Results for the year ended 31 December 2018
Gresham House plc
("Gresham House," "the Group" or "the Company")
Results for the year ended 31 December 2018
Gresham House plc, (AIM:GHE) the specialist alternative asset manager, is delighted to report a transformational year, more than trebling assets under management to £2.3 billion through organic and acquisitive growth, achieving profitability and significant margin improvement, whilst developing a high-quality pipeline of new opportunities and expanding its distribution capabilities.
Highlights
|
|
2018 |
2017 |
Change |
|
|
(£m) |
(£m) |
(%) |
|
Assets under management |
2,268 |
649 |
250 |
|
Cash and liquid assets1 |
32.8 |
24.4 |
34 |
|
Total income |
14.5 |
6.5 |
125 |
|
Operating loss |
0.6 |
3.5 |
n/a |
|
Adjusted operating profit2 |
3.0 |
-0.7 |
n/a |
|
Dividend |
3.0p |
nil |
n/a |
1Cash and liquid assets includes cash and investments in tangible and realisable assets
2Adjusted operating profit is defined as the net trading profit of the Group before deducting amortisation, depreciation and exceptional items relating to acquisition and restructuring costs and after adding back income received from investment in associates.
§ A strong year for growth in Assets Under Management (AUM) of 250%, including 30% organic growth, with AUM increasing to £2.3 billion (2017: £649 million)
§ Adjusted operating profitability increased to £3.0 million (2017: £0.7 million loss)
§ The acquisitions of FIM Services Limited (FIM) and the investment management business of Livingbridge VC LLP (Livingbridge VC) have been transformative and complement both financially and strategically our alternative asset management platform
§ Annualised synergies of £700k from acquisitions have been identified and are in the process of being captured
§ Balance sheet remains strong with £32.8 million of tangible and realisable assets (2017: £24.4 million) and gross cash of £14.0 million (2017: £9.8 million)
§ Established group relationship with Santander, borrowing £10.0 million
§ Maiden dividend of 3.0p proposed
§ Future visibility for organic growth across all platforms identified
Commenting on the results, Tony Dalwood, Chief Executive, said:
"We have continued to maintain momentum and make excellent progress in shareholder value creation whilst investing in the platform ahead of future growth, adding scale to the business and identifying synergies.
The opportunities in the alternatives sector offer high-quality long-term investment returns for clients, and Gresham House has quality fund management teams and award winning individuals to execute within those specialist markets. The 2019/2020 pipeline for further organic AUM growth is exciting."
- Ends -
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014
For more information contact:
|
Gresham House plc Tony Dalwood, Chief Executive Officer Kevin Acton, Finance Director
|
+44 (0)20 3837 6270
|
|
Canaccord Genuity - Nominated Adviser and Joint Broker Bobbie Hilliam Michael Reynolds
|
+44 (0)20 7523 8000
|
|
Jefferies International Limited - Financial Adviser and Joint Broker Paul Nicholls Max Jones Chris Binks
|
+44 (0)20 7029 8000
|
|
Montfort Communications Olly Scott Louis Supple |
+44 (0)78 1234 5205 +44 (0)20 3770 7914 |
About Gresham House
Gresham House plc is an AIM quoted specialist asset manager providing funds, direct investments and tailored investment solutions, including co-investment across a range of highly differentiated alternative investment strategies. Our expertise includes timber, renewable energy, housing and infrastructure, strategic public and private equity (private assets). The group aims to deliver sustainable financial returns and is committed to building long-term partnerships with clients (institutions, family offices, high-net-worth individuals, charities and endowments and private individuals) to help them achieve their financial goals.
Shareholder value creation will be driven by long-term growth in earnings as a result of increasing AUM and returns from invested capital.
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.
The financial information contained in this results announcement has been prepared on the basis of the accounting policies set out in the financial statements for the year ended 31 December 2017 except for the adoption of IFRS 9 and IFRS 15 during the year ended 31 December 2018 which have not had a material impact on the results. Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of IFRS, as adopted by the European Union, this announcement does not itself contain sufficient disclosures to comply with IFRS. The financial information does not constitute the Group's financial statements for the years ended 31 December 2018 or 31 December 2017, but is derived from those financial statements. Financial statements for the year ended 31 December 2017 have been delivered to the Registrar of Companies and those for the year ended 31 December 2018 will be delivered following the Company's Annual General Meeting. The auditors' reports on both the 31 December 2018 and 31 December 2017 financial statements were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.
Chairman's statement
As we begin the fifth year of our plan to build a market leading specialist asset management business, I am delighted to report another strong year of organic and acquisitive growth. The Group has deepened its reach into its chosen asset classes, and simultaneously further increased its alternative asset management product platforms to create a high-quality alternative investment manager, which will continue to scale in terms of Assets Under Management (AUM).
Activity in the period
Alongside the completion of two significant transactions in 2018, the Group has continued to focus on prudent financial management and sustainable long-term growth, working to identify and develop new investment opportunities for clients. As a result, 2018 has been an excellent year for shareholder value creation whether measured by AUM, up 250% to £2.3 billion (2017: £649 million), or profitability, up to an adjusted operating profit of £3.0 million (2017: £0.7 million loss), including organic growth of 30% in AUM. It was also pleasing to see the Company's market capitalisation surpass £100 million during the year, an important milestone as our offering gains increasing relevance to a wider range of investors.
In May we announced the transformative acquisition of FIM Services Limited, (FIM) making the Group the leading commercial forestry asset manager in the UK with almost £1.0 billion of Forestry AUM. The integration plan to combine the FIM and Gresham House Forestry teams has now been largely completed. Following this, in November we acquired the fund and investment management businesses of Livingbridge VC LLP (Livingbridge VC), increasing AUM by a further £0.5 billion and adding the two Baronsmead VCTs to our range along with two open-ended vehicles with strong track records. Both acquisitions met stringent financial criteria, introduced complementary new expertise to the business, expanded our client offering and broadened our shareholder base.
Before the end of the year, the Group successfully listed the UK's largest battery storage fund on the London Stock Exchange, called Gresham House Energy Storage Fund plc (GRID). The IPO raised £100 million, with £57.2 million immediately deployed in a seed portfolio managed by the Group's New Energy asset management division.
Beyond these exciting developments across the Group's investment strategies, it was also very pleasing to see top decile performance from the Strategic Public Equity team via Gresham House Strategic plc (GHS); and a substantial deployment of committed capital by the British Strategic Investment Fund (BSIF) in a variety of UK infrastructure and housing opportunities.
As part of our continued growth and development we realised the need to refine our Group broking and advisory relationships. Consequently, we were delighted to appoint Canaccord Genuity and Jefferies International after a thorough selection process.
Notwithstanding the significant developments during the year, it is important to recognise that our experienced and capable management team has ambitious plans for the business to continue building a sustainable 'asset to covet' - something that employees, shareholders and clients can be proud of.
Results
The activity in the year and growth in AUM has driven income to increase by 125% to £14.5 million (2017: £6.5 million). The AUM growth has not purely been from acquisition, with the team also focusing on delivering organic growth of 30% in AUM including the successful IPO of GRID, additional fundraisings in forestry and renewables plus good investment performances across other vehicles managed by the Group.
Profitability has also benefited as a result of scale and growth, with an adjusted operating profit of £3.0 million being delivered in the year (2017: £0.7 million loss), along with adjusted diluted EPS of 14.7 pence (2017: (5.9) pence). Total comprehensive net income improved to a loss of £0.6 million (2017: £3.5 million loss). The management team continues to operate a cost-focused model, while recognising the need to invest in the critical areas of the business, such as distribution and a high-quality investment team.
Dividend
I indicated in the 2018 interim results, that the Board has considered the Company's long-term dividend policy as an important part of the Company's development. We are therefore particularly delighted to announce the intention to pay a maiden dividend of 3.0 pence.
Shareholders
The broadening of our shareholder base is further testament to the executive management team's strategy, vision, communication and execution to date. In addition to new institutional shareholders, we have welcomed other significant long-term shareholders, including FIM's Richard Crosbie Dawson and Colin Lees Millais and the Livingbridge partners who joined as part of the Livingbridge VC acquisition. I would also like to thank our existing shareholder base, who have loyally continued to support the growth of the Company in the year and have proved to be valuable long-term investors in the Company.
Board
As noted at the time of our interim results, growth companies must have access to the right expertise and experience at Board level in order to provide the necessary governance, capability and support to management teams. The addition of Rachel Beagles to the Board in March 2018 has, together with Simon Stilwell in December 2017, proved invaluable in this regard and they have become highly valued colleagues.
Outlook
We have started 2019 positively with successful fundraising efforts for both the Baronsmead VCTs, which closed within two weeks raising £25 million of new capacity, alongside a number of other fundraising initiatives which have progressed in the early part of the year.
The macro environment's ten year 'bull' cycle is showing clear signs of slowing, with concerns around corporate margins and high valuations, as noted by our management team in recent years. The Group's balance sheet has been managed accordingly and we enter 2019 in a strong position with the support of a new banking relationship with Santander. The continued uncertainties around Brexit do little to help, but with a predominantly UK-faced business we remain cautiously optimistic.
The increasing allocation to alternatives by long-term investors bodes well for the future and it is important that such an investment approach looks through short-term issues. This executive management team has proven its ability to source and execute value enhancing acquisitions in areas of relevance to the Gresham House strategy within alternative asset management alongside organic growth. Additional shareholder value is then created through clear integration and growth plans. We continue to further develop an exciting pipeline of opportunities to grow organically and significantly scale the Group, which gives us real confidence in its long-term prospects and shareholder value creation potential.
Anthony Townsend
Chairman
6 March 2019
Chief Executive's report
2018 marked a transformational fourth year for the Group under this management team. Through organic growth and complementary acquisitions, Gresham House is a specialist alternative asset manager with breadth and depth, alongside high-quality investment professionals. This has resulted in a business across four office locations, 74 people with £2.3 billion AUM and with KPIs moving in an attractive direction. Commensurately, our sales and distribution capability has been enhanced to help us make the most of the opportunities before us. Underpinning all of this is a disciplined approach to return on capital employed, management and operations - bringing us closer to our profitability and operating margin targets, and hence our shareholder value creation objectives. This is now a scalable platform for long-term growth.
Growing shareholder value
At the heart of our strategy for the Group is the creation of shareholder value with the aim of making Gresham House an 'asset to covet'. As the scale of the business has increased over the last year, Assets Under Management, (AUM) have reached £2.3 billion. We have nonetheless maintained our focus on operational efficiency through integration, and optimising resources to serve the business we have whilst supporting the next stage of the Group's growth. It is therefore pleasing to have generated 30% organic growth in AUM in 2018, alongside the value from integrating the forestry and private equity acquisitions.
Disciplined approach
Our ability to achieve sustainable long-term growth focuses on a highly disciplined approach to managing risk and controls within the business. Gresham House's Investment Committee challenges capital allocation decisions for the Group's balance sheet for recommendation to the Board. With acquisitions, for example, we only deploy capital where there is a clear path to a 15% Return on Invested Capital (ROIC) over the medium-term and hence we believe in placing a significant focus on valuation and due diligence when appraising an acquisition. To date, it is pleasing to report that historic organic and acquisition investments are meeting this target, supporting our objective of generating high-quality recurring income streams for the Group from a diversified range of alternative investments. The long-term nature of a substantial proportion of our management contracts is significant.
Organic growth
Providing excellent service, including investment performance and communication, is central to maintaining the engagement of our clients. Underpinning traditional channels of client communications, our upgraded online client portal completed its first full year of operation. Through this mechanism, clients are able to see the full range of new investment opportunities we offer. Taken together with our co-investment platform, our improved fundraising capabilities mean that we can move quickly to support a range of exciting opportunities that expand AUM across the Group's investment strategies, particularly in our top-performing Strategic Public Equity activities, notably Gresham House Strategic plc (GHS), and the LF Gresham House UK Micro Cap and LF Gresham House UK Multi Cap Income unit trust funds.
The Group's organic growth in 2018 was headlined by the New Energy team's listing and launch of the UK's largest battery storage investment fund, called Gresham House Energy Storage Fund, (GRID). It aims to provide investors with an attractive and sustainable dividend by investing in a portfolio of utility-scale Energy Storage Systems (ESS) located in Great Britain, which use battery technology to import and export power, accessing multiple revenue sources within the power market.
Across the Group's other investment strategies, we have a range of organic growth opportunities as new and existing investors from both public and private sectors look to deploy capital with us. The British Strategic Investment Fund, (BSIF), continues to attract interest as it deploys capital, including from public sector pension schemes seeking to invest in sub-£50 million UK housing and infrastructure opportunities, and is targeting a final close later in 2019.
The FIM Sustainable Timber and Energy LP had a further close at the end of January 2019 at £35 million having raised an additional £6.0 million post year-end, and we are also delighted that in the same month fundraising for the two Baronsmead VCTs, which came over as part of the Livingbridge VC acquisition, was fully subscribed within ten days of opening. Each of these serves to emphasise and evidence the Group's future organic growth potential.
Acquisition, integration and optimisation
During the year we completed two significant acquisitions, FIM Services Limited (FIM) and the fund and investment management business of Livingbridge VC LLP (Livingbridge VC).
FIM significantly developed the Group's AUM within the real assets sector, increasing it by circa £1.0 billion, expanding fee income, adding a strong team and bringing a complementary investor base into the Group and widening its distribution capabilities for new product launches. As a result of the transaction, the Group is now the market-leading forestry asset manager in the UK with enhanced expertise in renewables asset management.
Livingbridge VC added £0.5 billion to the Group's AUM, comprising quoted and unquoted equities via the two Baronsmead VCTs and two top-performing open-ended investment companies (OEICs), LF Livingbridge (now LF Gresham House) UK Micro Cap Fund and LF Livingbridge (now LF Gresham House) UK Multi Cap Income Fund.
In both cases these additions to the Group met our acquisition criteria on expected ROIC, scope for operational cost savings and business development. Additionally, both brought strong investment management teams that share Gresham House's ethos and culture, meaning that their integration into the Group has been swift and we have made excellent progress achieving identified earnings-enhancing synergies.
Strategic Equity
Gresham House Strategic plc (GHS) celebrated its third anniversary under Gresham House management in the year. NAV per share growth from inception to 31 December 2018 was 24.5%, growing 11.2% ahead of its benchmark. GHS was also the top-performing fund in its segment in the year. We continued to review opportunities to scale GHS and promote this top-performing fund on a larger platform.
Strategic Public Equity LP (SPE LP) performed strongly in the year and was significantly ahead of its target returns, returning cash to investors following the partial sale of IMI Mobile at an attractive price, which has accelerated the discussions for the next fund launch. With SPE LP reporting a 1.4x money multiple to the end of 2018, Gresham House has continued to build on the team's successful 15-year track record. Planning for SPE Fund IV is now well developed in order to allow a scalable version of this differentiated quoted equity strategy.
The addition of the two OEICs and the two Baronsmead VCTs with the Livingbridge VC acquisition has enhanced the offering that Gresham House has in this specialist area of investment.
The Baronsmead VCTs offer a high-quality and successful investment track record to investors and will continue to be managed by the same team to maintain this important brand. We are very pleased to welcome the Baronsmead VCTs under Gresham House management and look forward to investing further in the team and its resources to benefit investors. The strength of the Baronsmead VCTs has already been demonstrated in January, with the top up fundraise of £25 million completing within ten days.
The LF Gresham House UK Micro Cap Fund is top quartile performing under the leadership of Ken Wotton over one, three and five-year periods and alongside the LF Gresham House UK Multi Cap Income Fund brings new open-ended vehicle capacity into Gresham House. These vehicles have capacity to substantially scale on the back of strong investment performance. Importantly, the UK Micro Cap Fund has top decile performance over five years versus peers.
The private equity opportunity has significantly increased following the Livingbridge VC transaction. Gresham House has now added to its private equity capability with a strong team and track record. The opportunity for LMS Capital plc (LMS) to benefit from this strong private equity combined investment team is clear. Having positioned LMS successfully under Gresham House management, a number of opportunities for its future direction and scale are apparent.
Real Assets
The forestry division has grown well in the year, with organic growth in AUM of circa £120 million in 2018. This is the result of the long-term sustainable growth in the value of the underlying forest portfolio, clear focus on the acquisition of forests for clients and targeted fundraising in our existing long-term LP structures.
The integration of the Gresham House Forestry and FIM operations has enabled us to combine two highly skilled teams for the benefit of clients and shareholders alike. The combined team continues to provide a high-quality service to existing clients and also has the ability to grow the forestry business in the UK as well as review international opportunities. I am very pleased that Olly Hughes has recently joined us as the Managing Director of Forestry from Oxford Capital after the period end. Under his stewardship of the division we are expecting to see this area of the business develop further.
The New Energy division remains an area of huge potential for Gresham House. Our existing product offering includes the Hazel Renewable Energy VCTs (to be renamed Gresham House Renewable Energy VCTs) and the newly launched Gresham House Energy Storage Fund plc (GRID). These are exciting and scalable products which emphasise the potential opportunity from operating in sustainable areas of the renewable energy market. We have also supported the development of battery storage projects that are part of the pipeline for GRID, which we expect to be operational in 2019 and will lead to GRID seeking to issue additional shares supported by demand for this income-yielding investment. The scale of the opportunity for utility-scale batteries in the UK is considerable and bodes well for increasing AUM in this sector.
Infrastructure and housing in the sub £50 million enterprise value space remains attractive and have the potential for considerable investment. BSIF has worked hard with its initial capital and was circa 50% invested at the end of 2018. The opportunities to form long-term partnerships through relationships with local government pension schemes (LGPS) are considerable and long-term growth is very positive. With Brexit impacting inward UK investment, the opportunity exists for LGPS to invest in assets and platforms of strategic interest locally, regionally and nationally, such as vertical farming and affordable housing. We are aiming to have a final close for BSIF in 2019 and based on the current rate of investment, we expect to be raising a new fund for this strategy within the next year.
Team
At the heart of our business is a talented, driven team of management and investment professionals who have established a strong culture of excellence. I was therefore delighted that we were named Best Alternative Investment Manager at the 2018 European Wealth Briefing Awards. Such external recognition demonstrated to everyone working in the business that we are building something special and that their efforts are being recognised in the wider market.
With our recent acquisitions, the Group's headcount has grown, and we have used the momentum gained during the year to enhance our distribution and sales capabilities alongside revenue growth, in addition to building our investment teams to deploy capital for investors in an efficient and profitable manner.
As noted at the time of the interim results, Heather Fleming's arrival as Head of Institutional Business brings considerable experience and expertise to our fundraising strategy. Her growing team forms a critical element of our fundraising and distribution power as we focus on organically expanding the Group's investment product portfolio.
I am also delighted to welcome the Livingbridge VC team who joined Gresham House at the end of the year, including high-quality investment managers Ken Wotton, Steve Cordiner and Bevan Duncan. Like the FIM team, their integration into the business will help us to develop exciting new investment opportunities for current and new clients, as well as enhancing the Gresham House brand.
We could not implement our ambitious strategy for the Group without the dedication, energy and expertise of everyone working in the business. I, and the rest of the management team, thank everyone that is part of the Gresham House 'family' for their hard work as we continue to grow the business and achieve our shareholder value objectives.
Outlook
The achievements of 2018 are substantial. Our disciplined approach to managing the business means that we benefit from synergy potential and are well-positioned to take advantage of the growing proportion of asset allocations to alternatives. The combination of sustainable fund management income and performance fees creates a solid foundation upon which to develop new opportunities and co-investments that will increase the Group's scale and its relevance to a wider constituency of investors based on top quality investment talent.
The management team are focused on key areas to generate further shareholder value including organic growth in areas of competitive advantage (like forestry and new energy) whilst generating attractive returns on balance sheet capital and targeting 40-plus margins as we scale AUM.
Setting aside our conviction in the assets where we deploy capital, we also stand to benefit from the increased focus investors place on environmental, social and governance (ESG) criteria as the Group offers investors superior performance within an ESG-compliant framework, alongside sustainable real asset sectors including forestry, renewables and critical UK strategic infrastructure.
We will continue to be selective in our acquisition strategy, focusing on the most effective way to create value for shareholders, however the clear emphasis for 2019 is on organically increasing AUM. The opportunity to increase each of the five investment units to a multiple of their current size and the operational gearing upon the existing Gresham House platform should drive margins toward the 40% target, even before the benefits of performance fees.
The geopolitical outlook for the UK and Europe has remained challenging, creating uncertainty in markets and necessitating a pragmatic approach to risk and compliance management. Analysis of valuations and return on capital employed remain a concern. That said, the current macroeconomic environment also creates dislocations and opportunities for us as we seek to deliver the kind of high-quality, long-term sustainable income offered by alternative assets. The increasing focus on income yield, inflation linkage and sustainable asset investment should support long-term AUM growth and consequently Gresham House shareholder value despite market and valuation concerns.
Gresham House has repeatedly demonstrated that it offers innovative opportunities for public and private investor clients. Taken together with the added attractions of our partnership approach to investor relationships, the Gresham House platform and brand is growing. The value generated by a dynamic and capable team is now clearly showing through in shareholder value creation. We look to the future with confidence and optimism.
Tony Dalwood
Chief Executive
6 March 2019
FINANCIAL REVIEW
The Group has had another strong year of organic growth in addition to that achieved through acquisition, with AUM growing by 250% to £2.3 billion compared to £0.6 billion at the end of 2017 and revenues increasing by 125% to £14.5 million (2017: £6.5 million). The Group's size now gives it meaningful scale as a specialist asset manager, and this is starting to show with adjusted operating profit increasing from a loss of £0.7 million in 2017 to a profit of £3.0 million in 2018. Total comprehensive net income has also improved to a loss of £0.6 million (2017: £3.5 million loss). The Group has also announced its maiden dividend of 3.0 pence for the year ended 31 December 2018 (2017: nil).
A key driver of the Group's increased AUM and profitability has been the completion of the FIM and Livingbridge VC business transactions in the year. It should be highlighted that these results only include seven months of the FIM operating profits and one month of the Livingbridge VC operating profits, so while we see a strong improvement on the prior year, 2019 will be the first year with full revenues from these two acquisitions.
Adjusted operating profit
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Income |
14,498 |
6,457 |
|
Administration overheads (excluding amortisation and depreciation and exceptional items) |
(11,705) |
(6,824) |
|
Dividend income from associates |
211 |
- |
|
Finance costs |
(42) |
(344) |
|
Adjusted operating profit/(loss) |
2,962 |
(711) |
|
|
|
|
|
Amortisation and depreciation |
(2,903) |
(1,197) |
|
Exceptional items |
(2,001) |
(308) |
|
Net trading loss |
(1,942) |
(2,216) |
|
Gains/(losses) on investments* |
1,067 |
(206) |
|
Tax |
218 |
- |
|
Operating loss after tax |
(657) |
(2,422) |
|
Profit/(loss) from discontinued operations |
11 |
(1,104) |
|
Total comprehensive net income |
(646) |
(3,526) |
*Excluding dividend income from associates of £211,000.
One of the Group's key performance indicators is the non-GAAP adjusted operating profit metric, which has increased to £3.0 million (2017: £0.7 million loss) and the adjusted operating margin improving to 20% in the year (2017: -11%). We use the adjusted operating profit metric as an alternative asset manager to define the net trading profit of the Group before deducting amortisation of management contracts acquired, depreciation and exceptional items relating to acquisition and restructuring costs. We also add back the dividend income received in the year from investments in associates as part of our operating activity in line with income from other investments. The aim is to show the true performance of the asset management business through the management fee income and revenues earned, less the administrative overheads associated with delivering the asset management services.
Income
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Asset management income |
13,717 |
5,805 |
|
Dividend and investment income |
47 |
431 |
|
Other income |
734 |
221 |
|
Total income |
14,498 |
6,457 |
Asset management income
Total asset management income has increased by 136% in the year to £13.7 million (2017: £5.8 million). The main factor has been the growth in AUM to £2.3 billion (2017: £0.6 billion). The key AUM growth factors were the acquisition of the FIM and the Livingbridge VC businesses, however it should also be noted that AUM grew organically by 30% through the launch of Gresham House Energy Storage Fund plc (GRID) and other activity in the existing business which materially contributed to the growth in revenues.
The Group benefits from a diverse range of long-term management contracts, which provide a stable view on future revenue streams. The general decline in markets during the last quarter of 2018 therefore did not have a material impact on the revenues of the Group for 2018. A good example of this dynamic is the weighted average life of management contracts accounting for £0.8 billion in AUM, which is 16 years in asset classes such as forestry and is not directly linked to movements in equity or bond markets.
Dividend, interest and other income
We use our balance sheet to invest alongside clients and develop or support products managed by the Group and dividends, interest and other income reflect this. Overall dividend and investment income were lower in 2018, due to 2017 benefitting from the working capital loan to Hazel Capital, while we completed the acquisition process.
Other income in 2018 includes directors' fees, where team members sit on the boards of portfolio companies, and a make-whole fee of £620,000, payable by Hazel Capital to the Group as part of an arrangement whereby BSIF invested in ESS2 Holdco Limited (a battery storage project company), and which became payable when ESS2 Holdco Limited was sold to GRID as a seed asset.
Administrative overheads
Administrative overheads, excluding amortisation, depreciation and exceptional items were £11.7 million (2017: £6.8 million). We are a people business and the increase in administrative overheads is predominantly driven by the rise in headcount as part of the acquisitions executed in the year. 2018 has seen the first full year with the Hazel Capital team (2017 only included two months as the team of ten transferred over on 1 November 2017) as well as the 25 strong team from FIM joining in May and the Livingbridge VC team of 16 joining in early December. When combined with new hires in key areas such as distribution and offset by acquisition synergies, the Group's headcount has increased from 34 at the end of 2017 to 74 at the end of 2018. People costs have consequently increased to £8.1 million from £4.6 million in the year.
Total office costs across the Group are £0.9 million (2017: £0.5 million) as we now operate with offices in London, Oxford, Dumfries and Perth. We have focused on rationalising this network following the acquisition of the FIM business, the benefit of which will come through in 2019. We have also continued to operate a flexible approach to the London office and were able to accommodate the Livingbridge VC team at Octagon Point, St Paul's, within two weeks of completing the transaction.
We continued to work hard at identifying further synergies in the year, as we integrated the FIM and Livingbridge VC businesses, with benefits noted across a number of areas, such as insurance, office and research. This is a key focus when we acquire businesses and Andy Hampshire, COO and CTO, has used his wealth of experience to drive these synergies within a short time frame of completing an acquisition.
Finance costs
As part of the Livingbridge VC acquisition, we took the opportunity to work with Banco Santander SA (Santander) to develop a strategic banking relationship. The Group borrowed £10.0 million to part-fund the acquisition, through a £6.0 million three-year term loan and a £4.0 million three-year revolving credit facility, with interest of LIBOR plus a margin of 3.25%. This completed on 30 November 2018 and therefore £42,000 represents one month of financing cost in 2018. This was a good opportunity to demonstrate the Group's disciplined approach to financial management and secure borrowing, whilst developing the relationship with Santander. We maintain a cautious approach to leverage, and at the end of the year the Group operated a net cash position of £4.1 million (2017: £9.8 million with zero debt).
The prior year financing costs of £344,000 related to the Kleinwort Benson loan which was repaid in September 2017 as part of the sale of the Southern Gateway site in Speke, Liverpool.
Amortisation and depreciation
Amortisation of management contracts, client contacts, the website and client portal accounted for £2.8 million (2017: £1.1 million) as these intangible assets continue to be amortised over their useful lives. The acquisition of FIM and Livingbridge VC required the assessment of the fair value of the management contracts within these businesses, which are being amortised over their useful lives, ranging from one to 25 years in the case of some of the FIM management contracts.
Depreciation of £138,000 in the year (2017: £87,000) relates primarily to motor vehicles used by the forestry business and IT equipment.
Exceptional items
In line with previous years we have classified exceptional items as those fees and costs which relate to acquisitions and restructuring of the business post acquisition. With two material transactions in 2018, this figure has increased to £2.0 million (2017: £308,000).
Gains/(losses) on investments
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Share of associate's profits/(losses) |
1,718 |
(68) |
|
(Losses)/gains on investments held at fair value |
(271) |
(230) |
|
Movement in fair value of contingent consideration |
(209) |
(56) |
|
Movement in value of deferred receivable |
40 |
148 |
|
Total gains/(losses) on investments |
1,278 |
(206) |
Overall the Group has made gains on its investments in funds that it manages, and acquisition related contingent consideration of £1.3 million in 2018 (2017: £0.2 million loss).
The share of associate's profits relates to the 23% holding that the Group has in GHS and the Group's 28% holding in Noriker Power Limited (Noriker). The last results announcement from GHS was on 21 November 2018 for the six-month period to 30 September 2018. Under associate accounting, the Group has therefore recognised its share of the profit in the period of £1.7 million, which included dividends received in the year from GHS of £211,000.
On 4 June 2018, the Group also purchased a 28% holding in Noriker, the battery storage and renewable energy operating company which provides services to develop battery storage projects. This was acquired to align the Group with Noriker as it develops battery storage projects which are part of the pipeline of projects to be acquired by GRID when operational. The Group's share of profits since ownership was £75,000.
The loss of £271,000 on investments held at fair value in the year (2017: £230,000) includes realised and unrealised movements on the co-investment that has been made in the funds managed or advised by Gresham House. A notable gain in the year related to the sale of IMI Mobile, which was sold under the co-investment agreement with SPE LP crystallising a realised gain of £284,000. As part of the launch of GRID, the Group sold its 6.8% equity holding in the battery storage project ESS2 Holdco Limited. There was a realised loss on this sale of £685,000, however the Group also earned a make whole fee of £620,000 from Hazel Capital LLP on the sale of ESS2 Holdco Limited as agreed as part of an earlier financing arrangement. In the short-term, the Group is marginally down on its initial investment, however ESS2 Holdco Limited has been used to help seed and launch GRID, the £100 million battery storage vehicle that the Group manages and strategically is considered an important transaction.
Fair value movement in contingent consideration and deferred receivable
During 2018, the contingent consideration payable to the sellers of Aitchesse Limited (now Gresham House Forestry Limited) business crystallised, with a negative impact on the income statement of £203,000. This was settled with £1.0 million cash and the issue of 504,095 ordinary shares with a value of £2.2 million. The final payment to LMS for the acquisition of the LMS management contract was not required to be made as the NAV of LMS was below the £67.5 million threshold on the second anniversary of taking on the management contract, releasing £251,000.
Both the FIM and Livingbridge VC acquisitions have a contingent payment element which is driven by revenue performance over two to three years. The contingent consideration payment has been fair valued at acquisition and at the end of 2018, with the movement in the fair value recognised in the income statement. In both cases there had been no changes to the assumptions between acquisition and the year-end and the movement reflects the unwind of the discount over the period.
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 £40,000 represents the total increase in fair value as the payments become due (2017: £148,000).
Discontinued operations
Discontinued operations related to the Group's legacy property portfolio, with the remaining sites at Southern Gateway and Newton-le-Willows being sold during 2017. The small profit of £11,000 in 2018 reflects updates as further details on the properties are concluded (2017: £1.1 million).
Financial position
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Assets |
|
|
|
Investments* |
17,795 |
8,974 |
|
Property |
- |
1,986 |
|
Deferred receivable - Persimmon |
1,033 |
3,694 |
|
Cash |
13,958 |
9,785 |
|
Tangible/realisable assets |
32,786 |
24,439 |
|
|
|
|
|
Intangible assets |
65,911 |
6,327 |
|
Other assets |
5,832 |
3,070 |
|
Total assets |
104,529 |
33,836 |
|
|
|
|
|
Liabilities |
|
|
|
Borrowing |
9,840 |
- |
|
Contingent consideration |
8,447 |
3,301 |
|
Deferred taxation |
2,944 |
- |
|
Other creditors |
4,085 |
2,165 |
|
Total Liabilities |
25,316 |
5,466 |
|
Net assets |
79,213 |
28,370 |
*IFRS requires the consolidation of Gresham House Forestry Friends and Family Fund LP. This has been adjusted here for the £527,000 non-controlling interest (2017: £477,000) to show the Group's position on an investment basis.
Tangible/realisable assets
The above highlights the strong balance sheet position that the Group improved on as at the end of 2018. The tangible/realisable assets supporting this total £32.8 million (2017: £24.4 million), comprise investments, amounts receivable from Persimmon on the sale of a legacy property site in September 2015 and cash.
Investments
The Group invests in or alongside the funds that it manages to align itself with clients. The below table provides a summary of the investment portfolio at the end of the year:
|
Investment Portfolio |
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Investment in associates |
|
|
|
Gresham House Strategic plc |
8,894 |
6,462 |
|
Noriker Power Limited |
1,304 |
- |
|
|
10,198 |
6,462 |
|
Investment in securities |
|
|
|
Gresham House Energy Storage Fund plc |
3,982 |
- |
|
Development Company Projects |
1,290 |
- |
|
Gresham House Forestry Fund LP |
1,337 |
1,201 |
|
Gresham House Strategic Public Equity LP |
672 |
991 |
|
LMS Capital plc |
291 |
281 |
|
Other investments |
25 |
39 |
|
|
7,597 |
2,512 |
|
Total investments (excluding non-controlling interests) |
17,795 |
8,974 |
The Group increased its holding in GHS plc in the year to 23% from 19% as a result of a placement from an existing shareholder at an attractive price. GHS has performed strongly in the year and based on its last publicly available results, this has led to an increase in the recognised value as an associate of £1.4 million (2017: £68,000 loss).
Following the completion of the Hazel Capital transaction the Group owns a 28% equity stake in Noriker. The key investment in Noriker's balance sheet is its £4.3 million holding in GRID shares, with the Group therefore holding an indirect exposure of £1.2 million in GRID. Combined with the Group's direct investment in GRID of £4.0 million, the Group's total exposure to GRID is £5.2 million, which has maintained its value since IPO in November 2018.
The Group has been providing development capital though short-term loan receivables for a number of battery storage projects which are in the exclusive pipeline for GRID to purchase when they are operational. GRID will go through a detailed independent valuation process when the projects are operational as part of the acquisition process. These projects currently remain on track to be operational in 2019 and the Group's investment in the development of these projects was £1.3 million.
Gresham House Forestry LP has performed well in the year, with increases in the value of the underlying forests driving an increase in the Group's investment to £1.3 million (2017: £1.2 million), excluding non-controlling interests.
Gresham House Strategic Public Equity LP continued to invest during 2018 and also sold a material part of its holding in IMI Mobile, which rebalanced the portfolio and also generated a realised profit of £284,000.
The other investments demonstrate the Group's ability to co-invest alongside the funds that it manages and provides alignment with clients.
Property and deferred receivable
All properties were sold during 2017, with the completion on the sale of the Newton-le-Willows site in February 2018 delivering £2.0 million.
The final settlement by Persimmon of its remaining £1.0 million payment under the terms of the original sale agreement was due on 22 March 2019 and was received in full on 26 February 2019.
Intangible assets
Intangible assets have increased considerably from £6.3 million at the end of 2017 to £66.3 million at the end of the year following the acquisition of FIM and the Livingbridge VC businesses. The fair value of the management contracts for FIM at acquisition was £18.6 million and goodwill of £9.1 million and Livingbridge VC management contracts were fair valued at £22.9 million and goodwill was £12.1 million.
The fair value of the management contracts was determined with reference to the estimated revenues and costs to service the management contracts over their useful lives after applying an appropriate discount. This fair value will be amortised over the contracts' useful lives.
There is no indication that the goodwill from the Gresham House Forestry (formerly Aitchesse Limited) and Hazel Capital transactions should be impaired, so the goodwill remains at £2.9 million and £0.3 million respectively. Goodwill will be measured for impairment each reporting period and the value will be updated accordingly. Further details are included in the notes to the financial statements.
Borrowing
As highlighted earlier, the Group entered into a £10.0 million facility agreement with Santander as part of the Livingbridge VC acquisition. At the end of 2018, £9.8 million remained outstanding and the Group had a net cash position of £4.1 million (2017: £9.8 million net cash, zero debt).
Contingent consideration
During 2018 the contingent consideration payable to the sellers of Gresham House Forestry (formerly Aitchesse Limited) completed and £3.2 million was settled in cash and shares. The contingent consideration payable to LMS expired in August 2018, with no payment due as a result of the NAV of LMS being lower than the £67.5 million threshold, releasing £251,000 in the year.
The two main additions to contingent consideration in the year relate to the FIM and Livingbridge VC acquisitions.
The FIM acquisition concluded that £4.0 million would be paid to the sellers, should combined revenues of the Gresham House Forestry and FIM business exceed £14.0 million in the first two years following the acquisition. The current estimate is that this will be achieved in full and therefore the fair value of the contingent consideration of £3.2 million reflects this after a discount for the time value of money.
The Livingbridge VC acquisition has a similar contingent consideration element, based on the Baronsmead VCTs not giving the Group notice on the management contracts and total revenues from Livingbridge VC delivering over £37.2 million revenues in the three years to 31 December 2021. This has also been fair valued with reference to expected revenues from the management contracts and the likelihood being served notice on the Baronsmead VCT contracts. The fair value of the contingent consideration at the end of 2018 was £5.1 million.
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. 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
6 March 2019
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER
|
|
|
2018 |
2017 |
|
|
Notes |
£'000 |
£'000 |
|
|
|
|
|
|
Income |
1 |
|
|
|
Asset management income |
|
13,717 |
5,805 |
|
Dividend and interest income |
|
47 |
431 |
|
Other operating income |
|
734 |
221 |
|
Total income |
|
14,498 |
6,457 |
|
Operating costs |
|
|
|
|
Administrative overheads |
3 |
(14,608) |
(8,021) |
|
Net operating loss before exceptional items |
|
(110) |
(1,564) |
|
Finance costs |
6 |
(42) |
(344) |
|
Exceptional items |
5 |
(2,001) |
(308) |
|
Net operating loss after exceptional items |
|
(2,153) |
(2,216) |
|
Gains and losses on investments |
|
|
|
|
Share of associates' profits/(losses) |
17 |
1,718 |
(68) |
|
Losses on investments held at fair value |
11 |
(271) |
(230) |
|
Movement in fair value of contingent consideration |
|
(209) |
(56) |
|
Movement in value of deferred receivable |
|
40 |
148 |
|
Operating loss before taxation |
|
(875) |
(2,422) |
|
Taxation |
8 |
218 |
- |
|
Operating loss from continuing operations |
|
(657) |
(2,422) |
|
Profit/(loss) from discontinued operations |
7 |
11 |
(1,104) |
|
Loss and total comprehensive income |
|
(646) |
(3,526) |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the parent |
|
(699) |
(3,124) |
|
Non-controlling interest |
|
53 |
(402) |
|
|
|
(646) |
(3,526) |
|
Basic and diluted loss per ordinary share (pence) |
9 |
(3.9) |
(25.9) |
|
Basic adjusted profit/(loss) per ordinary share (pence) |
9 |
16.7 |
(5.9) |
|
Diluted adjusted profit/(loss) per ordinary share (pence) |
9 |
14.7 |
(5.9) |
GROUP STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER
|
Group 2018 |
Notes |
Ordinary share capital |
Share premium |
Share warrant reserve |
Retained reserves |
Equity attributable to equity share-holders |
Non-controlling interest |
Total equity |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 December 2017 |
|
3,134 |
9,649 |
319 |
15,268 |
28,370 |
477 |
28,847 |
|
Comprehensive income for the year |
|
|
|
|
|
|
|
|
|
Loss for the year |
|
- |
- |
- |
(699) |
(699) |
53 |
(646) |
|
Total comprehensive income for the year
|
|
- |
- |
- |
(699) |
(699) |
53 |
(646) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
Transfer of non-controlling interest deficit |
|
- |
- |
- |
3 |
3 |
(3) |
- |
|
Share-based payments |
27 |
- |
- |
- |
464 |
464 |
- |
464 |
|
Issue of shares |
25 |
3,084 |
48,252 |
(261) |
- |
51,075 |
- |
51,075 |
|
Total contributions by and distributions to owners |
|
3,084 |
48,252 |
(261) |
467 |
51,542 |
(3) |
51,539 |
|
Balance at 31 December 2018 |
|
6,218 |
57,901 |
58 |
15,036 |
79,213 |
527 |
79,740 |
|
Group 2017 |
Notes |
Ordinary share capital |
Share premium |
Share warrant reserve |
Retained reserves |
Equity attributable to equity share-holders |
Non-controlling interest |
Total equity |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'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 |
|
Company 2018 |
Notes |
Ordinary share capital |
Share premium |
Share warrant reserve |
Retained reserves |
Total equity |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance at 31 December 2017 |
|
3,134 |
9,649 |
319 |
15,469 |
28,571 |
|
Comprehensive income for the year |
|
|
|
|
|
|
|
Loss for the year |
|
- |
- |
- |
(2,075) |
(2,075) |
|
Total comprehensive income for the year
|
|
- |
- |
- |
(2,075) |
(2,075) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
Issue of shares |
25 |
3,084 |
48,252 |
(261) |
- |
51,075 |
|
Total contributions by and distributions to owners |
|
3,084 |
48,252 |
(261) |
- |
51,075 |
|
Balance at 31 December 2018 |
|
6,218 |
57,901 |
58 |
13,394 |
77,571 |
|
Company 2017 |
Notes |
Ordinary share capital |
Share premium |
Share warrant reserve |
Retained reserves |
Total equity |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 |
GROUP STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER
|
|
|
Group |
Company |
||
|
|
Notes |
2018 |
2017 |
2018 |
2017 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Assets |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
|
Investments - securities |
11 |
6,834 |
2,989 |
4,970 |
1,310 |
|
Tangible fixed assets |
13 |
332 |
196 |
126 |
51 |
|
Investment in subsidiaries |
16 |
- |
- |
79,872 |
18,265 |
|
Investment in associates |
17 |
10,198 |
6,462 |
- |
- |
|
Intangible assets |
14 |
65,911 |
6,327 |
197 |
198 |
|
Long-term receivables |
15 |
78 |
1,618 |
78 |
- |
|
|
|
83,353 |
17,592 |
85,243 |
19,824 |
|
Current assets |
|
|
|
|
|
|
Trade receivables |
18 |
2,628 |
2,089 |
- |
- |
|
Accrued income and prepaid expenses |
|
2,613 |
785 |
26 |
219 |
|
Deferred receivable |
15 |
1,033 |
2,075 |
- |
- |
|
Other current assets |
19 |
1,471 |
- |
1,511 |
7,878 |
|
Cash and cash equivalents |
|
13,958 |
9,785 |
6,148 |
6,484 |
|
Non-current assets held for sale |
|
|
|
|
|
|
Property investments |
12 |
- |
1,986 |
- |
- |
|
Total current assets and non-current assets held for sale |
|
21,703 |
16,720 |
7,685 |
14,581 |
|
Total assets |
|
105,056 |
34,312 |
92,928 |
34,405 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
20 |
4,085 |
5,463 |
152 |
282 |
|
Short-term borrowings |
21 |
2,000 |
- |
7,365 |
5,552 |
|
|
|
6,085 |
5,463 |
7,517 |
5,834 |
|
Total assets less current liabilities |
|
98,971 |
28,849 |
85,411 |
28,571 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Deferred taxation |
22 |
2,944 |
- |
- |
- |
|
Long-term borrowings |
23 |
7,840 |
- |
7,840 |
- |
|
Other creditors |
24 |
8,447 |
2 |
- |
- |
|
|
|
19,231 |
2 |
- |
- |
|
Net assets |
|
79,740 |
28,847 |
77,571 |
28,571 |
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
|
|
Ordinary share capital |
25 |
6,218 |
3,134 |
6,218 |
3,134 |
|
Share premium |
28 |
57,901 |
9,649 |
57,901 |
9,649 |
|
Share warrant reserve |
28 |
58 |
319 |
58 |
319 |
|
Retained reserves |
28 |
15,036 |
15,268 |
13,394 |
15,469 |
|
|
|
|
|
|
|
|
Equity attributable to equity shareholders |
|
79,213 |
28,370 |
77,571 |
28,571 |
|
Non-controlling interest |
28 |
527 |
477 |
- |
- |
|
Total equity |
|
79,740 |
28,847 |
77,571 |
28,571 |
|
|
|
|
|
|
|
|
Basic net asset value per ordinary share (pence) |
29 |
318.5 |
226.3 |
311.9 |
227.9 |
|
Diluted net asset value per ordinary share (pence) |
29 |
290.1 |
211.2 |
284.1 |
224.4 |
The loss after tax for the Company for the year ended 31 December 2018 was £2,075,000. The financial statements were approved and authorised for issue by the Board and were signed on its behalf on 6 March 2019.
GROUP STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
|
|
Notes |
2018 |
2018 |
2017 |
2017 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flow from operating activities |
|
|
|
|
|
|
Net cash generated/(utilised) in operations |
30 |
|
1,462 |
|
(1,615) |
|
Corporation tax (paid)/received |
|
(346) |
|
33 |
|
|
Interest paid on loans |
|
- |
|
(236) |
|
|
|
|
|
(346) |
|
(203) |
|
|
|
|
|
|
|
|
Net cash flow from operating activities |
|
|
1,116 |
|
(1,818) |
|
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
|
Acquisition of FIM Services Limited |
|
(10,828) |
|
- |
|
|
Deferred consideration paid |
|
(1,027) |
|
- |
|
|
Investment in associates |
|
(1,979) |
|
- |
|
|
Purchase of management contracts - Livingbridge VC |
|
(23,000) |
|
- |
|
|
Purchase of investments |
|
(5,166) |
|
(5,177) |
|
|
Sale of investments |
|
1,260 |
|
4,946 |
|
|
Sale of investment properties |
|
1,985 |
|
6,680 |
|
|
Deferred proceeds received on sale of investment properties |
|
2,700 |
|
1,635 |
|
|
Expenditure on investment properties |
|
- |
|
(137) |
|
|
Purchase of fixed assets |
|
(165) |
|
(137) |
|
|
Sale of fixed assets |
|
46 |
|
23 |
|
|
Purchase of intangible assets |
|
(123) |
|
(762) |
|
|
|
|
|
(36,297) |
|
7,071 |
|
Cash flow from financing activities |
|
|
|
|
|
|
Repayment of loans |
|
- |
|
(5,896) |
|
|
Receipt of loans (net of fees paid) |
|
9,834 |
|
- |
|
|
Share issue proceeds |
|
26,727 |
|
7,626 |
|
|
Share issue costs |
|
(1,048) |
|
- |
|
|
Share warrants exercised |
|
3,841 |
|
- |
|
|
|
|
|
39,354 |
|
1,730 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
4,173 |
|
6,983 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
|
9,785 |
|
2,802 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
|
13,958 |
|
9,785 |
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER
|
|
Notes |
2018 |
2018 |
2017 |
2017 |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Cash flow from operating activities |
|
|
|
|
|
|
Net cash utilised in operations |
30 |
|
(1,449) |
|
(443) |
|
Interest paid on loans |
|
|
- |
|
(236) |
|
|
|
|
|
|
|
|
Net cash flow from operating activities |
|
|
(1,449) |
|
(679) |
|
|
|
|
|
|
|
|
Cash flow from investing activities |
|
|
|
|
|
|
Purchase of investments |
|
(5,166) |
|
(5,177) |
|
|
Sale of investments |
|
681 |
|
4,946 |
|
|
Investment in subsidiary |
|
(35,807) |
|
(1,973) |
|
|
Purchase of fixed assets |
|
(53) |
|
(48) |
|
|
Purchase of intangible assets |
|
(67) |
|
(219) |
|
|
|
|
|
(40,412) |
|
(2,471) |
|
Cash flow from financing activities |
|
|
|
|
|
|
Repayment of loans |
|
- |
|
(5,896) |
|
|
Receipt of loans (net of fees paid) |
|
9,834 |
|
- |
|
|
Advanced to Group undertakings |
|
(2,531) |
|
(6,462) |
|
|
Receipts from Group undertakings |
|
4,702 |
|
13,508 |
|
|
Share issue proceeds |
|
26,727 |
|
7,626 |
|
|
Share issue costs |
|
(1,048) |
|
- |
|
|
Share warrants exercised |
|
3,841 |
|
- |
|
|
|
|
|
41,525 |
|
8,776 |
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
(336) |
|
5,626 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at start of year |
|
|
6,484 |
|
858 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
|
6,148 |
|
6,484 |
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 standard and interpretation which has not been applied in these financial statements was 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 this standard and interpretation 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:
IFRS 16 Leases (effective 1 January 2019)
The Group has entered into operating leases for its offices, which range from 18 months to five years. The impact of adopting IFRS 16 Leases would be to recognise the right-of-use asset and the lease liability on the balance sheet. Given the length of the London office lease being 18 months and the cost of the other offices in Perth, Oxford and Dumfries being immaterial, it is not considered that the impact of IFRS 16 will be material and is not proposed to be early adopted.
The following new accounting standards, which were effective for periods beginning 1 January 2018 were adopted during the year:
IFRS 9 Financial Instruments - IFRS 9 replaced the classification and measurement models for financial instruments in IAS 39 Financial Instruments: Recognition, with three classification categories: amortised cost, fair value through profit or loss and fair value through other comprehensive income. The Group recognises all equity investments within the scope of IFRS 9 as measured at fair value through profit or loss. There has been no change to the classification or measurement of the financial assets or liabilities as a result of the adoption of IFRS 9.
IFRS 9 also introduced an expected credit loss impairment model, which is applied to all financial assets, except for financial assets classified as designated as at fair value through profit or loss. The assessment of impairment losses introduces the concept of an expectation of credit losses, even in the absence of a default event. Under IFRS 9, credit loss allowances will be measured on each reporting date according to a three-stage expected credit loss impairment model:
Stage 1 - From initial recognition of a financial asset to the date on which the asset has experienced a significant increase in credit risk relative to its initial recognition, a loss allowance is recognised equal to the credit losses expected to result from defaults occurring over the next 12 months.
Stage 2 - Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss allowance is recognised equal to the credit losses expected over the remaining lifetime of the asset.
Stage 3 - When a financial asset is considered to be credit-impaired, a loss allowance equal to full lifetime expected credit losses will be recognised. Interest revenue is calculated based on the carrying amount of the asset, net of the loss allowance, rather than on its gross carrying amount.
Stage 1 and Stage 2 credit loss allowances effectively replace the collectively-assessed allowance for loans not yet identified as impaired recorded under IAS 39, while Stage 3 credit loss allowances effectively replace the individually and collectively assessed allowances for impaired loans. The measurement of expected credit losses is based on the impairment reviews, which reflect the underlying performance of the financial asset, expected cash flows and changes in expected performance. The Group has considered whether there was any change in the losses recognised as a result of adopting the expected credit loss model. As a result of the high credit quality of the Group's financial assets and their short-term nature there was no impact on adoption of IFRS 9.
IFRS 15 Revenue from Contracts with Customers - IFRS 15 establishes a five-step model that applies to revenue arising from contracts with customers and provides a more structured approach to measuring and recognising revenue. The Group has two principal revenue streams in the form of management fees and performance fees. As part of the assessment process, the five-step model has been applied to each material revenue stream. It is considered that the application of the five-step model to material revenue streams does not result in any change to either the timing of when revenue is recognised or to the value of the amounts recognised in the financial statements when compared to the way in which revenue was previously recognised under IAS 18 Revenue. The Group has not recognised any performance or carried interest fees in these results but will do so when they meet the criteria outlined in IFRS 15. There has been no material impact as a result of the adoption of IFRS 15.
(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. Refer to note q) v) for further details on whether the Group controls funds that it also manages.
Associates
Where the Group has significant influence, it has the power over (but not control of) 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 an indication of impairment 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 £2,075,000 (2017: £684,000).
(d) Segment reporting
Operating segments are 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
The fixed consideration element of asset management contracts 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. The fixed consideration element of asset management contracts is recognised evenly over the contracted period, as the contracts require the group to perform an indeterminate number of individual asset management services over the duration of the contract. Performance fees are included in the transaction price and recognised as revenue only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. The potential volatility of performance fee revenue means that it is generally only recognised when the measures on which it is based have finally been determined. Cash payments in relation to fixed and variable revenues earned are generally received shortly after the relevant quarter end.
Other revenue recognition
i) 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.
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) Other income
Other income earned by the group is recognised to the extent that it is probable that the economic benefits will flow to the Group and that revenue can be reliably measured in line with any contractual arrangements in place.
(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
In line with IFRS 9: Financial Instruments, 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. Information about these financial assets is provided internally on a fair value basis to the Group's key management. The equity investments which do not meet the definitions of an associate or subsidiary remain held at fair value through profit and loss.
i) 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.
ii) 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.
iii) Loans and receivables
Unquoted loan stock, loan receivables in development projects and the deferred receivable are all classified at amortised cost under IFRS 9 reflecting their held to collect business model. Unquoted loan stock is classified as loans and receivables in accordance with IFRS 9 if it meets the business model and cash characteristics tests. The business model and cash characteristics tests require the objective of owning the financial asset to collect the contractual cash flows of interest and principal over the life of the asset, rather than selling prior to contractual maturity. The financial assets are held at amortised cost, less any loss allowance, which is measured using the expected credit loss impairment model (see accounting policy (a) for further details). This assesses the movements in both the amortised cost relating to the interest income and in respect of loss allowances and these are reflected in the Statement of Comprehensive Income.
(k) 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.
(l) 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.
(m) 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 - five years
§ Management contracts arising on acquisition - one to 25 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 four 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.
(n) 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. Expected credit losses are recognised in respect of each trade receivable and remeasured at each report date based on the expected credit losses at that time.
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.
(o) Pensions
Payments to personal pension schemes for employees are charged against profits in the year in which they are incurred.
(p) 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.
(q) 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 are 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.
(r) Business combinations
The Group recognises business combinations when it considers that it has obtained control over a business, which could be an entity or separate business within an entity (for example acquiring management contracts and hiring the team to service those contracts). The fair value of the assets acquired, and the liabilities assumed from the business combination are assessed at acquisition. The fair value of the consideration paid to the sellers of the business is assessed, with particular reference to the classification of payments to employees that could be considered remuneration rather than consideration for a business.
(s) Critical accounting estimates and judgements
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) Accounting for the acquisition of FIM Services Limited (FIM)
ii) Accounting for acquisition of the fund and investment management business of Livingbridge VC LLP (Livingbridge VC)
iii) Accounting for IPO and investment by the Group in Gresham House Energy Storage Fund plc (GRID)
iv) Accounting for investment in associates - Gresham House Strategic plc (GHS) and Noriker Power Limited (Noriker)
v) Consolidation assessment of funds managed and controlled by the Group
vi) British Strategic Investment Fund distributor fees
vii) Revenue recognition, performance and management fees
viii) Valuation of contingent consideration
i) Accounting for the acquisition of FIM Services Limited (FIM)
On 21 May 2018, the Group acquired 100% of FIM, the UK forestry and renewable energy asset manager. Further details are included in note 5 to the financial statements.
The asset management contracts acquired in the transaction have been fair valued at acquisition with reference to the cash revenues from each contract, less the costs associated with servicing the contracts and discounted at the rate of 11%. The contract lengths vary from three to 25 years. The discount applied is reflecting of the risk profile of the contracts acquired and is considered a significant assumption. Should the discount rate be increased by 2% the value of the management contracts would reduce by £1.2 million, with goodwill and the deferred tax liability increasing by a corresponding amount. Should the growth rates of the assets under management increase from 3% by a further 2% the impact on the value of the management contracts would also be £1.2 million, with goodwill and the deferred tax liability increasing by a corresponding amount.
ii) Accounting for acquisition of the fund and investment management business of Livingbridge VC LLP (Livingbridge VC)
On 30 November 2018 the Group acquired the fund and investment management business of Livingbridge VC, which comprised the acquisition of four management contracts (VCT and open-ended equity fund contracts) and the hiring of the Livingbridge VC team. Further details are included in note 5 to the financial statements.
The asset management contracts acquired in the transaction have been fair valued at acquisition with reference to the cash revenues from each contract, less the costs associated with servicing the contracts and discounted at the rate of 15%. The discount applied is reflecting of the risk profile of the contracts acquired and is considered a significant assumption. Should the discount rate be increased by 2% the value of the management contracts would reduce by £0.9 million, with goodwill increasing by a corresponding amount. Should the growth rates of the assets under management increase by 2% the impact would be an increase in the value of the management contracts of £0.9 and a corresponding decrease in goodwill.
Goodwill has been recognised as the balance between the fair value of consideration paid and the fair value of management contracts acquired. Further details are included in note 5 to the financial statements.
The Livingbridge VC team have also been incentivised with a long-term incentive plan, linked to delivery of revenue targets over three years and not being served notice on the VCT contracts. This is an equity-settled share-based payment under IFRS2 and has therefore been fair valued at award based on a weighted probability of outcomes, which will be spread over the three-year vesting period.
iii) Accounting for IPO and investment by the Group in Gresham House Energy Storage Fund plc (GRID)
On 9 November 2018 the Group participated in the £100 million IPO of GRID, the utility-scale energy storage system (battery) fund. The Group was appointed as manager of the fund and also sold its existing investment in ESS2 Holdco Limited (battery storage project) to GRID. The Group holds a direct and indirect (via its holding in Noriker Power Limited) investment totalling 5% in GRID.
The assessment of whether the Group is acting as agent or principal and should consolidate GRID has been performed factoring in the other vehicles that are connected to the Group that are also invested in GRID, namely BSIF and employees of the Group. The Group is not in a controlling position of BSIF or the employees, using the framework set out in IFRS 10: Consolidated Financial Statements. As a 5% investor in GRID and acting as manager with market comparable remuneration and removal rights, it was concluded that the Group are acting as an agent and should not consolidate GRID.
iv) Accounting for investment in associates - Gresham House Strategic plc (GHS) and Noriker Power Limited (Noriker)
Gresham House Strategic plc (GHS) is managed by GHAM and the Company also holds 23% of the ordinary share capital as at 31 December 2018. 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 therefore continues to be classified as an associate.
Noriker Power Limited (Noriker) is 28% owned by the Group and is not an entity managed by GHAM. There are no specific additional rights that the Group have as investors in Noriker, however with a 28% holding, the Board considers this a position of significant influence and has concluded that Noriker should be treated as an associate.
These are included in the table in the consolidation assessment below for completeness.
v) Consolidation assessment of funds managed and controlled 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.
The following table summarises the assessment of whether the Company or its subsidiaries are acting as agent or principal:
|
Fund |
Manager/ Adviser |
Removal rights of investors |
Remuneration basis |
Gresham House holding |
Agent/ Principal |
Accounting treatment |
|
SPE LP |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
GHF LP |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
GHF FF LP |
Yes |
No |
Market norm |
71% |
Principal |
Consolidate |
|
GHS |
Yes |
Substantive |
Market norm |
23%* |
Agent |
Associate |
|
Noriker |
No |
n/a |
n/a |
28% |
Agent |
Associate |
|
GRID |
Yes |
Substantive |
Market norm |
5%** |
Agent |
Investment |
|
BSIF |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
Baronsmead VCTs |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
Hazel Renewable Energy VCTs |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
Micro Cap Fund |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
|
Multi Cap Income Fund |
Yes |
Substantive |
Market norm |
0% |
Agent |
No consolidation |
*The Group's investment in GHS in the year increased from 19% to 23%.
**The Group holds direct and indirect, via Noriker stake, a total of 5% in GRID.
Gresham House Strategic Public Equity LP (SPE LP) is managed by GHAM, a subsidiary of Gresham House plc. GHAM in its role as investment adviser 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 (GHF FF LP), 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 GHF FF, however, indicates that it is in a controlling position with a 71% holding and therefore should consolidate this in the Group financial statements.
Gresham House British Strategic Investment Fund LP (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.
Gresham House Energy Storage Fund plc (GRID) is managed by GHAM and the Company has a direct and indirect investment in GRID totalling 5%. The assessment of whether GHAM is acting as agent or principal requires assessing the other entities and individuals that are connected to Gresham House and their investment in GRID. BSIF has a c.17% investment in GRID, however the assessment of whether BSIF is controlled by GHAM concluded that GHAM is not controlled and therefore should not be included in the proportion of GRID that is under the control of GHAM.
The remaining funds of the Baronsmead VCTs, Hazel Renewable Energy VCTs, the LF Gresham House UK Microcap Fund (Micro Cap Fund) and the LF Gresham House UK Multi Cap Income Fund (Multi Cap Income Fund) are managed by GHAM, however are not invested in by the Group. The Board has therefore concluded that the Group is acting as agent and therefore should not consolidate these funds.
vi) British Strategic Investment Fund (BSIF) distributor fee
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 distribution 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 2019 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 2018, it was estimated that the fund would be fully invested within two years from 31 December 2018 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. It is still the assumption that this service period is appropriate, and the service period will be monitored as the fund has its final close.
vii) Revenue recognition, performance and management fees
The revenue recognition of the Group is driven by asset management fees, which are recognised in line with the investment management or advisory agreements in place with the appropriate funds. These are typically based on the committed capital of Limited Partnership funds, or Net Asset Values (NAV) for listed vehicles managed or advised by the Group. The NAV is typically the last audited or publicly available NAV announced by the Board of these companies and is therefore independently approved. Limited partnerships and other fund management fees are typically based on committed capital, or an independent valuation where appropriate. Performance fees are deemed variable consideration. Such fees are recognised only when the Group is entitled to receive the performance fee per the management contract and when it is highly probable that a significant reversal of the amount of cumulative revenue recognised will not occur. No performance fees have been recognised in the year.
viii) Valuation of contingent consideration
The fair value of contingent consideration payable to the sellers of the FIM and the Livingbridge VC businesses has been estimated with reference to the contractual requirements. The maximum amount payable under the agreements total £4.0 million and £7.5 million respectively, totalling £11.5 million with £8.3 million recognised as at 31 December 2018 representing the fair value estimate.
In the case of FIM, an estimate of whether the combined two-year revenue target of £14.0 million has been made and discounted back from payment date to the reporting date.
The Livingbridge VC contingent consideration is in two parts. The first being that the VCT boards do not give notice within two years of the acquisition. There are no indications to date that notice will be given, so this has been assumed to be true and the value payable discounted back to 31 December 2018.
The second part being the hurdle to deliver revenues from Livingbridge VC of between £30.9 million and £37.2 million in the three years to 31 December 2021. The fair value has been based on a weighted probability of outcomes over the three-year period and discounted by 15%.
NOTES TO THE ACCOUNTS
1 INCOME
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Asset management income |
|
|
|
Asset management income |
13,717 |
5,805 |
|
|
13,717 |
5,805 |
|
Dividend and interest income |
|
|
|
Dividend income - Listed UK |
9 |
106 |
|
Interest receivable: Banks |
16 |
2 |
|
Other |
22 |
323 |
|
|
47 |
431 |
|
Other operating income |
|
|
|
Arrangement fees |
- |
135 |
|
Reversal of provision against loans |
- |
9 |
|
Consultancy fees receivable |
12 |
14 |
|
Other income |
722 |
63 |
|
|
734 |
221 |
|
Total income |
14,498 |
6,457 |
|
Total income comprises |
|
|
|
Asset management income |
13,717 |
5,805 |
|
Dividends |
9 |
106 |
|
Interest |
38 |
325 |
|
Other operating income |
734 |
221 |
|
|
14,498 |
6,457 |
Other income includes a make whole fee received in the year of £620,000, which relates to the sale of the battery storage project ESS2 Holdco Limited to GRID. This transaction was completed in the year and the full contingent fee recognised at that date.
2 SEGMENTAL REPORTING
The Board and management team of the Company have organised and reported 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 & Infrastructure divisions.
Strategic Equity includes the Quoted and Unquoted Equity 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.
All activity and revenue are derived from operations within the United Kingdom.
FOR THE YEAR ENDED 31 DECEMBER 2018
|
|
Real Assets |
Strategic Equity |
Central |
Consolidated |
|
Revenue |
£'000 |
£'000 |
£'000 |
£'000 |
|
Asset management income |
11,102 |
2,615 |
- |
13,717 |
|
Interest income |
6 |
22 |
10 |
38 |
|
Dividend income |
9 |
- |
- |
9 |
|
Other operating income |
- |
100 |
634 |
734 |
|
Total revenue |
11,117 |
2,737 |
644 |
14,498 |
|
Dividend income from associates* |
- |
211 |
- |
211 |
|
Segment expenses |
(3,504) |
(2,587) |
(5,614) |
(11,705) |
|
Finance costs |
- |
- |
(42) |
(42) |
|
Adjusted operating profit/(loss) |
7,613 |
361 |
(5,012) |
2,962 |
|
Exceptional items |
|
|
|
(2,001) |
|
Depreciation and amortisation |
|
|
|
(2,926) |
|
Profit on disposal of tangible fixed assets |
|
|
|
23 |
|
Share of associate's profit* |
|
|
|
1,507 |
|
Losses on investments at fair value |
|
|
|
(271) |
|
Movement in fair value of contingent consideration |
|
|
|
(209) |
|
Movement in fair value of deferred receivable |
|
|
|
40 |
|
Loss before taxation from continuing operations |
|
|
|
(875) |
*Share of associate's profit of £1,507,000 excludes dividend income received in the year of £211,000.
FOR THE YEAR ENDED 31 DECEMBER 2017
|
|
Real Assets |
Strategic Equity |
Central |
Consolidated |
|
Revenue |
£'000 |
£'000 |
£'000 |
£'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) |
During the year the Group had one customer accounting for more than 10% of the Group's revenue, totalling £1,575,000 (2017: four customers, totalling £3,876,000).
Other information
31 December 2018
|
|
Real Assets |
Strategic Equity |
Legacy Property |
Central |
Consolidated |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Segment assets |
40,223 |
49,796 |
2,174 |
12,863 |
105,056 |
|
Segment liabilities |
(6,908) |
(5,313) |
(43) |
(13,052) |
(25,316) |
|
|
33,315 |
44,483 |
2,131 |
(189) |
79,740 |
|
Capital expenditure |
78 |
- |
- |
54 |
132 |
|
Depreciation and amortisation |
1,845 |
958 |
- |
100 |
2,903 |
|
Non-cash expenses other than depreciation |
218 |
- |
- |
494 |
712 |
|
Goodwill included within segment assets |
11,896 |
12,167 |
- |
- |
24,063 |
31 December 2017
|
|
Real Assets |
Strategic Equity |
Legacy Property |
Central |
Consolidated |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'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 |
3 OPERATING COSTS
|
Administrative overheads comprise the following: |
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Directors' emoluments (excluding benefits in kind and share-based payments) |
942 |
791 |
|
Auditor's remuneration * |
140 |
127 |
|
Amortisation |
2,788 |
1,122 |
|
Depreciation |
138 |
87 |
|
Profit on disposal of assets |
(23) |
(12) |
|
Wages and salaries |
5,610 |
3,185 |
|
Social security costs |
844 |
531 |
|
Share-based payments |
464 |
123 |
|
Other operating costs |
3,705 |
2,067 |
|
|
14,608 |
8,021 |
|
Staff costs (including Directors' emoluments) were: |
|
|
|
Wages, salaries and fees |
6,532 |
3,852 |
|
Social security costs |
844 |
537 |
|
Pension costs |
297 |
214 |
|
|
7,673 |
4,603 |
|
* A more detailed analysis of auditor's remuneration is as follows: |
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Audit fees |
140 |
127 |
|
Auditor's other fees - relating to acquisitions and included in exceptional items |
25 |
- |
|
|
165 |
127 |
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 55 (2017: 32). The Company has no employees.
4 DIRECTORS' EMOLUMENTS
The emoluments of the Directors are disclosed in the Remuneration Report on pages 47 to 50 of the Annual Report and Accounts.
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 £132,000 (2017: £102,000).
5 Business combinations
a) FIM Services Limited
On 21 May 2018, shareholders approved the acquisition of FIM Services Limited (FIM) at a general meeting. The Group acquired 100% of the issued share capital of FIM, a company registered in England whose principal activity is the management of forestry and other renewable energy assets.
At 31 December 2017, FIM managed 83,000 hectares of forestry and 127MW of renewable energy generating assets in onshore windfarms and ground-mounted solar parks for clients through long-term limited partnerships, LLP structures and managed accounts for high net worth individuals.
The fair value of the identifiable net assets acquired, and the consideration paid under IFRS 3 are as follows:
|
|
Net book value |
Adjustments |
Fair value |
|
|
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
Tangible fixed assets |
165 |
- |
165 |
|
Investments |
818 |
(318) |
500 |
|
Cash |
6,024 |
- |
6,024 |
|
Trade and other receivables |
921 |
- |
921 |
|
Trade and other payables |
(1,074) |
- |
(1,074) |
|
Fund and client management contracts |
- |
18,600 |
18,600 |
|
Deferred tax liability |
- |
(3,162) |
(3,162) |
|
Goodwill |
- |
8,678 |
8,678 |
|
Total identifiable net assets |
6,853 |
23,798 |
30,652 |
Under the terms of the acquisition agreement, the fair value of the consideration paid to the vendors of FIM was:
|
|
£'000 |
|
Cash |
16,852 |
|
Shares - 2,390,244 shares in Gresham House plc valued at 445.0p per share on 21 May 2018 |
10,637 |
|
Total initial consideration |
27,489 |
|
Contingent consideration |
3,163 |
|
Total consideration |
30,652 |
The consideration shares were admitted to trading on AIM on 22 May 2018.
Contingent consideration
Contingent consideration totalling £4 million will be payable in cash when the revenues from the combined forestry businesses (FIM and existing Gresham House Forestry) over two years from acquisition are greater than £14 million. For amounts less than this there is a sliding scale which reduces to nil deferred consideration where the combined revenues are less than £13 million.
Current forecasts are that the £14 million hurdle will be achieved and that the additional consideration will be paid in full.
The fair value of the contingent consideration has been estimated at the date of acquisition using forecast details for the combined business and discounting this at 11.0%. This is cash settled and will therefore be recognised as a liability on the balance sheet and the fair value assessed each reporting period. The fair value at the time of acquisition was calculated as £3,163,000.
Revenue and profits of FIM
FIM was acquired on 21 May 2018. The Group has recognised the following amounts in respect of FIM for the 32-week period ended 31 December 2018:
|
|
£'000 |
|
Revenue |
5,284 |
|
Profit before tax |
3,197 |
Prior to acquisition by the Group, FIM had a 30 September year-end. The results for the most recent audited reporting period prior to acquisition were to 30 September 2017. Had FIM been part of the Group for the entire reporting period the following sums would have been consolidated:
|
|
£'000 |
|
Revenue |
6,275 |
|
Profit before tax |
3,295 |
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. Goodwill arising on the FIM acquisition is not deductible for tax purposes.
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 11%. This resulted in fair value of management contracts being recognised totalling £18,600,000.
b) Livingbridge VC LLP
The Company acquired the fund and investment management business of Livingbridge VC LLP (Livingbridge VC), a leading UK manager of VCT funds and open-ended investment funds, on 30 November 2018. Livingbridge VC was part of the larger Livingbridge LLP private equity asset management business. The acquisition of Livingbridge VC included the novation and acquisition of investment advisory contracts for Baronsmead VCT plc, Baronsmead Second VCT plc, Livingbridge (now LF Gresham House) UK Micro Cap Fund and Livingbridge (now LF Gresham House) UK Multi Cap Fund and the hiring of the Livingbridge VC team.
The fair value of the identifiable net assets acquired, and the consideration paid under IFRS 3 are as follows:
|
|
Fair value |
|
|
£'000 |
|
Management contracts |
22,860 |
|
Goodwill |
12,167 |
|
Total identifiable net assets |
35,027 |
Under the terms of the acquisition agreement, the fair value of the consideration paid to the vendors of Livingbridge VC was:
|
|
£'000 |
|
Cash |
23,000 |
|
Shares - 1,562,500 shares in Gresham House plc valued at 448.0p per share on 30 November 2018 |
7,000 |
|
Total initial consideration |
30,000 |
|
Contingent consideration |
5,027 |
|
Total consideration |
35,027 |
The consideration shares were admitted to trading on AIM on 30 November 2018.
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 Livingbridge VC
The actual revenues and profits that have been generated since the acquisition of Livingbridge VC on 30 November 2018 to 31 December 2018 are:
|
|
£'000 |
|
Revenues |
712 |
|
Profit before tax |
495 |
The disclosure of hypothetical revenues and profits of Livingbridge VC for the year ended 31 December 2018 is not considered relevant due to the nature of the transaction. The entire Livingbridge 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 management contracts being recognised totalling £22,860,000.
c) Hazel Capital LLP
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:
|
|
£'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:
|
|
£'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 £324,000.
Exceptional items
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Acquisition costs |
|
|
|
FIM Services Limited |
770 |
- |
|
Livingbridge VC |
866 |
- |
|
Hazel Capital LLP |
61 |
308 |
|
|
1,697 |
308 |
|
Restructuring costs |
304 |
- |
|
|
2,001 |
308 |
Exceptional items relate to professional fees and restructuring costs incurred in respect of the acquisition of FIM Services Limited, the Hazel Capital LLP transaction and the acquisition of the fund and investment management business of Livingbridge VC LLP. The exceptional items in the prior year relate to professional fees incurred in respect of the acquisition of the Hazel Capital LLP business.
6 FINANCE COSTS
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Interest payable on loans |
35 |
170 |
|
Finance fees |
7 |
174 |
|
|
42 |
344 |
See note 23 for details of borrowings
7 DISCONTINUED OPERATIONS
Discontinued operations represent the legacy property portfolio of the Group, with the sale of remaining land at Newton-le-Willows completing during the year, and the sale of the Southern Gateway site completing during the previous year.
The disposal group fulfilled the requirements of IFRS 5 to be classified as 'discontinued operations' in the Group Statement of Comprehensive Income, the results of which are set out below:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Rental Income |
- |
531 |
|
Other operating income |
- |
22 |
|
Property outgoings |
12 |
(191) |
|
Loss on disposal of investment properties |
(1) |
(1,135) |
|
Movement in fair value of investment property |
- |
(331) |
|
Net profit/(loss) from discontinued operations |
11 |
(1,104) |
|
|
|
|
|
Attributable to: |
|
|
|
Equity holders of the parent |
8 |
(716) |
|
Non-controlling interest |
3 |
(388) |
|
|
11 |
(1,104) |
|
Property outgoings comprise the following: |
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Wages and salaries |
- |
49 |
|
Redundancy costs |
- |
41 |
|
Social security costs |
- |
6 |
|
Other operating costs (net of service charges recoverable from tenants of £nil (2017: £584,000)) |
(12) |
95 |
|
|
(12) |
191 |
Cash flows from discontinued operations were:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Cash flow from operating activities |
12 |
670 |
|
Cash flow from investing activities |
4,685 |
8,178 |
|
Cash flow from financing activities |
- |
- |
8 TAXATION
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
(a) Analysis of credit in period: |
|
|
|
UK Corporation tax at 19% (2017: 19.25%) |
- |
- |
|
Deferred tax |
(218) |
- |
|
Total tax credit |
(218) |
- |
|
|
|
|
|
(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% (2017: 19.25%) |
(166) |
(679) |
|
Tax effect of: |
|
|
|
Investment losses not taxable |
- |
46 |
|
Dividend income not taxable |
(42) |
(20) |
|
Amortisation not taxable |
335 |
212 |
|
Expenses disallowed |
388 |
86 |
|
Other gains and losses not taxable |
(249) |
(5) |
|
Deferred tax not recognised |
(484) |
360 |
|
|
|
|
|
Actual tax charge |
(218) |
- |
The Group has unutilised tax losses of approximately £11.6 million (2017: £12.5 million) available against future corporation tax liabilities. The potential deferred taxation asset of £2.0 million (2017: £2.1 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
|
|
2018 |
2017 |
|
Total net loss attributable to equity holders of the parent (£'000) |
(699) |
(3,124) |
|
|
|
|
|
Weighted average number of ordinary shares in issue during the period |
17,742,370 |
12,073,106 |
|
|
|
|
|
Basic and diluted loss per share attributable to equity holders of the parent (pence) |
(3.9) |
(25.9) |
2,434,245 (2017: 898,747) shares were deemed to have been issued at nil consideration as a result of the shareholder and supporter 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 profit, which is stated after charging interest but before depreciation, amortisation, profit on disposal of tangible fixed assets and exceptional items, to provide the non-GAAP measure of the performance as an asset manager. This includes dividend and income received from investments in associates.
Adjusted profit/(loss) for calculating adjusted earnings per share:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Operating loss before taxation for the year |
(2,153) |
(2,216) |
|
Add back: |
|
|
|
Exceptional operating expenses |
2,001 |
308 |
|
Depreciation and amortisation |
2,926 |
1,209 |
|
Profit on disposal of tangible fixed assets |
(23) |
(12) |
|
Dividend income received from associates |
211 |
- |
|
Adjusted profit/(loss) attributable to equity holders of the parent |
2,962 |
(711) |
|
Adjusted profit/(loss) per share (pence) - basic |
16.7 |
(5.9) |
|
Adjusted profit/(loss) per share (pence) - diluted |
14.7 |
(5.9) |
10 DIVIDENDS
No dividends have been paid in the year (2017: nil).
Set out below is the total dividend payable in respect of the financial year, which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered.
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Proposed final dividend for the year ended 31 December 2018 of 3.0p (2017: nil) per share |
746 |
- |
The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
11 INVESTMENTS - SECURITIES
Investments have been classified as follows:
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Non-current assets |
6,834 |
2,989 |
4,970 |
1,310 |
|
Other debtors due within one year |
1,290 |
- |
1,290 |
- |
|
|
8,124 |
2,989 |
6,260 |
1,310 |
|
|
|
|
|
|
A further analysis of total investments is as follows:
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Listed securities - on the London Stock Exchange |
4,273 |
281 |
4,273 |
281 |
|
Securities dealt in under AIM |
288 |
787 |
288 |
787 |
|
Securities dealt in under NEX Exchange |
26 |
38 |
26 |
38 |
|
Unlisted securities |
3,537 |
1,883 |
1,673 |
204 |
|
Closing value at 31 December |
8,124 |
2,989 |
6,260 |
1,310 |
|
|
|
|
|
|
|
Investments valued at fair value through profit and loss |
6,511 |
2,830 |
4,647 |
1,151 |
|
Loans and receivables carried at amortised cost |
1,613 |
159 |
1,613 |
159 |
|
|
8,124 |
2,989 |
6,260 |
1,310 |
|
|
|
|
|
|
|
Opening cost |
4,869 |
4,565 |
3,119 |
2,815 |
|
Opening net unrealised losses |
(1,880) |
(1,731) |
(1,809) |
(1,699) |
|
Opening value |
2,989 |
2,834 |
1,310 |
1,116 |
|
Movements in the year: |
|
|
|
|
|
Purchases at cost |
6,981 |
5,331 |
6,482 |
5,331 |
|
Sales - proceeds |
(1,575) |
(4,946) |
(997) |
(4,946) |
|
Sales - realised gains and (losses) on sales |
(506) |
(81) |
(584) |
(81) |
|
Net unrealised gains and (losses) |
235 |
(149) |
49 |
(110) |
|
Closing value |
8,124 |
2,989 |
6,260 |
1,310 |
|
|
|
|
|
|
|
Closing cost |
9,769 |
4,869 |
8,020 |
3,119 |
|
Closing net unrealised losses |
(1,645) |
(1,880) |
(1,760) |
(1,809) |
|
Closing value |
8,124 |
2,989 |
6,260 |
1,310 |
|
|
|
|
|
|
|
Gains and losses on investments held at fair value |
|
|
|
|
|
|
|
|
|
|
|
Net realised gains and (losses) on disposal |
(506) |
(81) |
(584) |
(81) |
|
Net unrealised gains and (losses) |
235 |
(149) |
49 |
(110) |
|
Net losses on investments |
(271) |
(230) |
(535) |
(191) |
|
|
|
|
|
|
|
An analysis of investments is as follows: |
|
|
|
|
|
|
|
|
|
|
|
Equity investments |
6,511 |
2,830 |
4,647 |
1,151 |
|
Unquoted loan stock |
1,613 |
159 |
1,613 |
159 |
|
|
8,124 |
2,989 |
6,260 |
1,310 |
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 was completed in the year to 31 December 2018, with the sale of remaining land at Newton-le-Willows completing during the year, and the sale of the Southern Gateway site completing during the previous year. As such, property investments remain classified as non-current assets held for sale.
A further analysis of total investment properties is as follows:
|
|
Group |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Net book value and valuation |
|
|
|
At 1 January |
1,986 |
9,628 |
|
Additions during the year - expenditure on existing properties |
- |
137 |
|
Disposals during the year - gross proceeds |
(2,083) |
(7,250) |
|
Disposal costs |
98 |
570 |
|
Movement in rent free receivable |
- |
367 |
|
Loss on disposal of investment properties |
(1) |
(1,135) |
|
Movement in fair value during the year |
- |
(331) |
|
At 31 December |
- |
1,986 |
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 was based on the net sales proceeds received.
Rental income recognised in the Statement of Comprehensive Income amounted to £nil (2017: £531,000).
The cost of the above properties as at 31 December 2018 is as follows:
|
|
Group |
|
|
£'000 |
|
Brought forward |
1,737 |
|
Additions during the year |
- 7 |
|
Disposals during the year |
(1,737) |
|
|
- |
Capital commitments
Capital expenditure contracted for but not provided for in the financial statements for the Group was £nil (2017: £nil) and for the Company was £nil (2017: £nil).
|
Movement in fair value of investment properties |
Group |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Realised losses on disposal of investment property |
(1) |
(1,135) |
|
Decrease in fair value |
- |
(331) |
|
Movement in fair value of investment property |
(1) |
(1,466) |
Further information on the measurement of fair value can be found in note 32.
13 TANGIBLE FIXED ASSETS
|
Group |
2018 |
2017 |
||||||
|
|
Office equipment |
Motor vehicles |
Leasehold property |
Total |
Office equipment |
Motor vehicles |
Leasehold property |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Cost |
|
|
|
|
|
|
|
|
|
As at 1 January |
72 |
221 |
10 |
303 |
16 |
237 |
10 |
263 |
|
Additions |
59 |
73 |
- |
132 |
56 |
59 |
- |
115 |
|
Additions through business combinations |
60 |
105 |
- |
165 |
- |
- |
- |
- |
|
Disposals during the year |
- |
(102) |
(6) |
(108) |
- |
(75) |
- |
(75) |
|
As at 31 December |
191 |
297 |
4 |
492 |
72 |
221 |
10 |
303 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
|
As at 1 January |
14 |
91 |
2 |
107 |
3 |
80 |
1 |
84 |
|
Charge for the year |
42 |
95 |
1 |
138 |
11 |
75 |
1 |
87 |
|
Disposals during the year |
- |
(85) |
- |
(85) |
- |
(64) |
- |
(64) |
|
As at 31 December |
56 |
101 |
3 |
160 |
14 |
91 |
2 |
107 |
|
|
|
|
|
|
|
|
|
|
|
Net book value as at 31 December |
135 |
196 |
1 |
332 |
58 |
130 |
8 |
196 |
|
|
|
|
|
|
|
|
|
|
|
Company |
2018 |
2017 |
|
|
Office |
Office equipment |
|
|
£'000 |
£'000 |
|
Cost |
|
|
|
As at 1 January |
64 |
16 |
|
Additions |
114 |
48 |
|
As at 31 December |
178 |
64 |
|
|
|
|
|
Depreciation |
|
|
|
As at 1 January |
13 |
3 |
|
Charge for the year |
39 |
10 |
|
As at 31 December |
52 |
13 |
|
|
|
|
|
Net book value as at 31 December |
126 |
51 |
14 INTANGIBLE ASSETS
|
Group |
2018 |
2017 |
||||||||
|
|
Goodwill |
Customer relationships |
Contracts |
Website & client portal |
Total |
Goodwill |
Customer relationships |
Contracts |
Website & client portal |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
As at 1 January |
3,218 |
3,072 |
2,304 |
219 |
8,813 |
2,942 |
3,072 |
1,980 |
- |
7,994 |
|
Additions through business combinations |
20,845 |
- |
41,460 |
- |
62,305 |
276 |
- |
324 |
- |
600 |
|
Other additions |
- |
- |
- |
67 |
67 |
- |
- |
- |
219 |
219 |
|
As at 31 December |
24,063 |
3,072 |
43,764 |
286 |
71,185 |
3,218 |
3,072 |
2,304 |
219 |
8,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
|
|
|
|
|
As at 1 January |
- |
1,229 |
1,236 |
21 |
2,486 |
- |
615 |
749 |
- |
1,364 |
|
Charge for the year |
- |
614 |
2,106 |
68 |
2,788 |
- |
614 |
487 |
21 |
1,122 |
|
As at 31 December |
- |
1,843 |
3,342 |
89 |
5,274 |
- |
1,229 |
1,236 |
21 |
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at 31 December |
24,063 |
1,229 |
40,422 |
197 |
65,911 |
3,218 |
1,843 |
1,068 |
198 |
6,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining amortisation period |
n/a |
2 years |
0.5 - 25 years |
4 years |
|
n/a |
3 years |
1.5 - 3 years |
4 years |
|
The website and client portal expenditure were undertaken by the Company.
The assumptions used to fair value the contracts, including discount rates, growth rates and cash flow models are described in more detail in the critical accounting estimates and judgements section of the accounting policies.
Goodwill has been assessed for each business acquired for impairment as at 31 December 2018. This assessment includes an analysis of the expected cash flows from the specific businesses based on expected fundraising and other growth factors as well as the associated cost of delivering the planned revenues. A discount has been applied to the cash flows to determine an estimate of the fair value of the business, which is used to assess whether goodwill should be impaired.
No reasonably possible change in any of the variables used in the goodwill impairment tests would give rise to an impairment.
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 £944,610 was received with further payments of £937,252 received in 2016, £1,634,083 in 2017 and £2,700,730 during the year. The balance of the consideration, at fair value, will be receivable in one tranche as follows:
|
|
£'000 |
|
On 22 March 2019 |
1,033 |
|
|
1,033 |
This amount was received in full on 26 February 2019.
The deferred receivable has not been discounted in 2018 due to the imminent receipt. The discount rate applied in 2017 was 1.61% being the average rate of borrowing on Persimmon's debt facilities.
The Persimmon loan receivable was previously classified at fair value through profit or loss under IAS 39, however under IFRS 9 this should be measured at amortised cost. There was no material difference between amortised cost and fair value. The amount recorded in the current year in respect of the movement in value of the loan receivable relates to interest income gained during the year.
|
Long-term receivables consist of the following: |
Group |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Deferred receivable |
- |
1,618 |
|
Other debtors |
78 |
- |
|
|
78 |
1,618 |
16 INVESTMENT IN SUBSIDIARIES
|
|
Company |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Subsidiary undertakings |
|
|
|
As at 1 January |
18,265 |
16,292 |
|
Additions |
61,607 |
1,973 |
|
As at 31 December |
79,872 |
18,265 |
The subsidiary undertakings of Gresham House plc are as follows:
|
|
Held by Company |
Held by other Group companies |
Country of incorporation and registered office |
|
|
% |
% |
|
|
Acqco Store Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Aitchesse Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Chartermet Limited |
- |
75 |
5 New Street Square, London EC4A 3TW, England |
|
Deacon Commercial Development and Finance Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Deacon Knowsley Limited |
- |
75 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Energy Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Forest Funds General Partner Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Initial Partner Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Solar Distribution Designated Member 1 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Solar Distribution Designated Member 2 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Services Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Timberland General Partner Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Windfarms General Partner 2 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Windfarms General Partner 3 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
FIM Windfarms (SC) General Partner Limited |
- |
100 |
15 Atholl Crescent, Edinburgh, EH3 8HA, Scotland |
|
Gresham House Asset Management Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Capital Partners Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Devco Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House EIS Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Energy Storage Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Finance Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Forestry Limited |
- |
100 |
Riverview House, Friarton Road, Perth, PH2 8DF, Scotland |
|
Gresham House Forestry Friends and Family LP |
71.4 |
- |
Riverview House, Friarton Road, Perth, PH2 8DF, Scotland |
|
Gresham House (General Partner) Limited |
- |
100 |
Riverview House, Friarton Road, Perth, PH2 8DF, Scotland |
|
Gresham House GP LLP |
- |
100 |
Riverview House, Friarton Road, Perth, PH2 8DF, Scotland |
|
Gresham House Holdings Limited |
100 |
- |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Housing Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Infrastructure Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Investment Management Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Investment Management (Guernsey) Limited |
- |
100 |
Dorey Court, Admiral Park, St Peter Port, GY1 2HT, Guernsey |
|
Gresham House Investors Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House New Energy Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House (Nominees) Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Private Capital Solutions Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Private Equity Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Private Wealth Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Real Assets Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Renewable Infrastructure Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Renewable Energy VCT1 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Renewable Energy VCT2 Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Services Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Smaller Companies Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House SPE Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Special Situations Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House Value Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Gresham House VCT Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Knowsley Industrial Property Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
New Capital Developments Limited |
- |
75 |
5 New Street Square, London EC4A 3TW, England |
|
New Capital Holdings Limited |
- |
75 |
5 New Street Square, London EC4A 3TW, England |
|
Newton Estate Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Security Change Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
|
Wolden Estates Limited |
- |
100 |
5 New Street Square, London EC4A 3TW, England |
17 INVESTMENT IN AssociateS
|
|
Group |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Opening Investment in associate |
6,462 |
6,530 |
|
Additions |
2,229 |
- |
|
Share of associate's profit |
1,718 |
68 |
|
Dividends received from associates |
(211) |
- |
|
Closing investment in associate |
10,198 |
6,462 |
The above balance consists of the Group's holdings in Gresham House Strategic plc and Noriker Power Limited.
The Board believe that Gresham House plc exercises significant influence over Gresham House Strategic plc (GHS), but not control, through its 22.9% equity investment as well as the investment management agreement between GHAM and GHS.
The latest published financial information of GHS was the unaudited interim results for the six months to 30 September 2018. The assets and liabilities at that date are shown below:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Non-current assets |
32,938 |
33,570 |
|
Current assets |
14,034 |
6,728 |
|
Current liabilities |
(2,080) |
(1,039) |
|
Net assets |
44,892 |
39,259 |
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 £4,945,000 and revenues of £521,000 for the six months ended 30 September 2018.
The registered office of GHS is 77 Kingsway, London, WC2B 5SR.
The Board believe that Gresham House plc exercises significant influence over Noriker Power Limited (Noriker), but not control, through its 28% equity investment.
The registered office of Noriker is Unit 5b Thorn Business Park, Rotherwas, Hereford, HR2 6JT.
18 TRADE RECEIVABLES
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Amounts receivable within one year: |
|
|
|
|
|
Trade receivables |
2,628 |
2,089 |
- |
- |
|
Less allowance for credit losses |
- |
- |
- |
- |
|
|
2,628 |
2,089 |
- |
- |
As at 31 December 2018, trade receivables of £61,000 (2017: £286,000) were past due but not impaired. The ageing analysis of these trade receivables is as follows:
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
1-3 months |
26 |
254 |
- |
- |
|
3-6 months |
6 |
5 |
- |
- |
|
More than 6 months |
29 |
27 |
- |
- |
|
|
61 |
286 |
- |
- |
As at 31 December 2018 there were no provisions against trade receivables (2017: £nil).
19 OTHER CURRENT ASSETS
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Amounts owed by Group undertakings |
- |
- |
221 |
7,878 |
|
Loan Receivables - Investment in development projects (see note 11) |
1,290 |
- |
1,290 |
- |
|
Corporation tax recoverable |
181 |
- |
- |
- |
|
|
1,471 |
- |
1,511 |
7,878 |
20 TRADE AND OTHER PAYABLES
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade creditors |
1,212 |
274 |
- |
- |
|
Other creditors |
560 |
380 |
14 |
14 |
|
Accruals |
2,313 |
1,516 |
138 |
17 |
|
Contingent consideration (note 24) |
- |
3,293 |
- |
251 |
|
|
4,085 |
5,463 |
152 |
282 |
21 SHORT-TERM BORROWINGS
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
|
|
|
|
|
|
Bank loans - within current liabilities (note 23) |
2,000 |
- |
2,000 |
- |
|
Amounts owed to Group undertakings |
- |
- |
5,365 |
5,552 |
|
|
2,000 |
- |
7,365 |
5,552 |
22 DEFERRED TAXATION
Under International Accounting Standards (IAS) 12 (Income Taxes) provision is made for the deferred tax liability associated with the recognition of the management contracts recognised as part of the 100% acquisition of FIM. This has been recognised at 17% of the fair value of the management contracts at acquisition and reassessed each year-end, with the movement being recognised in the income statement. As at 31 December 2018 the deferred tax liability was £2,944,000 (2017: £nil).
23 LONG-TERM BORROWINGS
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Bank loans |
7,840 |
- |
7,840 |
- |
|
|
7,840 |
- |
7,840 |
- |
On 8 November 2018, the Company signed a £10.0 million banking facilities agreement with Banco Santander SA (the facilities). The facilities are secured with fixed and floating charges over the Company's assets, with cross guarantees provided by Gresham House Asset Management Limited, Gresham House Holdings Limited, Gresham House Forestry Limited and FIM Services Limited.
The facilities consist of a £6.0 million three-year term loan along with a £4.0 million three-year revolving credit facility. The term loan is repayable by 12 quarterly instalments of £500,000 commencing 28 February 2019, and the revolving credit facility is repayable in full by 30 November 2021. Both facilities were fully drawn on 30 November 2018 to part fund the acquisition of the fund and investment management businesses of Livingbridge VC LLP.
The interest payable on the facilities is LIBOR plus 3.25%.
24 NON-CURRENT LIABILITIES - OTHER CREDITORS
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Contingent consideration |
8,447 |
- |
- |
- |
|
Other creditors |
- |
2 |
- |
- |
|
|
8,447 |
2 |
- |
- |
Contingent consideration
Gresham House Forestry Limited
Contingent consideration payable to the sellers of Aitchesse Limited (Gresham House Forestry Limited) was settled in the year for a total of £3,245,000, resulting in a loss of £203,000 recognised in the year on settlement.
LMS Capital plc
The contingent consideration payable to LMS Capital plc became payable based on the NAV of the fund on the second anniversary of the management contract on 16 August 2018. The NAV was below the £67.5 million threshold and therefore no contingent consideration was payable. This resulted in the release of the £251,000 contingent consideration that was held as a payable as at 31 December 2017.
FIM
The contingent consideration payable to the sellers of FIM is based on the combined forestry division generating revenue of between £13.0 million and £14.0 million over the two years from acquisition on 22 May 2018. No contingent consideration will be payable below £13.0 million, a sliding scale from £13.0 million to £14.0 million to receive from zero to £4.0 million and no further amounts payable for revenues greater than £14.0 million.
As at 31 December 2018 it was estimated that the fair value of the contingent consideration will be £3.2 million after applying a discount of 11% for the time value of money and the inherent risk associated with the forestry management contracts.
Livingbridge VC
The Livingbridge VC contingent consideration has been determined in two parts.
The first being that the VCT Boards do not give notice to GHAM within two years of the acquisition. Should this be the case, then a payment of £5.0 million will be made to the sellers of Livingbridge VC. There are no indications to date that notice will be given, so this has been assumed to be true and the fair value payable discounted back to 31 December 2018 at a rate of 15%. The 15% rate reflects the weighted average cost of capital for the Group, with a risk premium added to reflect the nature of the underlying equity-based management contracts of the Livingbridge VC business.
The second part of the contingent consideration being the hurdle to deliver revenues from the Livingbridge VC business of between £30.9 million and £37.2 million in the three years to 31 December 2021. The maximum amount payable on achieving the £37.2 million hurdle is £2.5 million and the minimum payable is zero if the £30.9 million hurdle is not achieved. The fair value has been based on a weighted probability of outcomes over the three-year period and discounted by 15% as per above.
The fair value of the contingent consideration payable to the Livingbridge VC sellers as at 31 December 2018 was £5.1 million.
25 SHARE CAPITAL
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Share Capital |
|
|
|
Allotted: Ordinary - 24,872,613 (2017: 12,536,957) fully paid shares of 25p each |
6,218 |
3,134 |
During the year the Company issued the following new ordinary shares:
§ 2,390,244 shares on 22 May 2018 at a price of 410p per share to the vendors of FIM Services Limited;
§ 3,658,537 shares on 22 May 2018 at a price of 410p per share as part of the acquisition of FIM Services Limited;
§ A further 109,540 new ordinary shares were issued on 15 May 2018 at a price of 410.8p to management and employees under the Company's bonus share matching plan;
§ 304,877 shares on 7 June 2018 at a price of 410p per share as part of the acquisition of the Hazel Capital LLP business;
§ 504,095 shares on 29 June 2018 at a price of 440p per share to satisfy the contingent consideration payable of the acquisition of Aitchesse Limited;
§ 2,617,628 shares on 30 November 2018 at a price of 448p per share as part of the acquisition of the fund and investment management businesses of Livingbridge VC LLP;
§ 1,562,500 shares on 30 November 2018 at a price of 448p per share to the vendors of the fund and investment management businesses of Livingbridge VC LLP; and
§ Additionally, 1,188,235 shareholder, supporter and LMS warrants were exercised during the year at a price of 323.27p.
26 SHARE WARRANTS
|
|
2018 |
2017 |
||||||
|
Group |
Shareholder warrants |
Supporter warrants |
LMS warrants |
Total warrants |
Shareholder warrants |
Supporter warrants |
LMS warrants |
Total warrants |
|
Balance as at 1 January |
1,071,812 |
850,000 |
909,908 |
2,831,720 |
1,071,813 |
850,000 |
909,908 |
2,831,721 |
|
Warrants exercised during the year |
(197,327) |
(81,000) |
(909,908) |
(1,188,235) |
(1) |
- |
- |
(1) |
|
As at 31 December |
874,485 |
769,000 |
- |
1,643,485 |
1,071,812 |
850,000 |
909,908 |
2,831,720 |
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 £255,000. 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, 197,327 shareholder warrants, 81,000 supporter warrants and 909,908 LMS warrants were converted into ordinary shares resulting in the issue of 1,188,235 new ordinary shares (2017: 1 shareholder warrant). Since the year-end a further 8,820 shareholder warrants have been exercised.
27 SHARE-BASED PAYMENTS
2016 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 (2016 LTIP) 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 2016 LTIP, '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 2016 LTIP, 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 2016 LTIP 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:
|
|
2018 |
2017 |
|||||||
|
|
A Shares old joiners |
A Shares new joiners |
B Shares |
C Shares |
Total LTIP |
A Shares old joiners |
A Shares new joiners |
B Shares |
Total LTIP |
|
Balance as at 1 January |
908 |
92 |
208 |
- |
1,208 |
908 |
92 |
- |
1,000 |
|
Issued in the year |
- |
- |
- |
104 |
104 |
- |
- |
208 |
208 |
|
As at 31 December |
908 |
92 |
208 |
104 |
1,312 |
908 |
92 |
208 |
1,208 |
|
Exercisable at year-end |
908 |
92 |
- |
- |
1,000 |
908 |
- |
- |
908 |
|
Months to vesting |
- |
- |
8 |
12 |
|
- |
7 |
20 |
|
The weighted average time to vesting is nine 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. For the C shares issued during the year the fair value of the plan at award was £20,000 (£192.31 per share), which will be amortised over the two-year vesting period.
2018 Long-term incentive plan
The Remuneration Committee considered and implemented a new long-term incentive arrangement in 2018 (2018 LTIP). The 2016 LTIP became exercisable during 2018 and as such the Remuneration Committee introduced the 2018 LTIP to align the management team and wider members of the business for the next three years with shareholders.
The 2018 LTIP is a deferred share award, which vests in three years from the date of award subject to management remaining employed by the Company as at the vesting date. There is no staggered vesting period, vesting is at the end date in three years' time.
During the year 488,174 deferred shares were awarded under the 2018 LTIP to the management team and employees, with a fair value at award of £2.1 million.
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. Under the guidance in IFRS 2:41, it has been considered that the A Share settlement should be treated as an equity-settled instrument.
The value of the A Shares at vesting is based on a calculation, which is based on 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 £276,000 (£276 per share), which will be amortised over the three-year and two-month vesting period.
Bonus share matching plan
The Company introduced in 2016 a share matching plan linked to the discretionary annual bonus scheme to encourage management and employees 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 2018 the Remuneration Committee approved the reinvestment of up to 100% of annual bonuses into ordinary shares by management and employees (2017: 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 outperforms the FTSE All Share Index from the date of deferral, the participants 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 2017 bonuses is £80,123 (£1.18 per share) and will be amortised over the three-year vesting period.
28 RESERVES
|
|
2018 |
2017 |
||||
|
|
Share premium account |
Share warrant reserve |
Retained reserves |
Share premium account |
Share warrant reserve |
Retained reserves |
|
Group |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance as at 1 January |
9,649 |
319 |
15,268 |
2,611 |
319 |
18,657 |
|
Loss and total comprehensive income |
- |
- |
(699) |
- |
- |
(3,124) |
|
Transfer of non-controlling interest deficit |
- |
- |
3 |
- |
- |
(388) |
|
Issue of shares |
48,252 |
(261) |
- |
7,038 |
- |
- |
|
Share-based payments |
- |
- |
464 |
- |
- |
123 |
|
As at 31 December |
57,901 |
58 |
15,036 |
9,649 |
319 |
15,268 |
|
|
2018 |
2017 |
||||
|
|
Share premium account |
Share warrant reserve |
Retained reserves |
Share premium account |
Share warrant reserve |
Retained reserves |
|
Company |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Balance as at 1 January |
9,649 |
319 |
15,469 |
2,611 |
319 |
16,153 |
|
Loss and total comprehensive income |
- |
- |
(2,075) |
- |
- |
(684) |
|
Issue of shares |
48,252 |
(261) |
- |
7,038 |
- |
- |
|
As at 31 December |
57,901 |
58 |
13,394 |
9,649 |
319 |
15,469 |
|
|
2018 |
2017 |
|
Non-controlling interest: |
£'000 |
£'000 |
|
Balance as at 1 January |
477 |
491 |
|
Interest in trading result for the year |
- |
(106) |
|
Interest in investments- securities |
53 |
(12) |
|
Interest in movement in investment property for the year |
- |
(284) |
|
Transfer deficit balance |
(3) |
388 |
|
|
527 |
477 |
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
|
2018 |
2017 |
|
Equity attributable to holders of the parent (£'000) |
79,213 |
28,370 |
|
Number of ordinary shares in issue at the end of the period |
24,872,613 |
12,536,957 |
|
Basic net asset value per share (pence) |
318.5 |
226.3 |
|
Diluted
|
2018 |
2017 |
|
Equity attributable to holders of the parent (£'000) |
79,213 |
28,370 |
|
Adjusted number of ordinary shares in issue at the end of the period |
27,384,003 |
13,435,704 |
|
Diluted net asset value per share (pence) |
290.1 |
211.2 |
Diluted net asset value per share is based on the number of shares in issue at the year-end together with 2,434,245 shares deemed to have been issued at nil consideration as a result of shareholder and supporter warrants and shares which could be issued under the bonus share matching plan and long-term incentive plans.
|
|
£'000 |
|
The movement during the year of the assets attributable to ordinary shares were as follows: |
|
|
Total net assets attributable at 1 January 2018 |
28,370 |
|
Total recognised losses for the year |
(696) |
|
Share-based payments |
464 |
|
Issue of shares |
51,075 |
|
Total net assets attributable at 31 December 2018 |
79,213 |
30 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
|
|
Group |
Company |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Net operating loss after exceptional items |
(2,153) |
(2,216) |
(1,791) |
(500) |
|
Profit/(loss) from discontinued operations |
11 |
(1,104) |
- |
- |
|
Dividends received from associates |
211 |
- |
- |
- |
|
Movement in fair value of investment property |
1 |
1,466 |
- |
- |
|
Interest payable |
35 |
170 |
35 |
170 |
|
Depreciation |
138 |
87 |
32 |
10 |
|
Profit on disposal of tangible fixed assets |
(23) |
(12) |
- |
- |
|
Amortisation |
2,788 |
1,122 |
68 |
21 |
|
Share-based payments |
464 |
123 |
- |
- |
|
|
1,472 |
(364) |
(1,656) |
(299) |
|
(Increase)/decrease in long-term receivables |
(78) |
54 |
(78) |
54 |
|
(Increase)/decrease in current assets |
(1,227) |
(1,219) |
193 |
(208) |
|
Increase/(decrease) in current liabilities |
1,295 |
(86) |
92 |
10 |
|
|
1,462 |
(1,615) |
(1,449) |
(443) |
31 FINANCIAL INSTRUMENTS
The Group consists of the Company and subsidiary undertakings whose principal activities are asset management and forestry management.
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
iv) short-term and long-term borrowings
As at 31 December 2018 the following categories of financial instruments were held by:
|
Group |
2018 |
2017 |
||
|
|
Amortised cost |
Assets at fair value through profit or loss |
Loans and receivables |
Assets at fair value through profit or loss |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Financial assets per Statement of Financial Position |
|
|
|
|
|
Investments - securities |
1,613 |
6,511 |
159 |
2,830 |
|
Trade and other receivables - current and non-current |
2,628 |
1,033 |
2,089 |
3,693 |
|
Accrued income |
2,206 |
- |
563 |
- |
|
Cash and cash equivalents |
13,958 |
- |
9,785 |
- |
|
|
20,405 |
7,544 |
12,596 |
6,523 |
|
|
2018 |
2017 |
||
|
Financial liabilities per Statement of Financial Position |
Other financial liabilities |
Liabilities at fair value through profit or loss |
Other financial liabilities |
Liabilities at fair value through profit or loss |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade and other payables - short term * |
4,085 |
- |
2,170 |
3,293 |
|
Bank loans - short and long term |
9,840 |
- |
- |
- |
|
Other creditors - long term |
- |
8,447 |
2 |
- |
|
|
13,925 |
8,447 |
2,172 |
3,293 |
* £389,000 (2017: £284,000) of PAYE and VAT payable is included within trade and other payables.
|
Company |
2018 |
2017 |
||
|
Financial assets per Statement of Financial Position |
Amortised cost |
Assets at fair value through profit or loss |
Loans and receivables |
Assets at fair value through profit or loss |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments - securities |
1,613 |
4,647 |
159 |
1,151 |
|
Accrued income |
104 |
- |
219 |
- |
|
Amounts owed by Group undertakings |
221 |
- |
7,878 |
- |
|
Cash and cash equivalents |
6,148 |
- |
6,484 |
- |
|
|
8,086 |
4,647 |
14,740 |
1,151 |
|
2018 |
2017 |
|||
|
Other financial liabilities |
Liabilities at fair value through profit or loss |
Other financial liabilities |
Liabilities at fair value through profit or loss |
|
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Trade and other payables - short term |
152 |
- |
31 |
251 |
|
Other loans - short and long term |
5,365 |
- |
5,552 |
- |
|
Bank loans - short and long term |
9,840 |
- |
- |
- |
|
|
15,357 |
- |
5,583 |
251 |
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.
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:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Loan stock investments |
1,613 |
159 |
|
Deferred receivable - short and long-term |
1,033 |
3,693 |
|
Trade and other receivables - short-term |
2,628 |
2,089 |
|
Accrued income |
2,206 |
563 |
|
Cash and cash equivalents |
13,958 |
9,785 |
|
|
21,438 |
16,289 |
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 £8,086,000 (2017: £14,740,000).
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:
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Loan stock investments |
|
|
|
Repayable within: - 1 year |
1,290 |
- |
|
1-2 years |
- |
- |
|
2-3 years |
267 |
- |
|
3-4 years |
56 |
103 |
|
4-5 years |
- |
56 |
|
|
1,613 |
159 |
As at 31 December 2018 loan stock investments totalling £810,000 (2017: £718,000) were impaired and provided for.
As at 31 December 2018 other loans totalling £54,000 (2017: £54,000) were impaired and provided for.
There is potentially a risk whereby a counterparty 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 2018 and 2017 were:
|
Group |
Non-interest bearing assets/ liabilities |
Fixed rate assets |
Floating rate assets |
Fixed rate liabilities |
Floating rate liabilities |
Net total |
|
As at 31 December 2018 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments - securities |
6,511 |
1,613 |
- |
- |
- |
8,124 |
|
Cash |
- |
- |
13,958 |
- |
- |
13,958 |
|
Trade and other receivables |
2,628 |
- |
- |
- |
- |
2,628 |
|
Accrued income |
2,206 |
- |
- |
- |
- |
2,206 |
|
Creditors |
|
|
|
|
|
|
|
- falling due within 1 year |
(4,083) |
- |
- |
(2) |
(2,000) |
(6,085) |
|
- falling due after 1 year |
- |
- |
- |
- |
(7,840) |
(7,840) |
|
|
7,262 |
1,613 |
13,958 |
(2) |
(9,840) |
12,991 |
|
|
|
|
|
|
|
|
|
|
Non-interest bearing assets/ liabilities |
Fixed rate assets |
Floating rate assets |
Fixed rate liabilities |
Floating rate liabilities |
Net total |
|
As at 31 December 2017 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
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 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 13.6% (2017: 7.6%).
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 2018 and 2017 were:
|
Company |
Non-interest bearing assets/ liabilities |
Fixed rate assets |
Floating rate assets |
Fixed rate liabilities |
Floating rate liabilities |
Net total |
|
As at 31 December 2018 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
Investments - securities |
4,647 |
1,613 |
- |
- |
- |
6,260 |
|
Cash |
- |
- |
6,148 |
- |
- |
6,148 |
|
Accrued income |
104 |
- |
- |
- |
- |
104 |
|
Owed by Group undertakings |
221 |
- |
- |
- |
- |
221 |
|
Creditors |
|
|
|
|
|
|
|
- falling due within 1 year |
(152) |
- |
- |
- |
(2,000) |
(2,152) |
|
- falling due after 1 year |
- |
- |
- |
- |
(7,840) |
(7,840) |
|
|
4,820 |
1,613 |
6,148 |
- |
(9,840) |
2,741 |
|
|
|
|
|
|
|
|
|
|
Non-interest bearing assets/ liabilities |
Fixed rate assets |
Floating rate assets |
Fixed rate liabilities |
Floating rate liabilities |
Net total |
|
As at 31 December 2017 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
|
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 |
Although the Company holds investments that pay interest, the Board does not consider it appropriate to assess the impact of interest rate changes upon the value of the investment portfolio as interest rate changes are only one factor affecting market price and the impact is likely to be immaterial. However, as the Group has bank borrowings, the section below shows the sensitivity of interest payable to changes in interest rates:
|
|
2018 |
2017 |
|
|
Profit and net assets |
Profit and net assets |
|
If interest rates were 0.5% lower with all other variables constant - increase (£'000) |
50 |
- |
|
Increase in earnings and net asset value per ordinary share (pence) |
0.20 |
- |
|
If interest rates were 0.5% higher with all other variables constant - decrease (£'000) |
(50) |
- |
|
Decrease in earnings and net asset value per ordinary share (pence) |
(0.20) |
- |
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. The Group aims to hold sufficient cash to be able to provide loan interest and quarterly capital repayment cover of at least six months.
The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the Statement of Financial Position date to the expected maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.
|
As at 31 December 2018 |
Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
|
|
£'000 |
£'000 |
£'000 |
|
Bank borrowings |
2,421 |
2,301 |
6,202 |
|
Trade payables |
1,212 |
- |
- |
|
Accruals |
2,313 |
- |
- |
|
Contingent consideration |
- |
- |
11,032 |
|
Other creditors |
560 |
- |
- |
|
|
6,506 |
2,301 |
17,234 |
|
As at 31 December 2017 |
Less than 1 year |
Between 1 and 2 years |
Between 2 and 5 years |
|
|
£'000 |
£'000 |
£'000 |
|
Trade payables |
274 |
- |
- |
|
Accruals |
1,516 |
- |
- |
|
Contingent consideration |
1,500 |
- |
- |
|
Other creditors |
379 |
- |
- |
|
|
3,669 |
- |
- |
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 |
||
|
|
2018 |
2017 |
2018 |
2017 |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Debt |
(9,840) |
- |
(9,840) |
- |
|
Cash and cash equivalents |
13,958 |
9,785 |
6,148 |
6,484 |
|
Net assets |
79,740 |
28,847 |
77,571 |
28,571 |
|
Net cash / (debt) |
4,118 |
9,785 |
(3,692) |
6,484 |
|
Net cash / (debt) as a % of net assets |
5.2% |
33.9% |
(4.8%) |
22.7% |
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 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).
Investment in the unlisted security relates to a single investment in the equity of an unlisted fund. That unlisted fund invests in a large number of forestry assets. The forestry assets are held at fair value in the underlying fund. An independent valuation of the forests within the underlying fund is performed annually by forestry valuation experts by reference to comparable market transactions for each underlying forestry asset that considers factors including location, maturity of the forest and size. There is no reasonable change in the inputs in each of the underlying assets would give rise to a material adjustment to the fair value of the investment.
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 2018 |
Level 1 |
Level 3 |
|
|
£'000 |
£'000 |
£'000 |
|
Financial assets at fair value through profit and loss: |
|
|
|
|
Investments - securities |
|
|
|
|
- Equities |
6,511 |
4,587 |
1,924 |
|
Measured at amortised cost |
1,033 |
- |
1,033 |
|
|
7,544 |
4,587 |
2,957 |
|
|
31 December 2017 |
Level 1 |
Level 3 |
|
|
£'000 |
£'000 |
£'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 - long-term |
3,693 |
- |
3,693 |
|
|
8,509 |
1,106 |
7,403 |
|
Company |
31 December 2018 |
Level 1 |
Level 3 |
|
|
|
£'000 |
£'000 |
£'000 |
|
|
Financial assets at fair value through profit and loss: |
|
|
||
|
Investments - securities |
|
|
|
|
|
- Equities |
4,647 |
4,587 |
60 |
|
|
|
4,647 |
4,587 |
60 |
|
|
|
31 December 2017 |
Level 1 |
Level 3 |
|
|
£'000 |
£'000 |
£'000 |
|
Financial assets at fair value through profit and loss: |
|
|
|
|
Investments - securities |
|
|
|
|
- Equities |
1,151 |
1,106 |
45 |
|
|
1,151 |
1,106 |
45 |
Set out below is a reconciliation of financial assets measured at fair value based on level 3.
|
Group 31 December 2018 |
Property investments |
Investments - securities |
Trade and other receivables |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'000 |
|
Opening balance |
1,986 |
1,724 |
3,693 |
7,403 |
|
Total gains and (losses): |
|
|
|
|
|
In Statement of Comprehensive Income |
(1) |
(390) |
40 |
(351) |
|
Additions |
- |
1,500 |
- |
1,500 |
|
Disposals |
(1,985) |
(910) |
(2,700) |
(5,595) |
|
Closing balance |
- |
1,924 |
1,033 |
2,957 |
|
|
|
|
|
|
|
Total gains and (losses) for the year included in comprehensive income for assets held at the end of the reporting period |
- |
202 |
40 |
242 |
|
31 December 2017 |
Property investments |
Investments - securities |
Trade and other receivables |
Total |
|
|
£'000 |
£'000 |
£'000 |
£'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 year included in comprehensive income for assets held at the end of the reporting period |
(331) |
(41) |
148 |
(224) |
|
Company: 31 December 2018 |
Investments - securities |
Total |
|
|
£'000 |
£'000 |
|
Opening balance |
45 |
45 |
|
Total gains and (losses): |
|
|
|
In Statement of Comprehensive Income |
(653) |
(653) |
|
Additions |
1,000 |
1,000 |
|
Disposals |
(332) |
(332) |
|
Closing balance |
60 |
60 |
|
|
|
|
|
Total gains or losses for the year included in comprehensive income for assets held at the end of the reporting period |
16 |
16 |
|
31 December 2017 |
Investments - securities |
Total |
|
|
£'000 |
£'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 year included in comprehensive income for assets held at the end of the reporting period |
(2) |
(2) |
The only financial liabilities held at fair value relates to the deferred consideration on the acquisition of FIM Services Limited and the acquisition of the fund and investment management businesses of Livingbridge VC LLP amounting to £8,676,000. This is measured using level 3 valuation techniques. There were no such financial liabilities held at fair value within the Company.
Price risk sensitivity
Based on values as at 31 December 2018 a 10% movement in the fair values of 100% of the Group's equity investments would be equivalent to a movement of £651,000 in both profit and net assets.
33 RELATED PARTY TRANSACTIONS
Group
During the year management fees totalling £655,982 (2017: £611,610) were invoiced to Gresham House Strategic plc (GHS), a company in which the Group has a 22.9% interest. At the year-end £64,990 (2017: £62,063) was due from GHS.
During the year management fees totalling £967,358 (2017: £1,143,334) 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 £nil (2017: £104,870) was due from LMS.
During the year amounts totalling £51,297 (2017: £223,335) were invoiced to Corylus Capital LLP (Corylus), an entity in which Ben Guest, head of the New Energy strategy, has a material interest. Conversely, the Group was invoiced £287,623 (2017: £58,848) by Corylus for office and other costs. At the year-end £nil (2017: £164,487) was due from Corylus.
Company
During the year the Company repaid loans totalling £2,925,780 (2017: received £8,560,271 from) to Security Change Limited. At the year-end £2,562,578 (2017: £5,488,358) was due to Security Change Limited. No interest was charged during the year (2017: £nil).
During the year the Company received £nil (2017: £nil) from Gresham House Finance Limited. At the year-end £221,400 (2017: £221,400) was owed by Gresham House Finance Limited. No interest was charged during the year (2017: £nil).
During the year the Company repaid £63,984 (2017: received £297,476 from) to Gresham House Forestry Limited. At the year-end £nil (2017: £63,984) was owed to Gresham House Forestry Limited. No interest was charged during the year (2017: £nil).
During the year the Company received loans totalling £10,458,814 (2017: advanced £1,329,661 to) from Gresham House Holdings Limited. At the year-end £2,802,090 (2017: £7,656,723 was owed by) was due to Gresham House Holdings Limited. No interest was charged during the year (2017: £nil).
34 OPERATING LEASE COMMITMENTS
Non-cancellable operating lease rentals are payable as follows:
|
|
Group |
|
|
|
2018 |
2017 |
|
|
£'000 |
£'000 |
|
Less than one year |
610 |
189 |
|
Between one and five years |
305 |
- |
|
|
915 |
189 |
The Company has no operating lease commitments.
35 POST BALANCE SHEET EVENTS
On 26 February 2019, Persimmon settled the final £1,033,000 amount payable for the purchase of the Newton-le-Willows site.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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