TIDMGHS
RNS Number : 6049H
Gresham House Strategic PLC
09 June 2017
Gresham House Strategic plc
Final results for the year ended 31 March 2017
Gresham House Strategic plc ("GHS" or the "Company") is pleased
to announce its final audited results for the year ended 31 March
2017.
GHS invests primarily in UK and European smaller public
companies, applying private equity techniques and due diligence
alongside a value investment philosophy to construct a focused
portfolio where 10-15 companies represent circa 80% of the
value.
The Investment Manager aims for a considerably higher level of
engagement with investee company stakeholders, including;
management, shareholders, customers, suppliers and competitors, to
identify market pricing inefficiencies and support a clear equity
value creation plan, targeting above market returns over the longer
term.
Highlights:
-- Strong investment performance with net asset value ("NAV")
increasing 7.6% during the year to 31 March 2017, 19.9%(1) during
the 12 months to 31 May 2017 and 20.2%(2) since the appointment of
Gresham House Asset Management ("GHAM"). Investment performance has
outperformed the FTSE Small-Cap Index since GHAM's appointment with
relative low volatility
-- GHS share price increased 8.2% during the year to 31 March
2017 and 16.2% in the 12 months to 31 May 2017
-- The portfolio of investments is tracking in line with GHAM's investment thesis
-- IMImobile ("IMI") has performed strongly with the share price
rising 16.7% during the year to 174.5p as of 31 March 2017, and a
further 23.8% to 216p as of 31 May 2017 a result of a strong
trading update, good organic growth, cash generation and a
successful acquisition
-- Strategic co-investment agreement with Gresham House
Strategic Public Equity Fund LP, leading to GBP4.6 million cash
realised on the sale of 23.0% of original holding in IMI
-- Realised profits on investments of GBP1.7 million since
GHAM's appointment as Investment Manager.
-- In line with the policy to return half of realised profits to
shareholders, the Board has recommended a maiden dividend of 15p
per share and conducted a share buyback in April 2017, equating to
circa GBP0.8m in returns to shareholders
-- Significant investment in existing portfolio companies and
new strategic investment opportunities (including post year-end
investments) such as:
- Supporting further acquisitions for Be Heard Group plc
- Increasing holding in Northbridge Industrial Services plc
- Increasing holding in Miton Group plc
- First pre-IPO investment in MJ Hudson
- New investment in Warpaint London plc
- Increasing holding in SpaceandPeople plc
- New initial investment in Escape Hunt plc
- Initial investments in new opportunities as we progress
engagement and due diligence
-- Whilst we believe the market is expensive relative to
historic ranges and that the outlook for equity markets remains
uncertain, we are finding attractive investment opportunities
focusing on smaller companies that tend to lack access to growth
capital. We focus on 'value' stocks which have a margin of safety
and where we can identify catalysts for value creation, and the
ability to generate long term superior returns.
(1) Performance from 27 May 2016, reported month end NAV through
to 31 May 2017 reported month end NAV
(2) Performance from 14 August 2015 through to 31 May 2017
Financial Highlights:
-- NAV at 31 March 2017 of GBP39.5 million, increased to GBP43.4 million as of 31 May 2017
-- Realised and unrealised gains on investments of GBP3.9
million in the year to 31 March 2017 (2016: GBP3.8 million)
-- Profit before tax of GBP2.8m (2016: GBP0.3m)
-- Earnings per share of 76.07p (2016: 8.30p)
The Board proposes a dividend for the year of 15p per share
(2016: nil). If approved by shareholders at the AGM, this will be
payable on 21 July 2017 to all shareholders on the register at the
close of business on 23 June 2017. The corresponding ex-dividend
date is 22 June 2017.
For further information please contact:
Gresham House Strategic
plc David Potter 07711 450 391
Gresham House Asset
Management Ltd
Investment Manager Graham Bird 0203 837 6270
finnCap Ltd
Nominated Adviser and Matt Goode / Emily
Joint Broker Watts 0207 220 0500
Liberum Neil Elliot / Jill
Joint Broker Li 0203 100 2000
Charles Cook /
Attila Consultants Sorrel Davies 0207 947 4489
The information communicated in this announcement is inside
information for the purposes of Article 7 of Regulation
596/2014
Chairman's statement
I am pleased to report considerable progress having now
completed our first full year as Gresham House Strategic operating
under the strategic public equity ("SPE") mandate managed by
Gresham House Asset Management.
The objective of the strategy is to generate superior returns
over the medium term by taking influential stakes mostly in
smaller, profitable and cash generative UK public companies with
the flexibility to invest in private or pre-IPO opportunities. You
will find details of investments made to date in the Manager's
report.
We are now halfway into our first three year investing period
and I am glad to report that our NAV at the start of the year was
995.7p and increased to 1071.8p by 31 March 2017. As I write, NAV
has risen to 1187.7p, up 20.2% since GHAM's appointment in August
2015.
As announced earlier, the policy of efficiently returning 50% of
the profits from realisations (net of any losses, of which there
were none last year) to shareholders has enabled us to propose our
maiden dividend of 15p per share and, subsequent to the year end,
to return a further GBP0.3 million by way of share buybacks. The
Board is confident of its ability to afford a good and growing
dividend over the long-term and as the portfolio matures.
As forecast last year, our ongoing costs have also declined to
approximately 3% of NAV. It is our intention to scale GHS which
will reduce the total expense ratio further over time.
This sounds and indeed is, all very positive. However, our
discount to NAV remains at 23% as of 31 May 2017. GHAM has
implemented a long-term plan to address this historic discount. Our
managers have met with investors throughout the country and
maintained a close dialogue with all forms of financial media.
Nothwithstanding the rebuilding of the shareholder base welcoming
several institutions, wealth managers and private investors to the
shareholder register, much favourable publicity and further share
purchases by the Board and the team at Gresham House, the discount
remains.
The Board's view is that there are four main reasons for
this:
-- GHS is a relative newcomer with a track record of 20 months
adopting the SPE strategy within this platform
-- We still hold a substantial amount of cash
-- Our stake in IMImobile is a large proportion of the
investments held at present which should reduce proportionately as
the portfolio matures
-- Our relatively small size
GBP9.9 million has been invested since April 2016, including
GBP2.6 million since the year end, bringing the total invested
since GHAM's appointment to GBP15.8 million. The shares of
IMImobile also continue to grow in value as the company delivers
good organic growth, generates strong cash flows and executes on
acquisitions benefiting from strong structural growth trends.
The Board remains alert to the discount, but believes the
appropriate actions are being taken and that in the medium-term
this discount will narrow as investors see the steady growth of
NAV, and as our marketing and investor relations activities
continue.
It is also very important to remember the advantage that
closed-ended companies with permanent capital, which invest in
relatively illiquid investments enjoy over open-ended funds. This
was admirably demonstrated after the Brexit vote with open-ended
property funds gating investors and changing withdrawal terms.
There has also been much publicity recently about investment trusts
that have raised dividends for up to 50 years consecutively and an
increasing focus at the smaller end of the market which bodes well
for GHS.
It should be recalled that in August 2016 we co-invested in the
new Gresham House Strategic Public Equity Fund LP (sister fund to
GHS, managed by the same team and adopting the same strategy, but
targeting private equity investors) by committing to sell 3.9
million shares of IMImobile to the new fund structure at 193.5p.
This had the effect of reducing our holding in IMImobile to 36% of
our fund at the end of the year.
The Board remains quite cautious about the future with the
political and economic uncertainties that surround us. We are also
conscious that most markets are at all time highs in absolute terms
and in terms of many valuation metrics. Whilst this in no way
invalidates our belief in the strategic public equity strategy that
focuses on profitable, cash generative, undervalued companies, it
underlines the need for very comprehensive research and due
diligence by our Managers before they make new investments. Select
smaller companies continue to grow and increasingly need long-term
supportive shareholders who can provide growth capital. We are
seeing several such opportunities and for this reason remain
confident in the outlook for our strategy.
I would like to thank our shareholders, our Managers at Gresham
House and my fellow Directors for their support.
David Potter
Chairman
8 June 2017
Investment Portfolio Holdings
Company Deal type % ownership % of total Value
of the portfolio
company
------------- ----------------- --------------- ----------- ---------
IMI Mobile Secondary 13.5% 39.9% GBP17.3m
- growth * GHAM
and re-rating controls
17% of
IMImobile
through
shares
held in
the Strategic
Public
Equity
Fund LP
(a sister
fund to
GHS
------------- ----------------- --------------- ----------- ---------
Northbridge Recovery 10.9% 7.7% GBP3.3m
and growth * GHAM
capital controls
12.3% of
Northbridge
through
shares
held in
the Strategic
Public
Equity
Fund LP
(a sister
fund to
GHS
------------- ----------------- --------------- ----------- ---------
Growth
capital
supporting
Be Heard buy and
Group build strategy 10.6% 7.4% GBP3.2m
------------- ----------------- --------------- ----------- ---------
Secondary
- operational
gearing
and AUM
Miton growth 3.6% 5.3% GBP2.3m
------------- ----------------- --------------- ----------- ---------
Secondary
with primary
growth
capital
Quarto supporting
Group acquisitions 4.4% 5.1% GBP2.2m
------------- ----------------- --------------- ----------- ---------
Secondary
Space and - recovery
People and growth 16.2% 2.7% GBP1.2m
------------- ----------------- --------------- ----------- ---------
Primary
- growth
Escape and return
Hunt on capital 3.7% 2.3% GBP1.0m
------------- ----------------- --------------- ----------- ---------
MJ Hudson Pre-IPO N/A 2.3% GBP1.0m
growth
capital
(convertible
loan note)
------------- ----------------- --------------- ----------- ---------
Investment Manager's Report
On 10 August 2015 GHAM was awarded the investment management
contract for GHS and the Company adopted a new Strategic Public
Equity investment strategy. In October 2015, the Company was
rebranded Gresham House Strategic plc (formerly SPARK Ventures
plc). The year to 31 March 2017 is therefore the first full year
under GHAM's management.
Strategic Public Equity investment strategy
We use the philosophy, approach and techniques adopted by
private equity investors to identify investment opportunities that
we believe can generate a 15% annualised return over the medium to
long-term. Targeting UK and European smaller public companies, the
strategy focuses on stocks with characteristics which indicate that
the company is intrinsically undervalued, such as low valuation
multiples and tangible asset cover. There is a strong focus on cash
generation, scope to improve return on capital and where we believe
there are opportunities to create shareholder value through
strategic, operational or management initiatives.
Our approach is differentiated from other public equity
investment strategies in several ways, including: depth of due
diligence undertaken; the level of interaction and constructive
engagement with management teams and boards; the focused and
concentrated portfolio; and the investment horizon in which we
typically seek to support a three to five year value creation plan
with identified milestones and catalysts.
In addition to our financial return criteria, we apply a
qualitative assessment matrix (Quality-score) to investment
opportunities looking at:
-- Market characteristics and dynamics
-- The company's competitive positioning within the market,
including barriers to entry, ability to grow, pricing power, and
client/customer quality
-- The strength, experience and alignment of management
-- The financial characteristics, focusing on areas such as
customer concentration, sustainability of margins, capital
intensity and cashflow characteristics, stability and
predictability
-- The likely attractiveness to other buyers, whether
institutional, trade or private equity
-- Our ability to acquire a stake and assist in value creation
and enhancement
We also make use of a network of seasoned executives from a
range of professional and commercial backgrounds with whom we
consult, including those who form part of the Gresham House
Advisory Group.
GHAM believes this approach can lead to superior investment
returns exploiting inefficiencies in certain segments of the public
markets. There are over 1,000 companies in the FTSE Small Cap index
and on AIM. These companies typically suffer from a lack of
research coverage and often have limited access to growth
capital.
In addition to publicly quoted companies, we also have the
flexibility to invest up to 30% of the portfolio in selected
unquoted securities including preference shares, convertible
instruments and other forms of investments enabling us to support
pre-IPO and take private opportunities.
Market commentary
The period since our last annual report has been characterised
by uncertainty with several significant political events in the UK,
Europe and the US. Investors have had to navigate continued
uncertainty over the terms of Brexit, the re-emergence of a threat
of a Scottish referendum, the US presidential election as well as
pockets of uncertainty in Europe and a snap election in the UK.
This is in addition to slowing growth in Asia, continued oil price
volatility, and uncertainty surrounding the prospect of interest
rate rises with rising inflation pointing in this direction.
Against this uncertain backdrop the NAV of GHS made steady
progress, increasing by 7.5% during the 12 months to 31 March 2017.
NAV has risen by 19.9% over the 12 months to 31 May 2017 and 20.2%
since GHAM's appointment, outperforming the FTSE Small-Cap Index,
despite the high cash position in the fund(3) .
The FTSE All Share and Small-Cap Indices reached highs in March
2017 (they have subsequently gone on to hit all time highs in May)
and the Bank of England increased growth forecasts in February from
1.4% to 2.0% for 2017, acknowledging the UK's performance had been
stronger than predicted immediately following the Brexit vote. We
have also seen good GDP growth in Germany and an increasing focus
on European equities. The cash position within the portfolio has,
as a consequence, acted as a drag on relative NAV performance.
Pleasingly our investments have delivered strong returns to date
and, except for recovery play SpaceandPeople plc (discussed below),
all are tracking in line with our investment thesis.
UK companies appear to be in relatively robust shape, however,
we are still operating in uncertain times and we believe there is
potential for increased market volatility surrounding the Brexit
negotiations and implementation, Trumpenomics and the impact of
inflation on real incomes and consumer sentiment. Brexit is having
an impact in two ways. Firstly, the weakness in sterling, while a
positive for companies with overseas earnings and for UK
manufacturing, has accelerated inflation, reduced consumer real
incomes and is damaging what remains relatively fragile consumer
confidence. Secondly it creates uncertainty over future trading
relationships, employment of European nationals and concerns over
slowing growth as investment decisions are put on hold until we can
get further clarity.
Global equity markets are currently expensive compared to
historic levels and the largest, the US market, which represents
more than half of global equities, is registering the highest
relative readings. In the US, the cyclically adjusted price to
earnings ratio ("CAPE") which measures the 10 year average earnings
as a percentage of market value is trading towards the top end of
historic ranges. The position is similar in the UK where the FTSE
All-Share Index, as a multiple of prospective earnings, is trading
close to its 10 year high and has a CAPE ratio of 16 versus its 10
year average of 14.4(4) . Consequently, at a macro level, we
continue to believe markets are expensive. Much of the increase in
valuations in the UK has been driven by market re-rating, weakness
in sterling and increased dividends rather than earnings growth and
upgrades. Furthermore, companies are trading close to peak
operating margin ranges.
Recent analysis by the ONS showed a steady increase in input
prices in the UK, which are growing at a faster rate than consumer
prices. We believe this points to two things; firstly, that the UK
consumer is yet to feel the full impact of inflationary forces and
secondly, that those companies with limited pricing power will find
margins under increasing pressure. Smaller companies tend to be
valued at a discount to their larger peers and we see scope for
superior returns for investors focusing on companies below GBP250m
market cap. In particular, we see opportunities for those
exhibiting value characteristics, trading below intrinsic value,
thus providing downside protection, and that generate strong cash
flows - 'value stocks'. Value stocks have been overlooked for much
of the last 10 years with investors favouring perceived quality and
momentum growth companies. We believe this trend has begun, and
will continue, to reverse and note that in the past when we start
to see a rotation back into value it is significant.
(3) Gresham House calculation and Bloomberg data. GHS NAV growth
from 14 August 2015 to 31 May 2017 relative to the FTSE Small-Cap
Index (excluding Investment Trusts).
(4) Panmure Gordon economic report, 31 May 2017.
Performance review
The GHS share price increased by 8.2% during the financial year
to 31 March 2017, 16.2% in the 12 months to 31 May 2017 and is up
18.8% since GHAM's appointment in August 2015(5) . This is against
a resilient performance and strong increase in NAV of 20.2% from
GHAM's appointment to 31 May 2017, with low volatility relative to
the FTSE Small-Cap Index. Frustratingly the 23.0% discount at which
the Company's shares trade relative to the value per share of its
portfolio remains wide when compared to similar funds as at 31 May
2017.
As at 31 May 2017, we hold a portfolio of 11 companies with 8
investments above 2% of the portfolio. The medium-term target is
for 10-15 stocks to represent more than 80% of the total
portfolio.
We believe the current portfolio of companies is attractively
valued with strong cash generative characteristics. We look at
every investment to establish the key drivers of investment
returns: earnings growth, potential for market re-rating and/or
cash generation delivering equity value through cash returns to
shareholders and debt reduction. We see significant potential
upside within our portfolio and through buying GHS shares at the
current 23% discount to the NAV per share(6) , investors have the
opportunity to gain exposure to a portfolio of 11 companies at a
weighted valuation of circa 6x forward EV/EBITDA (stripping out
cash from the portfolio) which in aggregate are forecast to grow
earnings at more than 20% per annum.
(5) Tracks share price increase from GHAM's appointment on 14
August 2015 (when the Company first reported NAV under the new SPE
strategy) through to 31 May 2017.
(6) As of 31 May 2017
Performance % Since 12 12 months Calendar
appointment months to 31 year
to 31 to May 2017 to
May 2017 31 31
March May
2017 2017
------------------------- ------------- -------- ---------- ---------
GHS NAV 20.2 7.6 19.9 13.9
------------------------- ------------- -------- ---------- ---------
FTSE Small Cap Index
(excluding Investment
Trusts) 17.8 16.6 20.6 9.8
------------------------- ------------- -------- ---------- ---------
FTSE All Share Index
(excluding Investment
Trusts) 14.3 17.9 19.0 6.1
------------------------- ------------- -------- ---------- ---------
Relative performance
------------------------- ------------- -------- ---------- ---------
vs FTSE Small Cap Index
(excluding Investment
Trusts) 2.4 (9.0) (0.7) 4.1
------------------------- ------------- -------- ---------- ---------
vs FTSE All Share Index
(excluding Investment
Trusts) 5.9 (10.3) 0.9 7.8
------------------------- ------------- -------- ---------- ---------
Portfolio metrics
Low volatility of returns - Information
Ratio vs FTSE Small-Cap Index(7) 1.5
----------------------------------------- -----
EV/EBITDA(8) 6.6x
----------------------------------------- -----
Growth(8) >20%
----------------------------------------- -----
Free cash flow yield(8) 10%
----------------------------------------- -----
(7) GHAM calculation. Volatility of returns relative to FTSE
Small-Cap Index (14 Aug 2017 - 31 May 2017).
(8) Through buying GHS shares at the current price (a 23%
discount to NAV as at 31 May 2017) and excluding the cash position,
an investor gains exposure to an attractive portfolio of
investments which on a weighted portfolio average trades on an
EV/EBITDA multiple of 6.5x, while growing EBITDA in excess of 20%
and generating strong weighted average free cash flow. The
calculation excludes Escape Hunt where live forecasts are not
available in the market yet post IPO.
NAV performance attribution
There were several drivers of portfolio performance, the
principal ones of which are outlined below:
IMImobile ("IMO") was a significant driver of performance in the
portfolio. GHS reduced its holding in IMO in August 2016 as part of
a strategic co-investment with the Gresham House Strategic Public
Equity Fund LP, benefitting portfolio construction and in so doing
realising a sizeable profit, half of which is to be returned to GHS
shareholders. The share price subsequently fell over the short-term
given currency movements but rebounded strongly responding to
positive results announcements, contract wins and an earnings
enhancing acquisition positioning the company as a leading supplier
in its field to UK banks. The company is well positioned to
continue this trend throughout 2017. IMImobile's performance
contributed 75.7% to the NAV performance in the year to 31 March
2017.
Miton Group also contributed 22.5% to the NAV performance during
the year to 31 March 2017. The decision to add to our holding in
April 2016 taking advantage of short-term share price weakness has,
to date, been proven to be right.
The portfolio also benefited from a strong short-term return
from its initial investment in Warpaint London through its IPO in
November 2016 which added 18.2% to NAV performance.
SpaceandPeople had a challenging year and this is reflected in
the negative attribution to NAV performance of -28.7% during the
period. In early January, we increased our holding and further
engaged with management. We have since seen stronger trading, a
renewed focus on the core UK business and positive trading updates
driving positive attribution post period-end.
GBP per
GBP'000 share Contribution
NAV as at 01/04/2016 36,712 996p %
-------------------------- ------------------------------- --------------------------- --------------
Be Heard 150 0.04 5.3
IMImobile 2,122 0.58 75.7
Miton Group 632 0.17 22.5
Northbridge Industrial
Services 196 0.05 7.0
Quarto (18) 0.00 -0.6
SpaceandPeople (806) - 0.22 -28.7
Realisation of IMImobile
shares 914 0.25 32.6
Realisation of Warpaint
London 511 0.14 18.2
Costs and other
investment movements (896) - 0.24 -31.9
NAV as at 31/03/2017 39,517 1072p
-------------------------- -------------------------------
Be Heard 44 0.01 1.0%
IMImobile 3,347 0.91 78.2%
Miton Group (154) - 0.04 -3.6%
Northbridge Industrial
Services 819 0.22 19.1%
Quarto (45) - 0.01 -1.1%
SpaceandPeople 506 0.14 11.8%
Realisations 114 0.03 2.7%
Costs and other
investment movements (458) - 0.12 -10.7%
Share buyback (285) 0.03 2.5%
NAV as at 31/05/2017 43,404 1188p
-------------------------- -------------------------------
* GHAM calculations
Dealing activity
GHS added to its holding in Miton Group plc, increasing its
stake in the company through 5% following a material fall in
Miton's share price in April 2016 precipitated by the resignation
of two 'star' fund managers. The long-term thesis supporting our
investment in Miton remained unchanged, albeit this had created a
short-term challenge. We continued to see scope for the group to
grow AUM through new fund launches, recovery in its multi-asset
product suite, and continued growth within existing funds - all
supported by a scalable platform. Whilst it was clear AUM growth
would be hit in the near-term as the management team appointed a
new fund manager for the Value Opportunities Fund, our view had
always been that the company could grow AUM. The fund manager
departures represented a backward step, which we believed would
create a 6-8 month delay in our thesis. To date we have been proven
right as Miton's momentum elsewhere in the business continued to
offset outflows. Overall, the company has now recovered, delivering
strong AUM growth, exceeding levels seen this time last year, a
significant uplift in profits and continued strong cash generation
supporting a doubling of its dividend plus a share buyback. The
company has visibility and clear scope to continue that trend given
very strong investment team performance across its fund suite, the
successful launch of its European equity fund now above GBP100m
with increasing investor focus on a recovery in European markets,
and the launch of its infrastructure fund which has been well
received by investors. We also note the strong investment
performance from Andrew Jackson who took over the management of the
Value Opportunities Fund, impressive given he had to navigate
significant initial fund outflows. Our investment in Miton Group
has generated a total return of 47.7% since our original investment
to date.(9)
Following our cornerstone investment in May 2016, we increased
our holding in Northbridge Industrial Services plc to 11% in
September 2016 and continue to see material potential upside over
the long-term. The business remains cash generative with a core and
solid loadbanks manufacturing and rentals business serving global
markets. Its oil tools rental division, Tasman, continues to face
near-term challenges given oil price volatility and continued
depressed levels of operational and capital expenditure within its
client base. However, the company is beginning to see green shoots
and a prolonged stabilisation in the oil price bodes well for
improved performance over the longer term. Our attractive average
entry price remains materially below the value of the assets on the
balance sheet, providing downside protection while gaining exposure
to the upside and longer term value creation. Our investment in
Northbridge has generated a total return of 43.5% since our
original investment to date.(10)
In November 2016, we made our first private investment in MJ
Hudson, an integrated adviser and service provider to the
alternative asset management industry covering legal,
administrative, fiduciary, marketing and investor relations and
regulatory reporting services. MJ Hudson is focused principally on
alternatives such as hedge funds and private equity, a fast-growing
area of the market which is seeing increasing allocation from
pension funds, institutional investors and family offices and is a
market segment well known to the Gresham House team. It is an area
where outsourcing of services is most prevalent and where we see
scope for significant growth in long-term funds creating a valuable
and recurring revenue base for MJ Hudson. The company has grown
organically as well as through acquisition and GHS initially
invested GBP1 million through a convertible loan note in a pre-IPO
funding round. The loan note provides an attractive 20% target
return through a combination of a 7% annual coupon and a redemption
premium (if redeemed) or conversion discount on an IPO. The initial
investment is circa 2% of NAV and allows for further investment in
support of the longer-term value creation plan for the business. MJ
Hudson was keen to engage with GHAM as a long term strategic
partner able to support the business as it progresses to IPO and
then throughout its life on the public markets over the long
term.
We initially invested GBP0.8 million in Warpaint London plc the
fast growing, global and highly cash generative cosmetics business
which owns the brand W7 (creative, design focused make up targeting
the 16 to 25 age range). Warpaint listed on the AIM market in
November and its shares have been extremely well received by
investors rising 163% since float to 31 March 2017 and delivered an
earnings and cash beat in its maiden set of results. When we
invested, the stock was valued at circa 8x EV/EBITDA which we felt
was attractive given the cash generative dynamics of the business,
the strength of its brand and the growth it was seeing in the UK
and Europe as well as in the US. As the share price and resulting
valuation increased we decided to take profits as following our
money would become increasingly difficult given our disciplined
investment process and focus on value. We no longer hold shares in
Warpaint and realised a 66.5% total return on our investment. We
continue to follow the story and wish the management team the very
best as they continue to grow this high-quality business.
SpaceandPeople plc faced several challenges in the period.
Following a third consecutive profits warning in January 2017 GHS
increased its holding in the company from 11% to 16%. We see
opportunity for significant value creation within the UK business
and saw the disappointing trading update in January this year as
the catalyst for a re-focusing of the strategy and an opportunity
to further support the management team. Attention has shifted to
cutting costs, restructuring overseas contracts and focusing on
improved return on capital and investment in the UK where there is
a significant opportunity to benefit from the growth in
experiential marketing. It is extremely pleasing to see the fruits
of this more focused strategy beginning to come through with the
company announcing an excellent Q1 2017 trading update and with its
corporate broker upgrading profit guidance. We continue to support
management over the long-term and see scope for further profit
growth, continued good cash generation which should support the
resumption of the company's dividend and an improved market
valuation. Adding to our holding at lower levels has gone some way
to recovering value in the portfolio given the share price has
almost doubled since our increased investment and we see clear
scope to generate a profit and positive return for GHS over the
medium term. Overall SpaceandPeople has generated a negative total
return of 30.3% since our original investment to date.
We added to our Be Heard plc stake in January, participating in
a small placing to fund the acquisition of Freemavens. Be Heard has
generated a total return of 13.7% since our original investment to
date.
We have also made an initial investment of approximately GBP0.6
million during the period in another exciting opportunity as we
progress our diligence and engagement.
(9) Total return of the Company's investment in the relevant
stock since GHAM's appointment through to 31 May 2017.
(10) Total return on the investments made in Northbridge as of
31 May 2017.
Post period-end dealing activity
We made an initial investment of GBP1.0 million in Escape Hunt
plc, a rapidly growing business within the leisure and
entertainment sector that operates 'escape games' which are
immersive and experiential, an area of the market benefiting from a
significant growth trend as UK consumers shift spending toward
experiences and activities. The business has attractive return on
capital and cashflow dynamics with a significant growth opportunity
to roll out in the UK with a highly experienced team with proven
track records at Pret a Manger and Giraffe restaurants. We believe
the shift from a purely franchise operation to an owner-managed
model in certain territories, including the UK, offers an
attractive opportunity to capitalise on a material increase in the
available profit pool at time when consumer awareness is growing
rapidly.
GHS also made initial investments of GBP0.9 million in two
software businesses with a view to building its position alongside
further engagement with the companies and management teams.
1 April 2016 - 31 May 2017:
Total invested GBP9.9 million
----------------- ---------------
Total realised GBP6.9 million
----------------- ---------------
Realised profits GBP1.7 million
----------------- ---------------
We continue to see attractive investment opportunities and have
invested a total of GBP3.8 million into new and existing
opportunities since the beginning of 2017. Our pipeline remains
healthy.
Portfolio review
Below we review progress against our investment for each
portfolio company above 2% of NAV.
IMImobile - 'High growth business benefiting from mobile data
expansion'
IMImobile continues to perform in line with our investment
thesis. We had identified initiatives that the management were
undertaking over the last 18 months to create value including:
-- Simplification of the share capital structure
-- More conventional board governance
-- Repositioning of the product suite under the IMImobile brand
reducing complexity
-- Improved investor relations, market engagement and
positioning
It is pleasing to see all of those successfully executed by the
management team. IMO is trading well growing organically and
through acquisition. The company announced the renewal of a major
contract in January on terms in line with management expectations
and at the same time confirmed the signing of a reseller agreement
with a global solutions provider to call centres for its IMIchat
product. In February the company simplified its share capital
structure with the founders of the business converting their 'B
shares' and then, given the healthy demand, placing shares with
institutional investors, broadening the share register and removing
complexity. Management retain a significant stake in the
business.
IMO announced a new contract award with Telenor a leading mobile
operator in Scandinavia and SE Asia in March 2017 and followed with
the earnings enhancing acquisition of Infracast which makes them
the leading supplier to UK banks and resulted in Investec
increasing forecasts by 5%. The company is expected to announce its
results in June 2017.
The IMO share price has increased 16.7% in the 12 months to 31
March 2017 and has risen a further 23.3% through to 31 May.
Be Heard Group plc - 'Primary growth capital supporting a buy
and build strategy'
Be Heard (BHRD) is a digital advertising and marketing group
operating at the intersection of marketing, technology and
e-commerce with deep expertise and capability across the key
pillars of digital communications:
-- Digital marketing
Be Heard acquired Agenda 21 in November 2015. Its core business
is planning, buying and managing multi-channel marketing campaigns
across the digital media spectrum on behalf of its clients
including: search engine optimisation, display advertising and
social, mobile and programmatic marketing and paid media.
-- Web design and user experience
Having acquired MMT in April 2016, Be Heard gained a strong,
market leading capability in website design and build, application
development and user experience along with a blue-chip client
base.
-- Digital content creation
Be Heard acquired creative agency Kameleon in December 2016
bringing deep expertise and industry recognised credentials in
digital content creation.
-- Data analytics
Acquiring Freemavens in February 2017, the group added data
analytics to its client service offering providing deep insights
and improving client returns on investment in digital
marketing.
The company's vision is to build an agile interconnected group
focused on helping clients maximise their return on investment from
digital marketing. Their strategy is to acquire and connect best in
class companies spanning the core digital marketing disciplines,
providing management experience, access to deeper resources and a
strong platform for growth.
There is a strong market for digital marketing where growth is
outpacing traditional media channels. The large media companies
have been active acquiring smaller digital media capability but
often leave former owner/managers disenfranchised and there is
little back office integration within these large groups. This has
left a gap in the market for credible, mid-sized companies with
international reach. Peter Scott, Executive Chairman and founder of
Be Heard, has identified this gap and as a well-known industry
participant with an enviable track record, has created a strong
management team to build a business, consolidating smaller players
to fill this space.
Be Heard is performing in line with our thesis and the share
price has increased 12.6% over the 12 months to 31 March 2017(11)
having reported solid interim results in September 2016 and with
the management team successfully executing four acquisitions
proving the business model. Importantly the management team is
driving cross-selling synergies and the business recently pitched
to a major international consumer brand with success across all
four areas of expertise and divisions within the group. The
business continues to trade well reporting strong results for the
year ended 31 December 2016 and a positive outlook and comment on
Q1 trading at its AGM in May 2017. Corporate broker Numis recently
increased its earnings forecast for Be Heard by 6% and upgraded its
price target to 5p versus the current price of 3.8p as of 31 May
2017.
(11) Be Heard Group suspended its shares in March 2017 following
the announced acquisition of MMT. The shares resumed trading on AIM
on 22 April opening at a price of 3.375p, used to calculate
performance to 31 March 2017.
Northbridge Industrial Services plc - 'Recovery and growth,
investing alongside management'
Northbridge Industrial Services (NBI) is a market leading
manufacturing and rentals business which hires and sells specialist
electrical and oil & gas related equipment in a range of
international markets, including the UK, US, Europe and
Australasia. End markets include utility companies, shipping,
construction, data centres, medical and oil & gas. Loadbank and
transformer components are assembled by the group at its
manufacturing facility in Burton-on-Trent. Historically, the group
has grown organically and through acquisitions, most recently by
the acquisition of Tasman Tool, completed in 2014.
Northbridge (NBI) saw its share price rise in Q4 2016 and
continue into Q1 2017, a result of positive measures to manage oil
output amongst OPEC member states. The company continues to perform
in line with our long-term investment thesis. Although the oil
price has stabilised the market remains tough and we remain
cautious with respect to NBI's tool hire business (Tasman) serving
the oil & gas sector. In its interim results announced in
September 2016, the company reiterated that its loadbank and
transformer division (Crestchic) continued to perform well in the
UK and Europe. We continue to support the management team who are
themselves substantial shareholders in the business. NBI continues
to generate cash and is well positioned to benefit from growth in
its core markets and a recovery and stabilisation in the oil
price.
We remain highly supportive and engaged with the management
team, having introduced Nitin Kaul who has recently been appointed
as a non-executive director. Nitin is well known to the Gresham
House team.
The Northbridge share price has increased 42.9% in the 12 months
to 31 March 2017.
Miton Group - 'AUM growth, significant operational gearing and
scope to improve return on capital'
Strong fund investment performance resulted in significant AUM
growth at Miton Group plc (MGR). This has resulted in a pleasing
operational and financial performance from the group with results
in March 2017 confirming a doubling of profits and importantly,
signaling a material increase in dividend. The business remains
highly cash generative with a balanced suite of single strategy
funds and an operational platform that can facilitate continued
growth in AUM over the long-term. Importantly the multi-asset funds
have seen strong inflows following a repositioning and
restructuring of the product and good investment performance. The
Value Opportunities Fund which suffered last year following the
departure of its lead fund managers has performed extremely well
under new manager Andrew Jackson, despite having to manage
significant outflows - which now appear to have stabilised. The
recently launched European Opportunities Fund has also performed
well and is now managing more than GBP100 million of assets. The
smaller company funds continue to perform and grow and it is
pleasing to see the US funds benefiting from inflows, fast
approaching GBP300 million.
The management of the cost base is resulting in operational
gearing and we saw the positive impact of increased AUM on profits
and cash in Miton's recent results announcement. The asset
management platform and infrastructure can support significant
growth in AUM and the strong balance sheet and good cash generation
enables scope to improve shareholder returns through increasing
dividends.
The Miton share price increased 15.2% in the 12 months to 31
March 2017.
Quarto Group - 'Organic growth, cash generation and acquisition
growth at attractive valuations'
The Quarto investment thesis is centred on single digit organic
growth but importantly on the management team's ability to acquire
smaller niche publishers at attractive valuations and to drive
significant synergies within the Quarto platform to enhance group
profitability. The strong cash generation will pay down debt over
the long
term and enhance shareholder value. The investment in Quarto is tracking in line with our thesis.
Quarto has delivered a good and resilient performance from its
niche publishing business with another year of strong growth in
children's books. The management team now has an enviable track
record of executing enhancing acquisitions following the successful
integration of IVY Press and Becker & Mayer and we see scope
for further acquisitions this year. Having now disposed of its
direct sales business in Australia and its printing division in
Hong Kong the management team is solely focused on its core
publishing portfolio.
The Quarto share price fell marginally, by 1.2%, in the 12
months to 31 March 2017.
SpaceandPeople plc - 'Recovery alongside a strategic refocus
with a return to normalised margins'
As mentioned earlier in this report, SpaceandPeople has faced
several challenges and a tough trading environment (primarily in
its overseas markets) over the last twelve months, culminating in a
third profits warning in January 2017. Although this is clearly
disappointing it has resulted in the management shifting focus to
the profitable and growing UK business and provided opportunity for
further engagement from the GHAM team. We took the opportunity to
increase our stake at depressed levels and are now actively engaged
with the management team in supporting long-term shareholder value
creation and a reversal of the poor operational performance of the
business. We have visited the company's headquarters in Glasgow and
held several meetings with the CEO, Chairman and co-founder.
We believe the board and management team is now focusing on the
right areas of business which will drive much improved performance
and we are already seeing the positive results. The company
recently announced the award of major UK airport contracts in
addition to its network rail contract and reported strong Q1
trading which resulted in the corporate broker upgrading
forecasts.
The SpaceandPeople share price fell 33.0% in the 12 months to 31
March 2017.
Escape Hunt plc - 'Growth through site rollout with attractive
cash generation and return on capital dynamics'
We made an initial investment in Escape Hunt in May 2017, a
rapidly growing business within the leisure and entertainment
sector that operates 'escape games' which are immersive and
experiential, an area of the market benefiting from a significant
growth trend as UK consumers shift spending toward experiences and
activities.
An escape room is a physical adventure game in which players are
locked in a themed room and have to find clues and solve puzzles in
order to escape against a countdown clock. Escape Hunt's games
typically require players to solve a crime story or mystery, which
has been tailored to the location of the branch, within 60
minutes.
The first Escape Hunt branch was opened in 2013 in Bangkok,
Thailand. Since then, the business has grown quickly, and now has a
franchised global network of branches in 19 countries. The growth
strategy now centres on increasing exposure to the UK market
through the roll-out of owner- managed sites with scope for
significantly higher earnings versus the franchise model.
We are backing a highly credible management team with strong
track records of delivering a similar model of growth at well-known
consumer brands in the UK and overseas (Pret a Manger and Giraffe).
The business model has extremely attractive cash flow
characteristics and return on capital dynamics.
MJ Hudson - 'pre-IPO investment'
MJ Hudson is the first private investment in the portfolio. GHS
initially invested GBP1 million through a convertible loan note
structured to generate a 20% annualised return in a pre-IPO funding
round. The business is growing organically and through acquisition
in what remains a fragmented market.
We meet with the CEO and management team frequently and the
business is performing well and in line with expectations. We
expect further opportunity to put more money to work through the
same convertible loan note structure in support of
acquisitions.
Outlook
We continue to believe the market is expensive and the outlook
for equity markets remains uncertain. Now is the time to be
switching out of over owned and highly valued 'growth stocks' into
'value stocks' that have been overlooked for much of the last ten
years. Within this area of the market smaller companies continue to
face barriers to accessing growth capital and significant market
inefficiencies remain. Smaller companies, especially those below
GBP100m market capitalisation tend to be attractively valued. Our
Strategic Public Equity strategy focuses on smaller companies that
are intrinsically undervalued, cash generative and with attractive
return on capital dynamics 'value stocks' and we are seeing
increasing investment opportunities in this area. Having permanent
capital and being prepared to invest over longer time horizons we
are in a strong position to make new investments as company
management teams are increasingly eager to engage with potential
shareholders who can support value creation plans through the
provision of growth capital over the long-term.
We have seen increasing interest in GHS, with several
institutional, wealth manager and private investors joining the
share register. Halfway through the three year investment period,
GHAM remains focused on investing its cash in attractive
opportunities, in increasing the marketing of the Company and
widening its exposure within the investment community with the
narrowing of the discount a key objective.
Our thorough investment and due diligence process takes time and
we have a very healthy and well developed pipeline of investment
opportunities with several being worked through to advanced stages
with our Investment Committee.
Gresham House Asset Management Limited
8 June 2017
Group Statement of Comprehensive Income
for the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Notes GBP '000 GBP '000
-------------------------------- ------ ----------- -----------
Continuing operations
Gains on investments at fair
value through profit or loss
Realised gains 1,614 427
Unrealised gains 2,314 3,351
-------------------------------- ------ ----------- -----------
8 3,928 3,778
Revenue
Bank interest income 28 29
Loan note interest income 81 -
Portfolio dividend income 173 -
Management fee income - 218
Other income 13 -
-------------------------------- ------ ----------- -----------
295 247
Administrative expenses
Salaries and other staff costs 3 (138) (138)
Other costs 4 (1,252) (3,625)
-------------------------------- ------ ----------- -----------
Total administrative expenses (1,390) (3,763)
-------------------------------- ------ ----------- -----------
Profit before taxation 2,833 262
Taxation 5 - -
Withholding tax expense (28) -
Profit for the financial year 2,805 262
-------------------------------- ------ ----------- -----------
Attributable to:
- Equity shareholders of
the parent 2,805 262
Basic and Diluted earnings
per ordinary share for profit
from continuing operations
and for profit for the year 6 76.07p 8.30p
-------------------------------- ------ ----------- -----------
There are no components of other comprehensive incomes for the
current year (2016: None)
Group Statement of Financial Position
as at 31 March 2017
31 March 31 March
2017 2016
Notes GBP '000 GBP '000
------------------------------- ------ ---------- ---------
Non-current assets
Investments at fair value
through profit or loss 8 27,003 21,777
------------------------------- ------ ---------- ---------
27,003 21,777
Current assets
Trade and other receivables 10 249 69
Cash and cash equivalents 12,987 16,555
------------------------------- ------ ---------- ---------
13,236 16,624
------------------------------- ------ ---------- ---------
Total assets 40,239 38,401
------------------------------- ------ ---------- ---------
Current liabilities
Trade and other payables 11 (722) (1,689)
------------------------------- ------ ---------- ---------
Total liabilities (722) (1,689)
------------------------------- ------ ---------- ---------
Net current assets 12,514 14,935
------------------------------- ------ ---------- ---------
Net assets 39,517 36,712
------------------------------- ------ ---------- ---------
Equity attributable to the
shareholders of the parent
Issued capital 12 1,932 1,932
Share premium 13,063 13,063
Revenue reserve 13,829 11,024
Capital redemption reserve 10,693 10,693
------------------------------- ------ ---------- ---------
Total equity due to ordinary
shareholders 39,517 36,712
------------------------------- ------ ---------- ---------
Net asset value per ordinary
share 1,071.79p 995.71p
Number Number
'000 '000
------------------------------- ------ ---------- ---------
Ordinary shares in issue 12 3,843 3,843
Shares held in treasury (156) (156)
------------------------------- ------ ----------
Shares in issue for net asset
value per share calculation 3,687 3,687
------------------------------- ------ ---------- ---------
These financial statements were approved and authorised for
issue by the Board of Directors on 8 June 2017. Signed
on behalf of the Board of Directors.
David Potter Charles Berry
Chairman Director
Company Statement of Financial Position
as at 31 March 2017
Company
number: 3813450
31 March 31 March
2017 2016
Notes GBP '000 GBP '000
----------------------------- ------ --------- ---------
Non-current assets
Investments at fair value
through profit or loss 8 27,003 21,777
Investments in subsidiary
undertakings 9 - 534
Deferred tax 5 - 716
----------------------------- ------ --------- ---------
27,003 23,027
Current assets
Trade and other receivables 10 249 29
Cash and cash equivalents 12,987 16,368
----------------------------- ------ --------- ---------
13,236 16,397
----------------------------- ------ --------- ---------
Total assets 40,239 39,424
----------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 11 (722) (15,140)
----------------------------- ------ --------- ---------
Total liabilities (722) (15,140)
----------------------------- ------ --------- ---------
Net current assets 12,514 1,257
----------------------------- ------ --------- ---------
Net assets 39,517 24,284
----------------------------- ------ --------- ---------
Equity
Issued capital 12 1,932 1,932
Share premium 13,063 13,063
Revenue reserve 13,829 (1,404)
Capital redemption reserve 10,693 10,693
----------------------------- ------ --------- ---------
Total equity 39,517 24,284
----------------------------- ------ --------- ---------
The Company's profit for the year was GBP15.233m (2016: profit
of GBP9.803m).
These financial statements were approved and authorised for
issue by the Board of Directors on 8 June 2017. Signed on behalf of
the Board of Directors.
David Potter Charles Berry
Chairman Director
Group Statement of Cash Flows
for the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Notes GBP '000 GBP '000
------------------------------------- ------ ----------- -----------
Cash flows from operating
activities
Cash flow from operations a (1,239) (200)
------------------------------------- ------ ----------- -----------
Net cash outflow from operating
activities (1,239) (200)
Cash flows from investing
activities
Purchase of financial investments (8,099) (1,546)
Sale of financial investments 8 5,770 5,195
Net cash (outflow)/inflow
from investing activities (2,329) 3,649
Cash flows from financing
activities
Proceeds from share issue - 10,181
Transaction costs on issue
of shares - (111)
------------------------------------- ------ ----------- -----------
Net cash inflow from financing
activities - 10,070
Change in cash and cash equivalents (3,568) 13,519
Opening cash and cash equivalents 16,555 3,036
------------------------------------- ------ ----------- -----------
Closing cash and cash equivalents 12,987 16,555
------------------------------------- ------ ----------- -----------
Note
a) Reconciliation of profit for the year
to net cash outflow from operations
GBP'000 GBP'000
------------------------------------- ------ ----------- -----------
Profit for the year 2,805 262
Gains on investments 8 (3,928) (3,778)
------------------------------------- ------ ----------- -----------
Operating results (1,123) (3,516)
Change in trade and other
receivables (20) (37)
Change in restricted cash - 3,122
Change in trade and other
payables (96) 231
Net cash outflow from operations (1,239) (200)
------------------------------------- ------ ----------- -----------
Company Statement of Cash Flows
for the year ended 31 March 2017
Year ended Year ended
31 March 31 March
2017 2016
Note GBP '000 GBP '000
------------------------------------- ------ ----------- -----------
Cash flows from operating
activities
Cash flow from operations a (1,194) 77
------------------------------------- ------ ----------- -----------
Net cash (outflow)/inflow
from operating activities (1,194) 77
Cash flows from investing
activities
Purchase of financial investments (8,099) (1,546)
Sale of financial investments 8 5,770 5,195
Proceeds from liquidation
of subsidiary 9 142 -
Net cash (outflow)/inflow
from investing activities (2,187) 3,649
Cash flows from financing
activities
Proceeds from share issue - 10,181
Transaction costs on issue
of shares - (111)
------------------------------------- ------ ----------- -----------
Net cash inflow from financing
activities - 10,070
Change in cash and cash equivalents (3,381) 13,796
Opening cash and cash equivalents 16,368 2,572
------------------------------------- ------ ----------- -----------
Closing cash and cash equivalents 12,987 16,368
------------------------------------- ------ ----------- -----------
Note
a) Reconciliation of profit for the year to net
cash outflow from operations
GBP'000 GBP'000
------------------------------------- ------ ----------- -----------
Profit for the year before
interest and tax 15,949 9,803
Gains on investments 2 (3,928) (3,785)
Non-cash items:
Investments in subsidiaries
written-off 392 107,697
Intercompany liability written-off 11 (13,500) (113,946)
------------------------------------- ------ ----------- -----------
Operating results (1,087) (231)
Change in trade and other
receivables (67) 81
Change in trade and other
payables (40) 227
Net cash (outflow)/inflow
from operations (1,194) 77
------------------------------------- ------ ----------- -----------
Group Statement of Changes in Equity
for the year ended 31 March 2017
Ordinary Capital
share Share Revenue Redemption Total
D shares capital Premium Reserve Reserve Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- ------------ --------
Balance at 31 March
2015 10 1,125 9 10,762 10,693 22,599
----------------------- --------- --------- --------- --------- ------------ --------
Profit and total
comprehensive income
for the year - - - 262 - 262
Shares issued - 797 13,543 - - 14,340
Share consolidation
adjustment - - 9 - - 9
Transaction costs - - (498) - - (498)
Balance at 31 March
2016 10 1,922 13,063 11,024 10,693 36,712
----------------------- --------- --------- --------- --------- ------------ --------
Profit and total
comprehensive income
for the year - - - 2,805 - 2,805
Balance at 31 March
2017 10 1,922 13,063 13,829 10,693 39,517
----------------------- --------- --------- --------- --------- ------------ --------
Company Statement of Changes in Equity
for the year ended 31 March 2017
Ordinary Capital
share Share Revenue Redemption Total
D shares capital Premium Reserve Reserve Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------- --------- --------- --------- --------- ------------ --------
Balance at 31 March
2015 10 1,125 9 (11,207) 10,693 630
----------------------- --------- --------- --------- --------- ------------ --------
Profit and total
comprehensive income
for the year - - - 9,803 - 9,803
Shares issued - 797 13,543 - - 14,340
Share consolidation
adjustment - - 9 - - 9
Transaction costs - - (498) - - (498)
Balance at 31 March
2016 10 1,922 13,063 (1,404) 10,693 24,284
----------------------- --------- --------- --------- --------- ------------ --------
Profit and total
comprehensive income
for the year - - - 15,233 - 15,233
Balance at 31 March
2017 10 1,922 13,063 13,829 10,693 39,517
----------------------- --------- --------- --------- --------- ------------ --------
Notes to the Consolidated Financial Statements
1 Basis of preparation and significant accounting policies
Gresham House Strategic plc (the "Company") is a company
incorporated in the UK and registered in England and Wales
(registration number: 3813450). The Company was formerly named
SPARK Ventures plc but took the opportunity to change the Articles
of Association at the Annual General Meeting held on 22 September
2015 to permit the Directors to change the Company's name by a
resolution of the Board. Accordingly the name was changed to
Gresham House Strategic plc on 27 October 2015. The consolidated
financial statements for the year ended 31 March 2017 include the
financial statements of the Company and its subsidiaries (together
'the Group'). Separate financial statements of the Company are also
presented except that the Company's statement of comprehensive
income and supporting notes are not included. The same accounting
policies were applied in preparing the financial statement of the
Company. The accounting policies applied are consistent with the
prior year.
Basis of preparation
The consolidated financial statements for the year ended 31
March 2017 have been prepared in accordance with International
Financial Reporting Standards ('IFRS') approved by the
International Accounting Standards Board ('IASB'), as adopted by
the European Union and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements are prepared on a historical cost basis
except for the revaluation of certain financial instruments stated
at fair value. Standards and interpretations applied for the first
time have had no material impact on these financial statements.
The following new standards, interpretations and amendments
which will or may have an effect on the Group, are effective for
annual periods beginning on or after 1 January 2017 and have not
yet been applied in preparing these financial statements. None of
these new standards or interpretations are expected to have a
material impact on the financial statements of the Group.
-- IFRS 9 'Financial Instruments' will eventually replace IAS 39
in its entirety. This standard becomes effective for accounting
periods beginning on or after 1 January 2018. Its adoption may
result in changes to the classification and measurement of the
Group's financial instruments, including any impairment
thereof.
-- IFRS 15, 'Revenue from contracts with customers' deals with
revenue recognition and establishes principles for reporting useful
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's contracts with
customers. Revenue is recognised when a customer obtains control of
a good or service and thus has the ability to direct the use and
obtain the benefits from the good or service. The standard replaces
IAS 18, 'Revenue' and IAS 11, 'Construction contracts' and
associated interpretations. The standard has been adopted by the EU
and is effective for annual periods beginning on or after 1 January
2018 and earlier application is permitted.
-- IFRS 16, 'Leases' will primarily affect accounting by lessees
and will result in the recognition of most leases in the statement
of financial position. The standard removes the current distinction
between operating and finance leases and requires recognition of an
asset (the right to use the leased item) and a financial liability
to pay rentals for virtually all lease contracts. The only
exceptions are short-term and low-value leases. It substantially
retains the lessor accounting from IAS 17. The standard replaces
IAS 17, 'Leases' and associated interpretations. The standard is
yet to be adopted by the EU and will become effective for
accounting periods beginning on or after 1 January 2019.
-- IAS7 'Statement of Cash flows' as part of the Disclosure
initiative. Entities will now be required to explain changes in
their liabilities arising from financing activities. This includes
changes arising from cash and non-cash changes. This amendment is
effective for annual periods beginning on or after 1 January
2017.
-- IAS12 'Income Taxes'. This amendment clarifies the accounting
for deferred tax where an asset is measured at fair value and the
fair value is below the asset's tax base. This amendment is
effective for annual periods beginning on or after 1 January
2017.
Annual Improvements to IFRSs 2014-2016 Cycle
-- IFRS12 'Disclosure of Interests in Other Entities' The
amendment clarified the scope of the standard by specifying the
disclosure requirements in the standard apply to an entity's
interests that are classified as held for sale, as held for
distribution or as discontinued operations in accordance with IFRS
5, Non-current Assets Held for Sale and Discontinued Operations.
The Amendment is effective for annual periods beginning on or after
1 January 2017.
Annual Improvements to IFRSs 2014-2016 Cycle (continued)
-- IAS 28 'Investments in Associates and Joint Ventures' The
amendment clarified that the election to measure at fair value
through profit or loss an investment in an associate or a joint
venture that is held by an entity that is a venture capital
organisation, or other qualifying entity, is available for each
investment in an associate or joint venture on an
investment-by-investment basis, upon initial recognition. The
amendment is effective for annual periods beginning on or after 1
January 2018.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Directors' report and Investment Manager's
report. The key risks facing the business and management's policy
and practices to manage these are further discussed in note 13. In
assessing the Group as a going concern, the Directors have
considered the forecasts which reflect the Directors' proposed
strategy for portfolio investments and the current economic
outlook. The Group's forecasts and projections, taking into account
reasonably possible changes in performance, show that the Group is
able to operate within its available working capital and continue
to settle all liabilities as they fall due for the foreseeable
future.
The Directors have considered the use of the going concern basis
for the preparation of these financial statements within the
context of the Company's stated investment strategy. The strategy
targets superior long-term returns through a policy of
constructive, active engagement with investee companies, adopting
private equity techniques to manage risk. The Investment Manager
(Gresham House Asset Management Limited or GHAM) targets smaller,
predominantly quoted UK companies which it believes can benefit
from strategic, operational or management initiatives and applies
structured investment appraisal, due diligence and risk management
on these companies. Accordingly the Directors remain of the view
that the going concern basis of preparation is appropriate.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
made up to 31 March each year.
Where the Company has control over an investee, which is not
part of its investment portfolio, 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.
Non-controlling interests
All subsidiaries consolidated in these financial statements are
100% owned (Note 9).
Transactions eliminated on consolidation
Intragroup balances and any unrealised gains or losses or income
and expenses arising from intragroup transactions, are eliminated
in preparing the consolidated financial statements.
Financial instruments:
Trade debtors and creditors
Trade debtors and creditors are accounted for at transaction
value when asset or liability is incurred. The fair value equals
the carrying amount as these are short term in nature.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks and other short-term highly liquid investments
that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Financial Investments
Investments are included at valuation on the following
basis:
(a) Listed investments are recognised on trading date and valued
at the closing bid price at the year end.
(b) Unquoted investments where a significant third party funding
event has taken place during the year ended 31
March which establishes a new value for that investment are carried at that value.
(c) Investments considered to be mature are valued according to
the Directors' best estimate of the Group's share of that
investment's value. This value is calculated in accordance with
International Private Equity Valuation (IPEV) guidelines and
industry norms and includes calculations based on appropriate
earnings or sales multiples.
(d) All other unquoted investments are valued at the Directors'
best estimate of the Group's share of that investment's value,
taking into account any temporary loss in value. For new
investments, the cost of investment is generally considered to be
its fair value.
The Directors consider that a substantial measure of the
performance of the Group is assessed through the capital gains and
losses arising from the investment activity of the Group.
Consequently, for measurement purposes, financial investments,
including equity, loan and similar instruments, are designated at
fair value through profit and loss, and are valued in compliance
with IAS 39 'Financial Instruments: Recognition and Measurement',
IFRS13 'Fair Value Measurement' and the International Private
Equity and Venture Capital Valuation Guidelines as recommended by
the British Venture Capital Association.
Gains and losses on the realisation of financial investments are
recognised in the statement of comprehensive income for the period
and taken to retained earnings. The difference between the market
value of financial investments and book value to the Group is shown
as a gain or loss for the period and taken to the statement of
comprehensive income.
Investments in subsidiaries are reflected in the Company's
statement of financial position at cost less any provisions for
diminution in value.
Revenue
Sales of services represent the invoiced value of services
supplied net of trade discounts, value added tax and other sales
related taxes. The sale is recognised upon delivery of the services
to the customer provided that all obligations to the customer
relating to that delivery of services have been satisfied. If this
is not the case then the sale is recognised when all obligations to
the customer relating to that delivery of services have been
satisfied. Dividends receivable on unquoted equity shares are
brought into account when the Company's right to receive payment is
established and there is no reasonable doubt that payment will be
received. Interest receivable is included on an effective interest
rate basis. Dividends receivable on quoted equity shares are
brought into account when the right to receive payment is
established and the amount of the dividend can be measured
reliably.
Taxation
The tax expense included in the statement of comprehensive
income comprises current and deferred tax. Current tax is the
expected tax payable based on the taxable profit for the period,
using tax rates that have been enacted or substantially enacted by
the reporting date. Deferred tax is recognised on differences
between the carrying amounts of assets and liabilities in the
accounts and the corresponding tax bases used in the computation of
taxable profit, and are accounted for using the statement of
financial position liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in
business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit. The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the statement of
comprehensive income, except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Foreign exchange
Transactions denominated in foreign currencies are translated
into the functional currency at the rate ruling at the dates of the
transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are retranslated at the
rates ruling at that date. These translation differences are dealt
with in the statement of comprehensive income.
The financial statements of foreign subsidiaries are translated
into sterling at the actual rates of exchange and the difference
arising from the translation of the opening net investment in
subsidiaries at the closing rate is dealt with in reserves.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates. Management believes
that the underlying assumptions are appropriate and that the
Company's financial statements are fairly presented. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in Note 13. Within Gresham House Strategic
plc this relates to the unquoted investments.
Segmental analysis
Segmental analysis is not applicable as there is only one
operating segment of the business - investment activities. The
performance measure of investment activities is considered by the
Board to be profitability and is disclosed on the face of the
statement of comprehensive income.
2 Company Statement of Comprehensive Income
The Group has taken advantage of the exemption conferred by s408
CA 2006 to not disclose a full statement of comprehensive income
for the Company. The Company's profit for the year was GBP15.233m
(2016: profit of GBP9.803m). The apparent rise in company income
over the year is due to the further writing off of investments in
subsidiaries and intercompany balances with the subsidiary entities
that were wound up or due to be wound up, where it was certain that
the Company will not be able to recover its investments or have to
pay back the intercompany balances.
The Company has recognised realised and unrealised investment
gains through the statement of comprehensive income of GBP3.928m
(2016: GBP3.785m).
3 Information regarding Directors and employees
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
-------------------------------------------------------------- ------------ ------------------------
Directors' remuneration summary
Basic salaries 125 126
Social security costs 13 12
138 138
-------------------------------------------------------------- ------------ ------------------------
Year ended 31 Year ended 31
March 2017 March 2016
------------------------------------ ------------------------------------
Social Social
Security Security
Emoluments costs Total Emoluments costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ ----------- --------- ------------ ----------- ---------
Analysis of Directors'
remuneration
C Berry 25 - 25 35 - 35
D Potter 50 - 50 50 - 50
H Sinclair 25 - 25 35 - 35
K Lever 25 - 25 6 - 6
Social security
costs - 13 13 - 12 12
125 13 138 126 12 138
------------------------ ------------ ----------- --------- ------------ ----------- ---------
The Company has no other employees other than the Directors
listed above.
Year Year
ended ended
31 March 31 March
2017 2016
No. No.
--------------------------------------- ---------------------- --------------------
Average number of persons employed
(including directors)
Investment and related administration 4 4
4 4
--------------------------------------- ---------------------- --------------------
4 Other costs
Profit for the year has been derived after taking the following
items into account:
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- --------- ---------
Auditors remuneration
Fees payable to the current auditor
for the audit of the Company's annual
financial statements 28 26
Fees payable to the Company's current
auditor and its associates for other
services:
The audit of the Company's subsidiaries,
pursuant to legislation - 2
Audit related assurance services - 7
Other services relating to taxation 10 37
Analysis of other costs:
Professional fees 394 395
Management fee of Quester Venture
Partnership - 218
Management and secretarial fee 697 503
Management incentive fee - 2,265
Other general overheads 127 244
Other items 34 -
--------------------------------------------- --------- ---------
1,252 3,625
--------------------------------------------- --------- ---------
Management incentive fee of GBPnil (2016: GBP2.265m) was paid to
the former Investment Manager, Spark Venture Management Ltd, upon
termination of the investment management agreement.
5 Tax on profit from ordinary activities
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------------------- --------- ---------
UK corporation tax
Corporation tax liability at 20% (2016:
20%) - -
---------------------------------------- --------- ---------
Total current tax - -
Deferred tax - -
Tax on profit/(loss) from ordinary
activities - -
---------------------------------------- --------- ---------
Factors affecting the tax charge for the current period
The tax assessed for the year is different than that resulting
from applying the standard rate of corporation tax in the UK: 20%
(2016: 20%)
The differences are explained below:
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------------ --------- ---------
Current tax reconciliation
Profit before taxation 2,833 262
------------------------------------------ --------- ---------
Current tax charge at 20% (2016: 20%) 567 52
Effects of:
Expenses not deductible for tax purposes 9,331 29
Non-taxable income (10,125) (752)
Closing deferred tax averaging - 548
Deferred tax not recognised 246 123
Exempt dividend income (19) -
Tax for the year - -
------------------------------------------ --------- ---------
Deferred tax
There remains an unrecognised deferred tax asset in respect of
tax losses and other temporary differences. The unrecognised
deferred tax asset is GBP26.8 million (2016: GBP27.8 million), for
the Group and GBP26.8 million (2016: GBP27.8 million) for the
Parent Company. The reduction in the balances for unrecognised
deferred tax is due to the reduction in future corporate tax rates
and an increase to management expenses carried forward available
for deduction against future income. The assessed loss on which no
deferred tax has been recognised amounts to GBP158m (2016:
GBP158m).
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
---------------------------- --------- ---------
Company deferred tax asset
Balance at 1 April 716 796
Movement in the year (716) (80)
Balance at 31 March - 716
---------------------------- --------- ---------
The movement in the year is taken to the statement of
comprehensive income.
The deferred tax asset within the Company was to offset a
deferred tax liability within another Group Company, Quester
Venture GP Limited. As at year end the deferred tax asset in
relation to quester Venture GP Limited has been written down to
GBPnil due to imminent liquidation of the subsidiary.
6 Earnings per share
Basic earnings per share is calculated by dividing the
profit/loss attributable to ordinary shareholders by the weighted
average number of ordinary shares during the period. Diluted
earnings per share is calculated by dividing the profit/loss
attributable to shareholders by the adjusted weighted average
number of ordinary shares in issue. The adjustment made is to add
to the total number of 'in the money' share options in issue to the
weighted average number of ordinary shares in issue for basic
EPS.
Year Year
ended ended
31 March 31 March
2017 2016
GBP'000 GBP'000
------------------------------------- ---------------------- --------------------
Earnings
Profit for the year 2,805 262
------------------------------------- ---------------------- --------------------
Number of shares ('000)
Weighted average number of ordinary
shares in issue for basic EPS 3,687 3,156
------------------------------------- ---------------------- --------------------
Weighted average number of ordinary
shares in issue for diluted EPS 3,687 3,156
------------------------------------- ---------------------- --------------------
Earnings per share
Basic EPS 76.07p 8.30p
------------------------------------- ---------------------- --------------------
Diluted EPS 76.07p 8.30p
------------------------------------- ---------------------- --------------------
As at 31 March 2017, the total number of shares in issue was
3,843,275 with 155,771 of these shares held in Treasury. There are
no share options outstanding at the end of the year.
7 Dividends
There were no dividends paid out during the year ended 31 March
2017 (2016: Nil)
8 Investments at fair value through profit or loss
Group
Value Year ended 31 March Value
at 2017 at
-----------------------------------------
31
31 March Disposals March
2016 Additions at valuation Revaluations 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------ ----------- ------------- ------------- -----------
Investments
in quoted companies 21,734 6,228 (5,930) 3,934 25,966
Other unquoted
investments 43 1,000 - (6) 1,037
--------------------------- ------------ ----------- ------------- ------------- -----------
Total investments
at fair value through
profit or loss 21,777 7,228 (5,930) 3,928 27,003
-------------------------- ------------ ----------- ------------- ------------- -----------
Investments in quoted companies have been valued according to
the quoted share price as at 31 March 2017. Investment in other
unquoted investments represent the investment in MJH Convertible
Bond that was purchased on the 4(th) November 2016, and a share in
Quester Venture Partnership.
The revaluations above are shown on the face of the statement of
comprehensive income as realised and unrealised gains or losses on
investments at fair value through profit or loss.
Company
Value Value
at at
31 March 31 March
2017 2016
GBP'000 GBP'000
--------------------------------------------- ------------------- -----------------
Opening valuation 21,777 16,496
Acquisitions 7,228 6,691
Unrealised and realised gains on valuations 3,928 3,785
Disposals (5,930) (5,195)
Closing valuation 27,003 21,777
--------------------------------------------- ------------------- -----------------
9 Investments in Subsidiary undertakings
Company
31 March 31 March
2017 2016
GBP'000 GBP'000
----------------------------------------- --------------------------- --------------------
Cost:
Balance at 1 April 112,072 120,824
Proceeds from liquidation of Subsidiary (142) -
Investments in subsidiary undertakings
written off (111,930) (8,752)
Balance at 31 March - 112,072
----------------------------------------- --------------------------- --------------------
Impairment:
----------------------------------------- --------------------------- --------------------
Balance at 1 April 111,538 12,593
Impairment for the year - 104,645
Impairment written off (111,538) (5,700)
Balance at 31 March - 111,538
----------------------------------------- --------------------------- --------------------
Net book value at 31 March - 534
----------------------------------------- --------------------------- --------------------
During the year, GBP111.9m (2016: GBP8.75m) of investments in
subsidiary undertakings, that were acquired pre 2009, were written
off along with the related impairment of GBP111.5m (2016: GBP5.7m)
and GBPNil (2016: GBP104.6m) of investment in subsidiary
undertakings was further impaired as certain subsidiaries were
already dissolved, or in the process of being wound up.
10 Other receivables
Group Group Company Company
31 March 31 March 31 March 31 March
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
----------------- ----------------------- ---------------------- ----------------------- ----------------------
Amounts owed by
subsidiary
undertakings - - - 7
Social security
and other taxes - 45 - -
Other debtors 229 2 229 -
Prepayments and
accrued income 20 22 20 22
249 69 249 29
----------------- ----------------------- ---------------------- ----------------------- ----------------------
During the year, a GBP7k (2016: GBPNil) intercompany balance was
written off due to a certain subsidiary which was already or in the
process of being wound up and it is certain that the Company will
not be receiving the intercompany balance.
11 Trade and other payables
Group Group Company Company
31 March 31 March 31 March 31 March
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------------------- ---------------------- --------------------- ---------------------
Trade creditors 154 241 154 241
Amounts owed to
subsidiary
undertakings - - - 13,465
Social security
and other taxes 6 8 6 7
Other creditors 500 1,371 500 1,362
Accruals and deferred
income 62 69 62 65
722 1,689 722 15,140
--------------------- ---------------------- ---------------------- --------------------- ---------------------
During the year, GBP13.5m (2016: GBP113.9m) of intercompany
balances were written off due to certain subsidiaries which were
already or in the process of being wound up and it is certain that
the Company will not be required to repay the intercompany
balances.
Included in other creditors is GBP0.5m that relates to the
acquisition of further equity in Private & Commercial Finance
Group PLC, an existing investment, in March 2017. This was settled
in April 2017 (2016: GBP1.362m that relates to the acquisition of
further equity in Quarto Group).
12 Called up share capital
Group Group Company Company
31 31 31 31
March March March March
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------- ------------- -------- -------------
Called up, allotted and fully
paid:
3,843,275 (2016: 3,843,275)
ordinary shares of 50p (2016:
50p) 1,922 1,922 1,922 1,922
10,000 (2016: 10,000) D shares
of 100p (2016: 100p) 10 10 10 10
1,932 1,932 1,932 1,932
-------------------------------- -------- ------------- -------- -------------
As at 31 March 2017, the total number of shares in issue were
3,843,275 (2016: 3,843,275) with 155,771 (2016: 155,771) of these
shares held in Treasury. Since the year end, the Company purchased
and cancelled 33,000 of it's own ordinary shares, leaving 3,810,275
ordinary shares in issue, of which 155,771 remained held in
Treasury.
The average share price of Gresham House Strategic plc quoted
ordinary shares in the year ended 31 March 2017 was 800 pence. In
the year the share price reached a maximum of 868 pence and a
minimum of 747 pence. The closing share price on 31 March 2017 was
825 pence.
The Group's shares are listed on London's AIM market under
reference GHS.
During 2017, there were no purchases or cancellations of
Treasury shares.
13 Financial instruments and financial risk management
The Group invests in quoted companies in accordance with the
investment policy and Strategic Private Equity investment strategy.
In addition to investments in smaller listed companies in UK, the
Group maintains liquidity balances in the form of cash held for
follow-on financing and debtors and creditors that arise directly
from its operations. As at 31 March 2017, GBP26.0m of the Group's
net assets were invested in quoted investments, GBP1.0m in unquoted
investments and GBP13.0m in liquid balances (31 March 2016:
GBP21.7m in investments and GBP16.6m in liquidity).
In pursuing its investment policy, the Group is exposed to risks
that could result in a reduction in the value of net assets and
consequently funds available for distribution by way of dividend or
for re-investment.
The main risks arising from the Group's financial instruments
are due to fluctuations in market prices (market price risk),
currency risk and cash flow interest rate risk, although credit
risk and liquidity risk are also discussed below. The Board
regularly reviews and agrees policies for managing each of these
risks and they are summarised below. These have been in place
throughout the current and preceding years.
All financial assets with the exception of investments, which
are held at fair value through profit or loss, are categorised as
loans and receivables and all financial liabilities are categorised
as amortised cost.
a) Market risk
i) Price risk
Market price risk arises from uncertainty about the future
valuations of financial instruments held in accordance with the
Group's investment objectives. These future valuations are
determined by many factors but include the operational and
financial performance of the underlying investee companies, as well
as market perceptions of the future of the economy and its impact
upon the economic environment in which these companies operate.
This risk represents the potential loss that the Group might suffer
through holding its investment portfolio in the face of market
movements, which was a maximum of GBP27.0m (2016: GBP21.7m).
The investments in equity and fixed interest stocks of unquoted
companies that the Group holds are not traded and as such the
prices are more uncertain than those of more widely traded
securities.
The Board's strategy in managing the market price risk is
determined by the requirement to meet the Group's investment
objective. Risk is mitigated to a limited extent by the fact that
the Group holds investments in several companies. At 31 March 2017,
the Group held interests in 8 companies (2016: 6 companies). The
Directors monitor compliance with the investment policy, review and
agree policies for managing this risk and monitor the overall level
of risk on the investment portfolio on a regular basis.
Market price risk sensitivity
The Board considers that the value of investments in equity
instruments is ultimately sensitive to changes in quoted share
prices, insofar as such changes eventually affect the enterprise
value of unquoted companies. The table below shows the impact on
the return and net assets if there were to be a 20% (2016: 20%)
movement in overall share prices.
2017 2016
GBP'000s GBP'000s
Profit Profit
and and
net assets net assets
----------------------------------------- ----------- -----------
Decrease if overall share prices fell
by 20% (2016: 20%), with all other
variables held constant. (5,193) (4,347)
Decrease in earnings, and net asset
value per Ordinary share (in pence)(1) (140.85)p (117.90)p
Increase if overall share prices rose
by 20% (2016: 20%), with all other
variables held constant. 5,193 4,347
Increase in earnings, and net asset
value per Ordinary share (in pence)(1) 140.85p 117.90p
-------------------------------------------- ----------- -----------
The impact of a change of 20% (2016: 20%) has been selected as
this is considered reasonable given the current level of
volatility, observed both on a historical basis, and market
expectations for future movement.
ii) Currency risk
The Group does not hold any significant assets or liabilities
denominated in a currency other than sterling, the functional
currency. The transactions in foreign currency for the Group are
highly minimal. Therefore currency risk sensitivity analysis was
not performed as the results would not be significantly affected by
movements in the value of foreign exchange rates.
iii) Cash flow interest rate risk
As the Group has no borrowings, it only has limited interest
rate risk. The impact is on income and operating cash flow and
arises from changes in market interest rates. Some of the Group's
cash resources are placed on interest paying current account to
take advantage of preferential rates and are subject to interest
rate risk to that extent.
b) Credit risk
Credit risk is the risk that a counterparty will fail to
discharge an obligation or commitment that it has entered into with
the Group.
The Group's maximum exposure to credit risk is:
31 March 31 March
2017 2016
GBP'000s GBP'000s
--------------------------- --------- ---------------------
Loan stock investments 1,000 -
Cash and cash equivalents 12,987 16,555
Trade and other
debtors 249 69
14,236 16,624
--------------------------- --------- ---------------------
Credit risk relating to loan stock investments in unquoted
companies is considered to be part of market risk.
The Group's cash balances are maintained by major UK clearing
banks. The balance at 31 March 2016 was unusually high following
the Placing and Open Offer that took place in August 2015 and yet
to be fully utilised in accordance with the investment policy and
strategy.
c) Liquidity risk
The Directors consider that there is no significant liquidity
risk faced by the Group. The Group maintains sufficient investments
in cash to pay accounts payable and accrued expenses. All
liabilities are current and repayable upon demand.
Fair values of financial assets and financial liabilities
Financial assets and liabilities are carried in the statement of
financial position at either their fair value (investments), or the
statement of financial position amount is a reasonable
approximation of the fair value (dividends receivable, accrued
income, accruals, and cash at bank).
As at 31 March 2017, all investments, except for the investment
in Quester Venture Partnership and MJH Group Holdings Limited loan
notes (Level 3), fall into the category 'Level 1' under the IFRS 7
fair value hierarchy (2016: all investments, except for the
investment in Quester Venture Partnership (Level 3)). A
reconciliation of fair value measurements in Level 1 is set out in
Note 8 to these financial statements.
Level 3 unquoted equity and loan stock investments are valued in
accordance with International Private Equity and Venture Capital
Guidelines as follows:
31 March 2017 31 March 2016
---------------------------------- --------------------------------
Material investments Material investments
included GBP'000s included GBP'000s
---------
Cost (reviewed
for impairment) MJH Group Holdings 1,037 None 43
------------------- ---------------------- ---------- --------------------- ---------
Contracted sales
proceeds in post
balance sheet
period None - None -
------------------- ---------------------- ---------- --------------------- ---------
1,037 43
------------------------------------------ ---------- --------------------- ---------
In October 2016, an agreement was entered into with MJH Group
Holdings limited to purchase loan notes for a value of GBP1.0m.
This price has been used as the best indicator of fair value for
this investment as at 31 March 2017. The purchase was completed in
November 2016.
Valuation policy: Every six months, the investment manager
within Gresham House Asset Management Limited is asked to revalue
the investments that he looks after and submit his valuation
recommendation to the Investment Committee and the Finance Team.
The Investment Committee considers the recommendation made, and
assuming the finance team confirm that the investment valuation
calculations are correct, submits its valuation recommendations to
the Board of GHS to consider. The final valuation decision taken by
the Board is made after taking into account the recommendation of
the Manager and after taking account of the views of the Company's
auditors.
The quoted investments have been valued by multiplying the
number of shares held with the closing bid price as at 31 March
2017. As such, there are no unobservable inputs that have been used
in valuing investments.
Capital disclosures
The Group's objective has been to maximise shareholder value
from all assets, which in recent years has been to realise its
portfolio at the most advantageous time and return the proceeds to
shareholders.
The capital subscribed to the Group has been managed in
accordance with the Group's objectives. The available capital at 31
March 2017 is GBP39.5m (31 March 2016: GBP36.7m) as shown in the
statement of financial position, which includes the Group's share
capital and reserves.
The Company has no borrowings and there are no externally
imposed capital requirements other than the minimum statutory share
capital requirements for public limited companies.
14 Related party transactions
The related parties of Gresham House Strategic plc are its
directors, persons connected with its directors and its Investment
Manager and its subsidiary undertakings as listed in note 9.
Transactions and balances between the Company and its
subsidiaries, which are related parties of the Company, have been
eliminated on consolidation. The details of salary related
transactions between the Group and its directors are given in Note
3.
Details of related party transactions between the Company and
its subsidiaries and of non-salary related transactions involving
directors are detailed below. The below subsidiary companies also
form a complete list of the Company's subsidiary undertakings:
2017 2016
GBP'000 GBP'000
---------------------------------------------- ---- --------- --------
The balances owed by subsidiary undertakings
to the Company are as follows:
Spark Services Ltd (dissolved
December 2016) - 7
- 7
---- -------------------------------------------------------- --------
The balances owed to subsidiary undertakings
by the Company are as follows:
Spark India (dissolved
February 2017) - 11,782
Quester Venture
GP Ltd - 1,683
- 13,465
---- -------------------------------------------------------- --------
During the year to 31 March 2017, Gresham House Strategic plc
was charged management fees of GBP697k (2016: GBP240k) by Gresham
House Asset Management Limited (GHAM) following the new management
agreement entered into with GHAM on 21 July 2015 and which became
effective following shareholder approval on 6 August 2015. As at 31
March 2017, the Company had a balance of GBP121k (2016: GBP136k)
owing to GHAM.
As at 31 March 2017, the following shareholders of the Company,
that are related to GHAM, had the following interests in the issued
shares of the Company as follows:
A L Dalwood 27,597 Ordinary shares
G Bird 22,651 Ordinary shares
Gresham House Holdings Ltd 706,806 Ordinary shares
During the year to 31 March 2017, SPARK Venture Management Ltd
(SVML), former investment manager to the Company, received
management incentive fees of GBPNil (2016: GBP2.265m), management
fee of GBPNil (2016: GBP263k) other fees of GBPNil (2016: GBP15k)
from Gresham House Strategic plc and GBPNil (2016: GBP218k) from
Quester Venture Partnership for its management. Quester Venture GP
Ltd is the general partner of Quester Venture GP Partnership which
is the General Partner of Quester Venture Partnership, an entity
the Company has invested into.
The Company has signed a co-investment agreement with Gresham
House Strategic Public Equity Fund LP ("SPE Fund LP"), a sister
fund to the Company launched by Gresham House Asset Management Ltd
("GHAM") on 15 August 2016. Under the agreement, the Company will
co-invest GBP7.5m with the SPE Fund LP.
The Company intends to satisfy the commitment by transferring
3,875,969 of IMImobile plc ("IMO") shares at 193.5p per shares into
the co-investment structure. The Company has transferred in
aggregate 2,374,431 IMO shares into the co-investment structure of
which 300,308 ordinary shares in IMO were sold to Gresham House plc
("GHE") co-investment account and 2,074,123 ordinary shares were
sold to the SPE Fund LP at a price of 193.5p per share (being the
closing mid-market price on 15 August 2016).
Up to a further 1,113,941 ordinary shares in IMO are expected to
be automatically sold to the SPE Fund LP at a price of 193.5p per
share, subject to a rebalancing exercise which will depend on the
final level of commitment received by the SPE Fund LP at its final
close, leaving 387,597 IMO ordinary shares held in its
co-investment account. GHS's commitment under the co-investment
agreement will remain at GBP7.5m irrespective of the total size of
the SPE Fund LP at final close.
Currently 1,113,941 of IMO shares which are expected to be sold
to related parties of the Company as per the co-investment
agreement are held by the Company at the lower of the closing bid
price and 193.5p per share.
The entering into the co-investment agreement and the sale of
IMO shares to GHE and the SPE Fund LP are both deemed to be related
party transaction under Rule 13 of the AIM Rules for Companies. The
directors of the Company consider, having consulted with the
Company's nominated adviser, finnCap Ltd, that the terms of the
co-investment agreement and the sale of IMO shares are fair and
reasonable insofar as its shareholders are concerned.
There are no other related party transactions of which we are
aware in the year ended 31 March 2017.
15 Subsequent events note
Following the year end, the Company began and completed a share
buy back exercise. In the period up to the 5(th) of May 2017 the
Company purchased and cancelled a total of 33,000 shares, at an
average price of 857 pence per share, leaving the new total number
of shares in issue as 3,810,275 (2017: 3,843,275) with 155,771
(2017: 155,771) of these shares held in Treasury. There were no
other material events after the statement of financial position
that have a bearing on the understanding of the consolidated
financial statements.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSAFUAFWSEFM
(END) Dow Jones Newswires
June 09, 2017 02:00 ET (06:00 GMT)
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