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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gresham House Strategic Plc | LSE:GHS | London | Ordinary Share | GB00BYRH4982 | ORD 50P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,395.00 | 1,360.00 | 1,430.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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:
Hot Features
Premium
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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