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Gresham House PLC (GHE)

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Thursday 13 September, 2018

Gresham House PLC

Interim results for the period ended 30 June 2018

RNS Number : 6166A
Gresham House PLC
13 September 2018
 

Gresham House plc

 

("Gresham House," "the Group" or "the Company")

 

 

Interim results for the six months ended 30 June 2018

 

Increasing scale, efficiency and relevance to a wider investor constituency

 

 

Gresham House plc, (AIM:GHE) the specialist alternative asset manager, has reported a strong first half of the year, more than doubling assets under management, developing a high-quality pipeline of new opportunities and expanding its distribution capabilities.

 

Highlights

 


As at

30 Jun 18

As at

31 Dec 17

Change


(£m)

(£m)

(%)

Assets under management

1,609

649

+148

Cash and liquid assets1

33.3

24.5

+36






Six months to 30 Jun 18

Six months to 30 Jun 17


Total income

4.9

2.5

+98

Operating loss

(0.5)

(1.1)

+58

Adjusted operating profit2

0.4

(0.8)

-

 

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. Represents a £1.2m improvement from a £0.8m loss to a £0.4m profit

 

§ Growth in AUM to £1.6bn results in H1 adjusted operating profit of £0.4m - profitability enhanced by the capture of identified synergies from acquisitions with more identified for 2019

§ Strong balance sheet with cash and liquid assets of £33.3m

§ Strong performance of existing funds managed by the Group, including Gresham House Strategic plc where the three-year anniversary saw outperformance over benchmark by 11.2% since the Group took over the management contract

§ All corporate acquisitions to date have met or exceeded their 15% medium-term return on shareholder capital hurdle

§ Successful completion of £15.0m placing to fund transformational acquisition of FIM Services, enhancing the Group's forestry and new energy asset management capabilities (Gresham House now the largest UK commercial forestry asset manager)

§ Continuing investment in scaling existing five asset management divisions, operations, marketing and distribution capability from organic cashflow

§ Intention to accelerate dividend policy with an initial payment in 2019

 

Commenting on the results, Anthony Dalwood, Chief Executive, said:

 

"We have made excellent progress in the first half, adding scale to the business, making us more relevant and accessible to a wider constituency of investors.

 

"The challenges created by wider macroeconomic and geopolitical conditions have increased investors' focus on our areas of expertise. We are gaining greater brand recognition by identifying and developing high-quality investment opportunities and providing excellent client service.  

 

"Whilst we focus on completing the integration of the FIM business, there remain attractive opportunities to grow the business organically and through acquisition. We will continue to be selective in our acquisition strategy, focusing on the most effective way to create value for shareholders."

 

- 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

 

+44 (0)20 3837 6270

 

Canaccord Genuity - Nominated Adviser and Joint Broker

Bobbie Hilliam

Martin Davison

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

[email protected]

+44 (0)78 1234 5205

+44 (0)20 3770 7914

 

About Gresham House

Incorporated in 1857, Gresham House plc is an AIM quoted specialist asset management group focused on alternative and illiquid assets classes, aiming to generate superior sustainable returns for clients and shareholders over the long-term.

 

Shareholder value creation will be driven by long-term growth in earnings as a result of increasing AUM and returns from invested capital.

 

Gresham House manages investments and co-investments through its investment management platform on behalf of institutions, family offices, high-net-worth individuals, charities and endowments and private individuals. www.greshamhouse.com 

 

Disclaimers

This announcement contains certain forward-looking statements with respect to the financial condition, results, operations and businesses of Gresham House plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts.

 

Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser.

 

 

 

CHAIRMAN'S STATEMENT

 

During the first half of the year, we have continued to implement our strategy of creating a diverse range of high-quality alternative investment opportunities, delivered with outstanding client service. Over three years into our plan to create a market-leading alternative investment manager, I am delighted to report that we continue to make strong progress and are excited by the opportunities before us.

 

ACTIVITY IN THE PERIOD

The continued success of the Group relies on maintaining sustainable long-term growth, identifying new investment opportunities and using the balance sheet to develop our offering for clients.      

 

The management team has maintained strong momentum during the period, growing the Group's Assets Under Management, ("AUM") by 148% to over £1.6 billion, (2017: £649 million), driven by the transformative acquisition of FIM Services Limited, ("FIM") in May 2018. Gresham House is now a market-leading forestry asset manager in the UK with enhanced expertise in new energy asset management.

 

The final part of the Hazel Capital LLP ("Hazel Capital") transaction completed in the period, with the Group acquiring stakes in energy storage projects and expanding its revenue opportunities in the renewables market. The team is developing these new projects, which are expected to be an attractive addition to the Group's investment pipeline.

 

Taking the wider pipeline into consideration, we have an exciting array of new opportunities in prospect. Consequently, we have continued to invest in our distribution and sales capabilities, ensuring that we are able to address a wider investor audience.

 

RESULTS

Income for the first half of the year nearly doubled in comparison to the first half of 2017, reaching £4.9 million, (H1 2017: £2.5 million). The Group is now profitable on an underlying basis, achieving an adjusted operating profit of £0.4 million, (H1 2017: £0.8 million loss) driven by organic activity, such as the British Strategic Investment Fund and Gresham House Strategic plc and acquiring management contracts and businesses, such as Hazel Capital and FIM.

 

The Gresham House Group is focused on generating long-term shareholder value through growing organically alongside selective acquisitions in specialist alternative asset management.

 

The Board has considered the Company's long-term dividend policy and is pleased to announce that it intends to propose a dividend payment alongside the announcement of the full year results of the Company for the year ended 31 December 2018.

 

SHAREHOLDERS

As management continues to grow the business, the Group is fortunate to enjoy the support of a strong and committed shareholder base. This was evidenced most recently during the £15 million placement and accelerated book build as part of the FIM transaction, where we were over-subscribed and also welcomed a number of new shareholders to the register. The Board will continue to work closely with the Group's shareholders as we continue to implement our strategy for the business. We are also delighted that there is a growing ownership of Gresham House shares within the employees of the Group who are investing through such mechanisms as bonus reinvestment in "bonus share matching" and "save as you earn".

 

BOARD

It is vital that growth companies have access to the right expertise and experience at Board level in order to provide the necessary governance and support to management. I was delighted to welcome Rachel Beagles to the Board in March 2018 who has, together with the 2017 appointment of Simon Stilwell, proved invaluable.

 

OUTLOOK

The excellent progress made during the first half of the year helped the Group maintain its strong momentum. There's no doubt that Tony Dalwood and his team have worked hard over the past three years to build a significant specialist alternative asset management business. We are developing an exciting pipeline of opportunities to grow organically and there remain attractive opportunities to grow through acquisition.

 

As the management team continues to integrate recent acquisitions and develop future opportunities, we look forward with optimism.

 

Anthony Townsend

Chairman

13 September 2018

 



 

CHIEF EXECUTIVE'S REPORT

 

In the first half of 2018, the Company made excellent progress. Our increased size gives us greater relevance to a wider constituency of investors and our brand, website and client portal are gaining greater recognition. We have ambitious plans to continue growing the business in line with our vision to become an "asset to covet", with teams across the business developing high-quality new investment opportunities for clients.

 

CONTINUED GROWTH

The acquisition of FIM during the period has had a transformative effect on the business: more than doubling AUM to £1.6 billion; expanding long-term sustainable management fee income; adding a strong team; and bringing a complementary investor base into the Group, widening its distribution capabilities for new product launches.

 

At the same time, we have continued our work to develop a range of new investment opportunities, where our blend of skills and expertise can be most effectively deployed to generate high-quality returns for investors and shareholders. Examples of this include our New Energy team developing products in areas such as energy storage systems, where we are targeting new launches in the near future. After the period end, we launched a further fundraising for FIM Solar Distribution LLP and plan to raise further funds for the FIM Sustainable Timber and Energy LP in the second half of 2018.

 

DISCIPLINED APPROACH

The Group's continued growth requires a diligent and disciplined approach to managing risk and controls within the business. The Investment Committee process exists to challenge capital allocation decisions for both Gresham House plc as well as the funds that are managed and advised by the Group. This discipline aims to safeguard client and shareholder funds alike.

 

GENERATING SHAREHOLDER VALUE

Scale and efficiency are central elements of creating shareholder value in a successful asset management business. During the period we added significant scale to the business and have focused on optimising the Group's new and existing operations.

 

The integration of the FIM business is going well and we are already starting to see the benefit of operational efficiency gains. We have only recognised the profits of the FIM business since acquisition towards the end of May 2018, so the second half of 2018 will see the real impact of FIM on the profits of the Group. In addition, we have identified further synergies for 2019.

 

Turning to the wider Group, all acquisitions to date have met their 15% medium-term return on capital hurdle, demonstrating the team's ability to create value through acquisitions and integration. The earnout payment to the sellers of the Aitchesse business was also settled in the period, confirming a return on investment of 15% since acquisition.

 

We are also creating shareholder value through the development of new investment products and the effective management of existing funds through our two core divisions, Strategic Equity and Real Assets. The British Strategic Investment Fund ("BSIF") is a good example where we continue to have strong interest from local government pension schemes looking to invest in housing and infrastructure opportunities below £50 million. BSIF has invested and committed £27 million across PRS (private rental sector) housing and energy storage systems (utility scale batteries) and has an exciting pipeline of investment opportunities.

 

The performance of the other funds that the Group manages has been strong, with Gresham House Strategic plc recently passing its three-year anniversary and outperforming its benchmark by 11.2%. This fund has the potential to generate performance fees, alongside other funds, which have the potential to make carried interest payments to the Group. We currently do not accrue for performance fees and carried interest in our results until they are certain, but current performance indicates that we would expect these to be delivered in future periods.

 

Looking ahead, we have a number of exciting new energy, infrastructure, and private equity investment opportunities alongside which we are using the Group's balance sheet to develop assets and seed new initiatives, such as energy storage systems.

 

TALENTED TEAM

Achieving our objectives for the business can only happen with the right mix of high-quality people performing to the best of their abilities. Testament to this is our recent win of Best Alternative Investment Manager at the 2018 European Wealth Briefing Awards. I am grateful to everyone working in the business for what we have achieved so far and will do in the future.

 

The focus on where to deploy resources is critical to our continued development and we have identified the need to enhance the Group's distribution and sales capabilities in addition to building our investment teams to deploy capital for investors in an efficient and profitable manner.

 

With this in mind, I am very pleased that Heather Fleming has joined us as Head of Institutional Business. Heather was previously the Head of Institutional Distribution for UK & Ireland at Fidelity and brings considerable experience and expertise to our fundraising strategy. We will also be hiring to provide greater support for Heather and grow this critical area of the business.

 

I am also delighted to welcome the team who have joined Gresham House as part of the FIM transaction. We have a high-quality forestry and renewables team to merge with our existing team of strong individuals and capabilities. We expect these key areas of our Real Assets division to develop and grow and I look forward to continuing to work closely with all of the team on new developments and initiatives.

 

OUTLOOK

Our strategy for Gresham House is proceeding as planned, with organic and acquisitive growth increasing our scale, enabling us to be more efficient, creating attractive investment opportunities for clients and creating value for shareholders. With the achievement of operational profitability, new fundraisings and initiatives, we are gaining momentum across the Group and expect this to positively impact the bottom line.

 

Whilst we focus on completing the integration of the FIM business, there remain attractive opportunities to grow the business organically and through acquisition. We will continue to be selective in our acquisition strategy, focusing on the most effective way to create value for shareholders.

 

The geopolitical outlook for the UK and Europe remain uncertain as the terms of Brexit continue to be negotiated. We are monitoring this closely to manage the risks and also capitalise on opportunities as the fundamental characteristics of long-term alternative assets remain attractive to investors.

 

Whilst valuations across most traditional asset classes are relatively high, the growing demand for alternatives managed by teams with strong track records, continues to grow as asset allocation to these areas increases. Investors are increasingly looking for "partners" to support them in achieving their investment and positive social impact targets. Gresham House has shown multiple points of evidence that it can be a solutions provider and is looking to increase these partnership relationships with more family offices, pension schemes and high net worth individuals to achieve client and shareholder value objectives.

 

Anthony Dalwood

Chief Executive

13 September 2018

 

 

FINANCIAL REVIEW

 

The first half of 2018 has been another important period in the development of Gresham House, with the completion of the FIM transaction and the business continuing to grow.

 

ADJUSTED OPERATING PROFIT

Gresham House continues to be profitable and delivered an adjusted operating profit for the six months to 30 June 2018 of £0.4 million, (H1 2017: £0.8 million loss). As a reminder, we use the non-GAAP measure of adjusted operating profit as a key performance indicator for Gresham House as an alternative asset manager. Adjusted 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, to show the true performance of the asset management business.

 


Six months to 30 Jun 18

Six months to 30 Jun 17


£'000

£'000




Income

4,948

2,501

Administration overheads (excluding amortisation and depreciation and exceptional items)

(4,575)

(3,066)

Finance costs

-

(220)

Adjusted operating profit/(loss)

373

(785)




Amortisation and depreciation

(847)

(572)

Exceptional items

(977)

-

Net trading loss

(1,451)

(1,357)

Gains/(losses) on investments

1,073

236

Tax

-

-

Operating loss after tax

(378)

(1,121)

Profit/(loss) from discontinued operations

18

(1,021)

Total comprehensive income

(360)

(2,142)

 

 

INCOME

Total income in the period increased by 98% to £4.9 million, (H1 2017: £2.5 million). This was driven by the management fees for new vehicles, such as BSIF, being in operation for the full period and solid performances across existing funds. The weighted average length of LP management contracts (representing AUM of over £700 million) is 17.3 years, highlighting the long-term  and high quality nature of the Group's income streams. The acquisition of FIM completed on 21 May 2018 and the Group results therefore include approximately six weeks of revenues from the FIM Forestry and Renewable Energy funds. The impact of the transaction on the Group's profits will be more noticeable in the second half of 2018.

 

ADMINISTRATION EXPENSES

Administration expenses, (excluding amortisation, depreciation and exceptional items) have increased to £4.6 million, (H1 2017: £3.1 million) in the period, reflecting the growth of the business. The average number of employees in the period was 45, (H1 2017: 31) with the increase representing the New Energy team who joined as part of the Hazel Capital transaction in November 2017 and the recently acquired FIM team. We continue to manage costs diligently while ensuring that we invest in critical areas of the business. This includes a focused investment in distribution and sales support teams as well as our investment teams, with new hires planned in the second half of the year.

 

The transaction activity and related fees in the period have increased exceptional items to £1.0 million, (H1 2017: nil). The FIM transaction fees and associated restructuring costs of integrating FIM with the existing Gresham House Forestry and New Energy businesses are considered one-off costs. We expect the result of the integration to generate cost synergies as well as increased revenue opportunities.

 

FAIR VALUE MOVEMENTS

Other items of note in the period were the settlement of the earnout from the Aitchesse acquisition for £3.2 million and the current assessment on the size of the tranche two payment to LMS being reduced to zero, based on the NAV of LMS being below the £67.5 million threshold. The net fair value impact of these in the period was a gain of £48,000.

 

FINANCIAL POSITION

The increase in the net assets of the Group relates primarily to the share placement of £15.0 million and £9.8 million consideration shares issued as part of the FIM transaction. Intangible assets have increased as a result by £24.1 million for FIM management contracts and goodwill.

 

Cash remained strong at the end of the period at £17.4 million, (2017: £9.8 million), with key inflows being the repayment of £1.6 million by Persimmon, £2.0 million received in settlement for the sale of the remaining land at Newton-le-Willows as well as cash received on the exercise of a number of warrants in the period of £3.5 million.

 

Combining this with the operating cash flows from the asset management business has generated a healthy cash position at the end of the period. We intend to use the cash to invest in acquisitions that are complementary to the Group and add shareholder value in line with our 15% medium-term return hurdles, as well as seed new projects and funds to grow the business.

 

We look forward to continuing to grow in the second half of 2018 as we integrate FIM and deliver further organic growth.

 

Kevin Acton

Finance Director

13 September 2018

 

 

UNAUDITED CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

 



Six months ended

30 Jun 18 (unaudited)

Six months ended

30 Jun 17 (unaudited)

Year ended

31 Dec 17

(audited)

 


Notes

 £' 000

 £' 000

 £' 000

 






 

Income





 

Asset management income


4,760

2,409

5,805

 

Dividend and interest income


155

24

431

 

Other operating income


33

68

221

 

Total income

5

4,948

2,501

6,457

 

Operating costs





 

Administrative overheads


(5,422)

(3,638)

(8,021)

 

Net operating loss before exceptional items


(474)

(1,137)

(1,564)

 

Finance costs


-

(220)

(344)

 

Exceptional items

*

(977)

-

(308)

 

Net operating loss after exceptional items


(1,451)

(1,357)

(2,216)

 

Gains and losses on investments





 

Share of associates' profits / (losses)


927

(72)

(68)

 

Gains and (losses) on investments held at fair value


86

172

(230)

 

Movement in fair value of contingent consideration


48

16

(56)

 

Movement in fair value of deferred receivable


12

120

148

 

Operating loss before taxation


(378)

(1,121)

(2,422)

 

Taxation


-

-

-

 

Operating loss from continuing operations


(378)

(1,121)

(2,422)

 

Profit/(loss) from discontinued operations

 

7

18

(1,021)

(1,104)

 

Total comprehensive income


(360)

(2,142)

(3,526)

 






 

Attributable to:





 

Equity holders of the parent


(369)

(1,892)

(3,124)

 

Non-controlling interest


9

(250)

(402)

 



(360)

(2,142)

(3,526)

 






Basic and diluted loss per ordinary share (pence)

8

(2.6)

(15.7)

(25.9)

 

* Exceptional items relate to professional fees and restructuring costs incurred in respect of the acquisition of FIM Services Limited which took place on 21 May 2018 (see note 6) and the Hazel Capital LLP transaction.

 

 

UNAUDITED CONDENSED GROUP STATEMENTS OF CHANGES IN EQUITY

 

Six months ended 30 June 2018 (unaudited)


Share premium

Share warrant reserve

Retained reserves

Equity attributable to equity shareholders

Non-controlling interest

Total

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000









Balance at 31 December 2017

9,649

319

15,268

28,370

477

28,847

Comprehensive income for the period







Loss for the period

-

-

-

(369)

(369)

9

(360)

Total comprehensive income for the period

-

-

-

(369)

(369)

9

(360)

Contributions by and distributions to owners







Transfer of non-controlling interest deficit

-

-

6

6

(6)

-

Share based payments

-

-

78

78

-

78

Issue of shares

2,016

30,872

(261)

-

32,627

-

32,627

Total contributions by and distributions to owners

2,016

30,872

(261)

84

32,711

(6)

32,705

Balance at 30 June 2018

5,150

40,521

58

14,983

60,712

480

61,192

 

Six months ended 30 June 2017 (unaudited)


Ordinary share capital

Share premium

Share warrant reserve

Retained reserves

Equity attributable to equity shareholders

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 period








Loss for the period

-

-

-

(1,892)

(1,892)

(250)

(2,142)

Total comprehensive income for the period

-

-

-

(1,892)

(1,892)

(250)

(2,142)

Contributions by and distributions to owners








Transfer of non-controlling interest deficit

-

-

-

(245)

(245)

245

-

Share based payments

-

-

-

51

51

-

51

Issue of shares

588

7,038

-

-

7,626

-

7,626

Total contributions by and distributions to owners

588

7,038

-

(194)

7,432

245

7,677

Balance at 30 June 2017

3,134

9,649

319

16,571

29,673

486

30,159

 

Year ended 31 December 2017 (audited)


Ordinary share capital

Share warrant reserve

Retained reserves

Equity attributable to equity shareholders

Non-controlling interest

Total

equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000









Balance at 31 December 2016

2,546

319

18,657

24,133

491

24,624

Comprehensive income for the period







Loss for the period

-

-

-

(3,124)

(3,124)

(402)

(3,526)

Total comprehensive income for the period

-

-

-

(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

-

-

123

123

-

123

Issue of shares

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



 

 

UNAUDITED CONDENSED GROUP STATEMENT OF FINANCIAL POSITION

 


Notes

30 Jun 18

(unaudited)

30 Jun 17

(unaudited)

31 Dec 17

(audited)



£'000

£'000

£'000






Assets





Non-current assets






Investments - securities

10

4,788

4,580

2,989


Tangible fixed assets


388

215

196


Investment in associate


9,618

6,457

6,462


Intangible assets


29,706

6,127

6,327


Long-term receivables


-

1,661

1,618

Total non-current assets


44,500

19,040

17,592







Current assets






Trade receivables


1,644

957

2,089


Accrued income and prepaid expenses


2,016

937

785


Deferred receivable


2,112

2,059

2,075


Cash and cash equivalents


17,418

8,100

9,785

Non-current assets held for sale






Investment property


-

8,516

1,986

Total current assets and non-current assets held for sale


23,190

20,569

16,720

Total assets


67,690

39,609

34,312







Current liabilities






Trade and other payables


3,335

1,866

2,170


Contingent consideration


-

2,962

3,293


Short-term borrowings


-

2,025

-




3,335

6,853

5,463

Total assets less current liabilities


64,355

32,756

28,849

Non-current liabilities





Long-term borrowings


-

2,324

-

Other creditors


3,163

273

2



3,163

2,597

2

Net assets


61,192

30,159

28,847







Capital and reserves





Ordinary share capital

11

5,150

3,134

3,134

Share premium


40,521

9,649

9,649

Share warrant reserve


58

319

319

Retained reserves


14,983

16,571

15,268

Equity attributable to equity shareholders


60,712

29,673

28,370

Non-controlling interest


480

486

477

Total equity


61,192

30,159

28,847













Basic net asset value per ordinary share

13

294.7p

236.7p

226.3p

Diluted net asset value per ordinary share

13

275.5p

236.7p

211.2p






 

 

 

 

 

 

UNAUDITED CONDENSED GROUP STATEMENT OF CASH FLOWS

 


Notes

Six months ended

30 Jun 18

(unaudited)

Six months ended

30 Jun 17

(unaudited)

Year ended

31 Dec 17

(audited)



£'000

£'000

£'000






Cash flows from operating activities





Net cash utilised in operations

14

244

(484)

(1,615)






Interest paid on loans


-

(145)

(236)

Corporation tax received


-

33

33

Net cash flows in operating activities


244

(596)

(1,818)






Cash flows from investing activities





Cash consideration for FIM Services Limited


(10,828)

-

-

Deferred consideration paid


(1,027)

-

-

Investment in associates


(1,979)

-

-

Purchase of investments


(229)

(1,574)

(5,177)

Sale of investments


16

-

4,946

Sale of investment properties


1,985

-

6,680

Deferred proceeds received on sale of investment properties


1,593

1,634

1,635

Expenditure on investment properties


-

(123)

(137)

Purchase of fixed assets


(111)

(99)

(137)

Sale of fixed assets


20

16

23

Purchase of intangible assets


(123)

(39)

(762)



(10,683)

(185)

7,071

Cash flows from financing activities





Repayment of loans


-

(1,547)

(5,896)

Share warrants exercised


3,544

-

-

Share issue proceeds


15,000

7,626

7,626

Share issue costs


(472)

-

-



18,072

6,079

1,730






Increase in cash and cash equivalents


7,633

5,298

6,983






Cash and cash equivalents at start of period


9,785

2,802

2,802






Cash and cash equivalents at end of period


17,418

8,100

9,785

 

 

NOTES TO THE ACCOUNTS

 

1  REPORTING ENTITY

 

Gresham House plc ("the Company") is a company incorporated in England. The unaudited condensed group interim financial statements of the Company as at and for the six months ended 30 June 2018 comprise the Company and its subsidiary undertakings (together referred to as the "Group"). All intra-group transactions, balances, income and expenses are eliminated on consolidation.

 

 

2  STATEMENT OF COMPLIANCE

 

The financial information presented in these interim results has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards issued by the International Accounting Standards Board, as adopted by the European Union. The principal accounting policies adopted in the preparation of the financial information in these interim results are primarily unchanged from those used in the Company's financial statements for the year ended 31 December 2017 and are consistent with those that the Company expects to apply in its financial statements for the year ended 31 December 2018. The only change has been the adoption of the following new accounting standards, which are effective for periods beginning 1 January 2018:

 

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.

 

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. As at the date of these interim results there are no indications of impairment losses or expected credit losses. There has been no material impact as a result of the 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 significant 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 interim 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.

 
The financial information for the year ended 31 December 2017 presented in this Interim Report does not constitute the Company's statutory accounts for that period but has been derived from them. The Report and Accounts for the year ended 31 December 2017 were audited and have been filed with the Registrar of Companies. The Independent Auditor's Report on the Report and Accounts for the year ended 31 December 2017 was unqualified and did not draw attention to any matters by way of emphasis and did not contain statements under s498(2) or (3) of the Companies Act 2006. The financial information for the periods ended 30 June 2017 and 30 June 2018 are unaudited and have not been reviewed by the Company's auditors.
 

 

 

3  ESTIMATES AND MANAGEMENT JUDGEMENTS

 

The preparation of the unaudited condensed group interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

In preparing these unaudited condensed group interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation were the same as those that applied to the group financial statements as at and for the year ended 31 December 2017. The distribution fee accounting treatment was also revisited and management concluded that the treatment remains consistent with the group financial statements as at and for the year ended 31 December 2017.

 

 

4  FINANCIAL RISK MANAGEMENT

 

The Group's financial risk management objectives and policy are consistent with those disclosed in the group financial statements as at and for the year ended 31 December 2017.

 

 

5  INCOME

 


Six months ended

 30 Jun 18

Six months ended

 30 Jun 17

Year ended

31 Dec 17


£'000

£'000

£'000





Asset management income




Asset management income

4,760

2,409

5,805


4,760

2,409

5,805

Income from investments




Dividend income - Listed UK

140

-

106

Interest receivable - Bank & brokers

6

1

2

- Other

9

23

323


155

24

431

Other operating income




Arrangement fees

-

19

135

Reversal of provision against loans

-

5

9

Consultancy fees receivable

6

8

14

Other fees receivable

27

36

63


33

68

221





Total income

4,948

2,501

6,457

 

 

6  BUSINESS COMBINATIONS

 

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

920

-

920

Trade and other payables

(1,074)

-

(1,074)

Goodwill and client contracts

-

24,117

24,117

Total identifiable net assets

6,853

23,799

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 £4m will be payable in cash when the revenues from the combined forestry businesses (FIM and existing Gresham House Forestry) over two years are greater than £14m. For amounts less than this there is a sliding scale which reduces to nil deferred consideration where the combined revenues are less than £13m.

 

Current forecasts are that the £14m 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.

 

 

Costs associated with the acquisition of FIM totalled £743,000 and are shown as an exceptional item in the Group Statement of Comprehensive Income.

 

Business combinations in the prior periods related to the acquisition of the asset management business of Hazel Capital LLP.  Further details can be found in Note 5 of the 2017 Report and Accounts.

 

 

7  DISCONTINUED OPERATIONS

 

Discontinued operations represent the legacy property portfolio of the Group, with the sale of the remaining land at Newton-le-Willows completing during the period.

 

The disposal group fulfilled the requirements of IFRS 5 in the prior period to be classified as "discontinued operations" in the consolidated statement of comprehensive income, the results of which are set out below:

 


Six months ended

 30 Jun 18

Six months ended  

30 Jun 17

Year ended

31 Dec 17


£'000

£'000

£'000





Rental income

-

376

531

Other operating income

-

-

22

Property outgoings

19

(162)

(191)

Loss on disposal of investment properties

(1)

-

(1,135)

Movement in fair value of investment property

-

(1,235)

(331)





Net profit/(loss) from discontinued operations

18

(1,021)

(1,104)

 

 

8  EARNINGS PER SHARE

 

Basic and diluted loss per share

 


Six months ended

30 Jun 18

Six months ended

30 Jun 17

Year ended

31 Dec 17


£'000

£'000

£'000





Total net loss attributable to equity holders of the parent (£'000)

(369)

(1,892)

(3,124)





Weighted average number of ordinary shares in issue during the period

14,127,220

12,073,106

12,073,106





Basic and diluted loss per share to equity holders of the parent (pence)

(2.6)

(15.7)

(25.9)

 

1,439,875 (30 June 2017: nil; 31 December 2017: 898,747) shares were deemed to have been issued at nil consideration as a result of the shareholder, supporter and LMS warrants granted and shares which could be issued under the bonus share matching plan and long-term incentive plans which, as required under IAS 33, Earnings per Share, have not been recognised as they would reduce the loss per share.

 

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 simplify the non-GAAP measure of the performance as an asset manager.

 

Adjusted profit/(loss) for calculating adjusted earnings per share:

 


Six months ended

30 Jun 18

Six months ended

30 Jun 17

Year ended

31 Dec 17


£'000

£'000

£'000





Operating loss before taxation for the period

(1,451)

(1,357)

(2,216)

Add back:




Exceptional operating expenses

977

-

308

Depreciation and amortisation

866

584

1,209

Profit on disposal of tangible fixed assets

(19)

(12)

(12)

Adjusted operating profit / (loss)

373

(785)

(711)





Adjusted earnings / (loss) per share (pence) - basic

2.6

(6.5)

(5.9)

Adjusted earnings / (loss) per share (pence) - diluted

2.4

(6.5)

(5.9)

 

 

9  DIVIDENDS

 

No final or interim dividends were proposed or paid for the periods ending 30 June 2018, 31 December 2017 and 30 June 2017.

 

 

 

10  INVESTMENTS - SECURITIES

 

An analysis of total investments is as follows:

 


30 Jun 18

30 Jun 17

31 Dec 17


£'000

£'000

£'000





Listed securities - on the London Stock Exchange

302

-

281

Securities dealt in under AIM

841

672

787

Securities dealt in under NEX Exchange

18

42

38

Unlisted securities

3,627

3,866

1,883

Carrying value

4,788

4,580

2,989





Investments valued at fair value through profit or loss

4,465

2,417

2,830

Loans and receivables valued at amortised cost

323

2,163

159


4,788

4,580

2,989

 

Unlisted securities include the Group's investment in the Gresham House Forestry Fund LP (£1.7 million, including non-controlling interests), investment in battery storage projects (£1.1 million) and an investment of £0.5 million in Windfarm LP Funds as per the FIM transaction.

 

 

11  SHARE CAPITAL

 


30 Jun 18

30 Jun 17

31 Dec 17


£'000

£'000

£'000

Allotted: Ordinary - 20,600,550 (30 June 2017: 12,536,957; 31 December 2017: 12,536,957) fully paid shares of 25p each

5,150

3,134

3,134

 

 

12  SHARE WARRANTS

 


Shareholder warrants

Supporter warrants

LMS warrants

Total warrants






Balance at 1 January 2017

1,071,813

850,000

909,908

2,831,721

Warrants exercised during the period

(1)

-

-

(1)

Balance at 30 June 2017

1,071,812

850,000

-

2,831,720

Warrants exercised during the period

-

-

-

-

Balance at 31 December 2017

1,071,812

850,000

909,908

2,831,720

Warrants exercised during the period

(105,392)

(81,000)

(909,908)

(1,096,300)

Balance at 30 June 2018

966,420

769,000

-

1,735,420

 

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 exercisable between 1 December 2015 and 31 December 2019; 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 323.27p per ordinary share. LMS paid a warrant purchase price of 28p per LMS warrant, totalling £255,000. The LMS warrants are not transferable, 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 period 105,392 shareholder warrants, 81,000 supporter warrants and 909,908 LMS warrants were converted into ordinary shares resulting in the issue of 1,096,300 new ordinary shares (30 June 2017: 1; 31 December 2017: 1). 

 

 

13  NET ASSET VALUE PER SHARE

 

Basic


30 Jun 18

30 Jun 17

31 Dec 17





Equity attributable to holders of the parent (£'000)

60,712

29,673

28,370





Number of ordinary shares in issue at the end of the period

20,600,550

12,536,957

12,536,957





Basic net asset value (pence)

294.7

236.7

226.3

 

Diluted


30 Jun 18

30 Jun 17

31 Dec 17





Equity attributable to holders of the parent (£'000)

60,712

29,673

28,370





Number of ordinary shares in issue at the end of the period

22,040,425

12,536,957

13,435,704





Diluted net asset value (pence)

275.5

236.7

211.2

 

 

Diluted net asset value per share is based on the number of shares in issue at the period end together with 1,439,875 (30 June 2017: nil; 31 December 2017: 898,747) shares 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.

 

These shares and warrants had no dilutive effect for the period ended 30 June 2017 as the exercise price of the warrants is 323.27p which was higher than the average market price of the ordinary shares during the period.

 

 

14  RECONCILIATION OF NET OPERATING LOSS TO OPERATING CASH FLOWS

 


30 Jun 18

30 Jun 17

31 Dec 17


£'000

£'000

£'000

Net operating loss after exceptional items

(1,451)

(1,357)

(2,216)

Profit / (loss) from discontinued operations

18

(1,021)

(1,104)

Movement in fair value of investment property

1

1,235

1,466

Interest payable

-

125

170

Depreciation

62

42

87

Profit on disposal of tangible fixed assets

(19)

(12)

(12)

Amortisation

804

542

1,122

Share based payments

78

51

123


(507)

(395)

(364)

Decrease in long-term receivables

-

-

54

Decrease / (increase) in current assets

354

282

(1,219)

Increase / (decrease) in current liabilities

397

(371)

(86)


244

(484)

(1,615)

 

 


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