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Gresham House

Gresham House strong AUM and income growth with focus on sustainable investment

Gresham House plc, (LON: GHE) the specialist alternative asset manager, reports a strong 17% growth in Assets Under Management (AUM) in the first half of the year, with a 33% increase in core income and 15% increase in adjusted operating profit. The Group remained focused on delivering both organic as well as acquisition-based growth despite challenging market conditions, while continuing to broaden its client base, investing in people and enhancing its sustainability culture.  

HIGHLIGHTS

As at30 Jun 2020As at31 Dec 2019Change
(£m)(£m)(%)
Assets under management3,2642,797+16.7
Cash and liquid assets145.141.3+9.0
Six months to 30 Jun 2020Six months to 30 Jun 2019
(£m)(£m)(%)
Total core income17.813.4+33.3
Adjusted operating profit25.24.5+15.5
Total comprehensive net loss2.20.7-239.6

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 after charging interest but before depreciation, amortisation, share-based payments relating to acquisitions, profits and losses on disposal of tangible fixed assets, net performance fees, net development gains and exceptional items

 Financial Highlights  

·      AUM up 17% in H1 to £3.3 billion including +10% organic growth

·      Core income up 33% to £17.8 million (H1 2019: £13.4million)

·      Adjusted operating profit up 15% to £5.2 million (H1 2019: £4.5 million)

·      Strong balance sheet with cash and liquid assets at £45.1 million and zero debt

Operational Highlights

·      COVID-19 pandemic resilience, with no team members furloughed or use of the Coronavirus Business Interruption Loan Scheme

·      Integration of TradeRisks progressing well, enhancing strength and expertise of Housing team and increasing AUM by £184 million alongside the planned launch of Gresham House Residential Secured Income LP (shared ownership housing fund)

·      Final close of the British Strategic Investment Fund at £300 million

·      Further investment in the future growth of the business with senior appointments made including Rebecca Craddock-Taylor as Director of Sustainable Investment and David Gardner and Peter Bachmann to the International Forestry and Sustainable Infrastructure teams 

Sustainable Investment Highlights  

·      Achieved Principles for Responsible Investment scores of A+ for Strategy and Governance, A+ for Infrastructure and A for Strategic Equity divisions

·      Awarded Green Economy Mark by the London Stock Exchange, emphasising our dedication to building a greener economy and a more sustainable future

Commenting on the results, Tony Dalwood, Gresham House Chief Executive Officer said:  

“We have continued to build and invest in our platform to achieve our strategic and financial objectives set out in the “GH25” plan. Our AUM growth is testament to the strength and resilience of our investment strategies and our talented team despite the challenges due to the COVID-19 pandemic.

With the strong foundation and robust balance sheet, we remain confident of maintaining our long-term growth trajectory.”

Gresham House is hosting its interim results webinar at 11:00 AM today via https://greshamhouse.com/webinar-gresham-house-plc-interim-results-2020/ 

CHAIRMAN’S STATEMENT

I am delighted to record the continued growth and momentum at Gresham House with the tenth consecutive half-year increase in AUM, under exceptionally challenging market conditions. This growth in AUM to £3.3 billion is testament to the strength and scalability of our platform and our ability to attract a diverse and growing pool of clients.

We are a long-term business with a long-term plan based on long-term investment horizons. We entered the pandemic in a favourable position due to the resilient nature of many of our assets, which are naturally less correlated, and less sensitive, to stock market movements, particularly in our Real Assets division. However, our continued investment performance has been a direct reflection of the expertise of our investment teams.

Our teams have delivered growth and performed well consistently whilst working remotely, ensuring smooth business continuity. With our successful track record of investing in public and private small businesses through our open-ended and closed-ended vehicles, we remain well positioned to support businesses crucial to the recovery of the UK economy post COVID-19.

We were very proud to receive our first PRI (Principles for Responsible Investment) scores, and to be awarded the highest rating possible, A+, for Strategy and Governance, a reflection of the robust and transparent approach that we have taken. Our investment strategies were awarded A+ in Infrastructure and A in Public Equity and Private Equity. Placing sustainability at the core of all our investment strategies has meant that we scored well above the investment industry median.

ACTIVITY IN THE PERIOD

The resilience and appeal of our assets for clients, underpinned by the growing interest in specialist and sustainable investments, has enabled us to deliver 17% growth in AUM in the first half of 2020, despite the difficult environment, of which organic growth contributed 10%. The integration of TradeRisks, the fund management business and debt advisory services group acquired in March, into the housing division is progressing well and we remain on track to deliver identified synergies.

In Real Assets, there was notable success across a growing client base. Our Strategic Equity division maintained net positive inflows into our open-ended equity funds over the period and we were pleased to win the c.£150 million investment management contract for Strategic Equity Capital plc, based on our successful Strategic Public Equity track record and resources. We are excited about the fundraising pipeline of activity that we have already established, especially in Housing, Sustainable Infrastructure, Forestry and Private Equity.

RESULTS

It has been pleasing to see the growth against the strategic and financial objectives we laid out in March this year through our five-year plan ‘GH25’. Our core income is up 33% to £17.8 million from £13.4 million in the same period last year. Adjusted operating profit grew 15% to £5.2 million from £4.5 million in the first half of 2019. This performance is particularly noteworthy given the significant level of ongoing investment in the key areas of growth in the business – our people and our ESG offering – particularly in Housing, New Energy, Sustainable Infrastructure and Forestry. The net comprehensive loss for the period was £2.2 million (H1 2019: £0.7 million), which reflected the deduction of exceptional costs relating to acquisitions, the fair value movements of balance sheet investments and contingent consideration and tax.

SHAREHOLDERS

Our successful £8.0 million equity fundraising in March demonstrated the commitment and support from our existing and new institutional shareholders, enabling us to enhance our balance sheet and proceed with identified strategic growth opportunities as we entered into the COVID-19 enforced lockdown. There is a focus on generating attractive returns from our own equity within the Group and this scrutiny will continue to be applied when looking at accelerating growth within existing product areas and potential acquisitions.

OUTLOOK

Gresham House has developed substantially under our management team and it has created significant shareholder value. The ambitions are long-term and we remain well positioned to grow sustainably in all areas of the business in the second half of the year, as we target the delivery of our objectives within ‘GH25’ and focus on generating shareholder value over the next five years.

Although there is continued market uncertainty, the quality of the individuals and the dynamic culture that exists within the business are evident. The nature of our product areas and the increasing demand for alternative assets with sustainability characteristics give us confidence in the opportunities to fundraise across the business. Whilst we may be at an inflection point in the market cycle catalysed by COVID-19, we believe that we will be able to continue to deliver superior performance for our clients.

Anthony Townsend

Chairman

17 September 2020

SUSTAINABLE INVESTMENT OVERVIEW

KEY MILESTONES

SUSTAINABLE INVESTING COMMITTEE ESTABLISHED

In the past year, we codified our approach with the establishment of a Sustainable Investing Committee, which comprises senior representatives from across the company and ensures delivery against the Sustainable Investing Policies that are embedded for each investment strategy and across each stage of the investment lifecycle.

DIRECTOR, SUSTAINABLE INVESTMENT APPOINTED

We announced the appointment of Rebecca Craddock-Taylor as Director of Sustainable Investment. Rebecca will lead the further development and integration of our existing sustainable investment policies across both the Real Assets and Strategic Equity divisions, alongside data capture to quantify the environmental and social benefits of our investment approach.

GREEN ECONOMY MARK AWARDED

We are pleased that our commitment to embedding ESG and sustainable investing across the Group has been recognised by the London Stock Exchange, which awarded us the coveted Green Economy Mark in July.

The Green Economy Mark is only awarded to listed companies that derive more than 50% of their annual revenues from products and services that help towards building a green economy and a more sustainable future.

TOP PRI SCORES RECEIVED

We were very proud to receive our first PRI (Principles for Responsible Investment) scores, and to be awarded the highest rating possible, A+ for Strategy and Governance, a reflection of the robust and transparent approach that we have taken to sustainable investment. Our investment strategies were awarded A+ in Infrastructure and A in Public Equity and Private Equity (our Housing and Forestry strategies were not assessed this year).

Placing sustainability at the core of all our investment strategies ensured that we scored well above the investment industry median.

KEY HIGHLIGHTS

GHE PLC

  •  Awarded London Stock Exchange Green Economy Mark
  •  Achieved top scores (A+ and A) in PRI assessment
  •  Published our first Diversity & Inclusion policy
  •  Committed to the #100blackinterns initiative

FORESTRY

  •  Planted 8.4 million trees in 2020, equivalent to an area covering over 4,600 football pitches*
  •  Our existing forestry captured the equivalent CO2 generated by 270,000 people in the UK (roughly the population of Newcastle) annually**
  •  All timber harvested from our UK managed forests in the previous six months was Forest Stewardship Council (FSC) certified

* Based on 1,100 trees per hectare for broadleaves, 2,700 per hectare for conifer

** Existing forestry is captured in the UK national account, so no direct offsetting claims can be made

NEW ENERGY & SUSTAINABLE INFRASTRUCTURE

  •  Largest battery storage fund / operator in the UK
  •  An acre of land at our first vertical farm investment will produce the same yield as 250 acres of field-grown crops
  •  Invested in WasteKnot Energy, which diverts waste from landfill and produces pellets that can replace coal
  •  Solar and wind projects generated enough energy to power over 117,000 homes in the last year

HOUSING

  •  Delivered 166 new shared ownership homes this year, with a total shared ownership portfolio of 205 homes
  •  Our housing fund provides 2,224 retirement homes and 289 homes to local authorities, housing people who are otherwise homeless

STRATEGIC EQUITY

  •  In 2019, we voted 94% for management recommendations, 6% against, and had 0% abstentions
  •  Developed a formal engagement and voting policy which will be published on our website

CHIEF EXECUTIVE’S REPORT

The first half of 2020 will be remembered for the unprecedented challenges we have all faced, catalysed by global lockdowns on economies and the resulting changes in working practices and lifestyles. Strong actions by governments have softened some of the macroeconomic impacts, however, the microeconomic issues will increasingly become apparent over the next couple of years. It is therefore important to recognise the capabilities of all the Gresham House employees who have adapted so well to the challenging environment in order to continue to focus on the shareholder goals which are firmly embedded in our team’s DNA.

Technology has allowed the Group to continue functioning and communicating to a high level, although it has been necessary to alter regular routines. Importantly, we encouraged people to “over-communicate” with their colleagues and clients to make sure nothing was taken for granted. We introduced a daily management committee briefing each morning, and a new Heads of Departments weekly forum, as well as a weekly Group video call to remind everyone that whilst working from home, that they are part of a larger family, with clear goals both short and long term. I am immensely proud of everyone within Gresham House for adapting so well to keep the business moving forward.

Over the past six months, we have continued to build on our platform with both organic and acquisition-based growth; embedding sustainability, investing in talented people, broadening our client base and thereby continuing to generate long-term shareholder value. We have achieved all this despite the exceptionally difficult market conditions caused by the COVID-19 pandemic. It is particularly pleasing to report overall AUM growth of 17% in this period, demonstrating the strength of our investment strategies, with strong fundraising success and good relative performance across both our Real Assets and Strategic Equity divisions. As a result, we have made a strong start against the strategic priorities of our growth plan ‘GH25’ outlined in March this year, where we aim to create substantial shareholder value over the next five years through a combination of strategic and financial goals.

COVID-19

For our staff, protecting their safety and wellbeing has been our priority during this period and their commitment has ensured that we were able to maintain business as usual whilst seamlessly transitioning to working from home. The investments made in the prior year in our people, systems, business continuity planning and infrastructure have ensured that we have stayed agile and nimble for our clients and I’m delighted that we have been in a position to continue to recruit new talent to support our growth ambitions.

In keeping with our culture and values and our desire to support communities in need, I am pleased that the Company, Management Committee and Directors donated £100,000 in aggregate to the Trussell Trust and NHS Charities Together. In addition, we set up a Give As You Earn Scheme for all employees and the Company will match the donations made. 

We entered this unprecedented period from a position of strength, and cognisant of the challenges presented by market volatility and restrictions in many areas that we operate in. We were able to establish and position a number of identified growth areas across the platforms for further scale, supported by the resilience of the asset classes themselves, the majority of which are less correlated to general market movements. Prudent cash management has also helped us maintain a strong balance sheet position with cash of £22 million and no debt, which positions us well to deliver future growth.

Our performance in the first half of the year has been testament to the resilience and quality of the team working in challenging conditions and we look forward to building on this in the second half of 2020 and beyond.

SUSTAINABILITY

Our asset management platforms, such as forestry and renewables, naturally lend themselves to the increasing focus among governments and investors on sustainability goals. We have placed sustainability at the core of all our investment strategies and our commitment to Environmental, Social and Governance (ESG) principles is central to growing the business. In the past year, we codified our approach with the establishment of a Sustainable Investing Committee, which comprises senior representatives from across the company and ensures delivery against the Sustainable Investing Policies that are embedded for each investment strategy and across each stage of the investment lifecycle.

We have continued to make further progress over the past six months by hosting our first webinar on our approach to sustainable investing, providing examples of the application to real assets including forestry, housing, new energy and sustainable infrastructure. We also announced the appointment of Rebecca Craddock-Taylor as Director of Sustainable Investment, who will lead the further development and integration of our existing sustainable investment policies across both the Real Assets and Strategic Equity divisions, alongside data capture to quantify the social benefits from our investment approach.

Our sustainable investment credentials have been recognised with a top score rating under the PRI (Principles for Responsible Investing) assessment report for 2020, the Company’s first assessment since becoming a PRI signatory in 2018. We achieved the highest rating possible, A+ for our Strategy and Governance and, for the investment strategies covered by the scheme, an A+ for Infrastructure and As in both Public and Private Equity. This underlines the focus that we place on Environmental, Social and Governance (ESG) criteria across the whole business and reflects the robust and transparent approach that we have adopted.

We were also pleased that our commitment to embedding ESG and sustainable investing across the Group has been recognised by the London Stock Exchange, which awarded us the coveted Green Economy Mark in July. The Green Economy Mark is only awarded to listed companies that derive more than 50% of their annual revenues from products and services that help towards building a green economy and a more sustainable future.

PROGRESS ON 2020 PRIORITIES

We have made good progress against our 2020 priorities in the first half of this year, despite the exceptionally difficult market conditions. We have delivered AUM growth of 17%, with core income rising 33% and adjusted operating profit up by 15%.

Organic growth has been driven by strong fundraising success with a growing client base across Institutional, Wholesale and Family Office investors, demonstrating the attractive nature of our market-leading growth opportunities, and the continued increase in asset allocation to alternative investments.

In our Real Assets division, we raised £31 million of equity for Gresham House Energy Storage Fund plc (GRID) in March 2020. We continue to develop battery storage projects to scale GRID and are in advanced stages with two projects expected to be operational in the coming months. We achieved the successful final close in our Housing and Infrastructure Strategy, the British Strategic Investment Fund strategy (BSIF), hitting the target of £300 million, with £100 million raised in the period from three new Local Government Pension Scheme (LGPS) clients. We continue to invest these funds in sustainable housing and infrastructure projects and look forward to launching BSIF 2 in 2021. We were pleased that Peter Bachmann joined as a senior fund manager in our sustainable infrastructure unit, as we continue to add capability and resources to this growing area.

As a result of the TradeRisks acquisition, we announced the launch of a new Limited Partnership, Gresham House Residential Secure Income LP, targeting the shared ownership housing market and aiming to unlock a new supply of more affordable homes across the UK and to encourage first time buyers onto the housing ladder. Meanwhile in Forestry, we commenced fundraising for the Gresham House Forest Fund I LP, which is targeting a close in the second half of the year with a strong pipeline of assets ready to acquire. We have continued to acquire forests for existing and new clients, and the pricing remains robust as the asset class becomes increasingly of interest to institutional investors. As previously indicated, and following our initial move into Irish Forestry, we are increasing resources with the appointment of David Gardner to build our international presence, including related asset classes in carbon credits in jurisdictions such as New Zealand.

Despite market volatility, the Strategic Equity division has seen positive net inflows, including into our open-ended funds, the LF Gresham House UK Micro Cap and LF Gresham House UK Multi Cap Income funds, alongside winning the Strategic Public Equity mandate for Strategic Equity Capital plc (SEC). The Strategic Public Equity approach of using private equity techniques to invest in public companies is a growing area of the smaller company market, and Gresham House has a successful 20-year track record alongside significant resources to continue expanding the opportunity for more investors to benefit from the long-term superior performance record of this strategy. The LF Gresham House UK Multi Cap Income Fund marked its three-year anniversary on 30 June 2020. It is the best performing fund in the IA UK Equity Income sector since launch. In Private Equity, the Baronsmead VCTs raised a further £22 million in the first half of 2020 and we are planning to commence further fundraising in the second half of the year.

The original intention shared by us and Aberdeen Standard Investments (ASI), as announced in March 2019, for the formation of a joint venture relationship is no longer viewed as practicable based on a current regulatory/financial cost benefit analysis. GHAM will now enter into a distribution and marketing agreement with ASI, pursuant to which ASI will, amongst other things, provide certain marketing services for SEC.

Having focused on organic growth and integration synergies in 2019, we resumed our acquisition-based growth, with the purchase in March 2020 of TradeRisks Limited, a housing fund management business and specialist provider of debt advisory services to the housing and social infrastructure sectors. Residential Capital Management Limited, a subsidiary of TradeRisks Limited, is the manager of Residential Secure Income plc (ReSI), a listed Investment Trust seeking to deliver secure income returns to its shareholders by investing in portfolios of shared ownership, retirement and Local Authority housing which as at 31 December 2019 had gross AUM of £321 million (including committed acquisitions). I am delighted to welcome Alex Pilato, Ben Fry and Antoine Pesenti to the Gresham House family, who together considerably enhance our ability to scale our Housing strategy and we look forward to benefitting from the expertise of their highly experienced team. We remain on track with the integration process and delivering on the targeted synergies.

DELIVERING VALUE TO SHAREHOLDERS

In March, we outlined our ‘GH25’ strategy that aims to achieve both strategic and financial goals in order to double shareholder value over the next five years. With sustainability and governance at the heart of our goal to generate long-term shareholder value, we aim to:

·      grow AUM to over £6 billion;

·      increase operating margins to greater than 40%; and

·      maintain target Returns on Invested Capital of 15% or above.

Our broader strategic goals include becoming a recognised leader in sustainable investing, ensuring that our funds maintain superior returns compared to the market, building market share in niche investment product areas, developing the business internationally and generating further goodwill for the Gresham House brand. Our goals are well aligned with those of our shareholders, with senior management owning 8% of shares in the Company.

The continued positive momentum in AUM growth in the first half of the year has ensured that we have made good progress against our targets, maintaining our positive growth trajectory. Our robust balance sheet and the strong cash and net liquid asset positions have also provided us with the strength and flexibility to pursue our growth ambitions. The strong fundraising success across multiple areas in both our Real Assets and Strategic Equity divisions, has enabled us to achieve scale and to establish significant market share in critical areas of sustainable investment opportunities such as housing, infrastructure, renewable energy and forestry, which are all important building blocks of a green economy.

PEOPLE

Our greatest asset has always been our people and I am very proud of the quality of our team, who have continued to work diligently and to deliver on our objectives for the year, ensuring that we have remained fully operational during these times. We have continued to build our talented team with a number of strategic hires, who will help us to expand in their relevant areas. In addition to the appointment of Rebecca Craddock-Taylor (Sustainable Investment Director), the senior appointments to the Forestry, Housing and New Energy and Sustainable Infrastructure teams of David Gardner  (Investment Director of Forestry) focusing on international expansion, Peter Bachmann (Senior Infrastructure Investor) in sustainable infrastructure and Andrew Stirling (Head of Treasury Solutions), have maintained our commitment to investing in our people.

We are also aware of our responsibilities around diversity and inclusion and amongst various initiatives we are proud to have signed up to the #100blackinterns initiative and look forward to welcoming our first intern through this scheme next summer. More detail can be found in our diversity and inclusion policy, available on our website: greshamhouse.com/diversity-and-inclusion.

OUTLOOK

Despite clear macro and socio-economic challenges, the opportunities for growth from alternative asset allocation, underpinned by significant demand for sustainable investments, place Gresham House in a position of strength.

We have achieved a strong first half performance despite exceptionally challenging external conditions, and this has provided us with a solid foundation from which to deliver on our objectives in the second half of the year and beyond. The talent and strength of our team have underpinned outperformance in a number of our funds including the LF Gresham House UK Micro Cap, LF Gresham House UK Multi Cap Income and Gresham House Strategic plc (GHS) funds.

During the second half of the year we will continue, and anticipate commencing new fundraisings, in a number of areas including Forestry, Housing, New Energy and Sustainable Infrastructure and focusing on a number of distribution channels for our Public Equity funds.

The speed and strength of the UK economy’s recovery remains contingent upon various factors, including the extent of any second wave of the COVID-19 pandemic, levels of unemployment, Brexit trade negotiations and the scale of the recession. We expect challenging times in the real economy but the long term and resilient nature of our asset classes lead us to remain cautiously optimistic that our growing client base will continue to view our investment solutions favourably throughout these turbulent times and beyond.

Tony Dalwood

Chief Executive

17 September 2020

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