts in the period and will be amortised over the
contract's useful life of three years.
Contingent consideration
The second tranche issue of new ordinary shares will depend on
the following:
-- LMS extending the term of the portfolio management agreement
for two years following the second anniversary of appointment on 16
August 2016;
-- There being no material changes to the terms of the portfolio management agreement; and
-- LMS undertaking not to return capital to shareholders during
the two year period following the second anniversary of
appointment.
The value of the second tranche will be calculated by the Net
Asset Value ("NAV") of the portfolio on the second anniversary of
appointment:
-- If the NAV is below GBP67.5 million, no shares will be issued;
-- If the NAV is between GBP70.0 million and GBP80.0 million,
the value of the second tranche shares will be between GBP500,000
and GBP1 million calculated on a straight line basis;
-- If the NAV is between GBP80.0 million and GBP85.0 million,
the value of the second tranche shares will be between GBP1 million
and GBP1.25 million calculated on a straight line basis; and
-- If the NAV is above GBP85.0 million the maximum value of
shares issued will be capped at GBP1.25 million.
Fair value
The fair value of the contract has been estimated using an equal
weighting of three scenarios. The estimated cash flows in each case
has been valued at a discount of 15%. This resulted in fair value
of GBP1,258,000, with a contingent consideration of GBP258,000,
which has been included in non-current liabilities as deferred
consideration, note 23.
The Company also issued 909,908 LMS Warrants to LMS on 14
October 2016, details are included in note 25.
GHAM will receive an annual management fee of:
-- 1.5% of the average NAV of LMS for an NAV of up to GBP100 million;
-- 1.25% of the average NAV of LMS for an NAV of between GBP100 million and GBP150 million;
-- 1.0% of the average NAV of LMS for an NAV of greater than GBP150 million
GHAM will also receive a performance fee of 15% on the gain in
NAV of new investments made since being appointed the investment
manager of LMS, subject to a hurdle rate of 8%.
14 NON CURRENT ASSETS - LONG TERM RECEIVABLES
On 22 September 2015, the sale of 25.8 acres of the site at
Newton-le-Willows to Persimmon Homes Limited ("Persimmon") was
completed. An initial payment of GBP944,610 was received with a
further payment of GBP937,252 received during the year and the
balance of the consideration, at fair value, will be receivable in
three tranches as follows:
GBP'000
On 22 March 2017 - included within
current assets 1,139
On 22 March 2018 2,020
On 22 March 2019 2,021
5,180
========
The total cash value of the deferred receipts is GBP5,368,000,
though this has been designated at fair value through the Statement
of Comprehensive Income
The discount rate applied was 2.49% (2015: 2.77%) being the
average rate of borrowing on Persimmon's debt facilities.
Long term receivables consist of the Group
following:
2016 2015
GBP'000 GBP'000
Deferred receivables 4,041 5,916
Other debtors 54 -
-------- --------
4,095 5,916
======== ========
15 INVESTMENTS IN SUBSIDIARIES
Company
2016 2015
Subsidiary undertakings GBP'000 GBP'000
At 1 January 2,822 322
Additions 16,544 2,500
Disposals (3,074) -
At 31 December 16,292 2,822
======== ========
During the year the Group put in place a reorganisation of its
subsidiaries.
Under the reorganisation, Gresham House Holdings Limited
("GHHL") became an intermediate holding company between Gresham
House plc and the subsidiaries of the Group.
As a part of the reorganisation, intercompany balances within
the Group were rationalised and balances of GBP15,294,000 were
capitalised.
The subsidiary undertakings of Gresham House plc are as
follows:
Held
by other
Held Group Country of incorporation and
by Company companies registered office
% %
Chartermet Limited 5 New Street Square, London
- 75 EC4A 3TW, England
Deacon Commercial Development 5 New Street Square, London
and Finance Limited - 100 EC4A 3TW, England
Deacon Knowsley Limited 5 New Street Square, London
- 75 EC4A 3TW, England
Gresham House Asset Management 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House Capital Partners 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House EIS Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House Finance Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House Forestry Limited Riverview House, Friarton Road,
- 100 Perth, PH2 8DF, Scotland
Gresham House Forestry Friends Riverview House, Friarton Road,
and Family LP 71.4 - Perth, PH2 8DF, Scotland
Gresham House (General Partner) Riverview House, Friarton Road,
Limited - 100 Perth, PH2 8DF, Scotland
Gresham House GP LLP Riverview House, Friarton Road,
- 100 Perth, PH2 8DF, Scotland
Gresham House Holdings Limited 5 New Street Square, London
100 - EC4A 3TW, England
Gresham House Investment 5 New Street Square, London
Management Limited - 100 EC4A 3TW, England
Gresham House Investment Dorey Court, Admiral Park,
Management (Guernsey) Limited - 100 St Peter Port, GY1 2HT, Guernsey
Gresham House Investors Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House Private Capital 5 New Street Square, London
Solutions Limited - 100 EC4A 3TW, England
Gresham House Private Equity 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House Private Wealth 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House Real Assets 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House Services Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House Smaller Companies 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House SPE Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House Special Situations 5 New Street Square, London
Limited - 100 EC4A 3TW, England
Gresham House Value Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Gresham House VCT Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Knowsley Industrial Property 5 New Street Square, London
Limited - 100 EC4A 3TW, England
New Capital Developments 5 New Street Square, London
Limited - 75 EC4A 3TW, England
New Capital Holdings Limited 5 New Street Square, London
- 75 EC4A 3TW, England
Newton Estate Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Security Change Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Watlington Investments Limited 5 New Street Square, London
- 100 EC4A 3TW, England
Wolden Estates Limited 5 New Street Square, London
- 100 EC4A 3TW, England
16 INVESTMENT IN Associate
The Board believe that Gresham House plc exercises significant
influence over Gresham House Strategic plc ("GHS"), but not
control, through its 19.2% equity investment as well as the
investment management agreement between GHAM and GHS.
Group
2016 2015
GBP'000 GBP'000
Investment in associate 5,902 5,902
Share of associate's profit 628 -
6,530 5,902
======== ========
The latest published financial information of GHS was the
unaudited interim results for the six months to 30 September 2016.
The assets and liabilities at that date are shown below:
2016 2015
GBP'000 GBP'000
Non current assets 25,233 19,348
Current assets 14,886 17,208
Current liabilities (224) (156)
Net assets 39,895 36,400
======== ========
The GHS group unaudited statement of comprehensive income noted
realised and unrealised gains from continuing operations on
investments at fair value through profit and loss of GBP3,733,000
and revenues of GBP171,000 for the six months ended 30 September
2016.
The registered office of GHS is 77 Kingsway, London, WC2B
5SR.
17 TRADE RECEIVABLES
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable within one year:
Trade receivables 1,259 665 - -
Less allowance for credit losses - - - -
--------
1,259 665 - -
======== ======== ======== ========
Allowances for credit losses on trade
receivables:
Allowances as at 1 January - 4 - -
Changes during the year released to
Statement of Comprehensive Income:
- allowances reversed - (4) - -
Allowances as at 31 December - - - -
======== ======== ======== ========
Trade receivables are assessed for impairment when older than 90
days. As at 31 December 2016, trade receivables of GBP20,000 (2015:
GBP73,000) were past due but not impaired. The ageing analysis of
these trade receivables is as follows:
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
1-3 months - 69 - -
3-6 months 20 1 - -
More than 6 months - 3 - -
-------- -------- -------- --------
20 73 - -
======== ======== ======== ========
As at 31 December 2016 trade receivables of GBPnil (2015:
GBPnil) were impaired and provided for.
The main credit risk represents the possibility of tenants
defaulting in their rental commitments. This risk is mitigated by
regular monitoring of the financial covenant strength of the tenant
base, together with regular meetings with the tenants.
18 OTHER CURRENT ASSETS
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group undertakings - - 9,734 11,568
- - 9,734 11,568
========== ========== ======== ========
19 TRADE AND OTHER PAYABLES
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Trade creditors 225 265 - -
Other creditors 332 1,913 14 53
Short term loan notes - 667 - 667
Accruals 1,672 1,545 73 715
2,229 4,390 87 1,435
======== ======== ======== ========
20 SHORT TERM BORROWINGS
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Bank loans - within current liabilities
(note 22) 1,015 2,850 1,015 -
Amounts owed to Group undertakings - - 362 26
1,015 2,850 1,377 26
======== ======== ======== ========
21 DEFERRED TAXATION
Under International Accounting Standards ("IAS") 12 (Income
Taxes) provision is made for the deferred tax liability associated
with the revaluation of property investments.
The deferred tax provision on the revaluation of property
investments calculated under IAS 12 is GBPnil at 31 December 2016
(2015: GBPnil) due to the availability of losses and indexation
allowances.
22 LONG TERM BORROWINGS
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Bank loans 4,881 - 4,881 -
4,881 - 4,881 -
======== ======== ======== ========
On 12 April 2016, the Company signed a GBP7.0 million banking
facility agreement with Kleinwort Benson Bank Limited ("the
facility"). The facility is secured against the Group's property
assets and the deferred receivable from the sale of the
Newton-le-Willows site to Persimmon in September 2015.
The facility is repayable in three tranches to match the
deferred receivable due from Persimmon over a three year
period:
-- GBP1,154,000 on 22 March 2017 (GBP937,000 repaid on 5 October 2016)
-- GBP2,092,000 on 22 March 2018
-- GBP2,817,000 on 22 March 2019
The interest payable on the facility is LIBOR plus 4.5%.
23 NON-CURRENT LIABILITIES - OTHER CREDITORS
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Contingent consideration 3,237 2,726 258 -
Other creditors 27 31 - -
3,264 2,757 258 -
======== ======== ======== ========
Contingent consideration
Contingent consideration will be payable if Gresham House
Forestry ("GHF") achieves certain EBITDA targets. The amount of
additional consideration payable shall increase on a sliding scale
depending on the EBITDA achieved in the period to 22 February 2018.
The contingent consideration shall be payable if GHF achieves
EBITDA between a range of GBP1,733,333 and GBP3,466,666 with the
full GBP3,697,237 of additional consideration being payable if
EBITDA of GBP3,466,666 or more is achieved and no additional
consideration being payable if EBITDA of less than GBP1,733,333 is
achieved.
In the event of the target being achieved, the Company is
obliged to issue a further 736,074 shares to the vendors. The fair
value of the contingent consideration has been based on the
mid-market share price on 23 November 2015, the date of the
acquisition of GHF, at 357.5p per share. The directors, having
carefully reviewed the future business prospects of GHF, believe
that the maximum contingent consideration will be achieved.
The additional consideration shall be satisfied by:
-- the payment of up to GBP1,500,055 in cash to the sellers;
and
-- the issue of up to 736,074 new ordinary shares to the
vendors.
Fair value
The fair value of the contingent consideration is estimated
using an income approach based on a discount assuming a maximum
pay-out of the contingent consideration as anticipated by the
Board, supported by forecasts of the trading of GHF in the period
to 22 February 2018.
Contingent cash payable has been valued at a discount of
13.5%.
The entire amount of the contingent consideration is recognised
as a financial liability and is measured at fair value through
comprehensive income at each reporting date.
The minimum contingent consideration is GBPnil.
The contingent consideration for the second tranche payment of
the LMS contract has a fair value of GBP258k. Further details of
the LMS contract are included in note 13.
24 SHARE CAPITAL
2016 2015
Share Capital GBP'000 GBP'000
Allotted: Ordinary - 10,185,487 (2015: 9,851,041)
fully paid shares of 25p each 2,546 2,463
======== ========
On 16 August 2016 the Company issued 332,484 new ordinary shares
at a price of 300.77p per share as part of the consideration for
the appointment of Gresham House Asset Management Limited as the
investment manager to LMS Capital plc. Additionally, 1,962
shareholder warrants were exercised during the year at a price of
323.27p
25 SHARE WARRANTS
2016 2015
Shareholder Supporter LMS Total Shareholder Supporter Total
Group warrants warrants warrants warrants warrants warrants warrants
Balance at 1 January 1,073,775 850,000 - 1,923,775 1,073,904 850,000 1,923,904
Warrants granted
during the year - - 909,908 909,908 - - -
Warrants exercised
during the year (1,962) - - (1,962) (129) - (129)
As at 31 December 1,071,813 850,000 909,908 2,831,721 1,073,775 850,000 1,923,775
============ ========== ========== ========== ============ ========== ==========
25 SHARE WARRANTS - continued
Shareholder warrants
On 1 December 2014 the Company issued 1,073,904 shareholder
warrants to existing shareholders as at the close of business on 28
November 2014 on a 1:5 basis, such warrants having been admitted to
trading on AIM. Shareholder warrants are freely transferable, are
exercisable at any time between 1 January 2015 and 31 December 2019
at an exercise price of 323.27p per ordinary share and are subject
to the terms of the shareholder warrant instrument dated 7 October
2014.
Supporter warrants
On 1 December 2014 the Company issued 850,000 supporter warrants
to the new directors and certain members of the Investment
Committee and Advisory Group at a price of 7.5p per warrant.
Supporter warrants have the same entitlements as the shareholder
warrants save that (i) they are not freely transferable (such
supporter warrants only being transferable to certain family
members, trusts or companies connected with the relevant warrant
holder) and accordingly not quoted on AIM; (ii) are not exercisable
until 1 December 2015; and (iii) are subject to the terms of the
supporter warrant instrument dated 7 October 2014.
LMS warrants
On 14 October 2016 the Company issued 909,908 LMS warrants to
LMS Capital plc ("LMS"). The LMS warrants entitle LMS to exercise
one LMS warrant for one ordinary share in the Company from 14
October to 30 June 2018 at an exercise price of 323.27 pence per
ordinary share. LMS paid a warrant purchase price of 28 pence per
LMS warrant, totalling GBP255,000. The LMS warrants are not
transferrable, unless consent of the Board of the Company has been
provided and were issued in accordance with the LMS Warrant
Instrument dated 14 October 2016.
There were no warrants issued in the 2015. During the year,
1,962 shareholder warrants were converted into ordinary shares
resulting in the issue of 1,962 new ordinary shares (2015:
129).
26 SHARE BASED PAYMENTS
Long term incentive plan
Following approval from shareholders at the General Meeting of
the company on 20 November 2015, the directors implemented a long
term incentive plan ("plan") to incentivise the management team as
well as align their interests with those of shareholders on 28 July
2016 through enhancing shareholder value.
For the purposes of the plan, "shareholder value" is the
difference between the market capitalisation of the Company at the
point in time that any assessment is made and the sum of:
(i) the market capitalisation of the Company a) at 1 December
2014 for first awards made to management who joined the Company
before 30 September 2015 ("old joiners") and b) at the date of
award in all other cases ("new joiners"); and
(ii) the aggregate value (at the subscription price) of all
ordinary shares issued thereafter and up to the point in time that
any assessment is made, in each case adjusted for dividends and
capital returns to Shareholders and/or issue of new shares.
The beneficiaries of the plan, will in aggregate be entitled to
an amount of up to 13.8% of shareholder value created, subject to
performance criteria set out below. Individual participation in the
shareholder value created will be determined by the Remuneration
Committee.
There will be certain hurdles the Company's share price has to
achieve before an award vests.
In the event that the Company achieves an average mid-market
closing price equal to compound growth at 7% per annum for a period
of 10 consecutive dealing days in the period after 1 December 2016
for first awards to management who joined the Company before 30
September 2015 and from the second anniversary of the date of award
in all other cases, 50% of the award will vest.
In the event that the share price of the Company outperforms the
FTSE All Share Index in the period after 1 December 2016, and from
the second anniversary of the date of the award in all other cases,
50% of the award shall vest.
Each award will require a minimum term of employment of three
years and awards will be made to current management and new joiners
at the Company's discretion.
IFRS 2: Share Based Payments sets out the criteria for an equity
settled share based payment, which has market performance
conditions. The plan meets these criteria and should therefore be
recognised at award as fair value and amortised over the vesting
period of two years. A total award of 1,000 A shares in Gresham
House Holdings Limited was made on 28 July 2016and all of these
were outstanding as at 31 December 2016 and are not exercisable
until the end of the vesting period. The weighted average time to
vesting is 14 months. There is no exercise price payable by the
beneficiaries on exercise.
Fair value
The fair value of the award has been determined using an
expected returns model, which is based on a number of scenarios and
probabilities of the Company's performance for the period when the
awards may be exercised. The assumptions in the model have
estimated the shareholder value created and applied discounts for
liquidity and likelihood of exercise by participants. The weighted
average valuation of the Company has been used to calculate the
expected shareholder value created and consequently the value of
the plan. The fair value of the plan at award was GBP155,000
(GBP155 per share), which will be amortised over the two year
vesting period.
27 RESERVES
2016 2015
Share Share Share Share
premium warrant Retained premium warrant Retained
account reserve reserves account reserve reserves
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 1,688 64 21,611 12,508 64 12,934
Loss and total comprehensive
income - - (3,027) - - (3,807)
Transfer of non-controlling
interest deficit - - - - (24)
Issue of shares 923 - - 1,688 - -
Issue of warrants - 255 - - - -
Cancellation of share premium - - - (12,508) - 12,508
Share based payments - - 73 - - -
As at 31 December 2,611 319 18,657 1,688 64 21,611
========= ========= ========== ========= ========= ============
2016 2015
Share Share Share Share
premium warrant Retained premium warrant Retained
account reserve reserves account reserve reserves
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 1,688 64 16,939 12,508 64 6,946
Loss and total comprehensive
income - - (786) - - (2,515)
Issue of shares 923 - - 1,688 - -
Issue of warrants - 255 - - - -
Cancellation of share premium - - - (12,508) - 12,508
Share based payments - - - - - -
As at 31 December 2,611 319 16,153 1,688 64 16,939
========= ========= ========== ========= ========= ==============
2016 2015
Non-controlling
interest: GBP'000 GBP'000
Balance as at 1 - -
January
Interest in trading result
for the year 56 51
Interest in investments- securities 500 -
Interest in movement in investment
property for the year (65) (75)
Transfer deficit balance 24
-------- --------
491 -
======== ========
On 4 February 2015, the High Court approved the cancellation of
the Company's share premium account (the "Cancellation"). As a
consequence of the Cancellation, GBP12,508,000 standing to the
credit of the Company's share premium account was cancelled. This
will facilitate any share buyback or payment of dividends that the
Board of the Company may in the future approve by creating a
reserve of an equivalent amount that, subject to certain creditor
protection undertakings, will form part of a distributable reserve.
The Cancellation had no effect on the overall net asset position of
the Company.
28 NET ASSET VALUE PER SHARE
Basic and diluted
2016 2015
Equity attributable to holders of the parent (GBP'000) 24,133 25,826
Number of ordinary shares in issue at the end
of the period 10,185,487 9,851,041
Basic and diluted net asset value per share (pence) 236.9 262.2
=========== ==========
No shares were deemed to have been issued at nil consideration
as a result of shareholder and supporter warrants granted.
The shareholder, supporter and LMS warrants are not dilutive as
the exercise price of the warrants is 323.27p which is higher than
the average market price of ordinary shares during the year.
GBP'000
The movement during the year of the assets attributable to
ordinary shares were as follows:
Total net assets attributable at 1 January 2016 25,826
Total recognised losses for the year (3,027)
Share warrants issued 255
Share based payments 73
Issue of shares 1,006
Total net assets attributable at 31 December 2016 24,133
========
29 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Net loss after exceptional items (3,360) (2,602) (2,086) (2,181)
Interest payable 293 137 260 -
Depreciation 77 10 3 -
Profit on disposal of tangible
fixed assets (8) (6) - -
Amortisation 1,364 - - -
Share based payments 72 - - -
Intercompany loans waived - - 2,000 -
(1,562) (2,461) 177 (2,181)
Increase in long term receivables (54) - - -
(Increase) / decrease in current
assets (430) (343) 164 136
(Decrease) / increase in current
liabilities (1,291) 778 (747) 698
(3,337) (2,026) (406) (1,347)
======== ======== ======== ========
30 FINANCIAL INSTRUMENTS
The Group consists of the Company and subsidiary undertakings
whose principal activities are asset management, forestry
management and property investment
The Group's financial instruments, which are held in accordance
with the Group's objectives and policies, comprise:
(i) securities consisting of listed and unlisted equity shares;
(ii) a secondary portfolio of listed and unlisted fixed income securities;
(iii) cash, liquid resources and short term debtors and
creditors that arise directly from its operational activities;
and
(iv) short term and long-term borrowings.
As at 31 December 2016 the following categories of financial
instruments were held by:-
Group 2016 2015
Assets Assets
at fair at fair
value through value through
Loans comprehensive Loans comprehensive
and receivables income and receivables income
Financial assets per Statement GBP'000 GBP'000 GBP'000 GBP'000
of Financial Position
Investments - securities 617 2,217 1,411 157
Trade and other receivables -
current and non-current 1,259 5,180 665 5,916
Accrued income 387 - 454 -
Cash and cash equivalents 2,802 - 4,390 -
5,065 7,397 6,920 6,073
================= =============== ================= ===============
2016 2015
Liabilities Liabilities
at fair at fair
Other value through Other value through
financial comprehensive financial comprehensive
liabilities income liabilities income
Financial liabilities per Statement
of Financial Position GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables - short
term * 2,229 - 4,390 -
Bank loans - short & long term 5,896 - 2,850 -
Other creditors - long term 27 3,237 31 2,726
-------------------------------- -------------
8,152 3,237 7,271 2,726
================================ =============== ============= ===============
* GBP245,000 (2015: GBP1,765,000) of corporation tax, PAYE and
VAT payable is included within trade and other payables.
30 FINANCIAL INSTRUMENTS - continued
Company 2016 2015
Assets Assets
at fair at fair
value through value through
Loans comprehensive Loans comprehensive
and receivables income and receivables income
Financial assets per Statement GBP'000 GBP'000 GBP'000 GBP'000
of Financial Position
Investments - securities 617 499 1,411 157
Accrued income 219 - 383 -
Amounts owed by Group undertakings 9,734 - 11,568 -
Cash and cash equivalents 858 - 372 -
11,428 499 13,734 157
================= ============= ================= ===============
2016 2015
Liabilities Liabilities
at fair at fair
value through Other value through
comprehensive financial comprehensive
Other financial liabilities income liabilities income
Financial liabilities per Statement
of Financial Position GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables - short
term 87 - 1,435 -
Other loans - short & long term 6,258 - 26 -
Other creditors - long term - 258 - -
-------- -------------
6,345 258 1,461 -
======== =============== ============= ===============
The carrying value of loans and receivables and other financial
liabilities are not materially different to their fair values. The
Group's activities expose it to various types of risk that are
associated with the financial instruments and markets in which it
invests. The main risks to which the Group is exposed are market
price risk, credit risk, interest rate risk and liquidity risk. The
nature and extent of the financial instruments outstanding at the
Statement of Financial Position date and the risk management
policies employed by the Group are summarised below.
Market price risk
Market price risk is the risk that changes in market prices will
adversely affect the Group's income due to a decline in the
underlying value of assets under management, resulting in lower
fees.
The objective of market price risk management is to manage and
control market price exposure, while optimising the return on risk.
The Group manages strategic equity funds. Forestry assets
management fees are not linked directly to market prices.
Market price risk arises from uncertainty about the future
prices of financial instruments held within the Group's portfolio.
It represents the potential loss that the Group might suffer
through holding market positions in the face of market movements.
The investments in equity and fixed interest stocks of unquoted
companies are not traded and as such the prices are more uncertain
than those of more widely traded securities.
Unquoted investments are valued as per accounting policy (j) in
these financial statements. Regular reviews of the financial
results, combined with close contact with the management of these
investments, provides sufficient information to support these
valuations.
30 FINANCIAL INSTRUMENTS - continued
Credit risk
Credit risk is the risk that the counterparty will fail to
discharge an obligation or commitment that it has entered into with
the Group.
The Group's maximum exposure to credit risk is:
2016 2015
GBP'000 GBP'000
Loan stock investments 617 1,411
Trade and other receivables - long term 5,180 5,916
Trade and other receivables - short term 1,259 665
Accrued income 387 454
Cash and cash equivalents 2,802 4,390
-------- --------
10,245 12,836
======== ========
The Group has an exposure to credit risk in respect of both loan
stock investments and other loans, most of which have no security
attached to them, or where they do, such security will rank after
any bank debt. The Company's exposure to credit risk is restricted
to investments, cash and cash equivalents, other loans, amounts
owed by Group undertakings and accrued income totalling
GBP11,428,000 (2015: GBP13,734,000).
Cash and cash equivalents consist of cash in hand and balances
with banks. To reduce the risk of counterparty default the Group
deposits its surplus funds in approved high quality banks.
The following table shows the maturity of the loan stock
investments and other loans referred to above:
2016 2015
(a) Loan stock investments GBP'000 GBP'000
Repayable within:- 1 year 151 -
1-2 years 466 945
2-3 years - -
3-4 years - 466
4-5 years - -
-------- --------
617 1,411
======== ========
As at 31 December 2016 loan stock investments totalling
GBP340,000 (2015: GBP423,000) were impaired and provided for.
As at 31 December 2016 other loans totalling GBP155,000 (2015:
GBP196,000) were impaired and provided for.
There is potentially a risk whereby a counter party fails to
deliver securities which the Company has paid for, or pay for
securities which the Company has delivered. This risk is considered
to be small as where the transaction is in respect of quoted
investments the Company uses brokers with a high credit quality and
where the transaction is in respect of unquoted investments, these
are conducted through solicitors to ensure that payment matches
delivery.
Interest rate risk
The Group's fixed and floating interest rate securities, its
equity, preference equity investments and loans and net revenue may
be affected by interest rate movements. Investments in small
businesses are relatively high risk investments which are sensitive
to interest rate fluctuations.
The Group's assets include fixed and floating rate interest
instruments as detailed below. The Group is exposed to interest
rate movements on its floating rate liabilities.
30 FINANCIAL INSTRUMENTS - continued
The interest rate exposure profile of the Group's financial
assets and liabilities as at 31 December 2016 and 2015 were:
Group Non interest
bearing Fixed Floating Fixed Floating
assets/ rate rate rate rate Net
liabilities assets assets liabilities liabilities total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December
2016
Investments -
securities 2,217 617 - - - 2,834
Cash - - 2,802 - - 2,802
Trade and
other
receivables 1,259 - - - - 1,259
Accrued income 387 - - - - 387
Creditors
- falling due
within 1 year (2,229) - - - (1,015) (3,244)
- falling due
after 1 year (3,237) - - (27) (4,881) (8,145)
(1,603) 617 2,802 (27) (5,896) (4,107)
============= ========= ========== ============ ============ ===========
Non interest
bearing Fixed Floating Fixed
assets/ rate rate rate Floating Net
liabilities assets assets liabilities rate liabilities total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December
2015
Investments -
securities 52 1,516 - - - 1,568
Cash - - 4,390 - - 4,390
Trade and other
receivables 665 - - - - 665
Accrued income 454 - - - - 454
Creditors
- falling due
within
1 year (3,723) - - (667) (2,850) (7,240)
- falling due
after
1 year (2,726) - - (31) - (2,757)
(5,278) 1,516 4,390 (698) (2,850) (2,920)
============= ======== ========= ============= ============= ========
Non interest bearing assets comprise the portfolio of ordinary
shares, dealing securities and non interest bearing loans.
Fixed rate assets comprise preference shares, fixed rate loans,
unsecured loans and loans repayable on demand, with a weighted
average interest rate of 10.0% (2015: 9.9%).
Floating rate assets and floating rate liability loans are
subject to interest rates which are based on LIBOR and bank base
rates.
Fixed rate liabilities include hire purchase contracts and short
term loan notes.
The Group is not materially exposed to currency risk as its
assets and liabilities are substantially denominated in
sterling.
The interest rate exposure profile of the Company's financial
assets and liabilities as at 31 December 2016 and 2015 were:
Company Non interest
bearing Fixed Floating Fixed
assets/ rate rate rate Floating Net
liabilities assets assets liabilities rate liabilities total
As at 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2016
Investments - securities 499 617 - - - 1,116
Cash - - 858 - - 858
Accrued income 219 - - - - 219
Owed by Group undertakings 9,734 - - - - 9,734
Creditors
- falling due within
1 year (87) - - - (1,105) (1,192)
- falling due after
1 year (258) - - - (4,881) (5,139)
10,107 617 858 - (5,986) 5,596
============= ======== ========= ============= ================== ========
30 FINANCIAL INSTRUMENTS - continued
Non interest
bearing Fixed Floating Fixed
assets/ rate rate rate Floating Net
liabilities assets assets liabilities rate liabilities total
As at 31 December GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
2015
Investments - securities 52 1,516 - - - 1,568
Cash - - 372 - - 372
Accrued income 383 - - - - 383
Owed by Group undertakings 11,568 - - - - 11,568
Creditors
- falling due within
1 year (768) - - (667) - (1,435)
- falling due after - - - - - -
1 year
11,235 1,516 372 (667) - 12,456
============= ======== ========= ============= ================== ========
Although the Company holds investments that pay interest, the
Board does not consider it appropriate to assess the impact of
interest rate changes upon the value of the investment portfolio as
interest rate changes are only one factor affecting market price
and the impact is likely to be immaterial. However, as the Group
has bank borrowings, the section below shows the sensitivity of
interest payable to change in interest rates:
2016 2015
Profit Profit
and net and net
assets assets
If interest rates were 0.5% lower with all other
variables constant - increase (GBP'000) 29 14
Increase in earnings and net asset value per
ordinary share (pence) 0.30 0.14
If interest rates were 0.5% higher with all other
variables constant - decrease (GBP'000) (29) (14)
Decrease in earnings and net asset value per
ordinary share (pence) (0.30) (0.14)
========= =========
Liquidity risk
The investments in equity investments in NEX Exchange traded
companies may be difficult to realise at their carrying value,
particularly if the investment represents a significant holding in
the investee company. Similarly, investments in equity and fixed
interest stocks of unquoted companies that the Company holds are
only traded infrequently. They are not readily realisable and may
not be realised at their carrying value where there are no willing
purchasers.
The Group aims to hold sufficient cash to be able to provide
loan interest and quarterly capital repayment cover of at least 6
months.
The table below analyses the Group's financial liabilities into
relevant maturity groupings based on the remaining period at the
Statement of Financial Position date to the expected maturity date.
The amounts disclosed in the table are the contractual undiscounted
cash flows.
Between Between
Less than 1 and 2 and
As at 31 December 2016 1 year 2 years 5 years
GBP'000 GBP'000 GBP'000
Bank borrowings 1,413 2,264 2,863
Trade payables 225 - -
Accruals 1,672 - -
Contingent consideration - 3,955 -
Other creditors 359 - -
3,669 6,219 2,863
========== ========= =========
Between Between
Less than 1 and 2 and
As at 31 December 2015 1 year 2 years 5 years
GBP'000 GBP'000 GBP'000
Bank borrowings 2,890 - -
Trade payables 265 - -
Accruals 1,545 - -
Contingent consideration - - 3,697
Short term loan notes 667 - -
Other creditors 1,944 - -
7,311 - 3,697
========== ========= =========
30 FINANCIAL INSTRUMENTS - continued
Capital risk management
The Group manages its capital to ensure that entities within the
Group and the Company will be able to continue to trade in an
orderly fashion whilst maintaining sustainable returns to
shareholders.
The capital structure of the Group and Company consist of short
and long term borrowings as disclosed in notes 20 and 22, cash and
cash equivalents and equity attributable to equity shareholders of
the Company comprising issued share capital, share premium, share
warrant reserve and retained reserves as disclosed in notes 23 to
26. The Board reviews the capital structure of the Group and the
Company on a regular basis. The financial measures that are subject
to review include cash flow projections and the ability to meet
capital expenditure and other contracted commitments, projected
gearing levels and interest covenants although no absolute targets
are set for these.
Group Company
2016 2015 2016 2015
GBP'000 GBP'000 GBP'000 GBP'000
Debt (5,896) (2,850) (5,896) -
Cash and cash equivalents 2,802 4,390 858 372
Net (debt) / cash (3,094) 1,540 (5,038) 372
Net (debt) / cash as a % of
net assets (12.6%) 6.0% (23.3%) 1.8%
========= ========= ========= =========
31 FAIR VALUE MEASUREMENTS
Valuation inputs
IFRS 13 - Fair Value Measurement - requires an entity to
classify its financial assets and liabilities held at fair value
according to a hierarchy that reflects the significance of
observable market inputs. The classification of these assets and
liabilities is based on the lowest level input that is significant
to the fair value measurement in its entirety. The three levels of
the fair value hierarchy are defined below.
Quoted market prices - Level 1
Financial instruments, the valuation of which are determined by
reference to unadjusted quoted prices for identical assets or
liabilities in active markets where the quoted price is readily
available, and the price represents actual and regularly occurring
market transactions on an arm's length basis. An active market is
one in which transactions occur with sufficient volume and
frequency to provide pricing information on an ongoing basis.
Valuation technique using observable inputs - Level 2
Financial instruments that have been valued using inputs other
than quoted prices as described for level 1 but which are
observable for the asset or liability, either directly or
indirectly.
Valuation technique using significant unobservable inputs -
Level 3
Financial instruments, the valuation of which incorporate
significant inputs for the asset or liability that are not based on
observable market data (unobservable inputs). Unobservable inputs
are those not readily available in an active market due to market
illiquidity or complexity of the product. These inputs are
generally determined based on observable inputs of a similar
nature, historical observations on the level of the input or
analytical techniques.
For investment properties the significant unobservable inputs
used in the valuation at 31 December 2016 are the estimated rental
value (ERV) of the properties and the market capitalisation rate
(yield). The ERV has been determined by reference to rents
currently achieved on existing leases and the rents being asked by
landlords advertising properties of a similar specification in that
geographical region. The market capitalisation rate has been
determined by reference to actual market transactions for
properties in that region, with adjustment made to reflect the
particular characteristics of that property. A decrease in the ERV
or an increase in the market capitalisation rate will decrease the
fair value of the investment property. Conversely an increase in
the ERV or decrease in the market capitalisation rate will increase
the fair value.
For investments in securities, which includes early-stage
private equity investments, the significant unobservable inputs
used include cash flow forecasts and discount rates. An increase in
the discount rate applied will decrease the fair value of the
investment whereas a decrease in the rate will increase the fair
value. No reasonable foreseeable changes to significant
unobservable inputs will result in a material impact to profit and
loss or equity.
The valuation techniques used by the Company for level 3
financial assets can be found in accounting policy (j) (iii) and
(iv).
Further details of the securities portfolio can be found in note
10 and of the property portfolio in note 11 of these financial
statements.
31 FAIR VALUE MEASUREMENTS - continued
An analysis of the Group's and Company's assets measured at fair
value by hierarchy is set out below.
31 December Level Level
Group 2016 1 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit
and loss:
Property investments 9,628 - 9,628
Investments - securities
- Equities 2,217 499 1,718
Trade and other receivables - long term 5,180 - 5,180
17,025 499 16,526
31 December Level Level
2015 1 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit
and loss:
Property investments 9,559 - 9,559
Investments - securities
- Equities 52 51 1
- Fixed income 105 105 -
Trade and other receivables - long term 5,916 - 5,916
15,632 156 15,476
31 December Level Level
Company 2016 1 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit
and loss:
Investments - securities
- Equities 499 499 -
499 499 -
31 December Level Level
2015 1 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit
and loss:
Investments - securities
- Equities 52 51 1
- Fixed income 105 105 -
157 156 1
Set out below is a reconciliation of financial assets measured
at fair value based on level 3.
Property Trade
investments and other
receivables
Group Investments - long
31 December 2016 - securities term Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 9,559 1 5,916 15,476
Total gains and (losses):
In Statement of Comprehensive
Income (139) - 201 62
Additions 311 1,718 - 2,029
Disposals (103) (1) (937) (1,041)
Closing balance 9,628 1,718 5,180 16,526
Total gains and (losses) for
the period included in comprehensive
income for assets held at the
end of the reporting period (242) - 201 (41)
31 FAIR VALUE MEASUREMENTS - continued
Property Trade
investments and other
receivables
Investments - long
31 December 2015 - securities term Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 16,675 441 - 17,116
Total gains and (losses):
In Statement of Comprehensive
Income (744) (440) - (1,184)
Additions 359 - 5,916 6,275
Disposals (6,731) - (6,731)
Closing balance 9,559 1 5,916 15,476
Total gains and (losses) for
the period included in comprehensive
income for assets held at the
end of the reporting period (586) (440) - (1,026)
Company Investments Trading
31 December 2016 - securities securities Total
GBP'000 GBP'000 GBP'000
Opening balance 1 - 1
Disposals (1) - (1)
Closing balance - - -
Total gains or losses for the period
included in comprehensive income for
assets held at the end of the reporting
period - - -
Investments Trading
31 December 2015 - securities securities Total
GBP'000 GBP'000 GBP'000
Opening balance 441 - 441
Total gains or losses:
In statement of comprehensive income (440) - (440)
Closing balance 1 - 1
Total gains or losses for the period
included in statement of comprehensive
income for assets held at the end of
the reporting period (440) - (440)
The only financial liabilities held at fair value relates to the
deferred consideration on the acquisition of Gresham House Forestry
Limited (formally Aitchesse Limited) and the appointment of Gresham
House Asset Management Limited as investment manager to LMS Capital
plc amounting to GBP3,237,000. This is measured using level 3
valuation techniques. The only such financial liabilities held at
fair value within the Company relates to the LMS contingent
consideration totalling GBP258,000.
Price risk sensitivity
Based on values as at 31 December 2016 a 10% movement in the
fair values of the Group's equity and direct property investments
would be equivalent to a movement of GBP1,185,000 in both profit
and net assets.
32 RELATED PARTY TRANSACTIONS
Group
During the year management fees totalling GBP542,453 (2015:
GBP126,596) were invoiced to Gresham House Strategic plc ("GHS"), a
company in which the Group has a 19.2% interest. At the year-end
GBP57,803 (2015: GBP151,916) was due from GHS.
During the year management fees totalling GBP479,996 (2015:
GBPnil) were invoiced to LMS Capital plc ("LMS"), a company with a
significant shareholding in the Company as disclosed in the
directors' report. At the year-end GBP253,725 (2015: GBPnil) was
due from LMS.
Company
During the year the Company advanced loans totalling
GBP3,098,028 to (2015: received GBP550,736 from) Security Change
Limited. At the year-end GBP3,071,913 was due from (2015: GBP26,115
owed to) Security Change Limited. No interest was charged during
the year (2015: GBPnil).
During the year the Company received GBP8,278,600 (2015: GBPnil)
from Gresham House Finance Limited (formally Watlington Investments
Limited). At the year-end GBP221,400 (2015: GBP8,500,000) was owed
by Gresham House Finance Limited, against which a provision of
GBPnil (2015: GBP1,629,000) has been made. No interest was charged
during the year (2015: GBPnil).
During the year the Company received GBP361,460 (2015: GBPnil)
from Gresham House Forestry Limited. At the year-end GBP361,460
(2015: GBPnil) was owed to Gresham House Forestry Limited. No
interest was charged during the year (2015: GBPnil).
During the year Gresham House plc advanced loans totalling
GBP2,005,085 (2015: GBP4,321,977) to Gresham House Holdings
Limited. At the year-end GBP6,327,062 (2015: GBP4,321,977) was owed
by Gresham House Holdings Limited. No interest was charged during
the year (2015: GBPnil).
During the year the Company charged management fees totalling
GBPnil (2015: GBP397,020) to Gresham House Asset Management
Limited. At the year end GBP113,733 (2015: GBP375,406) was owed by
Gresham House Asset Management Limited.
33 POST BALANCE SHEET EVENTS
At the extraordinary general meeting of the Company on 10(th)
March 2017, it was resolved to issue 2,251,372 new ordinary shares
at a price of 325 pence per share to the Royal County of Berkshire
Pension Fund ("Berkshire"). This represents the alignment of
Berkshire with the Company following the announcement on 21
February 2017 that Berkshire intends to become a cornerstone
investor in the British Strategic Investment Fund ("BSIF"). BSIF
will be managed by GHAM and is aimed at providing solutions to
longer term investors, addressing demand for alternatives and
illiquid assets in a cost-effective manner which will also
facilitate structured co-investment.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LIFLIVLITFID
(END) Dow Jones Newswires
March 28, 2017 02:02 ET (06:02 GMT)
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