50% INCREASE IN ASSETS UNDER MANAGEMENT RESULTS IN ACCELERATION OF PROFITABILTY EXPECTATIONS
· Continued momentum in organic growth of the business with AUM up c. 50% since the beginning of the year to £532m
· Asset management revenue increased by 100% to £2.4m (H1 2016: £1.2m)
· Adjusted operating loss * reduced to £0.8m (H1 2016: £1.2m)
· On track to surpass management’s trading profitability expectations since this management team came together in 2014. Asset management trading profitability expected on a run-rate basis by the end of 2017
· Launch of British Strategic Investment Fund on the Long-Term Investment Solutions platform (the 4th Gresham House platform) with a 12-year life and achieving first close of fund at £150m
· Investment in client portal, co-investment platform, talented asset management and support individuals
· Successful integration of LMS and the forestry division achieving acquisition return hurdles
Significant progress since 30 June 2017:
· Sale of inherited legacy property asset, Southern Gateway, for gross proceeds of £7.25m
· Proposed acquisition of Hazel Capital LLP, the renewables and infrastructure group, which manages or advises over £100m of assets, including VCTs with net assets of £50m, plus additional EIS and energy storage systems asset management vehicles, is in final stages of due diligence
· Strong balance sheet – Borrowing facility of £4.4m repaid. Tangible and realisable assets of £27.4m after the sale of Southern Gateway and the repayment of the borrowing facility (H1 2017: £27.4m, including borrowing facility)
Tony Dalwood, CEO of Gresham House plc, comments: “Gresham House has developed its alternative asset management proposition with further organic growth in the first half of 2017. The Group has achieved a number of milestones including passing through £0.5 billion AUM, and the launch of the British Strategic Investment Fund, and importantly I am pleased to report that we are on track to achieve profitability on a run-rate basis in the second half of this year.
We continue to assess various acquisitions alongside the organic strategy that is working well.”
* Adjusted operating loss/profit has been restated per note 8
Activity in the period
It has been another strong six months for Gresham House. Assets Under Management (“AUM”) have passed the £500 million mark, accelerating the Group’s path to profitability, which we anticipate in 2018. The investment team is delivering high-quality asset management expertise for our clients and we are focused on growing value for shareholders.
The launch of the Long-Term Investment Solutions platform as the Group’s fourth division has contributed to organic AUM growth of c.50% in the period. The first fund on the platform, the Gresham House British Strategic Investment Fund (“BSIF”), held a first close of £150 million in June 2017, demonstrating the appetite from local government pension schemes (“LGPS”) and other institutional investors to access long-term opportunities in UK housing and infrastructure related assets. BSIF will focus on areas where an identified gap exists in capital provision (sub £50 million transactions) and will work in partnership with LGPS and local authorities. This provides further evidence of our management team identifying alternative asset management products to satisfy clear areas of demand.
The results for the first half of 2017 show an improvement in the Group’s adjusted operating loss* to £0.8 million, compared to the first half of 2016, which was a loss of £1.2 million. We are now benefitting from the management fees earned from the specialist asset management business as well as the investment in people and processes, two key pillars we identified at the start of the transformation process.
We are pleased that the strong relationships between shareholders and the Company continue to develop and welcome the positive strategic opportunities this potentially generates. I was also pleased to meet more shareholders at the AGM in May and we look forward to increasing engagement with them as we continue to grow the business and deliver the strategic plan we set out at the start of our journey.
Gresham House is now well positioned to benefit from the on going shift to investment in alternative assets, particularly amongst LGPS, other institutional investors, charities, endowments and family offices. We have built robust investment processes around a strong team and a solid platform to continue our growth. I am excited about the pipeline of opportunities that we are currently reviewing to deliver value to clients and shareholders.
Anthony Townsend 14 September 2017 Chairman
* Adjusted operating loss/profit has been restated per note 8
CHIEF EXECUTIVE’S REPORT
We started 2017 with the aim of scaling Gresham House as a specialist asset manager, focused on alternatives and illiquid assets. I’m pleased to say that we have continued to grow the business in the first half of 2017 and our current AUM is now £532 million, an increase of c. 50% since the beginning of the year. We are today significantly exceeding management’s expectations from when we first came together in December 2014 with a vision of building a specialist asset manager. A notable milestone for the period was the launch of the Long-Term Investment Solutions platform, and the subsequent first close of the BSIF at £150 million.
Our second objective was to have made good progress on our asset management operating profitability and I am pleased that we expect to be run-rate profitable within the second half of 2017. Our adjusted operating loss* for the six months to 30 June 2017 reduced to £0.8 million from a £1.2 million loss in the same period last year, primarily driven by asset management revenues doubling to £2.4 million (H1 2016: £1.2 million).
Investment in new talent and infrastructure is already benefitting the Group. From the start, we aimed to put technology at the core of the client proposition and over the past six months significant progress has been made in establishing our digital platform and client portal. Over the period, we were joined by Andy Hampshire as Chief Technology Officer and Michael Hart as Head of Distribution.
As I set out later, we are pleased that we have achieved strong performance through our existing funds across our investment products in real assets, strategic public equity and private equity.
The Group’s acquisitions executed to date have passed our return hurdles, plus balance sheet investments are generating strong returns, even at this early stage of deployment.
Events since 30 June 2017
While the reporting period ended on 30 June 2017, several developments have occurred that give a fuller picture of our activity throughout the period.
We recently announced the sale of our legacy property asset, Southern Gateway, Speke for a gross price of £7.25 million. This was the most material legacy property asset inherited by the management team and only leaves the site at Newton-le-Willows which is held on our balance sheet at a book value of £2.25 million, as the remaining significant inherited legacy property asset still held by the Group. Since the management team took over in December 2014, we have realised £16 million from the legacy portfolio, which exceeds the market value of the Group at that time.
The proceeds from the Southern Gateway sale have been used to repay the Kleinwort Hambros (formerly Kleinwort Benson) loan facility of £4.4 million, and deleverage the balance sheet. The remaining cash is being used to develop the asset management business.
We continue to work on a number of organic and acquisition initiatives, and on 19 May 2017 announced that we were in discussions to acquire Hazel Capital LLP (“Hazel Capital”), the renewables and infrastructure group. The proposed acquisition is in the final stages of due diligence. Hazel Capital manages two VCTs with combined net assets of over £50 million. In additional, various EIS and energy storage systems asset management vehicles are expected to be part of the transaction. Completion is expected in Q4 2017 and is expected to include cash and shares consideration, within our existing permissions, and with shares to be issued at a premium to the current share price.
Since the new management team became involved in Gresham House we have invested across our key three pillars of Platform, Process and People. Our standard capital allocation process has been successfully in place since then, and has overseen acquisitions and capital investment in people.
As we continue to build a scalable, quality business we manage our progress by focusing on these areas of growth.
The Gresham House Platform
AUM now stands at £532 million (2016: £363 million), an increase of c. 50% having been achieved through organic growth since the beginning of the year. The table below shows the growth in AUM since the management team started the transformation of the Group to a specialist asset manager in December 2014.
|Long Term Investment Solutions||–||–||150|
The launch of the Long-Term Investment Solutions platform, and the first close of BSIF on 16 June 2017 at £150 million, was a milestone for the Group. In a relatively short period of time this demonstrated the team’s ability to provide an investment solution in the UK housing and infrastructure related sectors and connect with institutional investors, including pension schemes, endowments and family offices.
Organic growth across the existing platforms was also evident with the forestry business increasing AUM by 5% to £258 million (2016: £247 million) through the increasing value and acquisitions of the underlying forests in the period. The Gresham House Forestry Fund LP continues to fund raise and is working towards a final close at the end of 2017.
The AUM of our Strategic Equity division grew by 6% in the period. Gresham House Strategic plc (“GHS”) grew its Net Asset Value (“NAV”) by 11% to £42 million in the period and has continued to outperform the FTSE-Small Cap excluding Investment Trusts Index by 1.9% since Gresham House Asset Management’s (“GHAM”) appointment in August 2015. The Gresham House Strategic Public Equity LP fund maintained its committed and co-investment capital at £24 million as at 30 June 2017.
LMS Capital plc (“LMS”), our private equity investment trust, grew NAV by 5% in the period to £72 million on the back of a strong realisation programme. The proceeds received have allowed LMS to fulfil its commitment to shareholders by returning a further £11 million by way of tender offer, which completed in August 2017. In the 12 months since GHAM was appointed investment manager, LMS has now returned the full £17 million promised to shareholders, partially changed its shareholder base and is now in a position to begin investing again.
The proposed Hazel Capital acquisition is a good example of adding strategic expertise in a specialist asset management area and is highly complementary to the Group’s existing Real Assets division and the objectives of BSIF, which has already demonstrated the substantial appetite for infrastructure related assets. On completion in the latter part of the year, Hazel Capital is expected to become a further part of the Gresham House platform and add to the Group’s AUM, alongside providing future asset management expertise.
The development of our specialist asset management platform has also been recognised with the Group being nominated as a finalist in the Investment Week Specialist Investment Awards 2017, Specialist Management Group of the Year.
The Gresham House Process
Gresham House’s ability to integrate businesses and add value through synergies is evident in the two existing acquisitions of Gresham House Forestry Limited and the LMS management contract. We have always stated that our acquisition strategy needs to deliver the long-term return hurdle of 15% per annum to add value to the Group. Both the Gresham House Forestry Limited acquisition and the LMS management contract continue to deliver ahead of these returns, demonstrating our ability to add value and ensure synergies as part of our acquisition plan.
We have been able to integrate both of these businesses within the Gresham House family, which has helped deliver the long-term returns to shareholders. In the case of LMS this has been achieved more quickly than originally planned and, having completed the first two phases of our integration, the team can now focus on developing the LMS business.
As previously mentioned, we continue to invest in our digital platform and our Chief Technology Officer, Andy Hampshire, has made good progress to date. Working closely with trusted advisors and industry experts he is developing a best in class client portal, which will provide high quality reporting to investors as well as facilitate co-investment opportunities in a clear and simple manner. We are aiming for this to go live in the last quarter of 2017.
The client portal is only one part of our overall digital platform. Engagement with clients, as well as potential investors, is key to developing the Gresham House brand and raising awareness of the products we offer. We have increased our digital engagement through the use of marketing campaigns and the efficient use of our systems.
Gresham House People
Gresham House is a people business and to operate successfully and grow we need high quality professionals who are experts in their fields. John-Paul Preston and Andy Hampshire are both examples of talented members of the team, who recently won The M&A Advisor’s Emerging Leaders Awards – EMEA in their respective fields and are to be congratulated.
One of the critical elements to growing the business is distribution and I’m pleased that Michael Hart joined Gresham House as the Head of Distribution in June 2017. Michael joined us from Amundi and has a wealth of experience across a wide range of institutional investors. He is already proving to be a great asset to the team as we continue to fund raise for BSIF.
We are also building the investment management team for BSIF, with Joe Thomas joining as an Investment Manager from Lloyds Banking Group. We continue to build the BSIF Investment team.
It has been another busy period for the Company, with the close of BSIF at £150 million and the addition of the Royal County of Berkshire Pension Fund to the share register as well as managing the existing business to achieve strong returns for clients. We have taken further steps to scale the business and accelerate the path to profitability, with profits on a run-rate basis expected by the end of 2017.
We are assessing a number of organic and acquisition growth opportunities to grow the Group and add further value for shareholders.
The alternative asset market benefits from diversification, yield and acting as a partial inflation hedge. Our focus remains on areas that represent good value, where operational performance can be improved and cash flows exist to provide investment opportunities for clients. The demand for alternative asset management continues to grow, with some of the largest institutional asset managers recently executing acquisitions in this area.
We believe we are well placed to capitalise on this demand and with our platform offering, we are able to service clients’ needs in this area and ultimately deliver value to shareholders. We continue to work hard on building the business and driving profit growth into 2018.
Anthony Dalwood – Chief Executive – 14 September 2017