Preliminary Results

RNS Number : 0175C

Gresham House Strategic PLC

23 June 2016

Gresham House Strategic plc

Preliminary results for the year ended 31 March 2016

Gresham House Strategic plc ("GHS" or the "company") is pleased to announce its preliminary unaudited results for the year ended 31 March 2016.

Gresham House Strategic plc, previously SPARK Ventures plc, is an AIM quoted investment company that invests primarily in UK and European smaller public companies, applying private equity style techniques and due diligence alongside a value investment philosophy to construct a focused portfolio expected to be comprised of 10-15 companies.

The manager aims for considerably higher levels of engagement with investee company stakeholders in order to identify market pricing inefficiencies and support a clear equity value creation plan targeting above market returns over the long-term.

Highlights

§ Completion of the realisation of asset sales from the historic SPARK Ventures portfolio

§ Adoption of new Strategic Public Equity ("SPE") investment strategy and appointment of Gresham House Asset Management Ltd ("GHAM") as investment manager

§ Placing and open offer raising £14.3 million of new equity capital plus £3.8 million asset swap and share consolidation on a 1 for 200 basis

§ Rebrand and change of name to Gresham House Strategic plc (GHS) including launch of a new website www.ghsplc.com and marketing material

§ Appointment of Ken Lever as non-executive director

§ Active investment decision to maintain high cash weighting to exploit increasing low valuation opportunities

§ £6.2m deployed in new strategic investment opportunities (including post year-end investments) through primary growth capital and secondary transactions

Financial highlights

§ Portfolio valuation at 31 March 2016 (including cash and other net assets) of £36.8 million

§ Realised & unrealised gains on investments of £3.8 million (31 March 2015: £0.9 million)

§ NAV discount reduced from 34% at the start of the financial year to 20% at year-end

For further information please contact:

Gresham House Strategic plc	David Potter Chairman	07711 450 391
Gresham House Asset Management Ltd Investment Manager	Graham Bird	020 3757 5613
finnCap Ltd Nominated Adviser and Joint Broker	Matt Goode/ Emily Watts	020 7220 0500
Liberum Joint Broker	Neil Elliot/ Jill Li	020 3100 2000

Chairman's Report

Dear Shareholder,

I write to you at the end of a transformational year for your company as we have evolved from an investment company following a realisation strategy (SPARK Ventures) to Gresham House Strategic plc (GHS) with a focussed and engaged Strategic Public Equity investment strategy.

The first part of the year under review was devoted to completing the realisation of asset sales from the old SPARK Ventures ("SPARK") portfolio, negotiating a new management arrangement with Gresham House Asset Management Ltd ("GHAM" or the "investment manager"), adopting a new investment policy and raising new equity capital. Your company now has a reinvigorated future and in the process we were also able to negotiate a reduction in fees and incentive payments to the investment manager which will further enhance long term shareholder returns. Our confidence in the new arrangements was exemplified by our rebranding as GHS.

To recap the history briefly, in 2009 (after the financial crisis) the shareholders declined to invest new money into SPARK Ventures and triggered a six-year realisation of the portfolio. The execution of this strategy delivered significant returns to shareholders. Each £1 of shares held at the time of the 2009 AGM that approved the realisation strategy had received £1.95 in dividends and cash returns in addition to £0.62 represented by the share price on 8 August 2015 when the new investing policy was approved and the investment mandate was taken on by GHAM.

Your board concluded that the company should remain in the investment business, which will enable us to preserve and utilise our substantial tax losses carried forward from the dot-com crash in 2001. These would have been lost if we had simply wound up the company. The continuation will also avoid further winding up costs which could have been significant.

In August 2015 we appointed the GHAM Strategic Public Equity team to manage the assets utilising the company's new investment strategy. This strategy is designed to exploit the potential in a focused portfolio of smaller, generally UK quoted, cash generative companies where value can be added by proactively assisting change and development, through the application of techniques and levels of engagement more typical of private equity investors. This team has a proven track record of delivering superior investment returns primarily from their days at Schroder Ventures (London) Limited/SVG investment managers. I am pleased to say that Gresham House has also become our largest shareholder, which has the benefit of increasing alignment between shareholders and the manager.

At the commencement of the new arrangements with GHAM we had net assets of £36.4m, including £16.3m of cash, our stake in IMImobile, then valued at £16.3m, and three companies acquired by way of asset swaps. The continuation of the vehicle with the new GHS mandate allows the full value of IMImobile to be realised over the longer term. These investments, totalling £3.8m at the time of acquisition, and those made subsequently are fully described in the investment manager's report.

I would like to pay a special tribute to my board colleague and predecessor as Chairman, Tom Teichman, one of the founders of SPARK Ventures. I am delighted that he remains involved as a member of the Strategic Public Equity Investment Committee of GHAM.

The new management arrangements are working well. GHAM has taken a cautious approach to deploying capital, given perceived relatively high valuations, resulting in our net cash balance at the end of the year being £15.2m. Since being awarded the investment mandate the team has invested £6.2m in new opportunities in addition to the £3.8m of asset swaps in August. The investment manager has explicitly stated the view that headline market valuations appear full, and that opportunities will arise as companies disappoint. This has certainly begun to occur and GHS has captured some of these through new investments. I believe the market volatility has fully justified this approach.

Costs were, of necessity, relatively high due to the transactions required to create the new structure and the settlement of incentive fees payable under the previous investment mandate. We anticipate these will normalise in the coming year.

Shareholders will recall that we committed to distribute 50% of capital realisation gains through dividend. Although there was a small gain of £0.26m on Castle Street Investments the costs of paying a dividend out of this would be prohibitive. We intend to dividend out 50% of realised gains once at a level the board believes to be appropriate. The investment manager has also committed to re-invest up to 50% of any future performance fees in GHS shares. I feel therefore that the company, shareholders and its investment manager all share a common goal and full alignment.

In January we strengthened the board with the appointment of Ken Lever, a very experienced company director who recently stepped down as Chief Executive of Xchanging plc.

Whilst the shares continue to trade at a discount to NAV, it should be noted that the average discount is significantly below that of the six months prior to the new investment manager's appointment. The new investment manager has only been in situ for 10 months and having rebranded, put in place a disciplined investment process, marketing materials, a new website and investor relations plan, we expect the market to recognise the potential in our portfolio and narrow the discount over the medium term. This is especially the case since we still hold a significant amount of cash alongside an attractively valued portfolio of smaller companies with good growth prospects.

We believe that many good investment opportunities to deploy cash and inject growth capital into smaller companies in support of long-term strategies will arise in the short-term.

Markets are, and may remain volatile, and smaller quoted companies will continue to be under-researched and sometimes friendless. The board is optimistic about the prospects for the underlying investments which should drive NAV growth and with risk appetite stable, the discount to NAV should narrow in the coming year. The board believes that GHAM is an experienced, capable investor.

It has been an exceptionally active year for the board, the new investment manager and all our advisors and I thank them warmly.

David Potter

Chairman

Investment Portfolio Holdings
Company	Deal Type	% ownership of the company	% of total portfolio	Value
IMI Mobile	Secondary - growth and re-rating	17.4%	45%	£16.3m
Be Heard Group	Growth capital supporting buy and build strategy	11.1%	6.0%	£2.3m
Quarto Group	Secondary with primary growth capital supporting acquisitions	4.6%	6.0%	£2.1m
Northbridge Industrial Services	Growth capital	8.0%	5.0%	£1.8m
Miton Group	Secondary - operational gearing and AUM growth	2.9%	4.0%	£1.3m
SpaceandPeople	Secondary - recovery and growth	10.6%	3.0%	£1.1m

Investment Managers' Reports

Outgoing Investment Manager's Report

Until 7 August 2015, SPARK Venture Management Limited (SVML) acted as the company's investment manager and had responsibility for the investment activities of the company.

In the period from 1 April 2015 to 7 August 2015 SVML substantially completed the realisation of the remaining venture capital portfolio leaving the company with one large investment in IMI Mobile plc (IMI), which is quoted on AIM, and cash balances.

The nine assets that were subject to the Hollyport sale agreement were all sold - seven of them to Hollyport and two to other existing shareholders where these shareholders chose not to sell. The total proceeds received amounted to £3.83m, being £166,000 more than we had assumed at 31 March 2015.

We recovered the restricted cash relating to the IPO of IMI of £3.1m and chose not to sell any shares in the period, continuing our belief in IMI's long term potential. The considerable (>20%) recovery in IMI's share price from 121.5p has justified this decision.

In the period between the management buy-out in October 2009 and 7 August 2015, the portfolio of investments which was then valued at £33.8m has been turned into cash of £57.5m and a quoted investment worth £16.5m, representing a money multiple of 2.2x and a gross IRR of approximately 21%. We believe this constitutes a very satisfactory outcome for shareholders. We therefore leave our former role in the belief that we have fulfilled our mandate and we look forward to the company's future success with its new investment manager.

SPARK Venture Management Limited

Incoming Investment Manager's Report

On 10 August 2015 GHAM was formally awarded the management contract for the company and in October the company was rebranded Gresham House Strategic plc. This is the first annual report since appointing the new investment team and adopting the Strategic Public Equity investment strategy and it is pleasing to report on new investments and a strong pipeline of opportunities.

Strategic Public Equity investment strategy

We aim to utilise the philosophy, approach and techniques used by private equity investors to identify opportunities, targeting UK and European smaller public companies. We focus on companies with characteristics such as strong cash generation and scope to improve return on capital, and where we believe there are opportunities to create shareholder value through strategic, operational or management initiatives. Our approach is differentiated from many other public equity investment strategies in a number of ways including: depth of due diligence undertaken; the level of interaction and constructive engagement with management teams and boards; the focused and concentrated portfolio; and the investment horizon in which we typically seek to support a three to five-year value creation plan with identified milestones. We also make use of a network of seasoned executives from a range of professional and commercial backgrounds with whom we consult, including those who form part of the Gresham House Advisory Group.

GHAM believes this approach can lead to superior investment returns as it is targeting inefficiencies in certain segments of the public markets. There are over 1,200 companies in the FTSE Small Cap index and on AIM. These companies typically suffer from a lack of research coverage and may often have limited access to growth capital. This often leads to investment opportunities being overlooked by the wider market.

Our investment strategy has an underlying value philosophy, focusing primarily on cash generative companies where there is scope for management engagement to identify opportunities to implement strategic, management or operational initiatives to create shareholder value and to generate improved equity returns.

The investment process is typically broken into four stages and includes an investment committee. Investment returns target a net 15% IRR over the investment holding period (three to five years).

In addition to publicly quoted companies, we also have the flexibility to invest up to 30% of the portfolio in selected unquoted securities including preference shares, convertible instruments, limited partnership interests and other forms of investments.

Market background

The FTSE All-share and Smaller Companies indices started the year with a continuation of the uncertainty and volatility that characterised Q4 2015. Indices fell sharply, driven by concern over slowing growth in Asia, pressure on oil and commodity prices, a short-term focus on the prospect of US and UK interest rate rises in contrast to negative rates in Europe and fears of deflation, all resulting in an unclear market direction. However, we saw a rebound into Q2 as fears of a rate rise dissipated and following dovish rhetoric in the US and further central bank intervention. The UK market is now focused on the impending vote on Britain's EU membership which is creating inertia with investors.

We have previously commented on market valuations which we continue to see as relatively high on a number of metrics compared to long term averages, with the FTSE small-cap trading at a median P/E multiple of 16x, a dividend yield of 2.8% (Bloomberg data, 10 July 2016) and cyclically adjusted P/E ratios towards the top end of their historic ranges. This is against a backdrop where the consensus view is that it will be tough to generate meaningful earnings growth given a slowing global economy, low inflation and operating margins nearing peak levels. Evidence of this uncertainty can be seen in the significant contraction, globally, in IPO activity and also the increased M&A activity over the last 12 months with companies acquiring growth to maintain valuations and ratings.

Against this uncertain backdrop we continue to see a divergence within the equity markets, not just between larger and smaller company valuations, but also growth versus value. Whilst markets as a whole appear expensive on some metrics, there is considerable dispersion within the indices, notably between large and small companies and also between 'value' and 'growth'. It is well documented that within UK equities, smaller companies have proven to generate significant outperformance over the long term, with further outperformance from 'value' companies. We believe the current environment represents a favourable backdrop in which to implement our focused, engaged strategy and is one which should attract growing interest, particularly in the coming years.

Within the first 10 months as investment manager we have constructed what we believe to be an attractive, lowly valued portfolio with good prospects for long term earnings and share price growth. We have an attractive pipeline of investments and deals providing opportunity to generate superior long term returns, focused on smaller companies with "value characteristics" where the team can actively engage with management teams to support a three to five year plan to grow shareholder value. We continue to focus on the inefficient areas of the market, both public and private where we can identify a competitive advantage.

Performance review

The GHS share price has risen 9.6% during the period outperforming the FTSE Smaller Companies index by 6.5% and the FTSE All Share index (both excluding Investment Trusts) by 17.5%, with the discount to NAV narrowing from 35% to 20%. The share price has increased 3.0% post period end from April 2016 through to 10 June 2016 outperforming the smaller company indices. The NAV has been resilient against a volatile market and economic and political backdrop.

At present we hold six companies in the portfolio with a medium term target which would see between ten and fifteen stocks representing more than 80% of the portfolio. The current portfolio of companies is attractively valued, with strong cash generation characteristics. Taking into account cash in the portfolio and the current share price discount to NAV per share, the portfolio is trading on an implied EV/EBITDA multiple below 5x (excluding cash and Be Heard Group for which there are no current broker forecasts), which is approximately half the market rating, and offers EBITDA growth prospects in excess of 10%, also twice the market average. We have an exciting pipeline including private opportunities which may potentially be pre-IPO, and we look forward to updating shareholders in due course.

Performance	Since appointment¹ - 31 March 2016	Since appointment¹ - 10 June 2016	2016 ytd²
GHS NAV	1.03%	0.37%	0.10%
FTSE Small Cap (ex Investment Trusts)	-2.76%	-2.64%	-0.91%
FTSE All Share (ex Investment Trusts)	-5.44%	-6.31%	-2.27%

Relative performance
Relative FTSE Small Cap (ex investment trusts)	3.79%	3.01%	1.01%
Relative FTSE All Share (ex investment trusts)	6.47%	6.68%	2.38%

¹ 14 Aug 2015 - First release of NAV since GHAM's appointment as investment manager to GHS

² Performance run through to 10 June 2016

Holdings	Value (£m)	% of NAV	% shareholding in company

31-Mar-16
IMImobile	£15.6	42.4%	17.4%
Quarto Group	£2.3	6.3%	4.6%
Miton Group	£1.6	4.3%	2.9%
SpaceandPeople	£1.2	3.3%	10.6%
Be Heard Group	£1.0	2.7%	7.3%
Cash and other net assets	£15.0	41.0%
Net Asset Value	£36.7

Average EV/EBITDA portfolio*	4.7x
Estimated EBITDA growth*	15%
Average Free Cashflow Yield*	11.5%
*GHAM calculations

10-Jun-16
IMImobile	£16.3	44.5%	17.4%
Be Heard Group	£2.3	6.3%	10.0%
Quarto Group	£2.1	5.7%	4.6%
Northbridge Industrial Services	£2.1	5.7%	9.0%
Miton Group	£1.3	3.6%	2.9%
SpaceandPeople	£1.0	2.8%	10.6%
Cash and other net assets	£11.5	31.4%
Net Asset Value	£36.6

Average EV/EBITDA portfolio*	4.1x
Estimated EBITDA growth*	11.7%
Average Free Cashflow Yield*	13.3%

*GHAM calculations

NAV Performance attribution

The NAV performance during the year reflects two different periods within the history of the company. As noted above, on 10 August 2015, GHAM was formally awarded the investment management responsibility and the company adopted its new investing policy as set out in the circular to shareholders dated 21 July 2016. The NAV performance in the first half of the year was commented on in the company's interim results statement and hence this commentary is focused on the second half of the year during which the new investment policy has been in place.

GHS NAV attribution (30 Aug 2015 - 31 May 2016)

	Gross	Per share	%
NAV - 31 Aug 2015	37,234	10.10
Be Heard	101	0.03	0.3%
IMI	(211)	-0.06	-0.6%
CSI	160	0.04	0.4%
Miton	75	0.02	0.2%
NBI	282	0.08	0.8%
Quarto	29	0.01	0.1%
SpaceandPeople	(547)	-0.15	-1.5%
Costs	(744)	-0.20	-2.0%
NAV - 31 May 2016	36,957	10.02	-2.3%
Note: The NAV announced differs marginally from above due to slight differences in Bloomberg pricing using the mid-price vs accounting policies which use the bid-price.
* GHAM calculations

A number of our portfolio holdings reported positive news flow during the period.

Quarto Group announced results ahead of market expectations with good earnings growth and strong cash generation as a result of organic growth and the highly successful acquisition of Ivy Press.

Miton Group highlighted strong inflows and top quartile fund performance in Q1 2016 resulting in a moderate upgrade to broker forecasts and the shares performed well, rising 27%. However, the share price performance reversed following the announcement of the departure of two key fund managers in April. We continue to believe the company is attractively valued and are encouraged by the appointment of Andrew Jackson to manage the Value Opportunities fund. The management team's focus now should now be on defending assets and returning the group to industry average operating margins.

The only faller in the period, SpaceandPeople plc, announced final results in March for the year ended 31 December 2015 which were in line with expectations.

IMImobile, a significant holding within the portfolio, released a positive pre-close trading update on 30 March 2016 highlighting a strong pipeline and positive outlook. Preliminary results for the year ended 31 March 2016 are due for release in July and we continue to see opportunity to the upside as the valuation anomaly compared to comparable transitions closes through identified action points taken by the management.

The fund exited its position in Castle Street Investments on 1 March 2016 generating a gross IRR of 43%.

Dealing activity

Since being appointed investment manager the team has made three new strategic investments building a 10% stake in digital advertising business Be Heard Group Plc ("Be Heard"), a 5% stake in Quarto Group Inc ("Quarto") and acquiring an initial 8% stake in specialist industrial business Northbridge Industrial Services plc ("Northbridge"), which we have subsequently increased to 9%.

Two of these investments are primary or new "growth" capital investments. All GHS investments offer a mix of growth, recovery and consolidation opportunities and in all three cases we are supporting strong management teams to deliver a 3-5 year value creation plan. In the cases of both Be Heard and Northbridge we provided new capital and in all three cases anticipate providing further support and growth capital to the businesses as the investments progress. More detailed case studies are outlined below.

The company invested in Be Heard (BHRD) in November 2015 subscribing for new shares at 3.25p in a placing to provide growth capital supporting a new strategy, the build out of the experienced management team and readmission to AIM. We increased our holding in December 2015 taking advantage of temporary share price weakness. On 14 March, in line with its stated strategy, the company announced the proposed acquisition of design, build and user experience agency MMT Digital alongside a further new issue of equity raising £8m of growth capital. We participated as a cornerstone investor increasing our stake in the company to over 10%.

We acquired an initial holding in Quarto (QRT) in November 2015 (as part of a block secondary placing) with a view to supporting CEO Marcus Leaver's strategy which seeks to build on the international platform focused on niche, illustrated publishing titles, both organically and through bolt on acquisitions. We anticipate opportunities to provide further growth capital in the future as the business scales. The shares have performed well, increasing in value by 10.2% since the time of our initial investment, in part a result of the company announcing good final results on 17 March with revenue, PBT and the full year dividend slightly ahead of broker forecasts and debt reduction ahead of target. The acquisition of Ivy Press in February 2015 has been a demonstrable success, illustrating the opportunity to generate synergies by leveraging the group's operating and distribution platforms.

We exited our small holding in Castle Street Investments (Castle Street) on 1 March 2016, realising a 43% IRR and 1.2x money multiple. At the time Castle Street was taken on as an asset swap in the placing in August 2015, it was a cash shell. The company subsequently raised money to support an acquisition and buy-and-build strategy focused on IT services. Whilst we could see potential in the company's strategy, a rise in the price coupled with the fact that we saw limited opportunity for us to drive our mandate for investing led to the decision to realise our investment.

Shortly after the year end, and following extensive engagement with the management to craft an appropriate transaction, we made an investment in Northbridge, described more fully below.

Portfolio review

Quarto

Quarto Group is a leading global illustrated book publisher and distribution group and has been listed on the London Stock Exchange since 1986. Quarto creates more than 1,500 adult and children's books a year. These books are sold into 35 countries and in 25 languages. Subjects range from art 'how-to', graphic design, and home improvement, to cooking, gardening, motoring, and crafts. Quarto specialises in producing books that can be better explained with photographs or illustrations, covering many different subject matters.

Chief Executive, Marcus Leaver, joined the company as COO in May 2012 and became CEO in December that year. He has restructured the business and has a strategy to build the business through consolidating a fragmented industry. The strategic restructure has created a solid platform to implement this buy and build growth strategy and creates the opportunity for the company to become a leader in various areas of niche publication.

We believe significant further value can be generated through ongoing operational improvement, strong cash generation leading to debt reduction, as well as complementary bolt on acquisitions aimed at increasing market share within publishing niches, such as children's books. The strategy is therefore based around profit growth and cash generation. Positive data released in May 2015 showed sales of physical books grew for the first time in four years driven by demand for adult colouring-in and children's books. We increased our position following results, taking our stake up to 5%.

Miton Group plc

Miton (MGR) is an active investment management company with c.£2.9 billion of assets under management (Feb 2016), operating nine open ended funds, four unit trusts and three investment trusts.

The company has a strategy to focus on fund management and to grow and improve the longevity of its assets under management through building its investment trust business. Increased scale should also allow the company to leverage its cost base more effectively.

Signs of success in the turnaround of Miton were evident in Q1 2015 with momentum in asset inflows and top quartile performance from the majority of group funds. The business has invested heavily in its operational platforms and IT to support scale and will benefit from significant operational gearing. However, shortly after the period end, the company announced the departure of two high profile fund managers which has affected the positive momentum and has impacted sentiment. The group has some exceptional fund managers, and the subsequent appointment of Andrew Jackson to manage the Value Opportunities Fund, replacing the two departing fund managers is welcome news, although it is too early to predict the impact on AUM flows, not just for that specific fund, but also the impact on fund raising for the European fund. The potential for shareholder value is clear through improvements in operating margins and return on capital employed. We remain happy with our investment and see scope for significant upside over the longer term as these KPIs are achieved.

SpaceandPeople

SpaceandPeople (SAL) facilitates and manages space on behalf of property managers for marketing campaigns and retailing in high footfall destinations such as shopping centres and travel hubs.

Signs of recovery have been evident with scope to grow the top line - in particular by its digital kiosk offering in the UK and to restore margins back to normalised levels. The company announced its preliminary results on 29 March 2016 which were in line with expectations and cited good progress in winning significant new contracts during the period.

Importantly the results confirmed that the UK business is performing well and delivering good growth in the recently launched, and high return on capital, digital Mobile Promotional Kiosk product ("MPK"). This is to some degree replacing legacy Retail Merchandising Units ("RMUs"). Focus is now on delivery and execution of the new contracts won in 2015 in the UK with Network Rail, British Land and in converting the trial with Auchan, one of the largest operators of shopping centres in France. The company is projecting modest growth in earnings for 2016; however the valuation implies little expectation of long term growth.

IMImobile

IMImobile is an enterprise software provider, selling to mobile operators and large consumer-facing enterprises, with three main product offerings:

§ The core application, IMIconnect, allows enterprise applications to contact and engage with customers or employees across a variety of mobile and other digital messaging methods, from SMS to social media messaging.

§ The IMIcampaign product is an application built on the IMIconnect functionality, enabling control and management of marketing campaigns using a marketing automation software solution.

§ The IMIdigital platform is a content management system for (primarily) mobile operator websites, enabling the sale and distribution of digital content to consumers.

The company's business model is increasingly migrating to SaaS, although it also offers fully managed services to its clients using its applications. Operations cover India, MEA, Europe and the UK. The company has recently launched in the US.

The company has been active over the last 12 months restructuring and rebranding the product suite, completing an acquisition and appointing a new corporate broker and PR adviser. Since the period end, John Allwood, the existing senior independent non-executive director has moved to the role of Chairman with founder and former Chairman, Vishwanath Alluri, remaining on the board as a non-executive director.

The company released a positive pre-close update on 30 March 2016 confirming that the group is trading in line with market expectations which leaves us optimistic for growth prospects for FY17. The business is demonstrating encouraging organic growth across all regions with business units delivering revenue and gross profits growth of 25% and 20% respectively. Performance in western Europe and the Americas was particularly pleasing where the company had key contract renewals coupled with strong new wins. MEA had an excellent year with an attractive pipeline positioning the business well for continued growth in FY17 whilst the integration of the recent acquisition, Archer, in South Africa is generating good cross-selling opportunities. The company has also completed investment in and simplification of its product suite.

The shares are attractively valued trading below 7x EV/EBITDA which is considerably below trade and private equity multiples for similar businesses. 90% of its revenues are naturally recurring, it is highly cash generative with a strong balance sheet which we believe will enable further consolidation benefits alongside organic growth.

Be Heard

GHS is supporting a buy and build strategy executed by an experienced management team through the issue of primary growth capital. Be Heard has ambitious plans to build an international network of digital marketing, ecommerce specialists through acquisition, with each agency maintaining its own brand and proposition while benefiting from the company management team's significant experience and proven track record of value creation and building businesses in the sector. The company is chaired by industry veteran Peter Scott and his highly capable team who have previously developed and successfully exited advertising businesses such as Aegis, WCRS and the Engine Group.

Be Heard was a cash shell (formerly Mithril) which was listed on the main market in December 2014, raising £3.4m. In November 2015 the company raised a further £5.5m to fund the acquisition of Agenda 21, an existing profitable media buying and digital marketing company. Agenda 21's core business is planning, buying and managing multi-channel marketing campaigns across the digital media spectrum on behalf of its clients. This includes search engine marketing/pay per click, search engine optimisation, display advertising, including social, mobile and programmatic opportunities and other paid media, underpinned by Agenda 21's proprietary analytics. Agenda 21 generated revenues of £14.8m and gross profit of £3.2m in the year-ended 31 December 2014. In the six months to 30 June 2015 the company generated revenues of £7.9m and gross profit of £2m.

In April the company announced its intention to raise a further £8m, partly to fund the acquisition of MMT Digital (MMT) and introduce additional respected institutional fund managers to the shareholder register. MMT is a leading website design, build and user experience agency based in Uppingham and London. It serves a wide range of clients and offers a fully integrated, bespoke client service across strategy, user experience, design, build and application development. It delivers using an Agile development methodology which leads to deep customer engagement and high utilisation levels for developers. It has a strong development team with expertise in a number of platforms, including Kentico, Drupal, Sitecore and EPiServer. MMT generated revenue of £4.9m and gross profit of £2.7m in the year ended 31 March 2015.

Following our initial investments made in November and December 2015, after the period end we added to our holding participating through a £1.6m cornerstone investment in the previously announced new issue of £8m equity alongside the acquisition of MMT. GHS is now a 10% shareholder.

New investment post year end

Northbridge Industrial Services

As noted above, we made a new investment in Northbridge Industrial Services plc after the period end.

Northbridge hires and sells specialist electrical and oil & gas related equipment in a range of international markets, including the UK, US, Europe, and Australasia. End markets include utility companies, oil & gas, shipping, construction, data centres and medical.

Loadbank and transformer components are assembled by the group at its manufacturing facility in Burton-on- Trent. The group has grown organically and through acquisitions, most recently by the acquisition of Tasman Tools which was completed in 2014.

We initially engaged with the company's management team in Q3 and Q4 of 2015, exploring ways in which we could support the recovery and long term growth strategy. After a number of constructive discussions, in April we acquired an 8% stake in the business through a primary issue of new shares. Significantly we participated as a cornerstone investor in a placing investing £1.5m of the £4.5m total and underwrote the £1.1m open offer. Throughout the investment appraisal process, we conducted site visits, and leveraged third party sector experts within our advisory network in addition to conducting independent research.

We acquired shares at what we believe to be an attractive entry price representing a 40% discount to tangible net asset value and an estimated 4.8x EV/EBITDA multiple. The equity issue has substantially reduced the company's debt and we believe further value can be created through further debt pay down, given the strong cash generation and ability to reduce capital expenditure, plus a recovery of margins towards more normalised levels over the medium term. Importantly investor focus has switched from balance sheet concerns over debt covenant headroom to recovery and growth and the company is now well placed to exploit advantageously priced bolt on acquisitions.

Outlook

The outlook for equity markets as a whole remains mixed with concerns over issues such as the slowing global economy and deflationary pressures, the UK referendum and the broader political temperature in Europe, the migrant crisis and security concerns, as well as the oil price and wider commodity markets leading to volatility. Although traditional valuation metrics do not look excessive for the UK indices, they are towards the upper end of the spectrum with median P/E multiples of 16x and a dividend yield of 2.8% for the FTSE small-cap index (ex. investment trusts). The extraordinary period of quantitative easing has resulted in an unprecedented low cost of capital which has helped drive corporate ROE and margins towards peak levels. These conditions suggest that medium term real returns from the equity markets are likely to be below their longer term average of 4% - 5%.

However, indices are an average and hide dispersions. We made an active decision to hold a high weighting in cash, in order to benefit from pricing dislocations which we anticipated. These are starting to appear. The valuation discrepancies between small and large companies and between 'value' and 'growth' are, in some cases, extreme. For investors who are prepared to take a longer term view and for those who are prepared to do their research carefully, these conditions can provide attractive investment opportunities. Furthermore, market uncertainty has led to a reduction of institutional interest in new equity issues for small companies, so our view is that management teams are increasingly eager to engage with investors who are able to take a longer term view and who are willing to engage in the company's strategy. Many small companies could be viewed as private companies with a quote. Consequently, we remain optimistic for the prospects for the returns from Gresham House Strategic plc which employs a private equity approach to quoted markets.

Investment Manager

Gresham House Asset Management Limited

Unaudited Group Statement of Comprehensive Income

for the year ended 31 March 2016

		Year ended	Year ended
		31 March	31 March
		2016	2015
	Notes	£ '000	£ '000
Continuing operations
Gains/(losses) on investments at fair value through profit or loss
Realised gains/(losses)		427	(407)
Unrealised gains/(losses)		3,351	(452)
	8	3,778	(859)
Revenue
Bank interest income		29	11
Management fee income		218	75
		247	86
Administrative expenses
Salaries and other staff costs	3	(138)	(216)
Other costs	4	(3,625)	(1,368)
Total administrative expenses		(3,763)	(1,584)

Profit/(loss) before taxation		262	(2,357)

Taxation	5	-	-
Profit/(loss) for the financial year		262	(2,357)

Attributable to:
- Equity shareholders of the parent		262	(2,357)

Basic and diluted earnings per ordinary share for profit/(loss) from continuing operations and for profit/(loss) for the year¹	6	8.30p	(112.61)p

Note:

1 - (31 March 2015 restated for comparison on a 1:200 basis)

There are no components of Other Comprehensive Income for the current period (2015: None).

Unaudited Group Statement of Financial Position

as at 31 March 2016

		31 March	31 March
		2016	2015
	Notes	£ '000	£ '000
Non-current assets
Investments at fair value through profit and loss	8	21,777	16,503
		21,777	16,503
Current assets
Other receivables	10	69	32
Restricted cash	10	-	3,123
Cash and cash equivalents		16,555	3,036
		16,624	6,191
Total assets		38,401	22,694

Current liabilities
Trade and other payables	11	(1,689)	(95)
Total liabilities		(1,689)	(95)
Net current assets		14,935	6,096

Net assets		36,712	22,599

Equity attributable to the shareholders of the parent
Issued capital	12	1,932	1,135
Share premium		13,063	9
Revenue reserve		11,024	10,762
Capital redemption reserve		10,693	10,693
Total equity due to ordinary shareholders		36,712	22,599

Net asset value per ordinary share¹		995.71p	1,080p

		Number	Number
		'000	'000

Ordinary shares in issue	12	3,843	2,250
Shares held in treasury		(156)	(156)
Shares in issue for net asset value per share calculation		3,687	2,094

Note:

1 - (31 March 2015 restated for comparison on a 1:200 basis)

Unaudited Company Statement of Financial Position

as at 31 March 2016

		31 March	31 March
		2016	2015
	Notes	£ '000	£ '000
Non-current assets
Investments at fair value through profit and loss	8	21,777	16,496
Investments in subsidiary undertakings	9	534	108,231
Deferred tax	5	716	796
		23,027	125,523
Current assets
Trade and other receivables	10	29	30
Cash and cash equivalents		16,368	2,572
		16,397	2,602
Total assets		39,424	128,125

Current liabilities
Trade and other payables	11	(15,140)	(127,495)
Total liabilities		(15,140)	(127,495)
Net current assets/(liabilities)		1,257	(124,893)

Net assets		24,284	630

Equity
Issued capital	12	1,932	1,135
Share premium		13,063	9
Revenue reserve		(1,404)	(11,207)
Capital redemption reserve		10,693	10,693
Total equity		24,284	630

Unaudited Group Statement of Cash Flows

for the year ended 31 March 2016

		Year ended	Year ended
		31 March	31 March
		2016	2015
	Notes	£ '000	£ '000
Cash flows from operating activities
Cash flow from operations	a	(200)	(5,157)
Net cash outflow from operating activities		(200)	(5,157)

Cash flows from investing activities
Purchase of financial investments		(1,546)	-
Sale of financial investments	8	5,195	3,515
Net cash inflow from investing activities		3,649	3,515

Cash flows from financing activities
Share options exercised		-	202
Dividend paid (D shares)		-	(2,200)
Dividend paid (C shares)		-	(4,987)
Share buy backs (B shares)		-	(14,000)
Proceeds from share issue		10,181	-
Transaction costs on issue of shares		(111)	-
Net cash inflow/(outflow) from financing activities		10,070	(20,985)

Change in cash and cash equivalents		13,519	(22,627)
Opening cash and cash equivalents		3,036	25,663
Closing cash and cash equivalents		16,555	3,036

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

		£'000	£'000
Profit/(loss) before tax		262	(2,357)
(Gains)/losses on investments	8	(3,778)	859
Operating loss		(3,516)	(1,498)

Change in trade and other receivables		(37)	522
Change in restricted cash		3,122	(3,122)
Change in trade and other payables		231	(559)
Change in provisions		-	(500)
Net cash outflow from operations		(200)	(5,157)

Unaudited Company Statement of Cash Flows

for the year ended 31 March 2016

		Year ended	Year ended
		31 March	31 March
		2016	2015
	Note	£ '000	£ '000
Cash flows from operating activities
Cash flow from operations	a	77	(1,674)
Net cash inflow/(outflow) from operating activities		77	(1,674)

Cash flows from investing activities
Purchase of financial investments		(1,546)	-
Sale of financial investments	8	5,195	302
Net cash inflow from investing activities		3,649	302

Cash flows from financing activities
Share options exercised		-	202
Dividend paid (D shares)		-	(2,200)
Dividend paid (C shares)		-	(4,987)
Share buy backs (B shares)		-	(14,000)
Proceeds from share issue		10,181	-
Transaction costs on issue of shares		(111)	-
Net cash inflow/(outflow) from financing activities		10,070	(20,985)

Change in cash and cash equivalents		13,796	(22,357)
Opening cash and cash equivalents		2,572	24,929
Closing cash and cash equivalents		16,368	2,572

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

		£'000	£'000
Profit/(loss) before tax	2	9,803	(3,667)
Gains/(losses) on investments	2	(3,785)	2,193
Non-cash items:
Investments in subsidiaries written-off	9	8,752	-
Impairment of investments in subsidiaries	9	98,945	-
Intercompany balances written-off	11	(113,946)	-
Other non-cash items		-	(15)
Operating loss		(231)	(1,489)

Change in trade and other receivables		81	3,348
Change in trade and other payables		227	(3,033)
Change in provisions		-	(500)
Net cash inflow/(outflow) from operations		77	(1,674)

Unaudited Group Statement of Changes in Equity

for the year ended 31 March 2016

	D shares	Ordinary share capital	Share Premium	Revenue Reserve	Capital Redemption Reserve	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2014	10	1,350	9	31,904	10,468	43,741

Loss and total comprehensive loss for the year	-	-	-	(2,357)	-	(2,357)
Transactions with owners
Share split into 2014 B & C shares and redemption thereof	-	(225)	-	-	225	-
Share buy-backs - 2014 B shares	-	-	-	(14,000)	-	(14,000)
Dividend - 2014 C shares	-	-	-	(4,987)	-	(4,987)
Share options exercised	-	-	-	202	-	202
Balance at 31 March 2015	10	1,125	9	10,762	10,693	22,599

Profit and total comprehensive income for the year	-	-	-	262	-	262
Transactions with owners
Shares issued	-	797	13,543	-	-	14,340
Share consolidation adjustment	-	-	9	-	-	9
Transaction costs	-	-	(498)	-	-	(498)
Balance at 31 March 2016	10	1,922	13,063	11,024	10,693	36,712

Unaudited Company Statement of Changes in Equity

for the year ended 31 March 2016

	D shares	Ordinary share capital	Share Premium	Revenue Reserve	Capital Redemption Reserve	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 March 2014	10	1,350	9	11,245	10,468	23,082

Loss and total comprehensive loss for the year	-	-	-	(3,667)	-	(3,667)
Transactions with owners
Share split into 2014 B & C shares and redemption thereof	-	(225)	-	-	225	-
Share buy-backs - 2014 B shares	-	-	-	(14,000)	-	(14,000)
Dividend - 2014 C shares	-	-	-	(4,987)	-	(4,987)
Share options exercised	-	-	-	202	-	202
Balance at 31 March 2015	10	1,125	9	(11,207)	10,693	630

Profit and total comprehensive income for the year	-	-	-	9,803	-	9,803
Transactions with owners
Shares issued	-	797	13,543	-	-	14,340
Share consolidation adjustment	-	-	9	-	-	9
Transaction costs	-	-	(498)	-	-	(498)
Balance at 31 March 2016	10	1,922	13,063	(1,404)	10,693	24,284

Notes to the Unaudited Consolidated Financial Statements

1 Basis of preparation and significant accounting policies

Gresham House Strategic plc (the "company") is a company incorporated in the UK and registered in England and Wales (registration number: 3813450). The company was formerly named SPARK Ventures plc but took the opportunity to change the articles of association at the annual general meeting held on 22 September 2015 to permit the directors to change the company's name by a resolution of the board. Accordingly, the name was changed to Gresham House Strategic plc on 27 October 2015. The consolidated financial statements for the year ended 31 March 2016 include the financial statements of the company and its subsidiaries (together 'the group'). Separate financial statements of the company are also presented except that the company's statement of comprehensive income and supporting notes are not included. The same accounting policies were applied in preparing the financial statement of the company. The accounting policies applied are consistent with the prior year.

The consolidated financial statements for the year ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards ('IFRS') approved by the International Accounting Standards Board ('IASB'), as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements are prepared on a historical cost basis except for the revaluation of certain financial instruments stated at fair value. Standards and interpretations applied for the first time have had no material impact on these financial statements.

The following new standards, interpretations and amendments which will or may have an effect on the group, are effective for annual periods beginning on or after 1 January 2016 and have not yet been applied in preparing these financial statements. None of these new standards or interpretations are expected to have a material impact on the financial statements of the group.

· IFRS 9 will eventually replace IAS 39 in its entirety. However, the process has been divided into three main components (classification and measurement, impairment and hedge accounting). This standard becomes effective for accounting periods beginning on or after 1 January 2018. Its adoption may result in changes to the classification and measurement of the group's financial instruments, including any impairment thereof.

A number of amendments to existing standards which became effective for the first time for accounting periods beginning on or after 1 January 2015, unless otherwise stated, have been adopted in these financial statements as follows:

- Annual Improvements 2010-2012 Cycle

- Annual Improvements 2011-2013 Cycle

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the directors' report and investment manager's report. The key risks facing the business and management's policy and practices to manage these are further discussed in note 13. In assessing the group as a going concern, the directors have considered the forecasts which reflect the directors' proposed strategy for portfolio investments and the current economic outlook. The group's forecasts and projections, taking into account reasonably possible changes in performance, show that the group is able to operate within its available working capital and continue to settle all liabilities as they fall due for the foreseeable future.

The directors have considered the use of the going concern basis for the preparation of these financial statements within the context of the company's stated investment strategy. The strategy targets superior long-term returns through a policy of constructive, active engagement with investee companies, adopting private equity techniques to manage risk. The investment managers target smaller, predominantly quoted UK companies which they believe can benefit from strategic, operational or management initiatives and apply structured investment appraisal, due diligence and risk management on these companies. Accordingly, the directors remain of the view that the going concern basis of preparation is appropriate.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the company and entities controlled by the company made up to 31 March each year.

Where the company has control over an investee, which is not part of its investment portfolio, it is classified as a subsidiary. The company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

Non-controlling interests

All subsidiaries consolidated in these financial statements are 100% owned (Note 9).

Transactions eliminated on consolidation

Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

Goodwill

All business combinations are accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries. Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable net assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is tested annually for impairment.

Financial instruments:

Trade debtors and creditors

Trade debtors and creditors are accounted for at transaction value when asset or liability is incurred. The fair value equals the carrying amount as these are short term in nature.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at call with banks and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial investments

Investments are included at valuation on the following bases:

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

(b) Unquoted investments where a significant third party funding event has taken place during the year ended 31 March which establishes a new value for that investment are carried at that value.

(c) Investments considered to be mature are valued according to the directors' best estimate of the group's share of that investment's value. This value is calculated in accordance with British Venture Capital Association (BVCA) guidelines and industry norms and includes calculations based on appropriate earnings or sales multiples.

(d) All other unquoted investments are valued at the directors' best estimate of the group's share of that investment's value, taking into account any temporary loss in value. For new investments, the cost of investment is generally considered to be its fair value.

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

Consequently, for measurement purposes, financial investments, including equity, loan and similar instruments, are designated at fair value through profit and loss, and are valued in compliance with IAS 39 'Financial Instruments: Recognition and Measurement', IFRS13 'Fair Value Measurement' and the International Private Equity and Venture Capital Valuation Guidelines as recommended by the British Venture Capital Association.

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

Investments in subsidiaries are reflected in the company's statement of financial position at cost less any provisions for diminution in value.

Revenue

Sales of services represent the invoiced value of services supplied net of trade discounts, value added tax and other sales related taxes. The sale is recognised upon delivery of the services to the customer provided that all obligations to the customer relating to that delivery of services have been satisfied. If this is not the case, then the sale is recognised when all obligations to the customer relating to that delivery of services have been satisfied. Dividends receivable on unquoted equity shares are brought into account when the company's right to receive payment is established and there is no reasonable doubt that payment will be received. Interest receivable is included on an effective interest rate basis. Dividends receivable on quoted equity shares are brought into account when the right to receive payment is established and the amount of the dividend can be measured reliably.

Taxation

The tax expense included in the statement of comprehensive income comprises current and deferred tax. Current tax is the expected tax payable based on the taxable profit for the period, using tax rates that have been enacted or substantially enacted by the reporting date. Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the accounts and the corresponding tax bases used in the computation of taxable profit, and are accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign exchange

Transactions denominated in foreign currencies are translated into the functional currency at the rate ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated at the rates ruling at that date. These translation differences are dealt with in the statement of comprehensive income.

The financial statements of foreign subsidiaries are translated into sterling at the actual rates of exchange and the difference arising from the translation of the opening net investment in subsidiaries at the closing rate is dealt with in reserves.

Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates. Management believes that the underlying assumptions are appropriate and that the company's financial statements are fairly presented. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 13. Within Gresham House Strategic plc this relates to the unquoted investments.

Segmental analysis

Segmental analysis is not applicable as there is only one operating segment of the business - investment activities. The performance measure of investment activities is considered by the board to be profitability and is disclosed on the face of the statement of comprehensive income.

2 Company Statement of Comprehensive Income

The group has taken advantage of the exemption conferred by s408 CA 2006 to not disclose a full statement of comprehensive income for the company. The company's profit for the year was £9.803m (2015: loss of £3.667m). The apparent rise in company income over the year is due to the writing off of investment in subsidiaries and intercompany balances with the subsidiary entities that were wound up or due to be wound up, where it was certain that the company will not be able to recover its investments or have to pay back the intercompany balances.

The company has recognised realised and unrealised investment gains/losses through the statement of comprehensive income of £3.785m (2015: £2.193m).

3 Directors' remuneration

	Year ended 31 March 2015
	Emoluments	Social Security costs	Total	Emoluments	Bonus accrual (see note below)	Social Security costs	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Analysis of directors' remuneration
C Berry	35	-	35	60	-	-	60
D Potter	50	-	50	65	-	-	65
H Sinclair	35	-	35	55	-	-	55
K Lever	6	-	6	-	-	-	-
A Carruthers	-	-	-	-	3	-	3
A Betton	-	-	-	15	-	-	15
T Teichman	-	-	-	-	2	-	2
Change in bonus accrual for former directors	-	-	-	-	5	-	5
Social security costs	-	12	12	-	1	10	11
	126	12	138	195	11	10	216

In 2003 a former bonus scheme was settled in part by awarding the participants a small stake (3.8%) in the portfolio at that time. Following the payment made in January 2015 relating to disposal of certain investments made in prior years, there is no longer any balance due under this scheme.

The company has no other employees other than the directors listed above.

	Year ended	Year ended
	31 March	31 March
	2016	2015
	No.	No.
Directors and employees
Investment and related administration	4	3
	4	3

4 Other costs

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

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
Auditor's remuneration
Fees payable to the current auditor for the audit of the company's annual financial statements	26	23
Fees payable to the company's current auditor and its associates for other services:
The audit of the company's subsidiaries, pursuant to legislation	2	2
Audit related assurance services	7	2
Other services relating to taxation	37	10

Analysis of other costs:
Settlement of dispute with former director	-	491
Professional fees	395	432
Management fee of Quester Venture Partnership	218	75
Management and secretarial fee	503	313
Management incentive fee	2,265	-
Other general overheads	244	57
	3,625	1,368

In September 2014, the board agreed settlement terms following a dispute with a former director of the company over the incentive scheme established in 2003, providing for a total payment of £1.0m which was to be settled in a combination of cash and by the transfer of some shares in IMImobile. £0.5m of this was accrued for payment in 2014 with the remainder in 2015.

Management incentive fee of £2.265m (2015: Nil) was paid to the former investment manager, SPARK Venture Management Ltd, upon termination of the investment management agreement.

5 Tax on profit from ordinary activities

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
UK corporation tax
Corporation tax liability at 20% (2015: 21%)	-	-

Total current tax	-	-

Deferred tax	-	-
Tax on profit/(loss) from ordinary activities	-	-

Factors affecting the tax charge for the current period

The tax assessed for the year is different than that resulting from applying the standard rate of corporation tax in the UK: 20% (2015: 21%)

Factors affecting the tax charges for the current period

The tax assessed for this year is different than that resulting from applying the standard rate of corporation tax in the UK: 20% (2015:21%).

The differences are explained below:

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
Current tax reconciliation
Profit/(loss) before taxation	262	(2,357)
Current tax charge at 20% (2015: 21%)	52	(495)

Effects of:
Other permanent differences	-	(93)
Expenses not deductible for tax purposes	29	99
Non-taxable income	(752)	(28)
Movement in short-term timing differences	-	(26)
Closing deferred tax averaging	548	-
Deferred tax not recognised	123	193
Utilisation of capital losses on investment revaluations	-	350
Tax for the year	-	-

Deferred tax

There remains an unrecognised deferred tax asset in respect of tax losses and other temporary differences. The unrecognised deferred tax asset is £27.8 million (2015: £28.3 million), for the group and £27.8 million (2015: £28.3 million) for the parent company. The reduction in the balances for unrecognised deferred tax is due to the reduction in future corporate tax rates and an increase to management expenses carried forward available for deduction against future income. The assessed loss on which no deferred tax has been recognised amounts to £158m (2015: £141m).

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
Company deferred tax asset
Balance at 1 April	796	781
Movement in the year	(80)	15
Balance at 31 March	716	796

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

The deferred tax asset within the company arises to offset a deferred tax liability within another group company, Quester Venture GP Limited. The deferred tax liability recognised by Quester Venture GP Limited arises in respect of interest free limited recourse loans paid in lieu of the company's entitlement to priority profit share from underlying limited partnerships.

6 Earnings per share

Basic earnings per share is calculated by dividing the profit/loss attributable to ordinary shareholders by the weighted average number of ordinary shares during the period. Diluted earnings per share is calculated by dividing the profit/loss attributable to shareholders by the adjusted weighted average number of ordinary shares in issue. The adjustment made is to add the total number of 'in the money' share options in issue to the weighted average number of ordinary shares in issue for basic EPS.

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
Earnings
Profit/(loss) for the year	262	(2,357)

Number of shares ('000)
Weighted average number of ordinary shares in issue for basic EPS	3,156	2,093
Weighted average number of ordinary shares in issue for diluted EPS	3,156	2,093

Earnings per share
Basic EPS	8.30p	(112.61)p
Diluted EPS	8.30p	(112.61)p

Number of shares and earnings per share for 2015 are shown above after consolidating the ordinary shares on a 1 for 200 basis. Before the consolidation of shares for 2015 comparatives, the number of shares (both basic and diluted) was 418,547,000 and earnings per share (both basic and diluted) was 0.56 pence.

At a general meeting of the company held on 6 August 2015, the shareholders approved a 1 for 200 share consolidation thereby resulting in 2,250,000 ordinary shares of 50p nominal value. On 6 August 2015 the company issued 1,173,000 new ordinary shares at a price of £9.00 per share for cash and 420,275 new ordinary shares were exchanged for shares in quoted companies at prices from £8.91 to £9.26 per share.

As at 31 March 2016, the total number of shares in issue was 3,843,275 with 155,771 of these shares held in treasury. There are no share options outstanding at the end of the year.

7 Dividends

	Year ended	Year ended
	31 March	31 March
	2016	2015
	£'000	£'000
Dividend paid in respect of year to 31 March 2016	-	-
Dividend paid on C shares in respect of year to 31 March 2015: 4.5p per share paid in April 2014	-	4,987

C shares received a dividend of 4.5p per share in April 2014, after which the shares were deferred and subsequently cancelled in May 2014.

8 Investments at fair value through profit and loss

Group

	Value at	Year ended 31 March 2016			Value at
	31 March		Disposals		31 March
	2015	Additions	at valuation	Revaluations	2016
	£'000	£'000	£'000	£'000	£'000
Investments in quoted companies held at start of the year	12,808	-	-	2,787	15,595
Investments in quoted companies acquired during the year	-	6,691	(1,370)	818	6,139
Other unquoted investments	3,695	-	(3,825)	173	43

Total investments at fair value through profit and loss	16,503	6,691	(5,195)	3,778	21,777

Investments in quoted companies have been valued according to the quoted share price as at 31 March 2016. Other unquoted investments represent a share in Quester Venture Partnership and investments sold to Hollyport.

The revaluations above are shown on the face of the statement of comprehensive income as realised and unrealised gains or losses on investments at fair value through profit and loss.

On 6 August 2015 the company issued 1,173,000 new ordinary shares at a price of £9.00 per share for cash and 420,275 new ordinary shares were exchanged for shares in quoted companies at prices from £8.91 to £9.26 per share. The resulting new investments of £3.78m are included in Additions in the table above.

Company

	Value at	Value at
	31 March	31 March
	2016	2015
	£'000	£'000
Opening valuation	16,496	4,669
Acquisitions	6,691	14,319
Unrealised and realised gains/(losses) on valuations	3,785	(2,115)
Disposals	(5,195)	(377)
Closing valuation	21,777	16,496

9 Investments in Subsidiary undertakings

Company

	31 March	31 March
	2016	2015
	£'000	£'000
Cost:
Balance at 1 April	120,824	120,824
Investments in subsidiary undertakings written off	(8,752)	-
Balance at 31 March	112,072	120,824

Impairment:
Balance at 1 April	12,593	12,593
Impairment for the year	104,645	-
Impairment reversed	(5,700)	-
Balance at 31 March	111,538	12,593

Net book value at 31 March	534	108,231

During the year, £8.75m (2015: Nil) of investments in subsidiary undertakings, that were acquired pre 2009, were written off, along with the related impairment of £5.7m (2015: Nil) and £104.6m (2015: Nil) of investment in subsidiary undertakings was further impaired as certain subsidiaries were already dissolved, or in the process of being wound up.

The company's subsidiary undertakings included in the consolidation at 31 March 2016 and their principal activities and countries of incorporation are set out below:

	Country of incorporation	Business activity	Class of shares held	Proportion held and % voting rights
SPARK Services Ltd	UK	Business services	ordinary	100%
SPARK India Ltd	Mauritius	Investment in India	ordinary	100%
Quester Venture GP Ltd	UK	General partner of limited partnership	A ordinary & preference	100%

A complete list of the company's subsidiaries is given in Note 14.

10 Other receivables

	Group	Group	Company	Company
	31 March	31 March	31 March	31 March
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Amounts owed by subsidiary undertakings	-	-	7	2
Social security and other taxes	45	28	-	28
Other debtors	2	3	-	-
Prepayments and accrued income	22	1	22	-
	69	32	29	30

Restricted cash	-	3,123	-	-

The restricted cash in 2015 was an amount held in escrow pending clarification of certain tax issues relating to the IMImobile IPO and restructuring. This has now been received.

11 Trade and other payables

	Group	Group	Company	Company
	31 March	31 March	31 March	31 March
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Trade creditors	241	56	241	56
Amounts owed to subsidiary undertakings	-	-	13,465	127,404
Social security and other taxes	8	7	7	6
Other creditors	1,371	1	1,362	3
Accruals and deferred income	69	31	65	26
	1,689	95	15,140	127,495

During the year, £113.9m (2015: Nil) of intercompany balances were written off due to certain subsidiaries were already or in the process of being wound up and it is certain that the company will not be required to repay the intercompany balances.

Included in other creditors is £1.362m that relates to the acquisition of further equity in Quarto Group, an existing investment, in March 2016. This was settled in April 2016.

12 Called up share capital

	Group	Group	Company	Company
	31 March	31 March	31 March	31 March
	2016	2015	2016	2015
	£'000	£'000	£'000	£'000
Called up, allotted and fully paid:
3,843,275 (2015: 2,250,000 restated) ordinary shares of 50p (2015: 50p restated)	1,922	1,125	1,922	1,125
10,000 (2015: 10,000 restated) D shares of 100p (2015: 100p restated)	10	10	10	10
	1,932	1,135	1,932	1,135

At a General Meeting of the company, held on 6 August 2015, the shareholders approved a 1 for 200 share consolidation thereby resulting in 2,250,000 ordinary shares of 50p nominal value. The number of ordinary shares before consolidation was 450,000,000 of 0.25p and the number of D shares before consolidation was 2,000,000 of 0.5p.

On 6 August 2015 the company issued 1,173,000 new ordinary shares at a price of £9.00 per share for cash and 420,275 new ordinary shares were exchanged for shares in quoted companies at prices from £8.91 to £9.26 per share. Transaction costs of £498k were incurred and taken to share premium as shown in the company statement of changes in equity. Gross transaction costs of £398k were settled in exchange for new shares issued.

As at 31 March 2016, the total number of shares in issue were 3,843,275 (2015: 450,000,000) with 155,771 (2015: 31,154,311) of these shares held in treasury. The reduction arose from the share consolidation on a 1 for 200 basis.

The average share price of Gresham House Strategic plc quoted ordinary shares in the year ended 31 March 2016 was 786 pence. In the year the share price reached a maximum of 1,000 pence and a minimum of 625 pence. The closing share price on 31 March 2016 was 768 pence.

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

During 2015, the ordinary shares of 0.3p per share were reclassified as ordinary shares of 0.25p per share. At the same time the shareholders were issued with either 1 B share or 1 C share depending on the shareholder preference in an election. If a shareholder did not make an election, they received C shares by default. Each B share was repurchased by the company's broker at 4.5p per share and then sold on to the company and cancelled in May 2014. Each C share received a dividend of 4.5p per share on 25 April 2014, after which the shares were deferred and subsequently bought back for 1.0p for the whole class and cancelled in May 2014. The total amount returned to shareholders holding B or C shares amounted to £19.0m. The deferred shares of 0.3p each carried no rights to dividends, had no rights to a return of capital on a winding up and had no rights to attend, speak at or vote at a general meeting of the company.

During 2016, there were no purchases or cancellations of treasury shares. In April 2014, 8,090,909 shares that were formerly held in treasury were issued to the persons exercising share options under the 2005 Executive Share Option Scheme.

The company's D shares were created to incentivise the outgoing manager to maximise the value of the portfolio in cash by 31 March 2014 and to make this cash available to shareholders. It was calculated that the D shareholders were due a payment of £2.2m as at 31 March 2014. This payment was made in September 2014. Following the payment made to the D shareholders, the rights attached to the D shareholders lapsed.

13 Financial instruments and financial risk management

The group invests in quoted companies in accordance with the investment policy and Strategic Private Equity investment strategy. In addition to investments in smaller listed companies in UK, the group maintains liquidity balances in the form of cash held for follow-on financing and debtors and creditors that arise directly from its operations. As at 31 March 2016, £21.7m of the group's net assets were invested in quoted investments and £16.6m in liquid balances (31 March 2015: £16.5m in investments and £3m in liquidity).

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

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

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

a) Market risk

i) Price risk

Market price risk arises from uncertainty about the future valuations of financial instruments held in accordance with the group's investment objectives. These future valuations are determined by many factors but include the operational and financial performance of the underlying investee companies, as well as market perceptions of the future of the economy and its impact upon the economic environment in which these companies operate. This risk represents the potential loss that the group might suffer through holding its investment portfolio in the face of market movements, which was a maximum of £21.7m (2015: £16.5m).

The investments in equity and fixed interest stocks of unquoted companies that the group holds are not traded and as such the prices are more uncertain than those of more widely traded securities. As, in a number of cases, the unquoted investments are valued by reference to price earnings ratios prevailing in quoted comparable sectors, their valuations are exposed to changes in the price earnings ratios that exist in quoted markets.

The board's strategy in managing the market price risk is determined by the requirement to meet the group's investment objective. Risk is mitigated to a limited extent by the fact that the group holds investments in several companies. At 31 March 2016, the group held interests in 6 companies (2015: 10 companies). The directors monitor compliance with the investment policy, review and agree policies for managing this risk and monitor the overall level of risk on the investment portfolio on a regular basis.

Market price risk sensitivity

The board considers that the value of investments in equity instruments is ultimately sensitive to changes in quoted share prices, insofar as such changes eventually affect the enterprise value of unquoted companies. The table below shows the impact on the return and net assets if there were to be a 20% (2015: 20%) movement in overall share prices.

	2016	2015
	£'000s	£'000s
	Profit and	Profit and
	net assets	net assets
Decrease if overall share prices fell by 20% (2015: 20%), with all other variables held constant.	(4,347)	(3,301)
Decrease in earnings, and net asset value per ordinary share (in pence)¹	(117.90)p	(157.62)p

Increase if overall share prices rose by 20% (2014: 20%), with all other variables held constant.	4,347	3,301
Increase in earnings, and net asset value per ordinary share (in pence)¹	117.90p	157.62p

Note:

1 - (31 March 2015 restated for comparison on a 1:200 basis)

The impact of a change of 20% (2015: 20%) has been selected as this is considered reasonable given the current level of volatility, observed both on a historical basis, and market expectations for future movement.

ii) Currency risk

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

iii) Cash flow interest rate risk

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

b) Credit risk

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

The group's maximum exposure to credit risk is:

	31 March	31 March
	2016	2015
	£'000s	£'000s
Loan stock investments	-	100
Cash and cash equivalents	16,555	3,036
Escrow balance	-	3,123
Trade and other debtors	69	32
	16,624	6,291

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

The group's cash balances are maintained by major UK clearing banks. The balance at 31 March 2016 was unusually high following the placing and open offer that took place in August 2015 and yet to be fully utilised in accordance with the investment policy and strategy.

c) Liquidity risk

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

Fair values of financial assets and financial liabilities

Financial assets and liabilities are carried in the statement of financial position at either their fair value (investments), or the statement of financial position amount is a reasonable approximation of the fair value (dividends receivable, accrued income, accruals, and cash at bank).

As at 31 March 2016, all investments, except for the investment in Quester Venture Partnership (Level 3), fall into the category 'Level 1' under the IFRS 7 fair value hierarchy (2015: IMImobile only). A reconciliation of fair value measurements in Level 1 is set out in Note 8 to these financial statements.

Level 3 unquoted equity and loan stock investments are valued in accordance with International Private Equity and Venture Capital Guidelines as follows:

	31 March 2016		31 March 2015
	Material investments included	£'000s	Material investments included	£'000s
Cost (reviewed for impairment)	None	43	None	36
Contracted sales proceeds in post balance sheet period	None	-	DEM, Gambling Compliance, By Design, Academia, Mind Candy	3,659
		43		3,695

In April 2015, an agreement was entered into with Hollyport to sell the entire portfolio of unquoted investments for £3.7m. This price has been used as the best indicator of fair value for these investments as at 31 March 2015. The sale was formally completed in April 2015.

Valuation policy: Every six months, the investment manager within Gresham House Asset Management Limited is asked to revalue the investments that he looks after and submit his valuation recommendation to the investment committee and the finance team. The investment committee considers the recommendation made, and assuming the finance team confirm that the investment valuation calculations are correct, submits its valuation recommendations to the board of GHS to consider. The final valuation decision taken by the board is made after taking into account the recommendation of the manager and after taking account of the views of the company's auditors.

The quoted investments have been valued by multiplying the number of shares held with the closing bid price as at 31 March 2016. As such, there are no unobservable inputs that have been used in valuing investments.

Capital disclosures

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

The capital subscribed to the group has been managed in accordance with the group's objectives. The available capital at 31 March 2016 is £36.7m (31 March 2015: £22.6m) as shown in the statement of financial position, which includes the group's share capital and reserves.

The company has no borrowings and there are no externally imposed capital requirements other than the minimum statutory share capital requirements for public limited companies.

14 Related party transactions

The related parties of Gresham House Strategic plc are its directors, persons connected with its directors, its investment manager and its subsidiary undertakings as listed in note 9.

Transactions and balances between the company and its subsidiaries, which are related parties of the company, have been eliminated on consolidation. The details of directors' remuneration are given in Note 3.

Details of related party transactions between the company and its subsidiaries and of non-salary related transactions involving directors are detailed below. The below subsidiary companies also form a complete list of the company's subsidiary undertakings:

	2016	2015
	£'000	£'000
The balances owed by subsidiary undertakings to the company are as follows:
SPARK Services Ltd	7	2
	7	2

The balances owed to subsidiary undertakings by the company are as follows:

Internet Indirect Ltd	-	79,315
NewMedia Spark Ltd	-	26,608
Spark India	11,782	11,791
Globalnet Financial.com Inc	-	3,034
NewMedia Spark Holdings Gmbh	-	722
Quester Venture GP Ltd	1,683	1,652
Newmedia Spark BV	-	4,251
Spark Services Ltd	-	31
Newmedia Spark Secretaries Limited (dissolved March 2016)	-	-
Spark Group Limited (dissolved April 2016)	-	-
Wycombe Ah Realisations Limited (dissolved May 2016)	-	-
	13,465	127,404

During the year to 31 March 2016, Gresham House Strategic plc was charged management fees of £240k (2015: £Nil) by Gresham House Asset Management Limited (GHAM) following the new management agreement entered into with GHAM on 21 July 2015 and which became effective following shareholder approval on 6 August 2015. As at 31 March 2016, the company had a balance of £136k (2015: £Nil) owing to GHAM.

As at 31 March 2016, the following shareholders of the company, that are related to GHAM, had the following interests in the issued shares of the company as follows:

A L Dalwood 11,111 ordinary shares

G Bird 19,444 ordinary shares

Gresham House Holdings Ltd 706,806 ordinary shares

During the year to 31 March 2016, SPARK Venture Management Ltd (SVML), former investment manager to the company, received management fees of £2.5m (2015: £313k), other fees of £15k (2015: £Nil), secretarial fees of £Nil (2015: £100k) from Gresham House Strategic plc and £218k (2015: £75) from Quester Venture Partnership for its management. Quester Venture GP Ltd is the general partner of Quester Venture GP Partnership which is the General Partner of Quester Venture Partnership, an entity the company has invested into. The apparent rise in management fee is due to the incentive fee of £2.265m which was paid to SVML on termination of investment management agreement.

In September 2014, Gresham House Strategic plc paid £2.2m under the D share incentive scheme. Details of this scheme are provided in note 12. The £2.2m payment was made in proportion to the D shares held which were held by Andrew Carruthers (580,000 D shares), Jay Patel (580,000 D shares), Tom Teichman (500,000 D shares), Andrew Betton (180,000 D shares) and Kiko Duffy (160,000 D shares), former directors of the company and individuals related to SVML.

There are no other related party transactions of which we are aware in the year ended 31 March 2016.

15 Subsequent events note

There were no material events after the statement of financial position that have a bearing on the understanding of the consolidated financial statements.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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