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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gresham House Plc | LSE:GHE | London | Ordinary Share | GB0003887287 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,100.00 | 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
TIDMGHE
RNS Number : 3202G
Gresham House PLC
01 March 2018
1 March 2018
Gresham House plc ("Gresham House" or "the Company")
(AIM: GHE)
Audited Results for Year Ended 31 December 2017
A Year of Organic Growth with 79% Increase in Assets Under Management plus Operating Profitability Achieved in H2 2017 Ahead of Expectations
Hot Features
Premium
-- Assets under management ("AUM") increased 79% to GBP649 million (2016: GBP363 million)
-- Asset management revenue up 85% to GBP6.5 million (2016: GBP3.5 million)
-- Adjusted operating loss reduced to GBP0.7 million (2016: GBP2.4 million loss)
-- Adjusted operating profitability achieved in the second half of 2017
-- Organic growth of GBP200 million (a 55% rise over the year) including the launch of the British Strategic
Investment Fund ("BSIF") and growth across other existing strategies
-- Acquisition growth of GBP86 million (up 24%) through the purchase of Hazel Capital, the renewable energy asset
manager, in October 2017
-- Completed the sale of the legacy property portfolio post year end, fully repaying debt - strong balance sheet
with tangible/realisable assets of GBP24.4 million
Anthony Dalwood, CEO of Gresham House, comments:
"Three years on from the start of our journey, Gresham House Group is a specialist alternatives asset manager in a strong position to build the momentum that we have created. We are seeing institutional investors increasing their allocations to alternatives. With our newest offerings in new energy and infrastructure, we can provide pension funds, family office and other institutional clients with tailored solutions including co-investment opportunities in some of the fastest growing and most sought-after market segments in the alternatives sector."
"We have a promising pipeline of acquisitions and organic growth opportunities, a strong balance sheet and a high-quality team to continue to execute the shareholder value creation strategy in 2018."
For further enquiries, please contact:
Gresham House plc Tony Dalwood, Chief +44 (0) 203 837 Executive Officer 6270 Liberum Neil Elliot/Jill +44 (0) 20 3100 Li 2000 Montfort Communications greshamhouse@montfort.london Gay Collins / Toto +44 (0) 203 770 Reissland-Burghart 7907
Website: www.greshamhouse.com
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014
Disclaimers
This announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Gresham House plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.
Chairman's Statement
Activity in the year
Gresham House has grown from strength to strength in 2017 and I am pleased to report that this management is delivering well against our stated objectives. Assets Under Management ("AUM") at the year end stand at GBP649 million, some 79% greater than at the beginning of 2017. The Group is now run-rate profitable* at the adjusted operating profit level.
Organic growth in AUM totalled GBP200 million (a 55% rise over the year) and acquisitive growth was GBP86 million (up 24%). The key drivers were the launch of the Gresham House British Strategic Investment Fund ("BSIF"), adding GBP165 million, and the acquisition of the Hazel Capital business adding a further GBP86 million as at 31 December 2017.
As I highlighted in the Interim Results, BSIF is a great example of the team providing relevant solutions to meet the specific needs of investors. Local government pension schemes and other institutional investors are seeking long-term opportunities in UK housing and infrastructure-related assets. BSIF provides them with a clear partnership solution, particularly for investments of less than GBP50 million and the potential to direct those investments to local or regional opportunities. The team continues to work hard fundraising for BSIF and is targeting a final close of GBP250 million by the end of 2018.
I was also pleased to announce the completion of the acquisition of Hazel Capital, the renewable energy asset manager, in October 2017. The Gresham House New Energy strategy, our fifth strategy as an alternative asset manager, has been set up under the leadership of Hazel's founder Ben Guest. I welcome Ben and his team to Gresham House and I am excited about the prospects of working together.
We now have five investment strategies in total, which sit within our two core divisions:
(1) Strategic Equity
-- Public Equity -- Private Assets
(2) Real Assets
-- Forestry -- Housing and Infrastructure -- New Energy
Results
The Group has reached an important inflection point. It has become run-rate profitable at the adjusted operating profit level earlier than anticipated. The increase in AUM is making a positive impact on returns and the adjusted operating loss** has reduced to GBP0.7 million (2016: GBP2.4 million loss). We achieved adjusted operating profit in the second half of 2017 of GBP0.1 million, compared to the GBP0.8 million adjusted operating loss**, reported for our first half to 30 June 2017.
In 2017 we also completed the sale of the legacy property portfolio, adding significant liquidity to the Gresham House balance sheet and finalising our transition from a property-owning business to a pure-play asset manager. Furthermore, with the subsequent repayment of the Kleinwort Benson loan, we have a simpler and stronger balance sheet to support our plan for growth as a pure-play asset manager in 2018. Further details of our financial performance will be found in the Financial Review.
*Run-rate profitable is defined as the annualised management fee revenues and other income earned from the AUM as at the period end, less the annualised cost base at the period end.
**Adjusted operating loss has been restated per note 9 of the financial statements
The Board
There have been changes on the Board that I want to highlight. We have recruited two new non-executive directors who position the Company well for our next stage of growth; Simon Stilwell joined on 18 December 2017 and Rachel Beagles joins on 1 March 2018.
Simon brings a wealth of experience from his two decades in capital markets and the development of Liberum under his leadership. He is well placed to help guide Gresham House through the next phase of its growth. Simon is currently the Chief Executive Officer of Vitesse Media, an AIM-listed digital media and events business.
Rachel has an impressive track record as a non-executive director or chairman of several investment companies and has recently been appointed as the Chairman of the Association of Investment Companies. Rachel's prior experience as a Managing Director at Deutsche Bank and as Vice-Chair of Newlon Housing Trust, a social housing provider operating in North & East London, will also provide valuable insight to the Board.
Peter Moon stepped down as a Non-Executive Director and Chairman of the Audit Committee at the end of 2017. He has taken on the role of Chairman of the Investment Committee for BSIF, which he is well placed to lead given his experience as Chief Investment Officer at the Universities Superannuation Scheme. I would particularly like to thank Peter for his very valuable service as a director over our early formative years. Richard Chadwick has taken over as Audit Committee Chairman, which as a Chartered Accountant and existing member of the Audit Committee he is well placed to do.
The Board has a significant role to play in the development of the business, performing such roles as counsel to the executive management team and providing perspective on strategic matters. The evolving Gresham House plc Board aims to support the long-term aspirations of this growing asset management group.
AGM
This year we are holding our AGM at Eversheds Sutherland (International) LLP, One Wood Street, London, EC2V 7WS on 17 May 2018 at 10:00am and I hope to see as many shareholders as possible there. Our CEO Anthony Dalwood will give a brief update after the formal business of the AGM is concluded.
Outlook
With the continuing low interest rate environment and the uncertainty around what Brexit will bring, these are interesting times in which to invest. The management team's clear strategy is to provide investment solutions with a long-term horizon aiming to counter near-term uncertainty. There is a promising pipeline of organic and acquisitive growth opportunities identified for this year. By operating with the same careful and diligent approach that we have used to date, I believe the management team assembled is one of quality and cohesion, which will continue to create shareholder and client value in 2018.
The hard work and dedication of the whole team has driven the business to where it is today and I believe that we have the right team in place to continue to deliver against our stated objectives.
Anthony Townsend
Chairman
28 February 2018
Chief Executive's Statement
Specialist alternative asset manager
Gresham House has continued its journey from an Investment Trust in December 2014 to the pure-play specialist alternative asset manager we are today thanks to the efforts of our management team alongside the support of clients and shareholders. Three years on, we have met our stated objectives, by growing AUM 79% to GBP649 million in the twelve months to 2017 and achieving profitability on a run-rate basis, at the adjusted operating profit level, at the end of 2017. I am pleased to state that at the adjusted operating level we have reduced the loss from GBP2.4 million in 2016 to GBP0.7 million in 2017, and exit a good year ahead of original management expectations.
The Group is now diversified across two divisions, which cover five strategies and is well positioned for long-term growth in alternatives asset management. It is working with strategic partners and creating shareholder value through multiple avenues of growth in AUM, carried interest and profits.
The sale of the legacy property portfolio in the year leaves the business with a strong balance sheet and we have also received advice that the Company now qualifies for inheritance tax business property relief at 100% in appropriate cases**. Gresham House can now be considered a pure-play specialist alternative asset manager, aiming to capture value from the structural growth in alternative asset allocation. This will help us achieve our vision:
-- To build a leading specialist alternative asset management company whereby the Group becomes an "asset to covet"
-- To create long-term shareholder value through sustainable and superior investment performance, and quality service provision
-- To create a culture of empowerment where individual flair and entrepreneurial thinking is encouraged, enabling us to attract and retain top talent
Generating shareholder value
To build Gresham House into an asset to covet and generate shareholder value, we target growth through increasing AUM along with client satisfaction. We have had significant AUM growth over the past twelve months, with the addition of the New Energy and Housing & Infrastructure strategies. We now have five complementary strategies under the Strategic Equity and Real Assets divisions.
Assets Under Management, GBP million
31 Dec 31 Dec 31 Dec 31 Dec
2014 2015 2016 2017
------------- ------- ------- ------- -------
Strategic
Equity 0 37 116 115
------------- ------- ------- ------- -------
Real Assets 0 205 247 534
------------- ------- ------- ------- -------
Total 0 242 363 649
------------- ------- ------- ------- -------
Overall AUM has grown by 79% in the year to GBP649 million (2016: GBP363 million), reflecting organic growth of GBP200 million (55%) and acquisitive growth of GBP86 million (24%).
Organic growth was supported by the launch and interim close of the British Strategic Investment Fund ("BSIF") at GBP165 million, a significant milestone. BSIF is a closed-ended limited partnership operating over a twelve-year period. The business generates sustainable management fee income and has the potential to deliver carried interest should BSIF achieve its annualised target return. Strategic equity AUM was broadly flat following the return of capital to LMS shareholders ahead of the expected schedule.
The completion of the Hazel Capital transaction in October 2017 is an exciting addition to Gresham House's product offering in the area of renewables and new energy infrastructure-related assets. Alongside the Hazel Renewable Energy VCT management contracts and the master service agreements representing AUM of GBP86 million, we also have a developed pipeline of energy storage assets. We are excited about the potential to grow this area as client product increases with a team who have a proven track record in this socially responsible arena.
Disciplined approach
To create value for shareholders and clients alike, Gresham House operates with risk management and controls at the forefront of the decision-making process. Minimising and mitigating against the risks that the Group faces is key to delivering long-term returns, particularly in the increasingly stringent regulatory environment in which we operate. We have built this approach into all our investment processes through the use of experienced members of our Investment Committees at both the Group and the strategy levels. This discipline aims to safeguard the funds of our clients and shareholders.
Our ability to integrate new businesses into Gresham House and add value through our central functions is further key to generating shareholder value. We have demonstrated our ability to do this with the acquisition of the Aitchesse business, now fully integrated as Gresham House Forestry and delivering on the 15% long-term return hurdles. The Hazel Capital business is being successfully integrated into the Gresham House family as the New Energy strategy and we continue to work on scaling this area.
We successfully launched our client portal at the end of 2017 to achieve greater interaction and transparency between clients and our investment managers. Clients are able to log on to the system and see deal-by-deal co-investment opportunities in a structured and simple manner. They can review their portfolio through accessing information on the assets underlying their investments, read appraisals and investment papers where available, as well as see how much of their committed cash has been drawn down. This allows them discretion to increase allocations through co-investment and hence their exposure to regions, sectors or deals specific to their interests. This level of engagement will materially enhance the client service proposition.
*Adjusted operating loss has been restated per note 9 of the financial statements
** This statement is intended only as a guide to current UK tax legislation and to what is understood to be the current practice of HMRC, both of which are subject to change with retrospective effect. This statement does not constitute advice to any shareholders or potential investor.
Talented team
Following the management buy-in in 2014, the team has grown and evolved. The right people working productively and efficiently at Gresham House is critical to our success. We aim to create a culture of empowerment for our team, where individual flair and entrepreneurial thinking is encouraged. This commitment to people is at the core of Gresham House's values and has resulted in a diverse and dynamic team.
The acquisition of the Hazel Capital business and team has been a big step forward in hiring a high quality investment team to enhance our product offering. Ben Guest has joined Gresham House as head of the New Energy strategy and fund manager of BSIF. Ben's expertise in renewable energy investment has generated top quartile performance for the Hazel Renewable Energy VCTs. Our product development and distribution team is working hard on a partnership approach to providing long-term solutions to clients in a variety of products, by listening to their needs and matching our offering accordingly.
Michael Hart joined in June 2017 from Amundi to head up the distribution drive and to add his experience to this critical function within the business. He has already made a number of introductions to institutional investors who we are currently working with to provide investment solutions. This area remains one of development focus.
Additional key hires in the year include Andy Hampshire joining us as Chief Technology Officer from Lloyds Development Capital. His business integration experience as well as technology focus has been clearly demonstrated with the successful implementation of the client portal and integration of the Forestry and New Energy businesses.
Other hires have included bolstering our investment management teams and marketing functions. Overall, we are focused on building a mix of quality individual talent to deliver continued growth for Gresham House. We were encouraged that so many team members took up the opportunity to reinvest in Gresham House through the bonus share matching scheme.
Increasing allocation to alternative assets
The search for higher returns and income, in a low interest rate world, have accelerated changes in clients' asset allocation and product demand. We have seen a growing popularity of passive funds, sustained increased demand for income products and a shift to diversified investment solutions. This has driven a greater interest in higher returning areas such as alternative assets which have shown superior long-term risk-return characteristics.
This backdrop has prompted some investors to expand their investment horizons both in timeframe (longer term) and universe (non-traditional asset classes) to capture superior risk-adjusted returns, particularly in search of income yield.
Gresham House is positioned to capitalise on the shift in asset allocation amongst clients from traditional to alternative asset classes for investors searching for a solution to gain from long-term investment opportunities.
Outlook
We have delivered well against our 2017 objectives growing AUM, both organically and through acquisitions and becoming run-rate profitable in the second half of the year. More details of our objectives and how we achieved these in 2017 are contained in the Strategic Framework section.
We continue to see institutional investors increase their allocations to alternatives as they seek long-term investment returns as well as achieving environmental, social and governance objectives. By continuing to provide tailored solutions to investors' long-term needs, we are positioning Gresham House for further growth.
Asset valuations on almost all traditional metrics suggest that peak margins with high multiples are likely to lead to relatively low medium-term equity returns. Indeed, should bond yields rise significantly from this point, then we should expect volatility and a decrease in asset valuations more broadly. Gresham House is therefore well-positioned as a specialist alternative asset manager with long-term contracts in areas where we believe that superior investment returns can be potentially generated.
As we look forward to 2018, we remain focused on growing the business and building the Gresham House brand as an "asset to covet", where employees are proud to work for Gresham House, clients want to invest with Gresham House and shareholders want to own Gresham House. The ability to deliver on this will be determined by AUM growth, both organically and through the successful integration of acquisitions. We now have an offering in the new energy and infrastructure related markets, which are some of the fastest growing and most sought-after market segments in the alternatives sector.
We are positioned for growth, with a strong net cash balance sheet and a high quality team. In addition, we have a promising pipeline of acquisitions and organic growth opportunities and are therefore excited about the potential to continue to deliver greater value to clients and shareholders in 2018 and beyond.
Anthony Dalwood
Chief Executive Officer
28 February 2018
Strategic Framework
Building a leading specialist alternative asset management company whereby Gresham House becomes an "asset to covet"
Strategic objective: To deliver long-term value to shareholders and clients whereby Gresham House becomes an "asset to covet"
Objectives Progress in 2017 KPIs 2018 Priorities
-------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------
Deliver Organic growth
organic * Successful launch of the British Strategic Investment in AUM * Final close BSIF at GBP250m by end of 2018
growth in AUM Fund (BSIF): GBP165m committed at 31 December 2017 2017: GBP200m
2016: GBP54m
2015: GBP0m * Grow Forestry AUM through final close of Gresham
* Forestry AUM growth of GBP36m, up 15% in the year House Forestry Fund LP and new initiatives
* Strategic Equity AUM marginal reduced by GBP1m after * Manage GHS plc and LMS Capital plc effectively to
strategic return of GBP11m capital to shareholders by increase NAV
LMS Capital plc
* Capitalise on client portal co-investment facility to
provide additional AUM growth plus client service
-------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------
Deliver Acquisition
acquisition * Successful acquisition of the Hazel Capital business growth in AUM * Identify and execute on acquisitions to complement
growth in AUM in October 2017 2017: GBP86m the existing business and provide further scale
2016: GBP68m
2015: GBP242m
* Successful continued integration of Gresham House * Disciplined capital allocation policy to generate 15%
Forestry, delivering in line with long-term return return on capital employed ("ROCE") hurdle in the
hurdle of 15% long term
* Successful continued integration of LMS Capital plc
management contract delivering in line with long-term
return hurdle of 15%
-------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------
Deliver Adjusted
operating * Run-rate profitable at end 2017 Operating loss * Deliver growing operating profitability in 2018
profitability 2017:(GBP0.7m) through revenue growth and management of cost base
to 2016:
shareholders * Delivering revenue growth through both organic and (GBP2.4m)
acquisition growth in AUM 2015:
(GBP2.3m)
* Managing cost base to support growth
-------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------
Deliver Revenue per
operational * Increased revenue per employee to GBP222k employee * Focus on integration of new acquisitions to deliver
efficiencies 2017: GBP222k synergies
2016: GBP148k
* Clear focus on synergies from acquisitions and 2015: GBP67k
integration plans * Build AUM from existing cost base
* Benefits of operational leverage * Invest in revenue generating team members
* Delivering AUM growth by more than increases in cost
base
-------------- ------------------------------------------------------------ --------------- ------------------------------------------------------------
Financial Review
The Group has had another transformative year, with AUM growing by 79% to GBP649 million (2016: GBP363 million) and revenues increasing by 85% to GBP6.5 million (2016: GBP3.5 million). Alongside the development of the specialist alternative asset management business, the team has realised the remaining legacy property portfolio and with the final sale of the land at Newton-le-Willows completing in February 2018, we now have a clean balance sheet with zero debt. The Group has also been advised that following the sale of the legacy portfolio, the Company's shares now qualify for inheritance tax business property relief at 100% in appropriate cases. *
* This statement is intended only as a guide to current UK tax legislation and to what is understood to be the current practice of HMRC, both of which are subject to change with retrospective effect. This statement does not constitute advice to any shareholders or potential investor.
As a result of the legacy property disposals, we have reclassified the legacy property business unit as a discontinued operation within these results. We have also revisited the definition of adjusted operating profit/loss, the non-GAAP measure, to clearly disclose the trading performance of the Group as a specialist alternative asset manager.
Adjusted operating loss
2017 2016
GBP'000 GBP'000
Income 6,457 3,496
-------- --------
Administration overheads
(excluding amortisation and
depreciation and exceptional
items) (6,824) (5,459)
Finance costs (344) (442)
Adjusted operating loss (711) (2,405)
-------- --------
Amortisation and depreciation (1,197) (1,433)
Exceptional items (308) -
-------- --------
Net trading loss (2,216) (3,838)
-------- --------
(Losses) and gains on investments (206) 430
-------- --------
Tax - 33
-------- --------
Operating loss before tax (2,422) (3,375)
-------- --------
(Loss)/profit from discontinued
operations (1,104) 339
-------- --------
Total comprehensive income (3,526) (3,036)
-------- --------
The adjusted operating profit/loss definition has been simplified to use the Group's net trading loss and deduct amortisation and depreciation of intangible and tangible assets and exceptional items. This now represents the management fee income earned from the specialist asset management business, less the administrative overheads associated with delivering the asset management services.
The growth in AUM in the year has improved the adjusted operating loss* from GBP2.4 million in 2016 to GBP0.7 million in 2017. After the deduction of amortisation and depreciation, exceptional items and the loss from discontinued operations the total comprehensive income for the year was a loss of GBP3.5 million (2016: GBP3.0 million). The main impact was the GBP1.1 million loss from the discontinued operations, which was primarily due to the sale of the legacy asset, Southern Gateway, in a difficult market for commercial property in the UK.
*2016 adjusted operating loss has been restated in line with the revised calculation of adjusted operating profit/loss per above.
Income
2017 2016
GBP'000 GBP'000
Asset management
income 5,805 3,202
Dividend and investment
income 431 249
Other income 221 45
-------- --------
Total income 6,457 3,496
-------- --------
Asset management income
Total income has increased by 85% in the year to GBP6.5 million (2016: GBP3.5 million). This has been driven by the increase in AUM during the year from both new funds raised and the acquisition of the Hazel Capital business. On an annualised basis, the management fee income from funds managed as at 31 December 2017 is GBP7.7 million, which is predominantly based on long-term management contracts.
The Real Assets division delivered GBP2.8 million (2016: GBP2.1 million) from the existing Forestry strategy as well as GBP0.8 million from the newly formed BSIF fund within the Housing and Infrastructure strategy and GBP0.2 million for the two months' income from the New Energy strategy.
Dividend, interest and other income
Dividend and interest income is a good example of how we use our balance sheet to invest to deliver against our long-term 15% per annum return hurdle. Interest earned on the working capital loan provided to Hazel Capital, while we progressed our due diligence on the acquisition of the business, was GBP306k and we also earned an arrangement fee of GBP135k. The total amount borrowed was GBP4.5 million at a rate of 15% per annum, which was secured on the underlying assets of Hazel Capital and fully repaid before the end of the year. We also received a GBP106k dividend from Gresham House Strategic plc in the year.
Administrative overheads
Administrative overheads, excluding amortisation, depreciation and exceptional items was GBP6.8 million (2016: GBP5.5 million). We continue to invest in the team and operational infrastructure to support the growth of the business, which has seen the number of employees increase from 26 to 36 at the end of 2017.
This includes the hiring of the Hazel Capital team of ten people from 31 October 2017. We have also added key hires to critical areas of the business, including Andy Hampshire as the Chief Technology Officer and Michael Hart as head of distribution and additional investment team members. These roles are very important to implementing our stated strategy and all have had a strong start since joining Gresham House. People costs have consequently increased to GBP4.6 million from GBP3.7 million in the year.
Total office costs across the Group were GBP0.5 million (2016: GBP0.3 million). The increase in the size of the business in London also required us to review our office arrangements and in February 2017 we moved to Octagon Point in St Paul's. The acquisition of the Hazel Capital business also included the cost of the office in Hammersmith of GBP70k per annum. We continue to maintain a flexible approach to our office space during this phase of the Group's life and the serviced office space at Octagon Point currently serves us well.
As part of the integration of our new businesses and a review of the existing business costs, we continue to work hard at identifying areas where we can identify synergies and maximise our operating profit.
Finance costs
Following the sale of the Southern Gateway site in Speke, the outstanding GBP4.4 million Kleinwort Benson loan was repaid. Finance fees of GBP344k (2016: GBP442k) represent loan interest up to the point of repayment as well as the remaining arrangement and legal fees that were being amortised over the life of the loan.
Amortisation and depreciation
Amortisation of management contracts, client contacts and the new Gresham House website and client portal account for GBP1.1 million (2016: GBP1.4 million) as these intangible assets continue to be amortised over their useful lives.
Depreciation of GBP87k in the year (2016: GBP69k) has a lesser impact on the Group's income statement and relates primarily to motor vehicles used by the forestry business.
Exceptional items
Exceptional items of GBP308k relate to professional fees incurred in respect of the acquisition of the Hazel Capital LLP business, which took place on 31 October 2017 (2016: GBPnil).
(Losses)/gains on investments
2017 2016
GBP'000 GBP'000
Share of associate's
(losses)/profits (68) 628
(Losses)/gains on investments
held at fair value (230) (147)
Movement in fair value
of contingent consideration (56) (253)
Movement in fair value
of deferred receivable 148 202
Total (losses)/gains
on investments (206) 430
The (losses)/gains on investments table above represent the movements in the investment that the Group has made in the funds that it manages as well as the legacy investments in securities.
The share of associate's profits relates to the 19.3% holding that the Group has in Gresham House Strategic plc ("GHS"). The last results announcement from GHS was on 24 November 2017 for the six-month period to 30 September 2017. Under associate accounting, the Group has therefore recognised its share of the loss in the period of GBP68k.
The loss of GBP230k on investments held at fair value in the year (2016: GBP147k) includes both positive movements on the co-investment that has been made in the funds managed or advised by Gresham House, being offset by a GBP619k impairment to the last material legacy investment, a loan to Kemnal Investments Limited. The loan was due for repayment in February 2018, however pressure on the capital structure and a review of the business model has required the Group to fully impair the investment. We continue to work with the business to recover value.
Fair value movement in contingent consideration and deferred receivable
The fair value movement in the contingent consideration payable to the sellers of Aitchesse and the second tranche payment to LMS has increased by GBP56k in the year (2016: GBP253k).
The deferred receivable relates to future payments due from Persimmon from the sale of the original Newton-le-Willows site in September 2015. The fair value movement of GBP148k represents the total increase in fair value as the payments become due (2016: GBP202k).
Discontinued operations
The classification of the legacy property portfolio as discontinued operations in the year includes rental income, property outgoings, the fair value movement in the remaining property and the net loss on the sale of the Southern Gateway and Newton-le-Willows sites. The key driver of the GBP1.1 million loss (2016: GBP339k gain) is the sale of Southern Gateway, which was achieved in difficult property market conditions, but was strategically important for the business to complete its transition to specialist alternative asset manager. Note 7 to the accounts provides a further breakdown of discontinued operations.
Financial position
2017 2016
GBP'000 GBP'000
Assets
Investments* 8,974 8,873
Property 1,986 10,000
Deferred receivable
- Persimmon 3,694 5,180
Cash 9,785 2,802
------------ ----------
Tangible/realisable
assets 24,439 26,855
Intangible assets 6,327 6,630
Other assets 3,070 2,037
------------ ----------
Total assets 33,836 35,522
Liabilities
Borrowing - 5,896
Contingent consideration 3,301 3,237
Other creditors 2,165 2,256
------------ ----------
5,466 11,389
Net assets 28,370 24,133
============ ==========
*IFRS requires the consolidation of Gresham House Forestry Friends and Family Fund LP. This has been adjusted here for the GBP477k non-controlling interest to show the Group's position on an investment basis.
Tangible/realisable assets
The above highlights the strong balance sheet position that the Group has at the end of 2017. The tangible/realisable assets supporting this total GBP24.4 million (2016: GBP26.9 million), comprise investments, the Newton-le-Willows property (the sale of which completed in February 2018), amounts receivable from Persimmon on the sale of a legacy property site in September 2015 and cash.
Investments
Investments include the value of the Group's holding at the end of the year in Gresham House Forestry LP ("GHF LP") of GBP1.2 million (2016: GBP1.2 million), co-investment in SPE LP of GBP0.8 million (2016: GBP0.5 million) and the Group's associate holding in GHS of GBP6.5 million (2016: GBP6.5 million) and GBP0.3 million in LMS Capital plc ("LMS"). These are all in vehicles or co-investments in funds managed or advised by Gresham House, highlighting clear alignment with our clients.
Property
The Southern Gateway site was sold in September 2017 for a gross value of GBP7.25 million.
We exchanged sale contracts on the remaining land at Newton-le-Willows for gross proceeds of GBP2.1 million in December 2017, which subsequently completed in February 2018. This was the last remaining property investment and means the business has now fully disposed of its legacy property assets and can focus purely on the specialist alternative asset management business.
Deferred receivable - Persimmon
The Persimmon deferred receivable relates to the instalments that are due from Persimmon annually up to 22 March 2019. In the year GBP1.6 million was paid by Persimmon. The next instalment due on 22 March 2018 is GBP2.1 million, with a final payment due on 22 March 2019 of GBP1.6 million. The deferred receivable has been fair valued as this was designated at fair value through profit or loss at inception.
Intangible assets
Intangible assets of GBP6.3 million (2016: GBP6.6 million) relate to the Aitchesse Limited (now Gresham House Forestry Limited) acquisition, the LMS management contract award and the recently acquired contracts from Hazel Capital LLP.
The intangible assets recognised at the end of the year for Aitchesse of goodwill, management contracts and customer relationships totalled GBP4.8 million (2016: GBP5.4 million). The performance of the business has supported the goodwill recognised and the management contract and customer relationships have been amortised in line with their expected useful lives.
The LMS contract has been amortised over its three-year life and has a carrying value of GBP0.8 million as at 31 December 2017 (2016: GBP1.2 million).
The contracts from the Hazel Capital business acquisition on 31 October 2017 have been fair valued at GBP0.3 million, with goodwill of also GBP0.3 million also to be recognised. The management contracts will be amortised over their useful lives.
Borrowing
The Kleinwort Benson loan of GBP5.9 million at the beginning of the year was fully repaid following the sale of Southern Gateway. The Group now has no borrowing in place and operates with a substantial net cash position of GBP9.8 million as at 31 December 2017 (2016: GBP2.8 million).
Contingent consideration
The contingent consideration payable to the original owners of Aitchesse requires EBITDA generation by the Aitchesse business of between GBP1.7 million and GBP3.5 million in the period from 1 July 2015 to 28 February 2018. The current assessment is that 87% of this EBITDA is expected to be achieved, with the Group incurring the corresponding deferred consideration, which after discounting indicates a fair value of GBP3.0 million (2016: GBP3.0 million).
The remaining GBP251k relates to the fair value of the second tranche payment due to LMS for the management contract in August 2018.
Going Concern
The Financial Reporting Council has determined that all companies should carry out a rigorous assessment of all the factors affecting the business in deciding to adopt a going concern basis for the preparation of the accounts. The Directors have reviewed and examined the financial and other processes embedded in the business, in particular the annual budget process and the financial stress testing inherent in the Internal Capital Adequacy Assessment Process ('ICAAP'). On the basis of such review and the significant liquid assets underpinning the balance sheet relative to the Group's predictable operating cost profile, the directors consider that the adoption of a going concern basis, covering a period of at least 12 months from the date of this report, is appropriate.
Kevin Acton
Finance Director
28 February 2018
Group Statement of Comprehensive Income
FOR THE YEARED 31 DECEMBER 2017
2017 2016 *
Notes
GBP'000 GBP'000
Income 1
Asset management income 5,805 3,202
Dividend and interest income 431 249
Other operating income 221 45
--------- ----------
Total income 6,457 3,496
Operating costs
Administrative overheads 3 (8,021) (6,892)
Net operating loss before exceptional items (1,564) (3,396)
Finance costs 6 (344) (442)
Exceptional items ** (308) -
--------- ----------
Net operating loss after exceptional items (2,216) (3,838)
Gains and losses on investments:
Share of associate's (losses)/profits 17 (68) 628
Losses on investments held at fair value 11 (230) (147)
Movement in fair value of contingent consideration (56) (253)
Movement in fair value of deferred receivable 148 202
Operating loss before taxation (2,422) (3,408)
Taxation 8 - 33
--------- ----------
Operating loss from continuing operations (2,422) (3,375)
--------- ----------
(Loss)/profit from discontinued operations 7 (1,104) 339
----------
Total comprehensive income (3,526) (3,036)
========= ==========
Attributable to:
Equity holders of the parent (3,124) (3,027)
Non-controlling interest (402) (9)
--------- ----------
(3,526) (3,036)
========= ==========
Basic and diluted loss per ordinary share (pence) 9 (25.9) (30.3)
========= ==========
* Comparatives for the year ended 31 December 2016 have been restated to reflect the reclassification of the Group's legacy property activities as discontinued operations (see note 7)
** Exceptional items relate to professional fees incurred in respect of the acquisition of the Hazel Capital LLP business which took place on 31 October 2017.
Statements of
changes in Equity
Group
YEARED 31 DECEMBER 2017
Equity
Ordinary Share attributable
share Share warrant Retained to equity Non-controlling Total
Notes capital premium reserve reserves share-holders interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2016 2,546 2,611 319 18,657 24,133 491 24,624
Comprehensive income
for the year
Loss for the year - - - (3,124) (3,124) (402) (3,526)
--------- --------- --------- ---------- --------------- ---------------- --------
Total
comprehensive
income for the
year - - - (3,124) (3,124) (402) (3,526)
Contributions
by and
distributions
to owners
Transfer of
non-controlling
interest deficit - - (388) (388) 388 -
Share based
payments 27 - - - 123 123 - 123
Issue of shares 25 588 7,038 - - 7,626 - 7,626
--------- --------- --------- ---------- --------------- ---------------- --------
Total
contributions
by and
distributions
to owners 588 7,038 - (265) 7,361 388 7,749
Balance at 31
December 2017 3,134 9,649 319 15,268 28,370 477 28,847
========= ========= ========= ========== =============== ================ ========
YEARED 31 DECEMBER 2016
Equity
Ordinary Share attributable
share Share warrant Retained to equity Non-controlling Total
Notes capital premium reserve reserves share-holders interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December
2015 2,463 1,688 64 21,611 25,826 - 25,826
Comprehensive income
for the year
Loss for the year - - - (3,027) (3,027) (9) (3,036)
--------- --------- --------- ---------- --------------- ---------------- --------
Total comprehensive
income for the
year - - - (3,027) (3,027) (9) (3,036)
Contributions
by and distributions
to owners
Non-controlling
interest in
Gresham House
Friends & Family
Fund LP - - - - - 500 500
Share warrants
issued 26 - - 255 - 255 - 255
Share based
payments 27 - - - 73 73 - 73
Issue of shares 25 83 923 - - 1,006 - 1,006
--------- --------- --------- ---------- --------------- ---------------- --------
Total contributions
by and
distributions
to owners 83 923 255 73 1,334 500 1,834
Balance at 31
December 2016 2,546 2,611 319 18,657 24,133 491 24,624
========= ========= ========= ========== =============== ================ ========
Company
YEARED 31 DECEMBER 2017
Ordinary Share
share Share warrant Retained Total
Notes capital premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December 2016 2,546 2,611 319 16,153 21,629
Comprehensive income for
the year
Loss for the year - - - (684) (684)
--------- --------- --------- ---------- --------
Total comprehensive income
for the year - - - (684) (684)
Contributions by and distributions
to owners
Issue of shares 25 588 7,038 - - 7,626
Total contributions by
and distributions to owners 588 7,038 - - 7,626
Balance at 31 December
2017 3,134 9,649 319 15,469 28,571
========= ========= ========= ========== ========
YEARED 31 DECEMBER 2016
Ordinary Share
share Share warrant Retained Total
Notes capital premium reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31 December 2015 2,463 1,688 64 16,939 21,154
Comprehensive income for
the year
Loss for the year - - - (786) (786)
--------- --------- --------- ---------- --------
Total comprehensive income
for the year - - - (786) (786)
Contributions by and distributions
to owners
Issue of shares 25 83 923 - - 1,006
Share warrants issued 26 - - 255 - 255
--------- --------- --------- ---------- --------
Total contributions by
and distributions to owners 83 923 255 - 1,261
Balance at 31 December
2016 2,546 2,611 319 16,153 21,629
========= ========= ========= ========== ========
Statements of Financial Position
AS AT 31 DECEMBER 2017
Group Company
Notes 2017 2016 2017 2016
Assets GBP'000 GBP'000 GBP'000 GBP'000
Non-current assets
Investments - securities 11 2,989 2,834 1,310 1,116
Tangible fixed assets 13 196 179 51 13
Investment in subsidiaries 16 - - 18,265 16,292
Investment in associate 17 6,462 6,530 - -
Intangible assets 14 6,327 6,630 198 -
Long-term receivables 15 1,618 4,095 - -
17,592 20,268 19,824 17,421
-------- ---------- -------- ---------
Current assets
Trade receivables 18 2,089 1,259 - -
Accrued income and prepaid
expenses 785 917 219 219
Deferred receivable 15 2,075 1,139 - -
Other current assets 19 - - 7,878 9,734
Cash and cash equivalents 9,785 2,802 6,484 858
Non-current assets held
for sale
Property investments 12 1,986 9,628 - -
-------- ---------- -------- ---------
Total current assets and
non-current assets held for
sale 16,720 15,745 14,581 10,811
---------- -------- ---------
Total assets 34,312 36,013 34,405 28,232
-------- ---------- -------- ---------
Current liabilities
Trade and other payables 20 5,463 2,229 282 87
Short-term borrowings 21 - 1,015 5,552 1,377
5,463 3,244 5,834 1,464
Total assets less current
liabilities 28,849 32,769 28,571 26,768
Non-current liabilities
Deferred taxation 22 - - - -
Long-term borrowings 23 - 4,881 - 4,881
Other creditors 24 2 3,264 - 258
-------- ---------- -------- ---------
2 8,145 - 5,139
Net assets 28,847 24,624 28,571 21,629
======== ========== ======== =========
Capital and reserves
Ordinary share capital 25 3,134 2,546 3,134 2,546
Share premium 28 9,649 2,611 9,649 2,611
Share warrant reserve 28 319 319 319 319
Retained reserves 28 15,268 18,657 15,469 16,153
Equity attributable to
equity shareholders 28,370 24,133 28,571 21,629
Non-controlling interest 28 477 491 - -
Total equity 28,847 24,624 28,571 21,629
======== ========== ======== =========
Basic net asset value
per ordinary share (pence) 29 226.3 236.9 227.9 212.4
======== ========== ======== =========
Diluted net asset value
per ordinary share (pence) 29 211.2 236.9 224.4 212.4
======== ========== ======== =========
The loss after tax for the Company for the year
ended 31 December 2017 was GBP684,000. The financial
statements were approved and authorised for issue
by the Board and were signed on its behalf on 28
February 2018.
Kevin Acton
Finance Director
Group Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2017
Notes 2017 2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from
operating activities
Net cash utilised
in operations 30 (1,615) (3,337)
Corporation tax
received/(paid) 33 (204)
Interest paid on
loans (236) (226)
-------- --------
(203) (430)
-------- --------
Net cash flow from
operating activities (1,818) (3,767)
Cash flow from
investing activities
Purchase of investments (5,177) (1,831)
Sale of investments 4,946 918
Sale of investment 6,680 -
properties
Deferred proceeds
received on sale
of investment properties 1,635 1,041
Expenditure on
investment properties (137) (353)
Purchase of fixed
assets (137) (125)
Sale of fixed assets 23 37
Purchase of intangible
fixed assets (762) (148)
-------- --------
7,071 (461)
Cash flow from
financing activities
Repayment of loans (5,896) (4,454)
Receipt of loans - 6,833
Share issue proceeds 7,626 6
LMS warrants issued - 255
-------- --------
1,730 2,640
-------- --------
Increase/(decrease) in cash
and cash equivalents 6,983 (1,588)
Cash and cash equivalents
at start of year 2,802 4,390
Cash and cash equivalents
at end of year 9,785 2,802
======== ========
Company Statement of Cash Flows
FOR THE YEARED 31 DECEMBER 2017
Notes 2017 2017 2016 2016
GBP'000 GBP'000 GBP'000 GBP'000
Cash flow from operating
activities
Net cash utilised
in operations 30 (443) (406)
Interest paid on
loans (236) (194)
-------- --------
Net cash flow from
operating activities (679) (600)
Cash flow from investing
activities
Purchase of investments (5,177) (581)
Sale of investments 4,946 918
Investment in subsidiary (1,973) (1,250)
Purchase of fixed
assets (48) (16)
Purchase of intangible
fixed assets (219) -
-------- --------
(2,471) (929)
Cash flow from financing
activities
Repayment of loans (5,896) (1,604)
Receipt of loans - 6,833
Advanced to Group
undertakings (6,462) (4,789)
Receipts from Group
undertakings 13,508 1,314
Share issue proceeds 7,626 6
LMS warrants issued - 255
-------- --------
8,776 2,015
-------- --------
Increase in cash and cash equivalents 5,626 486
Cash and cash equivalents
at start of year 858 372
Cash and cash equivalents
at end of year 6,484 858
======== ========
Principal Accounting Policies
The Group's principal accounting policies are as follows:
(a) Basis of preparation
The financial statements of the Group and the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The Group has considerable financial resources and ongoing investment management contracts. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus, the directors continue to adopt the going concern basis of accounting in preparing the financial statements.
The following standards and interpretations which have not been applied in these financial statements were in issue but not yet effective at year-end. The directors do not intend to early adopt these standards. After initial review, the directors estimate that the adoption of these standards and interpretations will not have a material impact on the Group's financial statements in the period of initial application, other than presentation or disclosure, and a full assessment will be conducted subsequent to the year-end:
(i) IFRS 9 Financial Instruments (effective 1 January 2018) (ii) IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
(iii) IFRS 16 Leases (effective 1 January 2019)
(b) Basis of consolidation
Subsidiaries
Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee; exposure to variable returns from the investee; and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings made up to the year-end as if they formed a single entity. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Associates
Where the Group has significant influence, it has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the Group Statement of Financial Position at cost. Subsequently, associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the Group Statement of Comprehensive Income.
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.
Where there is objective evidence that the investment in an associate has been impaired, the carrying amount of the investment will be tested for impairment in the same way as other non-financial assets.
(c) Presentation of Statement of Comprehensive Income
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own Statement of Comprehensive Income. Details of the Company's results for the year are set out in note 28, the loss for the year being GBP684,000 (2016: GBP786,000).
(d) Segment reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board in order to allocate resources to the segments and to assess their performance.
The Group's reportable segments, which are those reported to the Board are Real Assets, Strategic Equity and Central.
(e) Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable is stated net of value added tax and is earned within the United Kingdom.
(i) Asset management income
Revenue represents management and advisory fees for the provision of fund management and forestry management services and is recognised in the Statement of Comprehensive Income when the services are performed net of VAT.
(ii) Rental income
Rental income comprises property rental income receivable net of VAT, recognised on a straight-line basis over the lease term and excludes service charges recoverable from the tenant.
(iii) Dividend and interest income
Income from listed securities is recognised when the right to receive the dividend has been established. Interest receivable is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be reliably measured. Interest income is accrued on a time basis by reference to the principal outstanding.
(iv) Performance fees
Performance fees will be recognised on the date of entitlement in accordance with the management contract.
(f) Expenses
All expenses and interest payable are accounted for on an accruals basis.
(g) Property, plant and equipment
Each class of property, plant and equipment is carried at cost less, where applicable, any accumulated depreciation.
The carrying amount of property, plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the assets' employment and subsequent disposal.
The depreciable amount of all fixed assets is depreciated on a straight-line basis over their estimated useful lives to the Group commencing from the time the asset is held ready for use, and are depreciated at the following rates:
Office equipment 25%
Motor vehicles 25%
Leasehold property 10%
(h) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Statement of Financial Position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is also provided for on revaluation surpluses on investment properties.
The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
(i) Operating leases and hire purchase contracts
Amounts payable under operating leases are charged directly to the Statement of Comprehensive Income on a straight-line basis over the period of the lease. The aggregate costs of operating lease incentives provided by the Group are recognised as a reduction in rental income on a straight-line basis over the lease term.
(j) Investments
Financial assets designated as at fair value through profit and loss ("FVTPL") at inception are those that are managed and whose performance is evaluated on a fair value basis, in accordance with the documented investment strategy of the Company. Information about these financial assets is provided internally on a fair value basis to the Group's key management. All equity investments that were previously classified as held at fair value through profit or loss have been reassessed as at the date the Company became a trading company. The equity investments which do not meet the definitions of an associate or subsidiary remain held at fair value through profit and loss.
(i) Properties
Property investments are included in the Statement of Financial Position at fair value and are not depreciated.
Sale and purchase of property assets is generally recognised on unconditional exchange except where completion is expected to occur significantly after exchange. For conditional exchanges, sales are recognised when the conditions have been satisfied. Profits and losses are calculated by reference to the carrying value at the end of the previous financial year, adjusted for subsequent capital expenditure and less directly related costs of sale.
(ii) Assets held for sale
Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell (except where the exemptions of paragraph 5 of IFRS 5 apply) and are classified as such if their carrying amount will be recovered through a sale transaction rather than through continuing use. Investment property that is held for sale is measured at fair value in accordance with paragraph 5 of IFRS 5.
This is the case when the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and the sale is considered to be highly probable. A sale is considered to be highly probable if the appropriate level of management is committed to a plan to sell the asset and a further active programme to locate a buyer and complete the plan has been initiated. Further, the asset has to be marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale is expected to qualify for recognition as a completed sale within one year from the date that it is classified as held for sale.
(iii) Securities
Purchases and sales of listed investments are recognised on the trade date, the date on which the Group commit to purchase or sell the investment. All investments are designated upon initial recognition as held at fair value, and are measured at subsequent reporting dates at fair value, which is either the market bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Fair values for unquoted investments, or for investments for which there is only an inactive market, are established by taking into account the International Private Equity and Venture Capital Valuation Guidelines as follows:
(i) Investments which have been made in the last 12 months are valued at cost in the absence of overriding factors;
(ii) Investments in companies at an early stage of development are also valued at cost in the absence of overriding factors;
(iii) Where investments have gone beyond the stage in their development in (ii) above, the shares may be valued by having regard to a suitable price-earnings ratio to that company's historical post-tax earnings or the net asset value of the investment; and
(iv) Where a value is indicated by a material arm's length market transaction by a third party in the shares of a company, that value may be used.
(iv) Loans and receivables
Unquoted loan stock is classified as loans and receivables in accordance with IAS 39 and carried at amortised cost using the Effective Interest Rate method. Movements in both the amortised cost relating to the interest income and in respect of capital provisions are reflected in the Statement of Comprehensive Income. Loan stock accrued interest is recognised in the Statement of Financial Position as part of the carrying value of the loans and receivables at the end of each reporting period.
(k) Exceptional items
The Group presents as exceptional items on the face of the Consolidated Statement of Comprehensive Income those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year so as to facilitate comparison with prior years and to assess better trends in financial performance.
(l) Intangible assets
(i) Goodwill
Goodwill, representing the excess of the cost of acquisition over the fair value of the Group's share of the identifiable assets and liabilities acquired, is capitalised in the Statement of Financial Position. Following initial recognition, goodwill is stated at cost less any accumulated impairment losses.
Goodwill will be reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
(ii) Management contracts and client relationships
Intangible assets, such as management contracts and client relationships acquired as part of a business combination or separately, are capitalised where it is probable that future economic benefits attributable to the assets will flow to the Group and the fair value of the assets can be measured reliably.
They are recorded initially at fair value and then amortised, if appropriate, over their useful lives. The fair value at the date of acquisition is calculated using discounted cash flow methodology and represents the valuation of the net residual income stream arising from the management contracts or distribution agreements in place at the date of acquisition. The management contracts and client relationships are included in the Statement of Financial Position as intangible assets. Intangible assets with a finite life have no residual value and are amortised on a straight-line basis over their expected useful lives as follows:
-- Client relationships arising on acquisition - 5 years
-- Management contracts arising on acquisition - 1 to 3 years depending on the specific management contract details
(iii) Website and client portal
Costs associated with the development of the Group's website and client portal are capitalised in the Statement of Financial Position and are amortised over the estimated useful life of 4 years.
Amortisation methods, useful lives and residual values will be reviewed at each reporting date and adjusted if appropriate.
At each period end date, reviews are carried out of the carrying amounts of intangible assets to determine whether there is any indication that the assets have suffered an impairment loss. If any such indication exists, the recoverable amount, which is the higher of value in use and fair value less costs to sell, of the asset is estimated in order to determine the extent, if any, of the impairment loss.
If the recoverable amount of an asset or cash-generating unit ("CGU") is estimated to be less than its net carrying amount, the net carrying amount of the asset or CGU is reduced to its recoverable amount. Impairment losses are recognised immediately in the Statement of Comprehensive Income. The Group assesses at the end of each reporting period whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased. If any such indication exists, the Group estimates the recoverable amount of that asset. In assessing whether there is any indication that an impairment loss recognised in prior periods for an asset may no longer exist or may have decreased, the Group considers, as a minimum, the following indications:
(a) Whether the asset's market value has increased significantly during the period;
(b) Whether any significant changes with a favourable effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which the asset is dedicated; and
(c) Whether market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset's value in use and increase the asset's recoverable amount materially.
(m) Financial instruments
Financial assets and financial liabilities are recognised on the Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position when there is a legally enforceable right to settle on a net basis, or realise the asset and liability simultaneously and where the Group intends to net settle.
(i) Trade and other receivables
Receivables are short-term in nature. Trade and other receivables are recognised and carried at the lower of their invoiced value and recoverable amount. Provision is made when there is objective evidence that the Group will not be able to recover balances in full.
(ii) Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(iii) Non-current receivables
Deferred receivables are recognised at the discounted value of those receipts.
(iv) Dividends payable
All dividends are recognised in the period in which they are approved by shareholders.
(v) Bank borrowings
All bank loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. Interest costs on loans are charged to the Statement of Comprehensive Income as incurred.
(vi) Trade and other payables
Trade payables are not interest-bearing and are stated at their nominal value. Other payables are not interest-bearing and are stated at their nominal value as any discounting of expected cash flows is considered to be immaterial.
(vii) Borrowing costs
Unless capitalised under IAS 23, Borrowing Costs, all borrowing costs are recognised in the Consolidated Statement of Comprehensive Income in the period in which they are incurred. Finance charges, including premiums paid on settlement or redemption and direct issue costs and discounts related to borrowings, are accounted for on an accruals basis and charged to the Consolidated Statement of Comprehensive Income using the effective interest method.
(viii) Contingent consideration
Contingent consideration arises when settlement of all or any part of the cost of a business combination or other acquisition, for example management contract, is deferred. It is stated at fair value at the date of acquisition, which is determined by discounting the amount due to present value at that date.
Estimates are required in respect of the amount of contingent consideration payable on acquisitions, which is determined according to formulae agreed at the time of the business combination, and normally related to the future earnings of the acquired business. The directors review the amount of contingent consideration likely to become payable at each period end date, the major assumption being the level of future profits of the acquired business. Contingent consideration payable is discounted to its fair value in accordance with applicable International Financial Reporting Standards.
(n) Pensions
Payments to personal pension schemes for employees are charged against profits in the year in which they are incurred.
(o) Share based payments
The Group issued equity-settled share based payments to certain directors and employees. Equity-settled share based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.
Fair value is measured using a Black-Scholes option pricing model. The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations.
A liability equal to the portion of the goods or services received is recognised at the current fair value determined at each period end date for cash-settled share based payments.
(p) Non-controlling interests
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and for acquisitions post 3 October 2010 following adoption of IAS 27, Consolidated and Separate Financial Statements (Revised 2008), the non-controlling interests' share of changes in equity since the date of the combination.
Prior to the adoption of IAS 27 (Revised 2008) losses attributable to non-controlling interests in excess of the non-controlling interests' share in equity were allocated against the interests of the Group except to the extent that the non-controlling interests have a binding obligation and is able to make an additional investment to cover such losses. When the subsidiary subsequently reports profits, the non-controlling interests do not participate until the Group has recovered all of the losses of the non-controlling interests it previously reported.
(q) Critical accounting estimates and judgments
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may ultimately differ from those estimates. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are those used to determine:
(i) Consolidation of third party funds managed by the Group; (ii) Value of investment properties;
(iii) Value of investments at fair value through profit and loss;
(iv) Impairment in the value of loans; (v) Accounting for distribution fees; (vi) Valuation of employee share and bonus matching schemes;
(vii) Valuation and estimated useful life of intangible assets; and
(viii) Valuation of contingent consideration.
Consolidation of third party funds managed by the Group
When assessing whether the Group controls funds that are managed on behalf of third parties, the Group is required to assess whether it has power over these funds; exposure, or rights, to variable returns from its involvement with the fund; and has the ability to use its power over the funds to affect the amount of the Group's returns. This can also be considered when the Group is acting in its capacity as agent or principal. An agent is acting on behalf of third party investors, whereas a principal is acting for its own benefit.
IFRS 10 provides guidance for considering the assessment of whether fund managers are acting as agent or principal, and therefore whether the Group should consolidate the funds that it manages or not. The key considerations when assessing this are decision making authority of the fund manager, rights held by third parties, remuneration and exposure to returns. The following provides further detail on the directors' assessment of control over the funds that are managed by Gresham House Asset Management Limited ("GHAM"), the FCA regulated entity within the Group.
Gresham House Strategic Public Equity LP ("SPE LP") is managed by GHAM, a subsidiary of Gresham House plc. GHAM in its role as investment advisor is exposed to variable returns through its management fee, however the Company is not directly invested in SPE LP. The limited partners of SPE LP have the ability to remove the manager without cause, one year after the final close of SPE LP on obtaining limited partner special consent. The directors' assessment indicates that GHAM is acting as agent for SPE LP and therefore should not consolidate SPE LP.
Gresham House Forestry Fund LP ("GHF LP") is managed by GHAM. GHAM is exposed to variable returns through its management fee and acquisition fees, as well as the Company's limited partnership interest in Gresham House Forestry Friends and Family LP ("GHFF"), a vehicle which in turn is a limited partner in GHF LP.
The limited partners of GHF LP have the ability to remove the manager without cause, one year after the final close of GHF LP on obtaining limited partner special consent. There are a number of limited partners that would be required to co-ordinate to remove the manager. The directors' assessment of this right indicates that the manager is acting as agent for GHF LP and therefore should not consolidate GHF LP.
The directors' assessment of GHFF however indicates that it is in a controlling position and therefore should consolidate this in the Group financial statements.
Gresham House Strategic plc ("GHS") is managed by GHAM and the Company also holds 19.3% of the ordinary share capital as at 31 December 2017. The directors consider that the Company exercises significant influence over GHS, but not control, through its holding and the investment management agreement in place with GHAM. GHS has therefore been classified as an associate.
Gresham House British Strategic Investment Fund ("BSIF") is managed by GHAM. The manager is exposed to variable returns through its management fee. Neither the Company, nor any of its subsidiaries are directly invested in BSIF and therefore are not exposed to the variable returns as an investor in the fund. The limited partners of BSIF also have the ability to remove the manager without cause, one year after the final close of BSIF. The directors' assessment of this right and the fact that the Company is not invested in BSIF indicates that the manager is acting as agent for BSIF and therefore should not consolidate BSIF.
Value of investments at fair value through profit and loss
The investments which are held at fair value through profit and loss in unquoted companies require judgement to be exercised, with reference to the valuation policy and International Private Equity Valuation guidelines. Further details can be found in note 11.
Impairment in the value of loans
Impairment reviews of the loans held by the Group require a careful assessment of the performance and financial position of the company involved from the best information that is available. This assessment requires the exercise of judgement to conclude whether an impairment is appropriate to the loans held by the Group. Further details can be found in note 11.
Accounting for distribution fees
A distribution agent was used to commit an investor to BSIF. The distributor is required to provide a service from the date the investor commits to the fund, up until the final capital drawdown during the investment period. As such, the distributor fee has been amortised over the service period. The service period has been assessed with reference to the expected size of the fund at final close on 31 December 2018 and the pipeline of investments expected to be executed over the three-year investment period of the fund from final close. As at 31 December 2017, it was estimated that the fund would be fully invested within three years from 31 December 2017 and as such with the investor committing to the fund on 16 June 2017, the service period has been estimated at three and a half years and the distributor fee spread on a straight-line basis over the service period. The service period will be monitored as the fund has its final close.
Valuation of employee share and bonus matching schemes
The Group introduced a long-term incentive plan for the New Energy team who joined in October 2017. The long-term incentive plan is based on the profits created by the New Energy team over the period to 31 December 2020. This has been recognised at fair value and under IFRS 2 has been assessed as an equity settled payment. The fair value has been determined by modelling scenarios and weighting the estimated probability of each outcome. Appropriate discounts have then been applied to reflect the lack of marketability and control to determine the fair value.
The bonus share matching scheme was implemented in the year as described in the remuneration report. The bonus shares to be awarded after the three year period and subject to performance conditions have been fair valued using a monte carlo simulation. The key variables include the risk-free rate of 0.32% and volatility of the Company share price of 16%. Further details can be found in note 27.
Valuation and estimated useful life of intangible assets
Intangible assets are fair valued at initial recognition with reference to expected cash flows from specific management contracts and associated costs. The useful lives have been estimated with reference to the minimum contractual terms.
Goodwill has been reviewed for impairment with reference to the performance of the underlying businesses. In the case of Gresham House Forestry, an estimate of the value of the business today has been made using the 2017 earnings and an appropriate multiple for a business of this size. The value of this business is in excess of the carrying amount of this cash generating unit. There is no impairment of goodwill at 31 December 2017 and any reasonable change in key assumptions in the determination of the recoverable amount do not result in an impairment in goodwill. Further details can be found in note 14.
Valuation of contingent consideration
The fair value of contingent consideration for the Gresham House Forestry business and the LMS contract has been estimated with reference to the contractual requirements. In the case of Gresham House Forestry this has involved calculating the EBITDA over the period to 31 December 2017 and estimating the EBITDA from 1 January 2018 to 28 February 2018 and applying suitable discount rates. In the case of the LMS contract, assumptions around NAV growth have been used to estimate the NAV as at 16 August 2018. Further details can be found in note 24.
Notes to the Accounts
1 INCOME
2017 2016
GBP'000 GBP'000
Asset management income
Fund management income 2,966 1,082
Forestry management income 2,839 2,120
-------- --------
5,805 3,202
-------- --------
Dividend and interest income
Dividend income - Listed UK 106 7
Interest receivable: Banks 2 4
Other 323 238
431 249
-------- --------
Other operating income
Arrangement fees 135 -
Reversal of provision against loans 9 5
Consultancy fees receivable 14 40
Other income 63 -
221 45
-------- --------
Total income 6,457 3,496
======== ========
Total income comprises
Asset management income 5,805 3,202
Dividends 106 7
Interest 325 242
Other operating income 221 45
-------- --------
6,457 3,496
======== ========
2 SEGMENTAL REPORTING
The Board and management team of the Company have organised and report the performance of the business by Real Assets, Strategic Equity and Central segments. These have evolved as the business has grown to become the specialist asset manager that it is today.
Real Assets includes the Forestry, New Energy and Housing and Infrastructure divisions.
Strategic Equity includes the Public Equity and Private Assets divisions.
Central includes the general income created and costs incurred by the central functions of the business that are not directly linked to Real Assets or Strategic Equity.
As a result of reclassifying the legacy property portfolio as discontinued operations, this is no longer classified as a business segment and is separately reported.
All activity and revenue is derived from operations within the United Kingdom.
31 December 2017
Real Strategic
Assets Equity Central Consolidated
Revenue GBP'000 GBP'000 GBP'000 GBP'000
Asset management income 3,820 1,915 - 5,735
Interest income 1 2 322 325
Dividend income - 106 - 106
Other operating income - 133 158 291
Total revenue 3,821 2,156 480 6,457
Segment expenses (1,920) (2,447) (2,457) (6,824)
Finance costs - - (344) (344)
Adjusted operating profit/(loss) 1,901 (291) (2,321) (711)
======== ========== ========
Exceptional items (308)
Depreciation and amortisation (1,209)
Profit on disposal of tangible
fixed assets 12
Share of associate's loss (68)
Losses on investments at
fair value (230)
Movement in fair value
of contingent consideration (56)
Movement in fair value
of deferred receivable 148
-------------
Loss before taxation from
continuing operations (2,422)
=============
31 December 2016 (restated)
Real Strategic
Assets Equity Central Consolidated
Revenue GBP'000 GBP'000 GBP'000 GBP'000
Asset management income 2,120 1,082 - 3,202
Interest income 1 1 247 249
Other operating income - - 45 45
Total revenue 2,121 1,083 292 3,496
Segment expenses (1,422) (1,647) (2,390) (5,459)
Finance costs - - (442) (442)
Adjusted operating profit/(loss) 699 (564) (2,540) (2,405)
======== ========== ========
Depreciation and amortisation (1,441)
Profit on disposal of tangible
fixed assets 8
Share of associate's profit 628
Losses on investments at
fair value (147)
Movement in fair value
of contingent consideration (253)
Movement in fair value
of deferred receivable 202
-------------
Loss before taxation from
continuing operations (3,408)
=============
Comparatives for the year ended 31 December 2016 have been restated to reflect the reclassification of the Group's legacy property activities as discontinued operations (see note 7)
During the year the Group had four customers accounting for more than 10% of the Group's revenue, totalling GBP3,876,000 (2016: four customers, totalling GBP2,483,000).
Other information
31 December 2017
Real Strategic Legacy
Assets Equity Property Central Consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 4,120 11,760 5,759 12,673 34,312
Segment liabilities (350) (336) (90) (4,689) (5,465)
-------- ---------- ---------- -------- -------------
3,770 11,424 5,669 7,984 28,847
-------------
Capital expenditure 667 542 137 5,056 6,402
Depreciation and amortisation 674 487 5 31 1,197
Non-cash expenses
other than depreciation - - - 123 123
Goodwill included
within segment assets 3,218 - - - 3,218
31 December 2016
Real Strategic Legacy
Assets Equity Property Central Consolidated
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Segment assets 2,853 8,914 15,775 8,471 36,013
Segment liabilities (296) (144) (526) (10,423) (11,389)
-------- ---------- ---------- --------- -------------
2,557 8,770 15,249 (1,952) 24,624
-------------
Capital expenditure 1,865 581 311 16 2,773
Depreciation and amortisation 1,250 157 5 3 1,415
Non-cash expenses
other than depreciation - - - 73 73
Goodwill included
within segment assets 2,942 - - - 2,942
3 OPERATING COSTS
Administrative overheads comprise the 2017 2016
following:
GBP'000 GBP'000
Directors' emoluments (excluding benefits
in kind and share based payments) 791 968
Auditor's remuneration * 127 106
Amortisation 1,122 1,364
Depreciation 87 77
Profit on disposal of assets (12) (8)
Wages and salaries 3,185 2,234
Social security costs 531 428
Operating lease rentals - land and buildings - 3
Share based payments 123 73
Other operating costs 2,067 1,647
-------- --------
8,021 6,892
======== ========
Staff costs (including directors' emoluments)
were:
Wages, salaries and fees 3,852 3,100
Social security costs 537 434
Pension costs 214 151
-------- --------
4,603 3,685
======== ========
* A more detailed analysis of auditor's 2017 2016
remuneration is as follows:
GBP'000 GBP'000
Audit fees 127 106
Auditor's other fees -other services - 12
-------- --------
127 118
======== ========
The directors consider the auditor was best placed to provide these other services. The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained.
The average number of persons employed by the Group, including the executive directors, was 32 (2016: 26). The Company has no employees.
The Group has no commitments under operating leases for the current and prior year.
4 DIRECTORS' EMOLUMENTS
The emoluments of the directors are disclosed in the Remuneration Report on pages 43 to 46.
The directors are considered to be the Group's only key management personnel. Employers' National Insurance Contributions in respect of the directors for the year were GBP102,000 (2016: GBP137,000).
5 Business combinations during the period
The Company acquired the asset management business of Hazel Capital LLP (Hazel Capital), a leading UK manager of new energy infrastructure, on 31 October 2017. This included the novation and acquisition of investment advisory contracts for Hazel Renewable Energy VCT1 plc and Hazel Renewable Energy VCT2 plc and other master service agreements. The Hazel Capital team were also employed by Gresham House Holdings Limited.
The team has been hired to run the Gresham House New Energy division, adding a further complementary alternative asset management division to the Group and growing assets under management.
The fair value of the assets acquired and the consideration paid under IFRS 3 are as follows:
GBP'000
Identifiable assets
acquired
Fair value of management
contracts 324
Goodwill 276
--------
600
========
Consideration
Cash 600
========
Goodwill
Goodwill arises due to the excess of the fair value of the consideration payable over the fair value of the net assets acquired. It is mainly attributable to the skills of the team acquired, the synergies expected to be achieved from the acquisition and the business development potential.
Actual revenue and profits of Hazel Capital
The actual revenues and profits that have been generated by the Gresham House New Energy division, since the acquisition of the Hazel Capital asset management business on 31 October 2017 to 31 December 2017 are:
GBP'000
Revenues 259
Profit before tax 28
The disclosure of hypothetical revenues and profits of Hazel Capital for the year ended 31 December 2017 is not considered relevant due to the nature of the transaction. The entire Hazel Capital LLP business was not acquired and there will be revenues and expenses not relevant to the business acquired.
Fair value
The fair value of the management contracts has been estimated using a discounted cash flow model. The estimated cash flows have been valued at a discount of 15%. This resulted in fair value of GBP324,000.
Costs associated with the acquisition of the business of Hazel Capital totalled GBP308,000 and are shown as an exceptional item in the Group Statement of Comprehensive Income.
There were no new business combinations that took place during the year ended 31 December 2016.
6 FINANCE COSTS
2017 2016
GBP'000 GBP'000
Interest payable on loans and overdrafts 170 293
Finance fees 174 149
344 442
======== ========
7 DISCONTINUED OPERATIONS
Discontinued operations represent the legacy property portfolio of the Group, with the sale of the Southern Gateway site completing during the year, and the sale of the remaining land at Newton-le-Willows completing in February 2018.
The disposal group fulfilled the requirements of IFRS 5 to be classified as "discontinued operations" in the Consolidated Statement of Comprehensive Income, the results of which are set out below:
2017 2016
GBP'000 GBP'000
Rental Income 531 741
Other operating income 22 27
Property outgoings (191) (290)
(Loss) / profit on disposal of investment
properties (1,135) 103
Movement in fair value of investment
property (331) (242)
Net (loss)/profit from discontinued operations (1,104) 339
-------- --------
Attributable to:
Equity holders of the parent (716) 330
Non-controlling interest (388) 9
-------- --------
(1,104) 339
======== ========
Property outgoings comprise the following: 2017 2016
GBP'000 GBP'000
Wages and salaries 49 49
Redundancy costs 41 -
Social security costs 6 6
Other operating costs (net of service
charges recoverable from tenants
of GBP584,000 (2016: GBP803,000)) 95 235
-------- --------
191 290
======== ========
Cash flows from discontinued operations were:
2017 2016
GBP'000 GBP'000
Cash flow from operating activities 670 728
Cash flow from investing activities 8,178 688
Cash flow from financing activities - -
8 TAXATION
2017 2016
GBP'000 GBP'000
(a) Analysis of charge in period:
UK Corporation tax at 19.25% (2016: - -
20%)
Overprovision in prior year - (33)
Total tax credit - (33)
======== ========
(b) Factors affecting tax credit for
period:
Loss on ordinary activities before
tax multiplied by standard rate of
corporation tax in the UK of 19.25%
(2016: 20%) (679) (614)
Tax effect of:
Investment losses not taxable 46 29
Dividend income not taxable (20) (1)
Amortisation not taxable 212 238
Expenses disallowed 86 69
Other gains and losses not taxable (5) (138)
Movement in losses carried forward 360 384
Actual tax credit - (33)
======== ========
The Group has unutilised tax losses of approximately GBP12.5 million (2016: GBP11.2 million) available against future corporation tax liabilities. The potential deferred taxation asset of GBP2.1 million (2016: GBP2.2 million) in respect of these losses has not been recognised in these financial statements as it is not considered sufficiently probable that the Group will generate sufficient taxable profits from the same trade to recover these amounts in full.
9 EARNINGS PER SHARE
(a) Basic and diluted loss per share
2017 2016
Total net loss attributable to equity
holders of the parent (GBP'000) (3,124) (3,027)
Weighted average number of ordinary
shares in issue during the period 12,073,106 9,976,412
Basic and diluted loss per share
attributable to equity holders of
the parent (pence) (25.9) (30.3)
=========== ==========
898,747 (2016: nil) shares were deemed to have been issued at nil consideration as a result of the shareholder, supporter warrants and LMS warrants granted and shares which could be issued under the bonus share matching plan and long-term incentive plans which, as required under IAS 33, Earnings per Share, have not been recognised as they would reduce the loss per share (see note 26).
(b) Adjusted earnings per share
Adjusted earnings per share is based on adjusted operating loss, which is stated after charging interest but before depreciation, amortisation, profit on disposal of tangible fixed assets and exceptional items. This has been restated compared to prior periods to reflect the classification of the legacy property portfolio as discontinued operations and simplify the non-GAAP measure of the performance as an asset manager.
Adjusted loss for calculating adjusted earnings per share:
2017 2016
GBP'000 GBP'000
Operating loss before taxation for the
year (2,216) (3,838)
Add back:
Exceptional operating expenses 308 -
Depreciation and amortisation 1,209 1,441
Profit on disposal of tangible fixed
assets (12) (8)
Adjusted loss attributable to equity
holders of the parent (711) (2,405)
======== ========
Adjusted loss per share (pence) (5.9) (24.1)
======== ========
10 DIVIDS
No dividends have been paid or proposed in the year (2016: nil).
11 INVESTMENTS - SECURITIES
An analysis of total investments is as follows:
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Listed securities - on
the London Stock Exchange 281 - 281 -
Securities dealt in under
AIM 787 468 787 468
Securities dealt in under
NEX Exchange 38 31 38 31
Unlisted securities 1,883 2,335 204 617
-------- --------
Closing value at 31 December 2,989 2,834 1,310 1,116
======== ======== ======== ========
Investments valued at
fair value through profit
and loss 2,830 2,217 1,151 499
Loans and receivables
valued at amortised cost 159 617 159 617
-------- -------- -------- --------
2,989 2,834 1,310 1,116
======== ======== ======== ========
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Opening cost 4,565 6,094 2,815 6,094
Opening net unrealised
losses (1,731) (4,526) (1,699) (4,526)
-------- -------- -------- --------
Opening value 2,834 1,568 1,116 1,568
Movements in the year:
Purchases at cost 5,331 2,331 5,331 581
Sales - proceeds (4,946) (918) (4,946) (918)
Sales - realised gains
& (losses) on sales (81) (2,942) (81) (2,942)
Net unrealised gains &
(losses) (149) 2,795 (110) 2,827
Closing value 2,989 2,834 1,310 1,116
======== ======== ======== ========
Closing cost 4,869 4,565 3,119 2,815
Closing net unrealised
losses (1,880) (1,731) (1,809) (1,699)
-------- -------- -------- --------
Closing value 2,989 2,834 1,310 1,116
======== ======== ======== ========
Gains and losses on investments Group Company
held at fair value
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Net realised gains & (losses)
on disposal (81) (2,942) (81) (2,942)
Net unrealised gains & (losses) (149) 2,795 (110) 2,827
Net losses on investments (230) (147) (191) (115)
========== ========= ======== ==========
Net unrealised gains and losses includes the impairment
of a loan and accrued interest of GBP619,000 due
from Kemnal Investments Limited, a legacy investment
included within the central segment. The loan was
due for repayment in February 2018, however pressure
on the capital structure and a review of the business
model has required the Group to fully impair the
investment.
An analysis of investments
is as follows: Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Equity investments 2,830 2,217 1,151 499
Unquoted loan stock 159 617 159 617
---------- ---------
2,989 2,834 1,310 1,116
========== ========= ============ ========
Further information on the measurement of fair value can be found in note 32.
12 NON-CURRENT ASSETS HELD FOR SALE - PROPERTY INVESTMENTS
The orderly disposal of the legacy investment property portfolio has been ongoing in the year to 31 December 2017, with the sale of the Southern Gateway site completing during the year, and the sale of the remaining land at Newton-le-Willows completing in February 2018. As such, property investments have been classified as non-current assets held for sale.
A further analysis of total investment properties is as follows:
Group
2017 2016
Net book value and valuation GBP'000 GBP'000
At 1 January 9,628 9,559
Additions during the year - expenditure
on existing properties 137 311
Disposals during the year - gross proceeds (7,250) (103)
Disposal costs 570 -
Movement in rent free receivable 367 -
(Loss) / profit on disposal of investment
properties (1,135) 103
Movement in fair value during the year (331) (242)
At 31 December 1,986 9,628
======== ========
Investment properties are shown at fair value based on current use and any surplus or deficit arising on valuation of property is reflected in the Statement of Comprehensive Income.
The Group completed the sale of the remaining property investment in February 2018 and the valuation as at 31 December 2017 has been based on the net sales proceeds received.
The gross property valuation has been adjusted for the fixed rental uplift as follows:
2017 2016
GBP'000 GBP'000
Gross valuation 1,986 10,000
Rent free receivable - (372)
1,986 9,628
======== ========
Operating leases
The future minimum lease payments receivable under non-cancellable operating leases are as follows:
2017 2016
GBP'000 GBP'000
Not later than one year - 723
Between 2 and 5 years - 1,271
Over 5 years - 914
- 2,908
========== ========
Rental income recognised in the Statement of Comprehensive Income amounted to GBP531,000 (2016: GBP741,000).
The commercial leases vary according to the condition of the units let. The commercial units are leased on terms where the tenant has the responsibility for repairs and running costs for each individual unit (other than roof repairs in certain circumstances) with a service charge payable to cover estate services provided by the landlord.
The cost of the above properties as at 31 December 2017 is as follows:
Group
GBP'000
Brought forward 9,887
Additions during the year 137
7
Disposals during the year (8,287)
1,737
========
Capital commitments
Capital expenditure contracted for but not provided for in the financial statements for the Group was GBPnil (2016: GBP118,000) and for the Company was GBPnil (2016: GBPnil).
Movement in fair value of Group
investment properties
2017 2016
GBP'000 GBP'000
Realised (losses)/gains on
disposal of investment property (1,135) 103
Decrease in fair value (331) (242)
-------- --------
Movement in fair value of
investment property (1,466) (139)
======== ========
Further information on the measurement of fair value can be found in note 32.
13 TANGIBLE FIXED ASSETS
Group 2017 2016
Office Motor Leasehold Office Motor Leasehold
equipment vehicles property Total equipment vehicles property Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1
January 16 237 10 263 - 154 10 164
Additions 56 59 - 115 16 115 - 131
Disposals
during
the year - (75) - (75) - (32) - (32)
---------- ---------- ---------- -------- ---------- ---------- -------------- ----------
As at 31
December 72 221 10 303 16 237 10 263
========== ========== ========== ======== ========== ========== ============== ==========
Depreciation
As at 1
January 3 80 1 84 - 10 - 10
Charge for
the
year 11 75 1 87 3 73 1 77
Disposals
during
the year - (64) - (64) - (3) - (3)
---------- ---------- ---------- -------- ---------- ---------- -------------- ----------
As at 31
December 14 91 2 107 3 80 1 84
========== ========== ========== ======== ========== ========== ============== ==========
Net book
value
as at 31
December 58 130 8 196 13 157 9 179
========== ========== ========== ======== ========== ========== ============== ==========
Company
2017 2016
Office Office
equipment equipment
GBP'000 GBP'000
Cost
As at 1 January 16 -
Additions 48 16
As at 31 December 64 16
============== ============
Depreciation
As at 1 January 3 -
Charge for the year 10 3
As at 31 December 13 3
============== ============
Net book value as at 31 December 51 13
============== ============
14 INTANGIBLE ASSETS
Group
2017 2016
Customer Website Customer
Goodwill relationships Contracts & Total Goodwill relationships Contracts Total
client
portal
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
As at 1
January 2,942 3,072 1,980 - 7,994 2,942 3,072 574 6,588
Additions
through
business
combinations 276 - 324 - 600 - - - -
Other
additions - - - 219 219 - - 1,406 1,406
As at 31
December 3,218 3,072 2,304 219 8,813 2,942 3,072 1,980 7,994
========== ============== =========== ======== ======== ========== ============== =========== ==========
Amortisation
As at 1
January - 615 749 - 1,364 - - - -
Charge for
the year - 614 487 21 1,122 - 615 749 1,364
As at 31
December - 1,229 1,236 21 2,486 - 615 749 1,364
========== ============== =========== ======== ======== ========== ============== =========== ==========
Net book
value as
at 31
December 3,218 1,843 1,068 198 6,327 2,942 2,457 1,231 6,630
---------- -------------- ----------- -------- -------- ---------- -------------- ----------- ----------
Remaining 1.5
amortisation -
period 3 2.5
n/a 3 years years 4 years n/a 4 years years
The website and client portal expenditure was undertaken
by the Company.
15 NON-CURRENT ASSETS - LONG-TERM RECEIVABLES
On 22 September 2015, the sale of 25.8 acres of the site at Newton-le-Willows to Persimmon Homes Limited ("Persimmon") was completed. An initial payment of GBP944,610 was received with further payments of GBP937,252 received in 2016 and GBP1,634,083 during the year. The balance of the consideration, at fair value, will be receivable in two tranches as follows:
GBP'000
On 22 March 2018 - included
within current assets 2,075
On 22 March 2019 1,618
3,693
========
The total cash value of the deferred receipts is GBP3,734,000, though this has been designated at fair value through the Statement of Comprehensive Income.
The discount rate applied was 1.61% (2016: 2.49%) being the average rate of borrowing on Persimmon's debt facilities.
Long-term receivables consist Group
of the following:
2017 2016
GBP'000 GBP'000
Deferred receivables 1,618 4,041
Other debtors - 54
-------- --------
1,618 4,095
======== ========
16 INVESTMENTS IN SUBSIDIARIES
Company
2017 2016
Subsidiary undertakings GBP'000 GBP'000
At 1 January 16,292 2,822
Additions 1,973 16,544
Disposals - (3,074)
At 31 December 18,265 16,292
======== ========
The subsidiary undertakings of Gresham House plc are as follows:
Held
by
Held other
by Group Country of incorporation
Company companies and registered office
% %
Acqco Store Limited 5 New Street Square,
- 100 London EC4A 3TW, England
Aitchesse Limited Riverview House, Friarton
Road, Perth, PH2 8DF,
- 100 Scotland
Chartermet Limited 5 New Street Square,
- 75 London EC4A 3TW, England
Deacon Commercial 5 New Street Square,
Development and Finance London EC4A 3TW, England
Limited - 100
Deacon Knowsley Limited 5 New Street Square,
- 75 London EC4A 3TW, England
Gresham House Asset 5 New Street Square,
Management Limited - 100 London EC4A 3TW, England
Gresham House Capital 5 New Street Square,
Partners Limited - 100 London EC4A 3TW, England
Gresham House EIS 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Finance 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Forestry Riverview House, Friarton
Limited Road, Perth, PH2 8DF,
- 100 Scotland
Gresham House Forestry Riverview House, Friarton
Friends and Family Road, Perth, PH2 8DF,
LP 71.4 - Scotland
Gresham House (General Riverview House, Friarton
Partner) Limited Road, Perth, PH2 8DF,
- 100 Scotland
Gresham House GP LLP Riverview House, Friarton
Road, Perth, PH2 8DF,
- 100 Scotland
Gresham House Holdings 5 New Street Square,
Limited 100 - London EC4A 3TW, England
Gresham House Housing 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Infrastructure 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Investment 5 New Street Square,
Management Limited - 100 London EC4A 3TW, England
Gresham House Investment Dorey Court, Admiral
Management (Guernsey) Park, St Peter Port,
Limited - 100 GY1 2HT, Guernsey
Gresham House Investors 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House New 5 New Street Square,
Energy Limited - 100 London EC4A 3TW, England
Gresham House Private 5 New Street Square,
Capital Solutions London EC4A 3TW, England
Limited - 100
Gresham House Private 5 New Street Square,
Equity Limited - 100 London EC4A 3TW, England
Gresham House Private 5 New Street Square,
Wealth Limited - 100 London EC4A 3TW, England
Gresham House Real 5 New Street Square,
Assets Limited - 100 London EC4A 3TW, England
Gresham House Renewable 5 New Street Square,
Infrastructure Limited - 100 London EC4A 3TW, England
Gresham House Renewable 5 New Street Square,
Energy VCT1 Limited - 100 London EC4A 3TW, England
Gresham House Renewable 5 New Street Square,
Energy VCT2 Limited - 100 London EC4A 3TW, England
Gresham House Services 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Smaller 5 New Street Square,
Companies Limited - 100 London EC4A 3TW, England
Gresham House SPE 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House Special 5 New Street Square,
Situations Limited - 100 London EC4A 3TW, England
Gresham House Value 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Gresham House VCT 5 New Street Square,
Limited - 100 London EC4A 3TW, England
Knowsley Industrial 5 New Street Square,
Property Limited - 100 London EC4A 3TW, England
New Capital Developments 5 New Street Square,
Limited - 75 London EC4A 3TW, England
New Capital Holdings 5 New Street Square,
Limited - 75 London EC4A 3TW, England
Newton Estate Limited 5 New Street Square,
- 100 London EC4A 3TW, England
Security Change Limited 5 New Street Square,
- 100 London EC4A 3TW, England
Wolden Estates Limited 5 New Street Square,
- 100 London EC4A 3TW, England
17 INVESTMENT IN Associate
The Board believe that Gresham House plc exercises significant influence over Gresham House Strategic plc ("GHS"), but not control, through its 19.3% equity investment as well as the investment management agreement between GHAM and GHS.
Group
2017 2016
GBP'000 GBP'000
Investment in associate 5,902 5,902
Share of associate's profit 560 628
6,462 6,530
======== ========
The latest published financial information of GHS was the unaudited interim results for the six months to 30 September 2017. The assets and liabilities at that date are shown below:
2017 2016
GBP'000 GBP'000
Non-current assets 33,570 25,233
Current assets 6,728 14,886
Current liabilities (1,039) (224)
Net assets 39,259 39,895
======== ========
The GHS group unaudited statement of comprehensive income noted realised and unrealised gains from continuing operations on investments at fair value through profit and loss of GBP1,028,000 and revenues of GBP245,000 for the six months ended 30 September 2017.
The registered office of GHS is 77 Kingsway, London, WC2B 5SR.
18 TRADE RECEIVABLES
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Amounts receivable within
one year:
Trade receivables 2,089 1,259 - -
Less allowance for credit - - - -
losses
--------
2,089 1,259 - -
======== ======== ======== ========
Trade receivables are assessed for impairment when older than 90 days. As at 31 December 2017, trade receivables of GBP286,000 (2016: GBP20,000) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
1-3 months 254 - - -
3-6 months 5 20 - -
More than 6 months 27 - - -
-------- -------- -------- --------
286 20 - -
======== ======== ======== ========
As at 31 December 2017 trade receivables of GBPnil (2016: GBPnil) were impaired and provided for.
19 OTHER CURRENT ASSETS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Amounts owed by Group
undertakings - - 7,878 9,734
- - 7,878 9,734
========== ========== ======== ========
20 TRADE AND OTHER PAYABLES
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Trade creditors 274 225 - -
Other creditors 380 332 14 14
Accruals 1,516 1,672 17 73
Contingent consideration (note
24) 3,293 - 251 -
5,463 2,229 282 87
======== ======== ======== ========
21 SHORT-TERM BORROWINGS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Bank loans - within current
liabilities (note 23) - 1,015 - 1,015
Amounts owed to Group undertakings - - 5,552 362
- 1,015 5,552 1,377
========== ======== ======== ========
22 DEFERRED TAXATION
Under International Accounting Standards ("IAS") 12 (Income Taxes) provision is made for the deferred tax liability associated with the revaluation of property investments.
The deferred tax provision on the revaluation of property investments calculated under IAS 12 is GBPnil at 31 December 2017 (2016: GBPnil) due to the availability of losses and indexation allowances.
23 LONG-TERM BORROWINGS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Bank loans - 4,881 - 4,881
- 4,881 - 4,881
========== ======== ======== ========
On 12 April 2016, the Company signed a GBP7.0 million banking facility agreement with Kleinwort Benson Bank Limited ("the facility"). The facility was secured against the Group's property assets and the deferred receivable from the sale of the Newton-le-Willows site to Persimmon in September 2015.
The facility was repaid in full on 14 September 2017 following the sale of the Group's property asset, Southern Gateway in Speke.
The interest payable on the facility was LIBOR plus 4.5%.
24 NON-CURRENT LIABILITIES - OTHER CREDITORS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Contingent consideration - 3,237 - 258
Other creditors 2 27 - -
2 3,264 - 258
======== ======== ======== ========
Contingent consideration - Gresham House Forestry
Contingent consideration will be payable if Gresham House Forestry ("GHF") achieves certain EBITDA targets. The amount of additional consideration payable shall increase on a sliding scale depending on the EBITDA achieved in the period to 28 February 2018. The contingent consideration shall be payable if GHF achieves EBITDA between a range of GBP1,733,333 and GBP3,466,666 with the full GBP3,697,237 of additional consideration being payable if EBITDA of GBP3,466,666 or more is achieved and no additional consideration being payable if EBITDA of less than GBP1,733,333 is achieved.
In the event of the target being achieved, the Company is obliged to issue a further 736,074 shares to the vendors. The fair value of the contingent consideration has been based on the mid-market share price on 23 November 2015, the date of the acquisition of GHF, at 357.5p per share. The directors, having carefully reviewed the future business prospects of GHF, believe that 87% of the EBITDA will be achieved.
The additional consideration shall be satisfied by:
-- the payment of up to GBP1,500,055 in cash to the vendors; and
-- the issue of up to 736,074 new ordinary shares to the vendors.
Fair value
The fair value of the contingent consideration is estimated using an income approach based on a discount assuming approximately 75% pay-out of the contingent consideration as anticipated by the Board, supported by forecasts of the trading of GHF in the period to 28 February 2018.
Contingent cash payable has been valued at a discount of 13.5%.
The entire amount of the contingent consideration is recognised as a financial liability and is measured at fair value through comprehensive income at each reporting date.
The minimum contingent consideration is GBPnil.
Contingent consideration - LMS Capital plc
On 16 August 2016, Gresham House Asset Management ("GHAM") was appointed the investment manager of LMS Capital plc ("LMS"). The Company issued a first tranche of 332,484 new ordinary shares to LMS with a value of GBP1 million on 16 August 2016 and will issue a second tranche of new ordinary shares on the second anniversary of the appointment up to a value of GBP1.25 million subject to certain performance conditions. The contingent consideration for the second tranche payment of the LMS contract has a fair value of GBP251,000.
The second tranche issue of new ordinary shares will depend on the following:
-- LMS extending the term of the portfolio management agreement for two years following the second anniversary of appointment on 16 August 2016;
-- There being no material changes to the terms of the portfolio management agreement; and
-- LMS undertaking not to return capital to shareholders during the two-year period following the second anniversary of appointment.
The value of the second tranche will be calculated by the Net Asset Value ("NAV") of the portfolio on the second anniversary of appointment:
-- If the NAV is below GBP67.5 million, no shares will be issued;
-- If the NAV is between GBP70.0 million and GBP80.0 million, the value of the second tranche shares will be between GBP500,000 and GBP1 million calculated on a straight-line basis;
-- If the NAV is between GBP80.0 million and GBP85.0 million, the value of the second tranche shares will be between GBP1 million and GBP1.25 million calculated on a straight-line basis; and
-- If the NAV is above GBP85.0 million the maximum value of shares issued will be capped at GBP1.25 million.
Fair value
The fair value of the contract has been estimated using an equal weighting of three scenarios. The estimated cash flows in each case has been valued at a discount of 15%. This resulted in fair value of GBP1,251,000, with a contingent consideration of GBP251,000, which has been included in current liabilities as deferred consideration, note 20.
The Company also issued 909,908 LMS Warrants to LMS on 14 October 2016, details are included in note 26.
GHAM will receive an annual management fee of:
-- 1.5% of the average NAV of LMS for an NAV of up to GBP100 million; -- 1.25% of the average NAV of LMS for an NAV of between GBP100 million and GBP150 million; and -- 1.0% of the average NAV of LMS for an NAV of greater than GBP150 million.
GHAM will also receive a performance fee of 15% on the gain in NAV of new investments made since being appointed the investment manager of LMS, subject to a hurdle rate of 8%.
25 SHARE CAPITAL
2017 2016
Share Capital GBP'000 GBP'000
Allotted: Ordinary - 12,536,957 (2016:
10,185,487) fully paid shares of 25p
each 3,134 2,546
======== ========
On 13 March 2017, the Company issued 2,251,372 new ordinary shares at a price of 325p per share to the Royal County of Berkshire Pension Fund. A further 100,097 new ordinary shares were issued on 13 March 2017 at a price of 308.95p to management and employees under the Company's Bonus share matching plan. Additionally, 1 shareholder warrant was exercised during the year at a price of 323.27p
26 SHARE WARRANTS
2017 2016
Shareholder Supporter LMS Total Shareholder Supporter LMS Total
Group warrants warrants warrants warrants warrants warrants warrants warrants
Balance at 1
January 1,071,813 850,000 909,908 2,831,721 1,073,775 850,000 - 1,923,775
Warrants
granted
during the
year - - - - - - 909,908 909,908
Warrants
exercised
during the
year (1) - - (1) (1,962) - - (1,962)
------------
As at 31
December 1,071,812 850,000 909,908 2,831,720 1,071,813 850,000 909,908 2,831,721
============ ========== ========== ========== ============ ========== ========== ==========
Shareholder warrants
On 1 December 2014, the Company issued 1,073,904 shareholder warrants to existing shareholders as at the close of business on 28 November 2014 on a 1:5 basis, such warrants having been admitted to trading on AIM. Shareholder warrants are freely transferable, are exercisable at any time between 1 January 2015 and 31 December 2019 at an exercise price of 323.27p per ordinary share and are subject to the terms of the shareholder warrant instrument dated 7 October 2014.
Supporter warrants
On 1 December 2014, the Company issued 850,000 supporter warrants to the new directors and certain members of the Investment Committee and Advisory Group at a price of 7.5p per warrant. Supporter warrants have the same entitlements as the shareholder warrants save that (i) they are not freely transferable (such supporter warrants only being transferable to certain family members, trusts or companies connected with the relevant warrant holder) and accordingly not quoted on AIM; (ii) are not exercisable until 1 December 2015; and (iii) are subject to the terms of the supporter warrant instrument dated 7 October 2014.
LMS warrants
On 14 October 2016, the Company issued 909,908 LMS warrants to LMS Capital plc ("LMS"). The LMS warrants entitle LMS to exercise one LMS warrant for one ordinary share in the Company from 14 October 2016 to 30 June 2018 at an exercise price of 323.27 pence per ordinary share. LMS paid a warrant purchase price of 28 pence per LMS warrant, totalling GBP255,000. The LMS warrants are not transferrable, unless consent of the Board of the Company has been provided and were issued in accordance with the LMS Warrant Instrument dated 14 October 2016.
During the year, 1 shareholder warrant was converted into ordinary shares resulting in the issue of 1 new ordinary share (2016: 1,962). Since the year end a further 3,422 shareholder warrants have been exercised.
27 SHARE BASED PAYMENTS
Long-term incentive plan
Following approval from shareholders at the General Meeting of the Company on 20 November 2015, the directors implemented a long-term incentive plan ("plan") to incentivise the management team as well as align their interests with those of shareholders on 28 July 2016 through enhancing shareholder value.
For the purposes of the plan, "shareholder value" is the difference between the market capitalisation of the Company at the point in time that any assessment is made and the sum of:
(i) the market capitalisation of the Company a) at 1 December 2014 for first awards made to management who joined the Company before 30 September 2015 ("old joiners") and b) at the date of award in all other cases ("new joiners"); and
(ii) the aggregate value (at the subscription price) of all ordinary shares issued thereafter and up to the point in time that any assessment is made, in each case adjusted for dividends and capital returns to shareholders and/or issue of new shares.
The beneficiaries of the plan, will in aggregate be entitled to an amount of up to 13.8% of shareholder value created, subject to performance criteria set out below. Individual participation in the shareholder value created will be determined by the Remuneration Committee.
There will be certain hurdles the Company's share price has to achieve before an award vests.
In the event that the Company achieves an average mid-market closing price equal to compound growth at 7% per annum for a period of 10 consecutive dealing days in the period after 1 December 2016 for first awards to management who joined the Company before 30 September 2015 and from the second anniversary of the date of award in all other cases, 50% of the award will vest.
In the event that the share price of the Company outperforms the FTSE All Share Index in the period after 1 December 2016, and from the second anniversary of the date of the award in all other cases, 50% of the award shall vest.
Each award will require a minimum term of employment of three years and awards will be made to current management and new joiners at the Company's discretion.
IFRS 2: Share Based Payments sets out the criteria for an equity settled share based payment, which has market performance conditions. The plan meets these criteria and should therefore be recognised at award as fair value and amortised over the vesting period of two years. There is no amount payable by the beneficiaries on exercise. The table below details the number of shares issued in the year:
2017 2016
A Shares A Shares A Shares A Shares
Old New Total Old New Total
joiners joiners B Shares LTIP joiners joiners LTIP
Balance at
1 January 908 92 - 1,000 908 92 1,000
Issued in
the year - - 280 280 - - -
As at 31
December 908 92 280 1,280 908 92 1,000
--------- --------- --------- ------ --------- --------- ------
Exercisable
at year end 908 - - 908 - - -
--------- --------- --------- ------ --------- --------- ------
Months to
vesting - 7 20 12 19
========= ========= ========= ====== ========= ========= ======
The weighted average time to vesting is 16 months.
Fair value
The fair value of the award has been determined using an expected returns model, which is based on a number of scenarios and probabilities of the Company's performance for the period when the awards may be exercised. The assumptions in the model have estimated the shareholder value created and applied discounts for liquidity and likelihood of exercise by participants. The weighted average valuation of the Company has been used to calculate the expected shareholder value created and consequently the value of the plan. The fair value of the plan at award was GBP29,000 (GBP139.42 per share), which will be amortised over the two-year vesting period.
Renewable Energy team long-term incentive plan
The Renewable Energy management team has a long-term incentive plan in place, which granted the team a total of 1,000 A Shares in Gresham House New Energy Limited on 31 October 2017. The vesting date of the A Shares is 31 December 2020, at which point the holders are entitled to receive either Gresham House plc shares, or cash at the Company's discretion in exchange for their A Shares.
The value of the A Shares at vesting is based on a calculation, which applies a multiple and a 50% discount to the average profits generated by the New Energy division between 31 October 2017 and 31 December 2020.
The fair value of the award has been determined using an expected returns model, which is based on a number of scenarios and probabilities of the New Energy division's performance for the period from 31 October 2017 to 31 December 2020. The assumptions in the model have estimated the average profits over the period and applied discounts for liquidity and control and consequently the value of the A Shares. The fair value of the A Shares at award was GBP276,000 (GBP276 per share), which will be amortised over the three year and two month vesting period.
The settlement of the A Shares can be in either the Company's ordinary shares or in cash at the discretion of the Company. Under the guidance in IFRS 2:41, it has been considered that the A Share settlement should be treated as an equity settled instrument.
Bonus share matching plan
The Company introduced in 2016 a share matching plan linked to the discretionary annual bonus scheme to encourage management to invest in the long-term growth of the Company.
Subject to Remuneration Committee approval, management and employees entitled to a bonus may be permitted (but not required) to defer and reinvest up to 100% of their annual bonus into ordinary shares which will be released to them after three years together with any additional matching shares subject to performance criteria set out below. In 2017 the Remuneration Committee approved the reinvestment of up to 50% of annual bonuses into ordinary shares by management and employees (2016: 50%).
In the event that the Company achieves a mid-market closing price equal to 7% per annum compound growth from the date of deferral, the participants will receive 50% of the matching shares benefit. In the event that the Company's share price out-performs the FTSE All Share Index from the date of deferral, the participant will receive 50% of the matching shares.
Shares will be awarded in the ratio one share for each share invested. In the event that this performance condition is not met, the participants will receive only the ordinary shares acquired with the deferred bonus.
The bonus shares to be awarded after the three year period and subject to performance conditions have been fair valued using a monte carlo simulation. The key variables include the risk-free rate of 0.32% and volatility of the Company share price of 16%. The fair value of the matching shares relating to the 2016 bonuses is GBP87,084 (GBP0.87 per share) and will be amortised over the three-year vesting period.
28 RESERVES
2017 2016
Share Share Share Share
premium warrant Retained premium warrant Retained
account reserve reserves account reserve reserves
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1 January 2,611 319 18,657 1,688 64 21,611
Loss and total comprehensive
income - - (3,124) - - (3,027)
Transfer of non-controlling
interest deficit - - (388) - - -
Issue of shares 7,038 - - 923 - -
Issue of warrants - - - - 255 -
Share based payments - - 123 - - 73
As at 31 December 9,649 319 15,268 2,611 319 18,657
========= ========= ========= =========
2017 2016
Share premium Share warrant Retained Share premium Share warrant Retained
account reserve reserves account reserve reserves
Company GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 1
January 2,611 319 16,153 1,688 64 16,939
Loss and total
comprehensive
income - - (684) - - (786)
Issue of shares 7,038 - - 923 - -
Issue of
warrants - - - - 255 -
As at 31
December 9,649 319 15,469 2,611 319 16,153
2017 2016
Non-controlling interest: GBP'000 GBP'000
Balance as at 1 January 491 -
Interest in trading result for the year (106) 56
Interest in investments- securities (12) 500
Interest in movement in investment property for the year (284) (65)
Transfer deficit balance 388 -
477 491
The following describes the nature and purpose of each reserve within equity:
Reserve Description and purpose
Share premium account Amount subscribed for share capital in excess of nominal value.
Share warrant reserve Share warrants for which consideration has been received but which are not exercised yet.
Retained earnings All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.
29 NET ASSET VALUE PER SHARE Basic 2017 2016 Equity attributable to holders of the parent (GBP'000) 28,370 24,133 Number of ordinary shares in issue at the end of the period 12,536,957 10,185,487 Basic net asset value per share (pence) 226.3 236.9 Diluted 2017 2016 Equity attributable to holders of the parent (GBP'000) 28,370 24,133 Adjusted number of ordinary shares in issue at the end of the period 13,435,704 10,185,487 Diluted net asset value per share (pence) 211.2 236.9
Diluted net asset value per share is based on the number of shares in issue at the year end together with 898,747 shares deemed to have been issued at nil consideration as a result of shareholder, supporter and LMS warrants granted and shares which could be issued under the bonus share matching plan and long-term incentive plans.
These shares and warrants had no dilutive effect in the prior year as the exercise price of the warrants is 323.27p which was higher than the average market price of ordinary shares during the year.
GBP'000
The movement during the year of the assets attributable to ordinary shares were as follows:
Total net assets attributable at 1 January 2017 24,133
Total recognised losses for the year (3,512)
Share based payments 123
Issue of shares 7,626
Total net assets attributable at 31 December 2017 28,370
30 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Net operating loss after exceptional items (2,216) (3,838) (500) (2,086)
(Loss)/profit from discontinued operations (1,104) 339 - -
Movement in fair value of investment property 1,466 139 - -
Interest payable 170 293 170 260
Depreciation 87 77 31 3
Profit on disposal of tangible fixed assets (12) (8) - -
Amortisation 1,122 1,364 - -
Share based payments 123 72 - -
Intercompany loans waived - - - 2,000
(364) (1,562) (299) 177
Decrease/(increase) in long-term receivables 54 (54) - -
(Increase) / decrease in current assets (1,219) (430) (154) 164
(Decrease) / increase in current liabilities (86) (1,291) 10 (747)
(1,615) (3,337) (443) (406)
31 FINANCIAL INSTRUMENTS
The Group consists of the Company and subsidiary undertakings whose principal activities are asset management, forestry management and property investment.
The Group's financial instruments, which are held in accordance with the Group's objectives and policies, comprise:
(i) securities consisting of listed and unlisted equity shares; (ii) a secondary portfolio of listed and unlisted fixed income securities;
(iii) cash, liquid resources and short-term debtors and creditors that arise directly from its operational activities; and
(iv) short-term and long-term borrowings.
As at 31 December 2017 the following categories of financial instruments were held by: -
Group 2017 2016
Assets at fair value Assets at fair value
through through comprehensive
Loans and receivables comprehensive income Loans and receivables income
Financial assets per GBP'000 GBP'000 GBP'000 GBP'000
Statement of
Financial Position
Investments -
securities 159 2,830 617 2,217
Trade and other
receivables -
current and
non-current 2,089 3,693 1,259 5,180
Accrued income 563 - 387 -
Cash and cash
equivalents 9,785 - 2,802 -
12,596 6,523 5,065 7,397
2017 2016
Other Liabilities at fair Liabilities at fair
financial value through Other financial value through
liabilities comprehensive income liabilities comprehensive income
Financial liabilities per Statement of Financial
Position GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables - short-term * 2,170 3,293 2,229 -
Bank loans - short & long-term - - 5,896 -
Other creditors - long-term 2 - 27 3,237
2,172 3,293 8,152 3,237
* GBP284,000 (2016: GBP245,000) of corporation tax, PAYE and VAT payable is included within trade and other payables.
Company 2017 2016
Assets at fair value Assets at fair value
through through comprehensive
Loans and receivables comprehensive income Loans and receivables income
Financial assets per GBP'000 GBP'000 GBP'000 GBP'000
Statement of
Financial Position
Investments -
securities 159 1,151 617 499
Accrued income 219 - 219 -
Amounts owed by Group
undertakings 7,878 - 9,734 -
Cash and cash
equivalents 6,484 - 858 -
14,740 1,151 11,428 499
2017 2016
Liabilities at fair Liabilities at fair
Other financial value through Other financial value through
liabilities comprehensive income liabilities comprehensive income
Financial liabilities per
Statement of Financial
Position GBP'000 GBP'000 GBP'000 GBP'000
Trade and other payables
- short-term 31 251 87 -
Other loans - short &
long-term 5,552 - 6,258 -
Other creditors -
long-term - - - 258
5,583 251 6,345 258
The carrying value of loans and receivables and other financial liabilities are not materially different to their fair values. The Group's activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The main risks to which the Group is exposed are market price risk, credit risk, interest rate risk and liquidity risk. The nature and extent of the financial instruments outstanding at the Statement of Financial Position date and the risk management policies employed by the Group are summarised below.
Market price risk
Market price risk is the risk that changes in market prices will adversely affect the Group's income due to a decline in the underlying value of assets under management, resulting in lower fees.
The objective of market price risk management is to manage and control market price exposure, while optimising the return on risk. The Group manages strategic equity funds. Forestry asset management fees are not linked directly to market prices.
Market price risk arises from uncertainty about the future prices of financial instruments held within the Group's portfolio. It represents the potential loss that the Group might suffer through holding market positions in the face of market movements. The investments in equity and fixed interest stocks of unquoted companies are not traded and as such the prices are more uncertain than those of more widely traded securities.
Unquoted investments are valued as per accounting policy (j) in these financial statements. Regular reviews of the financial results, combined with close contact with the management of these investments, provides sufficient information to support these valuations.
Based on values as at 31 December 2017, a 10% movement in the net asset values of those funds exposed to public markets would result in a GBP153,000 movement in both profit and net assets.
Credit risk
Credit risk is the risk that the counterparty will fail to discharge an obligation or commitment that it has entered into with the Group.
The Group's maximum exposure to credit risk is:
2017 2016
GBP'000 GBP'000
Loan stock investments 159 617
Deferred receivable - short and long-term 3,693 5,180
Trade and other receivables - short-term 2,089 1,259
Accrued income 563 387
Cash and cash equivalents 9,785 2,802
16,289 10,245
The Group has an exposure to credit risk in respect of both loan stock investments and other loans, most of which have no security attached to them, or where they do, such security will rank after any bank debt. The Company's exposure to credit risk is restricted to investments, cash and cash equivalents, other loans, amounts owed by Group undertakings and accrued income totalling GBP14,740,000 (2016: GBP11,428,000).
Cash and cash equivalents consist of cash in hand and balances with banks. To reduce the risk of counterparty default the Group deposits its surplus funds in approved high-quality banks.
The following table shows the maturity of the loan stock investments and other loans referred to above:
2017 2016
(a) Loan stock investments GBP'000 GBP'000
Repayable within: - 1 year - 151
1-2 years - 466
2-3 years - -
3-4 years 103 -
4-5 years 56 -
159 617
As at 31 December 2017 loan stock investments totalling GBP718,000 (2016: GBP340,000) were impaired and provided for.
As at 31 December 2017 other loans totalling GBP54,000 (2016: GBP155,000) were impaired and provided for.
There is potentially a risk whereby a counter party fails to deliver securities which the Company has paid for, or pay for securities which the Company has delivered. This risk is considered to be small as where the transaction is in respect of quoted investments the Company uses brokers with a high credit quality and where the transaction is in respect of unquoted investments, these are conducted through solicitors to ensure that payment matches delivery.
Interest rate risk
The Group's fixed and floating interest rate securities, its equity, preference equity investments and loans and net revenue may be affected by interest rate movements. Investments in small businesses are relatively high-risk investments which are sensitive to interest rate fluctuations.
The Group's assets include fixed and floating rate interest instruments as detailed below. The Group is exposed to interest rate movements on its floating rate liabilities.
The interest rate exposure profile of the Group's financial assets and liabilities as at 31 December 2017 and 2016 were:
Group Non-interest
bearing
assets/ Fixed rate Floating rate Fixed rate Floating rate
liabilities assets assets liabilities liabilities Net total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December 2017
Investments -
securities 2,830 159 - - - 2,989
Cash - - 9,785 - - 9,785
Trade and
other
receivables 2,089 - - - - 2,089
Accrued
income 563 - - - - 563
Creditors
- falling due
within 1
year (5,463) - - - - (5,463)
- falling due
after 1 year - - - (2) - (2)
19 159 9,785 (2) - 9,961
Non-interest
bearing
assets/ Fixed rate Floating rate Fixed rate Floating rate
liabilities assets assets liabilities liabilities Net total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December 2016
Investments -
securities 2,217 617 - - - 2,834
Cash - - 2,802 - - 2,802
Trade and
other
receivables 1,259 - - - - 1,259
Accrued
income 387 - - - - 387
Creditors
- falling due
within 1
year (2,229) - - - (1,015) (3,244)
- falling due
after 1 year (3,237) - - (27) (4,881) (8,145)
(1,603) 617 2,802 (27) (5,896) (4,107)
Non-interest bearing assets comprise the portfolio of ordinary shares, dealing securities and non-interest bearing loans.
Fixed rate assets comprise fixed rate loans, unsecured loans and loans repayable on demand, with a weighted average interest rate of 7.6% (2016: 10.0%).
Floating rate assets and floating rate liability loans are subject to interest rates which are based on LIBOR and bank base rates.
Fixed rate liabilities include hire purchase contracts and short-term loan notes.
The Group is not materially exposed to currency risk as its assets and liabilities are substantially denominated in sterling.
The interest rate exposure profile of the Company's financial assets and liabilities as at 31 December 2017 and 2016 were:
Company Non-interest
bearing
assets/ Fixed rate Floating rate Fixed rate Floating rate
liabilities assets assets liabilities liabilities Net total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December 2017
Investments -
securities 1,151 159 - - - 1,310
Cash - - 6,484 - - 6,484
Accrued income 219 - - - - 219
Owed by Group
undertakings 7,878 - - - - 7,878
Creditors
- falling due
within 1 year (282) - - - - (282)
8,966 159 6,484 - - 15,609
Non-interest
bearing
assets/ Fixed rate Floating rate Fixed rate Floating rate
liabilities assets assets liabilities liabilities Net total
As at 31 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
December 2016
Investments -
securities 499 617 - - - 1,116
Cash - - 858 - - 858
Accrued income 219 - - - - 219
Owed by Group
undertakings 9,734 - - - - 9,734
Creditors
- falling due
within 1 year (87) - - - (1,105) (1,192)
- falling due
after 1 year (258) - - - (4,881) (5,139)
10,107 617 858 - (5,986) 5,596
Although the Company holds investments that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes upon the value of the investment portfolio as interest rate changes are only one factor affecting market price and the impact is likely to be immaterial. The Group has no bank borrowings and as such, the Board does not consider it appropriate to show the sensitivity of interest payable to changes in interest rates.
Liquidity risk
The investments in equity investments in NEX Exchange traded companies may be difficult to realise at their carrying value, particularly if the investment represents a significant holding in the investee company. Similarly, investments in equity and fixed interest stocks of unquoted companies that the Company holds are only traded infrequently. They are not readily realisable and may not be realised at their carrying value where there are no willing purchasers.
The Group aims to hold sufficient cash to fulfil its requirements with respect to regulatory capital. During the year the Group and its subsidiary entities complied with all regulatory capital requirements. As the bank borrowings have been repaid liquidity risk is considered immaterial.
The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the Statement of Financial Position date to the expected maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
As at 31 December 2017 Less than 1 year Between 1 and 2 years Between 2 and 5 years
GBP'000 GBP'000 GBP'000
Trade payables 274 - -
Accruals 1,516 - -
Contingent consideration 1,500 - -
Other creditors 379 - -
3,669 - -
As at 31 December 2016 Less than 1 year Between 1 and 2 years Between 2 and 5 years
GBP'000 GBP'000 GBP'000
Bank borrowings 1,413 2,264 2,863
Trade payables 225 - -
Accruals 1,672 - -
Contingent consideration - 1,500 -
Other creditors 359 - -
3,669 3,764 2,863
Capital risk management
The Group manages its capital to ensure that entities within the Group and the Company will be able to continue to trade in an orderly fashion whilst maintaining sustainable returns to shareholders.
The capital structure of the Group and Company consist of short and long-term borrowings as disclosed in notes 21 and 23, cash and cash equivalents and equity attributable to equity shareholders of the Company comprising issued share capital, share premium, share warrant reserve and retained reserves as disclosed in notes 24 to 27. The Board reviews the capital structure of the Group and the Company on a regular basis to ensure it complies with all regulatory capital requirements. The financial measures that are subject to review include cash flow projections and the ability to meet capital expenditure and other contracted commitments, projected gearing levels and interest covenants although no absolute targets are set for these.
Group Company
2017 2016 2017 2016
GBP'000 GBP'000 GBP'000 GBP'000
Debt - (5,896) - (5,896)
Cash and cash equivalents 9,785 2,802 6,484 858
Net assets 28,847 24,624 28,571 21,629
Net cash / (debt) 9,785 (3,094) 6,484 (5,038)
Net cash / (debt) as a % of net assets 33.9% (12.6%) 22.7% (23.3%)
32 FAIR VALUE MEASUREMENTS
Valuation inputs
IFRS 13 - Fair Value Measurement - requires an entity to classify its financial assets and liabilities held at fair value according to a hierarchy that reflects the significance of observable market inputs. The classification of these assets and liabilities is based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined below.
Quoted market prices - Level 1
Financial instruments, the valuation of which are determined by reference to unadjusted quoted prices for identical assets or liabilities in active markets where the quoted price is readily available, and the price represents actual and regularly occurring market transactions on an arm's length basis. An active market is one in which transactions occur with sufficient volume and frequency to provide pricing information on an ongoing basis.
Valuation technique using observable inputs - Level 2
Financial instruments that have been valued using inputs other than quoted prices as described for level 1 but which are observable for the asset or liability, either directly or indirectly.
Valuation technique using significant unobservable inputs - Level 3
Financial instruments, the valuation of which incorporate significant inputs for the asset or liability that are not based on observable market data (unobservable inputs). Unobservable inputs are those not readily available in an active market due to market illiquidity or complexity of the product. These inputs are generally determined based on observable inputs of a similar nature, historical observations on the level of the input or analytical techniques.
For investment properties, the significant unobservable input used in the valuation at 31 December 2017 are the expected net sales proceeds.
For investments in securities, which includes early-stage private equity investments, the significant unobservable inputs used include cash flow forecasts and discount rates. An increase in the discount rate applied will decrease the fair value of the investment whereas a decrease in the rate will increase the fair value. No reasonable foreseeable changes to significant unobservable inputs will result in a material impact to profit and loss or equity.
The valuation techniques used by the Company for level 3 financial assets can be found in accounting policy (j) (iii) and (iv).
Further details of the securities portfolio can be found in note 11 and of the property portfolio in note 12 of these financial statements
An analysis of the Group's and Company's assets measured at fair value by hierarchy is set out below.
Group 31 December 2017 Level 1 Level 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit and loss:
Property investments 1,986 - 1,986
Investments - securities
- Equities 2,830 1,106 1,724
Trade and other receivables - short and long-term 3,693 - 3,693
8,509 1,106 7,403
31 December 2016 Level 1 Level 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit and loss:
Property investments 9,628 - 9,628
Investments - securities
- Equities 2,217 499 1,718
Trade and other receivables - long-term 5,180 - 5,180
17,025 499 16,526
Company 31 December 2017 Level 1 Level 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit and loss:
Investments - securities
- Equities 1,151 1,106 45
1,151 1,106 45
31 December 2016 Level 1 Level 3
GBP'000 GBP'000 GBP'000
Financial assets at fair value through profit and loss:
Investments - securities
- Equities 499 499 -
499 499 -
Set out below is a reconciliation of financial assets measured at fair value based on level 3.
Group Trade and other
31 December 2017 Property investments Investments - securities receivables Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 9,628 1,718 5,180 16,526
Total gains and (losses):
In Statement of
Comprehensive
Income (1,466) (41) 148 (1,359)
Additions 137 47 - 184
Disposals (6,313) - (1,635) (7,948)
Closing balance 1,986 1,724 3,693 7,403
Total gains and (losses)
for the period included
in comprehensive income
for assets held at the
end of the reporting
period (331) (41) 148 (224)
Property investments Trade and other
31 December 2016 Investments - securities receivables Total
GBP'000 GBP'000 GBP'000 GBP'000
Opening balance 9,559 1 5,916 15,476
Total gains and (losses):
In Statement of
Comprehensive
Income (139) (32) 202 31
Additions 311 1,750 - 2,061
Disposals (103) (1) (938) (1,042)
Closing balance 9,628 1,718 5,180 16,526
Total gains and (losses)
for the period included
in comprehensive income
for assets held at the
end of the reporting
period (242) (32) 202 (72)
Company:
31 December 2017 Investments - securities Total
GBP'000 GBP'000
Opening balance - -
Total gains and (losses):
In Statement of Comprehensive Income (2) (2)
Additions 47 47
Closing balance 45 45
Total gains or losses for the period included in comprehensive income for
assets held at the
end of the reporting period (2) (2)
31 December 2016 Investments - securities Total
GBP'000 GBP'000
Opening balance 1 1
Disposals (1) (1)
Closing balance - -
Total gains or losses for the period included in comprehensive income for
assets held at the
end of the reporting period - -
The only financial liabilities held at fair value relates to the deferred consideration on the acquisition of Gresham House Forestry Limited and the appointment of Gresham House Asset Management Limited as investment manager to LMS Capital plc amounting to GBP3,293,000. This is measured using level 3 valuation techniques. The only such financial liabilities held at fair value within the Company relates to the LMS contingent consideration totalling GBP251,000.
Price risk sensitivity
Based on values as at 31 December 2017 a 10% movement in the fair values of the Group's equity and direct property investments would be equivalent to a movement of GBP482,000 in both profit and net assets.
33 RELATED PARTY TRANSACTIONS
Group
During the year management fees totalling GBP611,610 (2016: GBP542,453) were invoiced to Gresham House Strategic plc ("GHS"), a company in which the Group has a 19.3% interest. At the year-end GBP62,063 (2016: GBP57,803) was due from GHS.
During the year management fees totalling GBP1,143,334 (2016: GBP479,996) were invoiced to LMS Capital plc ("LMS"), a company with a significant shareholding in the Company as disclosed in the directors' report. At the year-end GBP104,870 (2016: GBP253,725) was due from LMS.
During the year management fees of GBP223,335 (2016: GBPnil) were invoiced to Hazel Capital LLP ("Hazel"), an entity in which Ben Guest, head of the New Energy strategy, has a material interest. Conversely, the Group was invoiced GBP58,848 (2016: GBPnil) by Hazel for office costs. These transactions reflect the activity of the New Energy strategy with effect from 31 October 2017. At the year-end GBP164,487 (2016: GBPnil) was due from Hazel.
Company
During the year the Company received loans totalling GBP8,560,271 from (2016: advanced GBP3,098,028 to) Security Change Limited. At the year-end GBP5,488,358 was due to (2016: GBP3,071,913 due from) Security Change Limited. No interest was charged during the year (2016: GBPnil).
During the year the Company received GBPnil (2016: GBP8,278,000) from Gresham House Finance Limited. At the year-end GBP221,400 (2016: GBP221,400) was owed by Gresham House Finance Limited. No interest was charged during the year (2016: GBPnil).
During the year the Company received GBP297,476 (2016: GBP361,460) from Gresham House Forestry Limited. At the year-end GBP63,984 (2016: GBP361,460) was owed to Gresham House Forestry Limited. No interest was charged during the year (2016: GBPnil).
During the year the Company advanced loans totalling GBP1,329,661 (2016: GBP2,005,085) to Gresham House Holdings Limited. At the year-end GBP7,656,723 (2016: GBP6,327,062) was owed by Gresham House Holdings Limited. No interest was charged during the year (2016: GBPnil).
During the year the Company charged management fees totalling GBPnil (2016: GBPnil) to Gresham House Asset Management Limited. At the year-end GBPnil (2016: GBP113,733) was owed by Gresham House Asset Management Limited.
34 POST BALANCE SHEET EVENTS
On 6 February 2018, the sale of the land at Newton-le-Willows was completed with the Group receiving gross proceeds of GBP2.1 million.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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March 01, 2018 02:02 ET (07:02 GMT)
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