Final Results
RNS Number : 1285C
Gresham House Strategic PLC
16 June 2021
 

Gresham House Strategic plc

Full year results for the year ending 31 March 2021

44% NAV growth driven by over £14 million of new investments, successful exits, and material engagement with portfolio companies

Gresham House Strategic plc (GHS or the Company) is pleased to announce its audited results for the year ended 31 March 2021.

Financial highlights

§ GHS Total Shareholder Return (TSR)[1] of 59.3% in the year to 31 March 2021 and 12-month NAV total return[2] performance of 44.3% to 1,515.4 pence[3] per share

§ Three-year TSR to 31 March 2021 of 81.6%, placed GHS 2/25 in the AIC UK Smaller Companies' sector, outperforming the FTSE All Share Index total return by +71.7%.

§ 20% increase in the proposed final dividend

Investment Management highlights

§ Very active period with £14.9m deployed into seven new holdings by the investment team

§ Further portfolio re-balancing progress within the period, exiting a number of long-term holdings including Infrastrata plc (IRR +43.9%), MJ Hudson plc (IRR +8.8%) and Be Heard plc (Convertible Loan Note IRR +22.2%, Equity IRR -37%)

§ Material engagement across the portfolio supporting the unlocking and driving of shareholder value driving operational and strategic changes

§ GHS ended the year fully-invested in 16 companies with the top ten representing 82% of NAV

Post-period end

§ NAV has made further progress post-period end, predominantly driven by strength in one of our long held and higher performing investments Augean plc; increasing 13.6% to 1721.9 pence in the eight weeks to 31 May 2021 

§ Post period end, the company's discount to NAV widened from 6.3% to 14.3% in the eight weeks to 31 May 2021

§ David Potter has resigned as Chairman, with Helen Sinclair stepping in as interim Chairman

§ Graham Bird has been appointed to the Board as non-independent non-executive Director

§ The company has initiated a strategic review.

Helen Sinclair, Interim Chairman of Gresham House Strategic plc, commented:

"We are pleased that the strategic public equity strategy has continued to bear fruit. We look forward to further NAV growth, while narrowing the share price discount and are pleased to continue growing our dividends ahead of market growth rates."

Laurence Hulse, Deputy Fund Manager said:

"There has rarely been a more important time for investors to have a robust investment philosophy and process than in tackling the sorts of challenges presented in 2020. Gresham House's twenty-year-old Strategic Public Equity approach provides exactly that. The prolonged period of volatility allowed us to focus on severely undervalued small companies, an opportunity the team grasped with both hands. We made significant investments into a number of companies where we identified exciting investment theses driven by tangible catalysts which we will support through our active engagement approach."

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

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

The financial information set out in these statements does not constitute the Company's statutory accounts for the year ended 31 March 2021, prepared in accordance with section 435 of the Companies Act 2006, but is derived from those accounts. Statutory accounts will be delivered to the Registrar of Companies in due course. The auditors have reported on these accounts and their report was unqualified and did not contain a statement under section 498(2) of the Companies Act 2006.

For further information, please contact:

Gresham House Strategic plc

Interim Chairman

 

 

Helen Sinclair

 

 

 

020 3995 6699

Gresham House Asset Management Ltd

Fund Managers

 

Laurence Hulse

Tony Dalwood

 

 

 

07864 802 532 020 3837 6278

finnCap

Nominated Adviser

Joint Broker

 

 

 

William Marle

Mark Whitfield

 

 

0207 220 0500

 

Panmure Gordon (UK) Limited

Joint Broker

 

Tom Scrivens

Michael Bateman

 

020 7886 2500




KL Communications

PR

 

Charles Gorman

Will Sanderson

Millie Steyn

020 3995 6699

 

 

About Gresham House Strategic plc

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

The Investment Manager, Gresham House Asset Management Ltd (Gresham House, GHAM, or Investment Manager), aims for a high level of engagement with investee company stakeholders, including management, shareholders, customers, suppliers and competitors, with the aim of identifying market pricing inefficiencies and supporting a clear equity value creation plan and targeting above market returns over the longer term.

About Gresham House Asset Management Ltd (GHAM)

Gresham House Asset Management Ltd, the operating business of Gresham House plc (GHE), manages funds and co-investments across a range of differentiated alternative investment strategies for third-party clients. The company is built around a long term investment philosophy and applies private equity techniques to due diligence and investment appraisal.

 

Chairman's statement

Last year the Chairman's Statement was written by David Potter, who has very ably led the Company as Chairman since it became Gresham House Strategic over five years ago.  David retired from the Board in June 2021, and I am therefore writing to you as interim Chairman. 

David was the driving force to establish GHS after the successful winding up of the Spark Ventures venture capital portfolio in 2015. During David's period as Chairman, GHS has delivered strong investment returns and has been one of the best performing small company investment funds in the UK, pursuing its strategic public equity approach supported by the investment team of Gresham House Asset Management. Over the past five years, the share price has approximately doubled and the discount to net asset value has narrowed considerably. David has made an invaluable contribution to the Company; the Board will miss David's dedication, vision and his leadership and wishes him well every success in for the future. We have commenced a search for a successor to David and will make an announcement in due course. 

The last year has been unprecedented for investment companies. Although the pandemic has lasted much longer than originally anticipated and has had bigger social, financial, and operational effects, stock markets have the ability to "look over the valley". This occurred rapidly after the collapse of prices in Q1 of 2020. The recovery and continued advance of share prices in the second half of 2020 reflected this and as the year went on market confidence returned. As is often the case after a collapse in share prices there were large differences in the rate of recovery of different sectors. Stocks hit directly by Covid-19 in the hospitality, leisure, retail and transport industries remained out of favour, and so too did many smaller-cap companies. Technology stocks buoyed by home working and delivery of goods and content boomed. This provided an excellent basis for your relatively cash-rich fund to capitalise on.

It is clear that in the future "tech-enabled" businesses whether in consumer, financial services, fulfilment or media will be positioned for success. In the booming markets that these companies are enjoying, their share prices have become elevated at the expense of less technologically glamourous firms. This has perhaps masked the rotation from growth stocks to value stocks, the area of the market we inhabit. It is also worth reminding ourselves that smaller companies have the ability to grow much faster than giants and again we occupy the right sector of the market as well as one that is coming more into favour with investors generally.

The Company's performance in the financial year to 31 March 2021 was pleasing with a rise in NAV from 1,060.4p to 1,515.48p; the discount of the share price to NAV narrowed from -14.9% to -6.1%. We have previously stated our ambitions to scale the fund and hence it was a disappointment that we have been unable to raise new funds given the ongoing discount to NAV at which the shares have traded. It has rarely been a better time in the last 20 years to invest into the SPE strategy. For newer shareholders, Strategic Public Equity means much more than conventional stock picking. Before making an investment there is substantial due diligence on the proposed investee, its management, its Board, its market position, its strategic challenges and its financial condition. Following an investment, or sometimes following a small 'toe-hold' investment we take further steps to get to know the company better and to help them with whatever financial, operational, marketing, or strategic issues they may have. We believe that this approach will produce superior results over time and our track record over the last five years is a testament this. In the year to March 2021 the performance was sufficient to trigger a payment under the performance fee arrangement totalling £2.3million, the Company has received a commitment from the Manager that staff allocated this performance fee will invest 50% in purchasing shares of GHS.

You will see from the Investment Manager's Report that we had a very active year. The stock market said goodbye to our most successful investment, IMI mobile, as a result of its takeover by CISCO. Shareholders who were invested in our predecessor company NewMedia SPARK plc will recall that this exit (totalling £31.2m) started as a VC investment in 2000. Jay Patel a former colleague at NewMedia SPARK plc has steered this company for 15 years and shareholders owe him a great debt of gratitude.

We fully exited six companies, made partial realisations in three and executed six new investments, as well as materially increasing our stakes in another five. The recovery in a number of the latter was remarkable and helped the Company to outperform its return objective and the benchmark and has resulted in a performance fee to our Investment Managers based on this success.

We continue to monitor the share price and its relation to NAV and continuously strive to eliminate the discount so that we can raise funds in a conventional manner. The Manager has undertaken numerous marketing and advertising initiatives. We continue to see new shareholders, generally from the wealth management sector, but remain constrained by our small size. The Board's primary objective remains to grow the Company for the benefit of all shareholders.

The predecessor company, Spark Ventures, made a number of capital distributions as it wound up its venture capital investments over a five-year period between 2009 and 2014. An amount of £420k was in uncashed cheques which were being held by our registrar. These funds still belong to the relevant shareholders and we continue to make efforts to trace them but with the passage of time this becomes more difficult or unlikely that they will come forward. These funds have now been returned to GHS for the investment benefit of all shareholders. We will seek court approval to have these funds released to the Company once appropriate efforts to trace and communicate with these shareholders have failed and will update shareholders in due course of our plans to have these allocated back to the Company.

Our core fund management team of Richard Staveley, Laurence Hulse and Paul Dudley achieved an excellent result this year. Since the financial year end I am sorry to report that Richard Staveley resigned from GHAM and we wish him well for the future after the sterling work he did as the manager of the GHS investments. Laurence Hulse has been promoted to Deputy Fund Manager after five years working on the portfolio, and closely with Gresham House's Investment Committee.

We announced on 24 May our intention to review the strategic options available to the Company, including continuing the existing strategy against other strategic options available to the Company with the objective of determining the best course of action to provide growth in value for shareholders. This review will be conducted in conjunction with an independent financial adviser.

We would like to welcome Graham Bird to the board. Graham is a former fund manager of GHS and former employee of Gresham House Asset Management, was appointed to the board on 10 June 2021 as a non-independent non-executive director.

I would like to thank my colleagues on the Board and all our other suppliers and stakeholders for their support. We look forward to the future with considerable optimism to continue to deliver the superior returns we have come to expect.

Helen Sinclair

Interim Chairman GHS

16 June 2021

Investment Manager's Report

It is uncontroversial to highlight that the period was a unique twelve months of economic, global and stock market history, one in which not even the most experienced investors could claim to not be challenged by. Of course, crises occur relatively frequently, and the best investors know how to both navigate them psychologically and use the opportunity to enhance future returns through the inevitably heightened fears and uncertainty that are created. This crisis, represented by the global pandemic of Covid-19 and its huge impact on economic activity, has some historical parallels, however the world has never been more interconnected, exacerbating its worldwide spread. It is through society's response where the truly new ground has been broken, via the astounding level of monetary and fiscal stimulus provided by authorities and by the incredible sophistication of the healthcare industry to produce vaccines to address the virus within a short period alongside the widespread withdrawal of personal freedom. As a result, one of the fastest market and economic downturns in history has been followed by a quick and significant rebuilding of investor confidence which by period end resulted in global markets at all-time highs, even though the terrible mortality statistics continue to rise around the world at pace.

 

Shareholders will know that our approach is supported by the inherent benefits of permanent capital, a rather illiquid investment strategy. We can and do use the liquidity of the secondary UK stock market, however the majority of capital is deployed in primary issuances or when large lines of stock become available, and we mainly find our exits through corporate activity. The period gave us the opportunity to deploy capital at pace into UK small companies which required further financing yet were being valued at deep discounts to their intrinsic value. Our approach was to seek out those that were undervalued already and 'under-the-radar' where strategic, operational and management initiatives were underway, which would enhance our returns even further on recovery. These new investments have driven the NAV to all-time highs, yet the companies have significant further value creation to deliver over the medium to long term. At the same time our engagement with existing holdings has led to strategic progress which will underpin future returns from the portfolio.

 

The UK stock market remains undervalued relative to history, other markets, in particular the US, and has undergone a long period of investor migration into larger companies, passive strategies, bigger pools of capital, other geographies and asset classes. This has resulted in an orchard of opportunity in UK smaller companies, particularly those which don't fit the current consensus mindset of high growth. We therefore remain hugely excited about the prospects for the company.

 

Investment highlights

§ GHS Total Shareholder Return (TSR)[1] of 59.3% in the year to 31 March 2021[2]

§ 12-month Net Asset Value (NAV) total return[3] performance of 44.3% to 1,515.4 pence[4] per share vs FTSE All Share Index and the FTSE Small Cap Index (ex-ITs) total return of 27.1% and 75.0% in the year from 31 March 2020 to 31 March 2021

§ Three-year TSR to 31 March 2021 of 81.6%, placed GHS 2/25 in the AIC UK Smaller Companies' sector, outperforming the FTSE All Share Index total return by +71.7%[2]

§ Share price discount to NAV(5) reduced from 14.9% at 31 March 2020 to 6.1% at 31 March 2021[2]

§ Very active with £14.9m deployed into seven new holdings by the fund managers which have since driven material NAV growth. This was funded from net realisations of £11.2m, a starting level of £7.3m cash and income received of £335k

§ Final dividend of 15.36 pence per share proposed, bringing total dividends for the year to 27.46 pence per share

Post-period end

§ NAV has made further progress post-period end, increasing 13.6% to 1,721.9 pence in the eight weeks to 31 May 2021

§ The National World Convertible Bond investment made in January 2021, converted on re-listing with our investment of £1.2m, now valued at £2.6m on 31 May 2021 (+115%)

§ Bid speculation for major-holding Augean driving material NAV gains post period end

§ Post period end, the company's discount to NAV widened from 6.3% to 14.3% in the eight weeks to 31 May 2021

 

Portfolio highlights

§ Significant portfolio evolution:

‒    Strong financial results and share price recovery from Augean plc

‒    Excellent returns from large new holdings in RPS Group plc, M&C Saatchi plc and Flowtech Fluidpower plc

‒    Material NAV contribution from additional investment at depressed levels in Centaur Media plc and Universe plc

‒    Outstanding contributions from smaller 'springboard' positions at Bonhill plc, Fulcrum Utility Services and Ted Baker plc

‒    Significant value creation delivered at ULS Technology

‒    Strategic progress and re-financing at Pressure Technologies plc (new equity investment) and Northbridge Industrial Services Plc (re-negotiated Convertible Loan Note)

‒    Exited a number of holdings including Be Heard plc (Equity IRR -37%, Convertible Loan Note IRR +22.2%), Brand Architekts Group plc (IRR -38.2%), MJ Hudson plc (IRR +8.8%) and Infrastrata plc (IRR +43.9%)

§ The Company is invested in 16 companies; the top ten represent 82% of the portfolio, with unlisted exposure at 11% via three convertible bonds. Since period end unlisted exposure has fallen to 9%

§ The portfolio holdings have robust balance sheets; we entered the current period with 12 holdings having net cash and an average valuation of c.1x Enterprise Value/Sales and 6x Enterprise Value/EBITDA(6).

 

Market commentary

 

This unique twelve months was defined by the global pandemic of Covid-19 and the incredible monetary and fiscal responses from the authorities. Stimulus came first as Central Banks committed to huge additional monetary easing, their combined balance sheet expansions being bigger than QE1, QE2 and QE3 combined. Next came governmental support through massive fiscal measures, of note the historic 'furlough' scheme in the UK with the government paying a high proportion of wages to large parts of the population in addition to grants and tax relief to support businesses. The US government has at least matched the largesse and at time of writing is accelerating further fiscal measures via Biden's proposed spending programmes, whilst 'helicopter' money has finally arrived through cheques to all US citizens, kindly supported by the US Federal Reserve. Government debt levels as a percentage of GDP are therefore set to reach WW2 levels.

 

For all of the period interest rates were thus at rock-bottom and bond yields negative for large parts of the world. With the price of 'money' distorted like this, it shouldn't be surprising that widespread secondary effects are developing in markets and behaviour. Crypto-currency speculation, the explosion in SPACs (blind investment vehicles), extremely high revenue valuation multiples on loss making immature businesses, rocketing commodity prices and heightened retail investor participation all signal sensible investors should tread carefully, particularly when the cyclically adjusted valuation ratios for the US market are at all-time highs. 

 

A wider perspective appears to be emerging in 2021 as market participants grapple with the inflationary implications of these measures, however it is almost entirely consensual that the largesse will continue for as long as is needed, and in ever greater quantities, if deemed necessary, without mainstream concerns and that governments and Central Banks know what they are doing. It is a great experiment. For GHS we are hoping to navigate it by firstly only acquiring stocks on a deep discount to their intrinsic worth, secondly investing in businesses where we see self-help as the main driver of value creation and improved cash generation and thirdly deploying capital into companies which are financially robust to weather more difficult conditions in the longer term.

 

Performance

Gresham House Strategic has delivered strong performance versus its peers since Gresham House was appointed Investment Manager in 2015, delivering a Share Price Total Return of 81.6% over three years and 99.9% over five years (the UK Smaller Companies AIC sector, delivered 42.6% and 110.5% respectively). The portfolio is very concentrated and therefore it should be expected that over any shorter period, such as a year, a dominant stock or two may drive performance.

Key performance highlights of note over the year are:

-       Due to its portfolio weighting size (23%), Augean plc's post Covid-19 crash share price recovery has contributed meantingully to performance. We will always run our winners if our investment thesis still holds and sufficient valuation upside exists, which is the case for Augean

-       Materially supplementing this have been the new investments made, most notably RPS plc which we helped re-finance at 44.7 pence in September and finished the period at 95 pence (+116%)

-       MC Saatchi also contributed meaningfully, rising from our average price paid of 87.5 pence to 145 pence by period end (+50%)

-       ULS Technology's sale of a non-core operation for £27m in November 2020 was transformative. We first invested in December 2019 when the market capitalisation for the whole business was £29m; its value has since risen to £54m (+86%) 

-       During the year we added meaningfully to our existing holding in Centaur at 21 pence, becoming a top 5 shareholder, which finished at 39.5 pence (+88%)

-       We have a handful of carefully selected initially smaller 'springboard' positions, which combined have made a big contribution to the Company performance such as Ted Baker, re-financed at 75 pence, which ended the year at 112.75 pence (+50%) and Bonhill, re-financed at 5 pence, which finished the period at 13 pence (+160%)

-       There was little in the portfolio that impacted NAV negatively. We decided to exit Brand Architekts at a loss, as our assessment of the execution risks has materially increased and the large pension fund deficit is a hurdle for strategic options. The final IMI mobile shares were sold, having been a very significant contributor in prior years

-       Some holdings have lagged the market rally, such as Northbridge Industrial Services.  We are engaged with them, Lakes Distillery and Pressure Technologies to help drive shareholder value

-       The main additional insight worth highlighting was the soaring FTSE Small Cap Index, its drivers including 'risk-on' share price recoveries in highly leveraged companies, which we are avoiding unless we are part of the resolution, and also oil and gas and commodity companies, which we also avoid in this strategy. Finally, until the vaccine announcement 'Growth' companies have been firmly in vogue. Whilst a broader suite of investment opportunities is being contemplated by the market now, we are steadfast in our commitment to 'Value' and have limited exposure to the 'hot' themes of the day

-       The strategies performance target is 15% p.a. over the medium term in absolute returns. This requires a prudent consideration of the downside in all investments, and we will not 'chase' the nearest relevant benchmark

 

We are pleased to be able to report that the NAV performance has made further progress post-period end, with the NAV growing 13.6% in the eight weeks to 31 May 2021, ending the month at 1729.1 pence and outperforming equity markets.

Investment activity

During the period we made a number of portfolio changes. We purchased seven new holdings and exited five positions, six of the top ten holdings are new in the last 18 months.

 

We put £14.9m of cash to work in the year to 31 March 2021. We invested the majority of this into new investments: £2.6m into RPS plc, £1.7m into M&C Saatchi plc, £2.6m into Flowtech Fluidpower, and £1.6m into Fulcrum Utility Services. Smaller new investments were made in Bonhill of £700k, Ted Baker £1.25m, and National World £1.2m. We also increased our investments in Centaur Media plc by £350k, Pressure Technologies by £900k, Van Elle plc by £1.27m and Universe plc by £470k.

 

Total realisations in the reporting period were £11.2m, generated from a mix of investments; including IMImobile (£5.3m, +24.5% IRR), Augean (£2.76m, +86% IRR), BeHeard (£3.37m, -9.5% IRR), Brand Architekts (£1m, -38.2% IRR), MJ Hudson (£1.85m, 12.5% IRR), Kalibrate (£214k, +10.1% IRR), and Infrastrata (£1.2m, +43.9% IRR).

 

Top 10

 

Augean plc

Our investment was first made in October 2017, with the Investment Team identifying a compelling turnaround strategy with the opportunity to capture a multiple arbitrage versus private market valuations for some of Augean's assets. In 2018 the team, led by Jim Meredith (Executive Chairman) and Mark Fryer (FD), started a rightsizing of the cost base to respond to the anticipated HMRC assessment to landfill tax and related penalties and fines. Having exceeded 30% of the portfolio during FY 2020, we have reduced the holding modestly into secondary market demand. The management team have done an outstanding job developing and delivering upon their strategy including an opportunistic bolt-on acquisition this year. External factors have driven further profit growth as strong volumes and pricing in waste flows created by a wave of 'energy-for-waste' plants has boosted profitability and cash flow such that Augean has been able to 'pay' the still disputed HMRC assessments, without admitting 'guilt' or accepting them, thus de-risking the equity investment case for new investors. The company delivered a resilient performance during the period, with recent financial results demonstrating adjusted operating margins of 22%, return on capital employed of 35%, excellent cash generation, net cash on the balance sheet and signalled a return to the dividend list. The shares are, in our view, at a significant discount to intrinsic value and also industry transaction multiples, whilst their market leading position in UK Hazardous waste is assured.

 

Northbridge Industrial Services plc

The initial investment into Northbridge was in 2016 and we have stepped up engagement to generate our target returns from this company during the period. The 'Crestchic' business division entered the financial year with a full production schedule with solid demand from data-centres and the nuclear industry for load-banks. However, the collapse in the oil price and world-wide economic downturn has impacted the division. The 'Tasman' division has struggled to generate adequate returns for shareholders for a number of years and we are delighted to see that its strategic options are now being actively reviewed. We note Board and executive management change with the retirement, after 18 years, of the CEO and the appointment of Stephen Yapp as SID and the introduction of improved transparency of divisional ROCE. The company has reduced debt and has unencumbered freehold properties, in addition to its significant asset-backed hire fleet, however we have re-negotiated and improved the terms on our Convertible Loan Note during the year and also added to our equity position at a depressed 67.5 pence, the shares finishing the year at 97.5 pence.

 

Pressure Technologies plc

Chesterfield Specialist Cylinders (CSC) is a leader in the design, manufacture and maintenance of large-scale high-pressure cylinders for military, marine and oil and gas industries. A significant opportunity is emerging for their expertise in the Hydrogen sector. The opportunity is there to be taken to become a key supplier to the infrastructure of this exciting end-market. Defence activities remain the dominant sector for now. Precision Machined Components (PMC) supplies key metallic engineered components that are destined for extreme or hostile environments in mission critical functions, such as the oil and gas and extractive industries and has therefore remained under significant pressure. CEO, Chris Walters, joined in September 2018 and commenced the implementation of a revised strategy to dispose of the loss-making alternative energy business, reducing debt in the process, and to rationalise the core businesses PMC and CSC with a goal of reinvigorating organic growth. The cash cost of this, combined with the market backdrop and some specific customer delays has required a re-financing of the business in which we participated, alongside new institutional investor support.

 

The Lakes Distillery Company plc

We have an investment via a secured CLN that pays an 8% cash yield and an additional 12% payment in kind (PIK) roll-up interest, combining to generate a 20% per annum return. The loan notes convert to equity at the point of IPO/or sale or can be redeemed for cash. Lakes Distillery is a leading English distillery with an ambitious vision to create one of the prime single malt whiskies in the world. The company was formed in 2011, commenced operations in 2014 and has steadily grown retail sales which accelerated online during lockdown. The distillery is based on the banks of the River Derwent in the English Lake District National Park, a UNESCO World Heritage Site. The company has already established a UK and international sales base with gin, vodka and its premium single malt whisky product, launched in 2020 has gone well. If the company has not floated within three years, the loan plus rolled up interest are repayable or can be extended on pre-agreed terms. We have security over the property and whisky stocks.

 

Centaur Media plc

A significant transformation of the company has occurred in recent years. The new CEO's strategy to rebuild margins after significant portfolio restructuring is highly focused on future value creation. The business struggled, like many B2B media businesses, to adapt quickly enough to the structural changes that were occurring in the business world as a result of digitalisation. Titles have now been disposed, legacy activities dis-continued and the company is focused on premium content and services with almost no print and some fast-growing hidden 'gems' in the business. There are two divisions: Legal (20% sales) and Marketing (80%). Significant cost savings have been extracted from the business due to historic central costs reflecting a much larger business. The legal division centres on the industry-leading publication "The Lawyer". The marketing division has a range of activities including Econsultancy - a digital marketing transformation consultant, Mini MBA - a fast growing on-line marketing course, Influencer Intelligence - a global online-influencer platform and the digital top industry event "Festival of Marketing". The impact of Covid-19 on the events industry has been harsh. However, Centaur Media's Publications have largely migrated to subscription and digital activities; with net cash we believe the new team is highly focused on shareholder value and a clear plan for driving sales up and EBITDA margins to 23%.

 

ULS Technology plc

 

We purchased ULS Technology, the leading digital conveyancing platform for housing transactions in late 2019. Their new product, DigitalMove, has potentially transformational capabilities for the business, improving the efficiency and speed of the process materially for consumers and advisers alike. Despite high investor desire for 'platform' businesses and with resulting valuations commensurate, ULS Technology is valued very attractively. There have been significant Board and executive management changes which are driving a transformation of the company. The most notable was the sale of the non-core CAL business for £27m in November. At the start of the period the whole company was valued at £23m. This has provided a significant cash balance for the company to support a refreshed strategy, which is yet to be unveiled by the exciting new CEO hire Jesper Fogstrup. Alongside new Chairman Martin Rowlands we expect a bold vision and plan to emerge with potential significant value creation ahead. It remains the case that the opportunity to speed up and improve the process for all involved of UK property transactions is significant.

Flowtech Fluidpower plc

The dramatic market correction at the start of the period created an opportunity for us to build a significant stake in Flowtech Fluidpower; a specialist distribution business on which we had been conducting due diligence for several months pre-Covid-19. We are targeting significant returns from a combination of improved operational and financial management, sales and profit recovery and a valuation re-rating of the shares to the levels paid by the private equity market for these sorts of businesses. Once the successful integration of past acquisitions has been demonstrated, the opportunity to re-start value accretive corporate activity will emerge. This process is being overseen by new Chairman, Roger McDowell, who sits on the Board of another of our investments, Augean plc, and who has significant relevant industry experience.

RPS Group plc

We added a core holding to the portfolio in September, participating in the £20m liquidity raise by RPS Group plc and built a c.6% weighting in the company in the process. RPS Group plc is an environmental planning and consultancy business serving the infrastructure, energy, transport and property sectors, tapping into some key growth drivers such as urbanisation, infrastructure spend and renewables. Significant revenues are derived from the public sector which should benefit from increased government spending. Our investment case centres around operational improvements driving margin recovery to sector averages, a repaired balance sheet and, following post-Covid-19 recovered sales levels, improved organic growth delivery. There has been significant consolidation activity in the sector. RPS Group plc was two years into a turnaround under a new management and Board, with green shoots emerging just as Covid-19 struck. The fundraise has allowed us to gain exposure to the upside that the earnings recovery can deliver after much of the 'heavy lifting' has already been undertaken.

Van Elle Holdings plc

 

We took an initial position in Van Elle, a leading piling and ground engineering specialist for the construction industry and a market leader in the Rail sector, pre-Covid-19. We subsequently acted as a cornerstone investor in an issue of new stock building a significant 7% stake to support the business through the disruption and onto the opportunities which lie ahead. Van Elle will benefit from a high level of infrastructure spending that we expect in the next few years. This spending was arguably well overdue, and the clear communication by the new UK government provided confidence of a commitment to this changing, HS2 in particular being helpful for Van Elle. We are backing a new management team and Board evolution to professionalise the business, enhance the banking arrangements and drive improved returns in future years from a very well invested fleet of equipment.

 

M&C Saatchi plc

Due to poor financial controls, governance, accounting irregularities and poorly designed acquisition terms, material change was required at this iconic global advertising agency group. This is underway with the retirement of all four founders, a refreshed Board, a new organisational structure and leadership team. Ambitious medium term financial targets have been shared with investors which target much higher margins, and on-going growth. Financial controls around the business are being tightened up and a new divisional structure should improve both internal and external clarity, cross-selling and efficiency. A huge contribution has been made by Mickey Khalifa, CFO, to this process whilst the cross-roads were catalysed by new Board appointments. The business has significant net cash and despite unhelpful headlines for the company regarding all the change, barely lost a single client in 2020; indeed a range of impressive new household names were won. The company has poorly communicated to investors its digital credentials to date, whilst being overly pigeon-holed by its 'creative agency' roots; the reality is a global business with customers from Tik Tok to Whatsapp, huge digitally related revenue streams and highly impressive operations in sports and  entertainment and governmental-linked communications relationships such as the Biden-Harris campaign and the World Health Organisation.

 

 

 

Outlook

2021 is expected to deliver the fastest economic growth around the world we have experienced for over thirty years. Clearly this is driven by the bounce-back in activity from last year's collapse. Government and monetary authorities are indicating there will be no rush to withdraw the stimulus of the last year, fiscally it is still increasing in the US. We all have pent-up economic activity as a result of 'lock-downs' and the data suggests on average large savings balances with which to pay for it and thus we conclude that the first phase of post-Covid-19 recovery is going to be very strong. However, markets anticipate, and represent a set of expectations which will to need to be met. We believe it is prudent to expect, on average, economic activity to be constrained for some time afterwards based on the debt overhang this crisis is generating, although the spare capacity in the economy is difficult to calibrate. For the first time in decades some real concerns are appearing regarding inflationary outcomes, which should be carefully segmentalized between the near term and the medium term. Consensus remains relaxed about the medium term, which may be complacent given the huge experiment that is underway and the lack of muscle memory of episodes when both fiscal and monetary support has been huge, interest rates negligible and economic growth very strong. Price expectations have been anchored for many years, but the current backdrop may disrupt thinking and, once rising, could be difficult to contain.

For UK companies, the fog of lockdown has obscured a clear picture of Brexit induced impacts on trade, and the scale of support avoided the level of insolvencies that would normally have occurred with the size of economic decline. It seems sensible to assume some businesses will struggle when the support is withdrawn. We are not convinced the UK Treasury or No.10 have subscribed to Modern Monetary Theory or 'magic money trees' and will know a pathway back to prudence is required. A loss of confidence by international bond markets could have disastrous consequences if the cost of lending increases meaningfully at pace.

We observe a lowly valued UK equity market with wide dispersions between the valuations of certain types of equity, where we are naturally drawn to the cheapest. Companies which offer multi-year turnarounds in operational performance to drive shareholder value creation are not in vogue; investor fashion is for those with high top-line growth, recurring revenues and transformative technology are. In recent months extractive industries have joined in. With careful analysis, a conservative approach to financial leverage and deep insight into a company's value drivers, a material margin of safety can be created to enable investments into stocks with significant medium term returns. Our holdings have survived this current crisis with their market positions stronger, their competitive positions easier and their cost-bases leaner, primed for material profit growth in the future. We must remain careful to consider what structural changes are underway such that value traps are avoided and ensure we have a sufficient margin of safety to offset an on-going challenging environment. However, by hunting in an overlooked area of the market, driving influence in outcomes and behaviours via our engaged approach, we believe that the seeds for continued and future performance of the portfolio are available. We believe strongly that our concentrated, engaged, SPE approach and portfolio are well positioned for the challenges ahead.

Statement of Comprehensive Income for the year ended 31 March 2021

 





Year ended


Year ended





31-Mar-21


31-Mar-20



Notes


£'000


£'000






















Gains/(losses) on investments


8


19,837


(5,728)








Revenue







Bank interest income




2


8

Loan note interest income




753


782

Portfolio dividend income




-


265

Other income




1


-





756


1,055

Administrative expenses







Directors fees


3


(148)


            (138)

Performance fee


11


(2,294)


-

Other costs


4


(1,539)


 (1,363)

Total administrative expenses




(3,981)


 (1,501)








Profit/(loss) before taxation




16,612


 (6,174)

Taxation


5


-


-  








Profit/(loss) for the financial year




16,612


 (6,174)








Attributable to:







 - Equity shareholders of the Company




16,612


 (6,174)








Basic and Diluted earnings per ordinary share for profit/(loss)


6


   477.24p


 (174.34p)

from continuing operations and for profit/(loss) for the year (pence)







 

There are no components of other comprehensive income for the current year (2020: None), all income arose from continuing operations.

 



 

Statement of Financial Position as at 31 March 2021

 



31-Mar-21

31-Mar-20


Notes


 £'000


 £'000

Non-current assets






Investments at fair value through profit or loss

8


53,888


29,960




53,888


29,960

Current assets






Trade and other receivables

9


99


266

Cash and cash equivalents



1,605


6,864




1,704


7,130

Total assets



55,592


37,090








Current liabilities






Trade and other payables

10


(641)


(178)

Performance fee payable

   11


(2,294)


-

Total liabilities



(2,935)


(178)

Net current (liabilities)/assets



(1,231)


6,952

Net assets




52,657


36,912








Equity







Issued capital

12


1,751


1,751

Share premium



13,063


13,063

Revenue reserve

 14


26,969


11,224

Capital redemption reserve



10,874


10,874

Total equity





52,657


36,912

 

 

The NAV per share on 31 March 2021 is 1,512.8 pence (2020: 1,060.4 pence)

 

These financial statements were approved and authorised for issue by the Board of Directors on 16 June 2021. Signed on behalf of the Board of Directors.

 

 

 

 

 

 

Helen Sinclair                                                                                                                                                     Charles Berry

Interim Chairman                                                                                                                                               Director

 

Statement of Cash Flows for the year ended 31 March 2021

 





Year ended


Year ended



31-Mar-21

31-Mar-20



Notes


£'000


£'000







Cash flow from operations


a


(783)


(3,157)

Net cash outflow from operating activities



(783)


(3,157)














8


(14,943)


(11,360)

Sale of investments


8


11,334


16,313

Net cash (outflow)/inflow from investing activities



(3,609)


4,953














7


(867)


(752)

Share buy backs




-


(908)

Net cash outflow from financing activities



(867)


(1,660)










(5,259)


136

Opening cash and cash equivalents




6,864


6,728

Closing cash and cash equivalents




1,605


6,864













a)  Reconciliation of profit/(loss) for the year to net cash outflow from operations














£'000


 £'000


2


16,612


(6,174)




(1,179)


(329)

(Gains)/losses on investment


8


(19,003)


5,728




(3,570)


(775)








(Decrease)/increase in trade and other receivables


(33)


42

 Increase/(decrease) in trade and other payables


2,820


(2,424)

Net cash outflow from operations




(783)


(3,157)







The purchase and sale of financial investments are the cash paid or received during the year and excludes unsettled investments as at 31 March 2021.

 

 



 

Statement of Changes in Equity for the year ended 31 March 2021

 

 


D shares

Ordinary

Share

Revenue

Capital

Total



Share

Premium

Reserve

Redemption

Equity



Capital



Reserve



£'000

£'000

£'000

£'000

£'000

£'000

Balance at 31 March 2019

10

1,778

13,063

19,058

10,837

44,746








Loss and total comprehensive loss







for the year

-

-

-

(6,174)

-

(6,174)

Total loss and comprehensive income for







the year

10

1,778

13,063

12,884

10,837

38,572








Contributions by and distributions to







owners







Share buy back

-

(37)

-

(908)

37

(908)

Dividends paid

-

-

-

(752)

-

(752)

Balance at 31 March 2020

10

1,741

13,063

11,224

10,874

36,912








Profit and total comprehensive income







for the year

-

-

-

16,612

-

16,612

Total profit and comprehensive income







for the year

10

1,741

13,063

27,836

10,874

53,524








Contributions by and distributions to owners







Share buy back

-

-

-

-

-

-

Dividends paid

-

-

-

(867)

-

(867)

Balance at 31 March 2021

10

1,741

13,063

26,969

10,874

52,657



 

Notes to the Financial Statements

 

1 Basis of preparation and significant accounting policies

 

Gresham House Strategic plc (the Company) is a company incorporated in the UK and registered in England and Wales (registration number: 03813450). The accounting policies applied are consistent with the prior year.

 

Basis of preparation

These financial statements for year ended 31 March 2021 have been prepared in accordance with International Financial Reporting Standards ('IFRS') approved by the International Accounting Standards Board ('IASB') and in conformity with the requirement of the Companies Act 2006 and adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

 

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 Company's business activities, together with the factors likely to affect its future development, performance and position are set out in the Directors' Report and Investment Manager's Report. The key risks facing the business and management's policy and practices to manage these are further discussed in note 13.

 

In assessing the Company as a going concern, the Directors have considered the forecasts which reflect the Directors' proposed strategy for portfolio investments and the current economic outlook. The Directors acknowledge that the coronavirus (Covid-19) outbreak has had a significant adverse economic impact globally, and that this has caused substantial volatility in financial markets. The Company has been well placed to operate throughout the crisis with no further adverse impact on the Company and its investments other than the drawdown experienced globally at the start of the pandemic in March 2020. The Company's positions have continued to perform well and increase in value since the March 2020 lows. The GHS share price increased from the low of 885 pence (March 2020 low) to 1,420 pence at the end of March 2021.

 

The Directors consider the Company to be well-placed to operate for the foreseeable future and at least 12 months as the Company has sufficient liquidity to pay its liabilities as and when they fall due and also to invest in new opportunities as they arise. In the current year, there was a performance fee accrual of £2.3m (2020: nil). Excluding the performance fee accrual, the Fund is in a net current asset position of £1.1 million (2020: £7.0 million). The fund has planned realisations in order to be in a position to pay the performance fee.

 

The Company is in a net asset position of £52.7 million (2020: £36.9 million) and approximately 90% of the Company's portfolio of Investments consist listed equities which, should the need arise, can be liquidated to settle liabilities. There are no other contractual obligations other than those already in existence and which are predictable.

 

The Company's forecasts and projections, taking into account the current economic environment and other factors, including reasonably possible changes in performance, show that the Company is able to operate within its available working capital and continue to settle all liabilities as they fall due for the foreseeable future. The Company has, excluding the performance fee based on fund performance during the year, consistent, predictable ongoing costs and all major cash outflows, such as for the payment of dividends or for investment into portfolio companies, are at the full discretion of the Board.

 

Therefore, the Directors taking into the consideration the above assessment are satisfied that the Company will be able to settle their liabilities as they fall due and therefore is a going concern.

 

Notes to the Financial Statements (continued)

 

1 Basis of preparation and significant accounting policies (continued)

 

Financial instruments:

 

Trade debtors and creditors

Trade debtors and creditors are held at amortised cost and are accounted for at transaction value when an asset or liability is incurred 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.

 

Investments at fair value through profit or loss

 

Investments are included at valuation on the following basis:

 

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

 

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

 

The core principles of the 2018 IPEV guidelines are:

 

              Fair Value should be estimated at each Measurement Date (each time Fair Value based Net Asset Value (NAV) is reported to investors (LPs)).

              The Price of a Recent Investment (if deemed Fair Value) should be used to calibrate against the alternative valuation methodologies.

              Calibration is required by accounting standards.

              Market Participant perspectives should be used to estimate Fair Value at each Measurement Date.

After considering individual facts and circumstances and applying these Guidelines, it is possible that Fair Value at a subsequent Measurement Date is the same as Fair Value as at a prior Measurement Date. This means that Fair Value may be equal to the Price of a Recent Investment; however, the Price of a Recent Investment is not automatically deemed to be Fair Value.

For measurement purposes, investments, including equity, loan and similar instruments, are designated at fair value through profit and loss, and are valued in compliance with IFRS 9 'Financial Instruments', IFRS 13 'Fair Value Measurement' and the IPEV Guidelines as recommended by the British Venture Capital Association.

 

The Directors consider that a substantial measure of the performance of the Company is assessed through the capital gains and losses arising from the investment activity of the Company.

 

Gains and losses on the realisation of investments are recognised in the statement of comprehensive income for the year and taken to retained earnings. The difference between the market value of financial investments and book value to the Company is shown as a gain or loss for the year and taken to the statement of comprehensive income.

 

Notes to the Financial Statements (continued)

 

1 Basis of preparation and significant accounting policies (continued)

 

Revenue

Dividends receivable on unquoted equity shares are brought into account when the Company's right to receive payment is established and there is no reasonable doubt that payment will be received.

 

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.

 

Interest receivable is included on an effective interest rate basis.

 

Taxation

The tax expense included in the statement of comprehensive income comprises of current and deferred tax. Current tax is the expected tax payable based on the taxable profit for the year, using tax rates that have been enacted or substantially enacted by the reporting date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit and are accounted for using the statement of financial position liability method.

 

Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.

 

Performance fee

Under the terms of the Investment Management Agreement, the Company will pay the Investment Manager a performance fee in respect of each performance fee period in which the Net Asset Value per Ordinary Share on the last business day of such performance fee period exceeds both a compounding hurdle growth in Net Asset Value per share of 7% per annum (compounding weekly, the 'Hurdle Net Asset Value per share') and the highest Net Asset Value per share at which a performance fee was previously paid (the 'High Watermark'). The performance fee shall be calculated at a rate of 15% of the amount by which the Net Asset Value per share exceeds the High Watermark, multiplied by the time weighted number of shares in issue during such performance fee period, provided that the Performance Fee payable will be reduced to ensure that the Net Asset Value per share after the payment of such Performance Fee does not fall below the Hurdle Net Asset Value per share. Up to 50% of any performance fee may (at the Board's discretion) be satisfied by the issue of Ordinary Shares.

 

The performance fee is calculated for each performance fee period which is aligned with the Company's accounting year. It is accounted for on an accrual basis and is recognised in the statement of comprehensive income once a performance fee is triggered during the performance fee period. 

 

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 recognised in the statement of comprehensive income.

Notes to the Financial Statements (continued)

 

1 Basis of preparation and significant accounting policies (continued)

 

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. It also requires Management to exercise their judgement in the process of applying the accounting policies.  The main area of estimation is in the inputs used in determination of the valuation of the unquoted investments in note 8. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

 

The majority of the portfolio is valued on bid price which factors in the anticipated impact of climate and ESG related issues on the portfolio companies, therefore these are incorporated into the valuations.

 

Management believes that the underlying assumptions are appropriate and that the Company's financial statements are fairly presented.

 

Segmental analysis

There is only one operating segment of the business - investment activities. The performance measure of investment activities considered by the Board is profitability and is disclosed on the face of the statement of comprehensive income.

 

New standards effective in the year

 

Definition of Material (Amendments to IAS 1 and IAS 8)

The IASB has made amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to clarify and align the definition of materiality throughout IFRS and the Conceptual Framework for Financial Reporting. The amendments clarify when information is material and provide some guidance in IAS 1 about immaterial information.

 

The amendments address the following:

 

·       'Obscuring' was added to the definition of materiality and clarifies that obscuring information has a similar effect to omitting or misstating that information;

·       Clarifies that an entity assesses materiality in the context of the financial statements as a whole; and

·       The 'primary users of generalpurpose financial statements' are defined as 'existing and potential investors, lenders and other creditors' who rely on general purpose financial statements for the financial information they need.

 

The adoption of these amendments has no significant impact to the Company.

 

 

 

Notes to the Financial Statements (continued)

 

2 Statement of comprehensive income

 

The Company's profit for the year was £16.612 million (2020: loss of £6.174 million).

 

The Company has recognised gains on investments through the statement of comprehensive income of £19.003 million (2020: loss of £5.728 million).

 

3 Information regarding Directors and employees

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

Directors' remuneration summary



Basic salaries

138

129

Social security costs

10

9


148

138

 

 



 

 

 

 Year ended 31 March 2021

 Year ended 31 March 2020



 Emoluments

 Social Security costs

 Total

 Emoluments

 Social Security costs

 Total



 £'000

 £'000

 £'000

 £'000

 £'000

 £'000


Analysis of Directors' remuneration








C Berry

27.5

-

27.5

26

-

26


D Potter

55.0

-

55.0

51

-

51


H Sinclair

27.5

-

27.5

26

-

26


K Lever

27

-

27

26

-

26


Social security costs

-

10.00

10.00

-

9

9



137.5

10.00

147.5

129

9

138


 

The Company has no employees.

 


Year ended

Year ended


31 March 2021

31 March 2020


No.

No.

Directors



Investment and related administration

                    4

                   4


                     4

                   4

 

 

 

 

 

Notes to the Financial Statements (continued)

 

4 Other costs

 

Profit/(loss) for the year has been derived after taking the following items into account:

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

Auditors remuneration



Fees payable to the current auditor for the audit of the Company's annual financial

statements

34

31

Fees payable to the Company's current auditor and its associates for other services:



    Under provision of audit fee

-

3

    Fees paid for review of interim report

-

3

    Other services relating to taxation

10

13




Analysis of other costs:



Professional fees

524

379

Management fee

832

858

Other general overheads

129

76


1,539

1,363

 

5 Taxation

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

UK corporation tax



Corporation tax liability at 19% (2020: 19%)

-

-




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: 19% (2020: 19%).

 

The differences are explained below:

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

Current tax reconciliation



Profit/(loss) before taxation

16,612

(6,174)

Current tax charge at 19% (2020: 19%)

3,156

(1,173)




Effects of:



Non-taxable income

(3,396)

1,037

Deferred tax not recognised

240

136

Tax on profit/(loss) on ordinary activities

-

-

 

Notes to the Financial Statements (continued)

 

5 Taxation (continued)

 

Deferred tax

There remains an unrecognised deferred tax asset in respect of tax losses and other temporary differences. The unrecognised deferred tax asset is £29 million (2020: £29 million) for the Company. The increase in the balance for unrecognised deferred tax is due to an increase to management expenses carried forward available for deduction against future income. The assessed loss on which no deferred tax has been recognised amounts to £152 million (2020: £151 million).

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

Company deferred tax asset



Balance at 1 April

-

               -

Movement in the year

-

-

Balance at 31 March

-

        -  

 

The movement in the year is taken to the statement of comprehensive income.

 

6 Earnings per share

 

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

 

 


Year ended

Year ended


31 March 2021

31 March 2020


£'000

£'000

Earnings



Profit/(loss) for the year

16,612

(6,174)




Number of shares ('000)



Weighted average number of ordinary shares in issue for basic EPS

                  3,481

                  3,541

Weighted average number of ordinary shares in issue for diluted EPS

                 3,481

                 3,541







Earnings per share



Basic EPS

477.24p

(174.34p)

Diluted EPS

477.24p

(174.34p)

 

As at 31 March 2021, the total number of shares in issue was 3,480,884 (2020: 3,480,884). During the year, the Company cancelled nil Treasury shares (2020: nil) and no shares were bought back (2020: 74,446). There are no share options outstanding at the end of the year.

 

7 Dividends

 

The Company paid £866,740 in dividends to shareholders in the year ended 31 March 2021 (2020: £752,374).

Notes to the Financial Statements (continued)

 

8 Investments at fair value through profit or loss

 




Year ended 31 March 2021


















Transfer




Value at
31 March 2020

Additions

Disposal proceeds

Gain/Loss on disposals

Revaluation

between levels

Value at
31 March 2021



£'000

£'000

£'000

£'000

£'000

£'000

£'000

Investments in quoted companies (Level 1)

23,558

13,680

 

(8,246)

1,165

17,408

-

47,565


Other unquoted investments (Level 3)

6,402

1,545

(2,888)

796

468

-

6,323


Total investments at fair value through profit or loss

29,960

15,225

(11,134)

1,961

17,876

-

53,888


 

 




Year ended 31 March 2020




















Value at
31 March 2019

Additions

Disposal proceeds

(Loss) / gain on disposals

Revaluation

Transfer between levels

Value at
31 March 2020



£'000

£'000

£'000

£'000

£'000

£'000

£'000

Investments in quoted companies (Level 1)

31,849

9,010

(13,843)

(199)

(5,560)

2,301

23,558

Other unquoted investments (Level 3)

8,869

2,474

(2,671)

359

(328)

(2,301)

6,402

Total investments at fair value through profit or loss

40,718

11,484

(16,514)

160

(5,888)

-

29,960

 

The revaluations and gains/(losses) on disposals above are included in the statement of comprehensive income as gains/losses on investments.

 


Value at

Value at


31 March 2021

31 March 2020


£'000

£'000




Opening valuation

29,960

           40,718

Acquisitions

15,225

11,484

Unrealised and realised gains / (losses) on investment

19,837

(5,728)

Disposals

(11,134)

(16,514)

Closing valuation

53,888           

            29,960

 

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

 

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

 

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

 

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

 

 

 

 

 

 

Notes to the Financial Statements (continued)

 

8 Investments at fair value through profit or loss (continued)

 

The Company's investments are summarised as follows:


                31 March


2021

2020


£'000

£'000

Level 1

47,565

           23,558

Level 2

-

-

Level 3

6,323

6,402


53,888

            29,960

 

For the year ended 31 March 2021, there were no transfers of the investments between the fair value hierarchy levels. For the year ended 31 March 2020, there was a transfer from Level 3 to Level 1 for MJ Hudson which amounted to £2,300,574, as a result of its flotation and admission to AIM.

 

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 2021 and 31 March 2020, all investments, except for the investments in the table below, fall into the category 'Level 1' under IFRS 7 fair value hierarchy. 

 

A summary of the level 3 investments are as follows:

 


31 March 2021

 31 March 2020


Material investments included

£'000s

Material investments included

£'000s

Fair value

Be Heard Group Holdings

         -

Be Heard Group Holdings

1,838


The Lakes Distillery Company

         2,693

The Lakes Distillery Company

2,348


Hanover Equity Partners II LP

         -

Hanover Equity Partners II LP

254


Northbridge Industrial Services plc convertible bonds

         2,430

Northbridge Industrial Services plc convertible bonds

1,962


National World PLC

1,200








Contracted sales proceeds in post balance sheet period

None

         -

None

         -



6,323  


6,402  

 

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 the Company to consider. The final valuation decision

taken by the Board is made after taking into account the recommendation of the Manager.

Notes to the Financial Statements (continued)

 

8 Investments at fair value through profit or loss (continued)

 

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

§ Hanover Equity Partners II LP was purchased on 11 July 2017. It was valued based on the NAV of the Limited Partnership which is a proxy for fair value as its underlying investments are held at fair value. It was fully disposed of on 1 October 2020;

 

§ Be Heard Group plc Bond was purchased on 28 November 2017, and a further investment was made on 10 July 2019. The bonds were valued at fair value which approximates to the bond issue amount, as the value of the conversion right is considered to be nil. It was fully disposed of on 1 March 2021;

 

§ Northbridge Convertible Bond was purchased on 10 April 2018, and a further investment was made on 3 July 2018. Northbridge Industrial Services plc loan notes are valued at fair value which approximates the nominal amount and the value of the conversion option - valued using Black Scholes option pricing methodology. The strike price of each option is 90 pence and every £1 nominal value is convertible into 1.11 ordinary shares. The interest on the loan notes is paid on each payment date and therefore no interest is accrued.

 

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

 

§ National World plc Bond was purchased on 11 February 2021. The bonds are valued at fair value which approximates the nominal value and accrued interest.

Investments in quoted companies (Level 1) have been valued according to the quoted bid price as at 31 March 2021.

 

9 Trade and other receivables

 











31 March 2021

31 March 2020





£'000

£'000

Other debtors




                 66

                 244

Prepayments




                  33

                  22





                 99

                 266

 

10 Trade and other payables

 





31 March 2021

31 March 2020





£'000

£'000

Other creditors




5

7                

Unclaimed special dividends and capital

payments (in respect of C Shares and B shares)

 

420

-

Trade creditors




112

                91

Accrued expenses




98

74

Social security and other taxes




6

                    6





641

178

 

Other creditors related to the acquisition of further equities in Van Elle Holdings plc amounted to £5k, an existing investment, in March 2021. This was settled in April 2021. (2020: £7k related to the acquisition of further equities in Fulcrum Utility Services Ltd which was settled in April 2020).

 

The unclaimed special dividends and capital payments amounting to £420k between the period of 2009 to 2014 were returned to the company in 2021. These will be used for the benefit of the company until claimed by the relevant person or forfeited (2020: nil).

 

 

 

 

 

Notes to the Financial Statements (continued)

 

11 Performance fees payable

 





   31 March 2021

31 March 2020





£'000

£'000

Performance fees payable




2,294

-





2,294

-

 

12 Issued capital

 




 31 March 2021

 31 March 2020




£'000

£'000

Called up, allotted and fully paid:





3,480,884 (2020: 3,480,884) Ordinary Shares of 50 pence (2020: 50 pence)



1,741

1,741

10,000 (2020: 10,000) D shares of 100 pence (2020: 100 pence)



10

10




1,751

1,751

 

As at 31 March 2021, the total number of shares in issue were 3,480,884 (2020: 3,480,884). During the year, no shares were brought back (2020: 77,446).

 

The average share price of Gresham House Strategic plc quoted Ordinary Shares in the year-ended 31 March 2021 was 1,140.0 pence. In the year, the share price reached a maximum of 1,420.0 pence and a minimum of 885.0 pence. The closing share price on 31 March 2021 was 1,420.0 pence.

 

The Company's shares are listed on London's AIM market under reference GHS.

 

13 Financial instruments and financial risk management

 

The Company invests in quoted companies in accordance with the investment policy and Gresham House Strategic Public Equity Fund LP (SPE Fund LP) investment strategy. In addition to investments in smaller listed companies in the UK, the Company maintains liquidity balances in the form of cash held for follow-on financing and debtors and creditors that arise directly from its operations. As at 31 March 2021, £47.6 million of the Company's net assets were invested in quoted investments, £6.3 million in unquoted investments and £1.7 million in liquid balances (31 March 2020: £23.6 million in quoted investments, £6.4 million in unquoted investments and £6.9 million in liquidity).

 

In pursuing its investment policy, the Company is exposed to risks that could result in a reduction in the value of net assets and consequently funds available for distribution by way of dividend or for re-investment.

 

The main risks arising from the Company's financial instruments are due to fluctuations in market prices (market price risk), currency risk and cash flow interest rate risk, although credit risk and liquidity risk are also discussed below. The Board regularly reviews and agrees policies for managing each of these risks and they are summarised below. These have been in place throughout the current and preceding years.

 

All financial assets with the exception of investments, which are held at fair value through profit or loss, are categorised as financial assets at amortised cost and all financial liabilities are categorised as amortised cost.

 

 

a)    Market risk

 

i)     Price risk

Market price risk arises from uncertainty about the future valuations of financial instruments held in accordance with the Company's investment objectives. These future valuations are determined by many factors but include the operational and financial performance of the underlying investee companies, as well as market perceptions of the future of the economy and its impact upon the economic environment in which these companies operate. This risk represents the potential loss that the Company might suffer through holding its investment portfolio in the face of market movements, which was a maximum of £53.9 million (2020: £30.0 million).

 

The investments in fixed interest stocks of unquoted companies that the Company holds are not traded and as such the prices are more uncertain than those of more widely traded securities.

 

Notes to the Financial Statements (continued)

 

13 Financial instruments and financial risk management (continued)

a)   Market risk (continued)

i)    Price risk (continued)

 

The Board's strategy in managing the market price risk is determined by the requirement to meet the Company's investment objective. Risk is mitigated to a limited extent by the fact that the Company holds investments in several companies. At 31 March 2021, the Company held interests in 16 companies (2020: 15 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 quoted equity instruments is ultimately sensitive to changes in quoted share prices. The value of investments in CLN, where the valuation methodology is to estimate the value of the conversion option of the instrument, is similarly linked to quoted share prices. The table below shows the impact on the return and net assets if there were to be a 25% (2020: 25%) movement in overall share prices.

 

As at 31 March 2021



+25%

-25%

Security

Valuation basis

Fair value

Impact

£'000

Impact per share
(in pence)

Impact £'000

Impact per share
(in pence)

Quoted investments

Latest share price

             47,565

               11,891 

341.62

(11,891) 

(341.62) 

Unquoted investments







- Northbridge CLN

Bond issue amount + conversion right

               2,430

                    328

9.42

                (309) 

                       (8.87)

 

As at 31 March 2020



+25%

-25%

Security

Valuation basis

Fair value

Impact

£'000

Impact per share
(in pence)

Impact £'000

Impact per share
(in pence)

Quoted investments

Latest share price

             23,558

               5,890

169.20

           (5,890)

                    (169.20)

Unquoted investments







- Northbridge and Be Heard CLNs

Bond issue amount + conversion right

               3,800

                    38

1.08

                (11)

                        (0.32)

 

The impact of a change of 25% (2020: 25%) 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.

 

A sensitivity has not been performed for the other unquoted investments held by the Company, as there is no exposure to market price risk in the valuation methodology applied for these investments.

 

 

ii)     Currency risk

The Company does not hold any significant assets or liabilities denominated in a currency other than sterling, the functional currency. The transactions in foreign currency for the Company are highly minimal. Therefore, currency risk sensitivity analysis was not performed as the results would not be significantly affected by movements in the value of foreign exchange rates.

 

iii)    Cash flow interest rate risk

As the Company has no borrowings, it only has limited interest rate risk. The impact is on income and operating cash flow and arises from changes in market interest rates. Some of the Company's cash resources are placed in an interest paying current account to take advantage of preferential rates and are subject to interest rate risk to that extent.

Notes to the Financial Statements (continued)

 

13 Financial instruments and financial risk management (continued)

 

b)    Credit risk

Credit risk is the risk that a counterparty will fail to discharge an obligation or commitment that it has entered into with the Company.

 

The Company's maximum exposure to credit risk is:

 





31 March 2021

31 March 2020





£'000s

£'000s

Loan stock investments




6,323

6,148

Cash and cash equivalents




1,605

6,864

Trade and other debtors




99

266





8,027

13,278

 

Credit risk relating to loan stock investments in unquoted companies is considered to be part of market risk.

 

The Company's cash balances are maintained by major UK clearing banks. The credit rating of The Royal Bank of Scotland plc by Fitch Ratings is A (2020: A+)

 

c)    Liquidity risk

The Directors consider that there is no significant liquidity risk faced by the Company. The Company maintains sufficient investments in cash to pay accounts payable and accrued expenses. All liabilities are current and repayable upon demand.

 

14 Capital disclosures

 

The Company's objective has been to maximise shareholder value from all assets, which in recent years has been to realise its portfolio at the most advantageous time and return the proceeds to shareholders.

 

The capital subscribed to the Company has been managed in accordance with the Company's objectives. The available capital at 31 March 2021 is £52.7 million (31 March 2020: £36.9 million) as shown in the statement of financial position, which includes the Company's share capital and reserves.

 

The total amount of revenue reserve for the year is £26.969 million (2020: £11.224 million) which is fully distributable and can be utilised for any future dividends.

 

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.

 

15 Related party transactions

 

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

 

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

 

During the year to 31 March 2021, Gresham House Strategic plc was charged management fees of £832,000 (2020: £858,000) by Gresham House Asset Management.

 

The total payable to GHAM is as follows:

 

Particulars

As at 31 March 2021

As at 31 March 2020

Performance fee (including VAT)

£2.29 million

Nil

Management fee

£0.83 million

£0.86 million

Other miscellaneous

£0.01 million

Nil

Total

£3.13 million

£0.86 million

 

 

 

 

 

Notes to the Financial Statements (continued)

 

15 Related party transactions (continued)

 

As at 31 March 2021, the following shareholders of the Company that are related to GHAM had the following interests in the issued shares of the Company as follows:

                                                                             


As at 31 March 2021

As at 31 March 2020

A L Dalwood

31,183     Ordinary Shares

31,183      Ordinary Shares

G Bird                                                   

22,651     Ordinary Shares

22,651      Ordinary Shares

Gresham House Holdings Ltd

812,913   Ordinary Shares

812,913    Ordinary Shares

R Staveley

7,689       Ordinary Shares

5,179        Ordinary Shares

 

 

 

The Company has signed a co-investment agreement with SPE Fund LP, a sister fund to the Company launched by Gresham House Asset Management Ltd (GHAM) on 15 August 2016. Under the agreement, the Company undertook to co-invest £7.5 million with the SPE Fund LP.

 

The Directors' remuneration and their interest in the Company are disclosed in the Director's remuneration review in the annual report.

 

There are no other related party transactions of which we are aware in the year ended 31 March 2021.

 

16 Subsequent events note

 

David Potter, Chairman, has resigned as Chairman and Director of GHS as at 11 June 2021. Helen Sinclair, non-executive director of GHS will assume the position of interim Chairman until the successor to David Potter has been appointed.

 

Graham Bird joined the Board of Directors on 10 June 2021.

 

It is noted that post year end, the unaudited NAV has increased to 1,729.1 pence per share as at 31 May 2021 (1,512.8 pence per share at 31 March 2020).

 

National World plc

Under the terms of the secured convertible loan note, GHS gave instructions to convert its loan note into ordinary shares as part of the Listing. The GHS loan notes therefore were converted into shares in line with the terms of the facility. Under the terms of the notes, if the Listing completed successfully, a conversion incentive was provided. Given GHS had instructed to convert its loan note on the unsuspension of the National World shares, GHS was issued additional shares in addition to the principal and accrued interest. The Listing took place on 7 May 2021, and 12,263,013 ordinary shares in National World were issued to GHS which included the conversion of the following at a conversion price of 11 pence per ordinary share -

 

¾   Original loan notes

¾   10% Conversion incentive

¾   Accrued interest from issue date of the loan note to date of conversion

 

This has resulted in the valuation of the investment increasing by £120,529 on conversion of loan notes to shares of National World plc. Thereafter, the shares trade on London Stock Exchange and the valuations fluctuate according to share prices.

 

Northbridge Industrial Services plc Convertible Loan Notes

On 21 May 2021, Northbridge resolved to redeem the outstanding Northbridge Convertible Loan Notes. Loan Note holders have been given the option to have the outstanding loan note principal and redemption premium paid in cash or to convert in whole or part the outstanding loan note principal. GHS have elected to have 80% redeemed which will be paid in cash (along with the redemption premium at 25% of the outstanding Loan Note principal) and 20% converted in Northbridge shares at 90 pence per ordinary share.

 

This will result in the valuation of the Investment increasing by c.£17.6k depending on the prevailing share price on the date the shares settle.

 

 

Footnotes

[1] Total shareholder return is the financial gain that results from a change in the stock's price plus any dividends paid by the company during the measured interval divided by the initial purchase price of the stock

[2] These KPI's are alternative performance measures (non-GAAP)

[3] NAV total return is the change in the net asset value of the company over a given time period

[4] The audited NAV per share includes valuations of the Company's unlisted investments as at 31 March 2021. The valuation of all unlisted investments, which comprise approximately 11.8% of the NAV, all of which are CLN, will be reviewed for the purposes of the audited financial statements for the year-ended 31 March 2021

 [5] The discount is the difference between share price and NAV per share, expressed as a percentage

[6] Source: Bloomberg and Gresham House data as at 31 March 2021, CY22 calculations

 

 

 

 

 

 

 

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