Gresham House plc, (LON: GHE) the specialist alternative asset manager, has today reported a strong first half of the year with significant improvements in income and adjusted operating profit as the Group focused on consolidating and progressing its organic growth priorities whilst continuing to develop new investment products and clients.
Highlights
| As at30 Jun 19 | As at31 Dec 18 | Change | |
| (£m) | (£m) | (%) | |
| Assets under management | 2,450 | 2,268 | 8.1 |
| Cash and liquid assets1 | 36.3 | 32.8 | 10.6 |
| Six months to 30 Jun 19 | Six months to 30 Jun 18 | Change | |
| (£m) | (£m) | (%) | |
| Total income | 15.3 | 4.9 | +209 |
| Total comprehensive income | (0.7) | (0.4) | -83 |
| Adjusted operating profit2 | 4.4 | 0.4 | +1,090 |
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.
- AUM increased to £2.5 billion entirely driven by organic growth, enabling a significant increase in income to £15.3 million (H1 2018: £4.9 million) and adjusted operating profit to £4.4 million (H1 2018: £0.4 million)
- Captured annualised acquisition synergies of over £1.0 million
- Adjusted operating margin of 29% (H1 2018: 8%) – strong progress towards the Company’s stated target of 40%
- Organic growth in AUM of £183 million includes fundraising of £50 million from Gresham House Energy Storage Fund plc (GRID), £25 million from Baronsmead VCTs and £94 million from Forestry
- Sustained balance sheet strength with cash and liquid assets of £36.3 million – driven by cash generation from the operating business and allowing further investment in people and platform for enhanced long-term growth
- Zero debt – fully repaid £10.0 million debt facility in July 2019 (repaid £7.0 million in period to 30 June 2019)
- Paid maiden dividend under new management team of 3.0p in the period
- Significant Irish forestry mandate awarded by AXA Investment Managers – Real Assets, taking the Group international and highlighting the sustainable investment capabilities of the Group
- Since 30 June 2019 continued fundraising with an additional £15.0 million for GRID, and we anticipate a further fundraising close for BSIF during the second half of the year
Commenting on the results, Tony Dalwood, Gresham House plc Chief Executive, said:
“Our focus on alternative asset management remains increasingly of interest as allocations to these areas continue to build. Alongside revenues, the Gresham House brand is growing, and we are increasingly well-placed for the important shift towards ESG and sustainable investment.
“Trading in the first half of 2019 has been in line with our expectations and we feel well positioned for the remaining part of the year.
“We have made significant progress developing our platform, including enhanced capability within sales and distribution, in order to scale in the future whilst looking at international opportunities in a post-Brexit world.”
CHAIRMAN’S STATEMENT
During the first half of the fifth year of our plan, since the management-buy-in led by Tony Dalwood, Gresham House is now established as a high-quality, diversified, specialist asset management business. Against a volatile wider market background, we have achieved continued organic growth across the Company’s activities and strategically significant investment in our platform. This adds scale to assist us in successfully increasing our Assets Under Management (AUM) which delivers long-term sustainable revenue streams.
ACTIVITY IN THE PERIOD
We have established a solid platform which has enabled us to develop a variety of valuable opportunities for investors. Our strong asset selection track record and disciplined investment approach have enabled us to continue growing, with AUM increasing by 8% to £2.5 billion; This includes a £50 million placement of new equity in the Gresham House Energy Storage Fund plc (GRID) and top-up issues totalling £25 million across our two Baronsmead VCTs.
In Real Assets, we are delighted to have expanded our market-leading forestry operations into Ireland, working with AXA Investment Managers – Real Assets to manage a 4,074 hectare forestry portfolio it acquired from a number of vendors.
Lastly, we expanded our Strategic Public Equity activities through a proposed joint venture with Aberdeen Standard Investments (ASI), announced in March 2019. The programme of work is progressing and development will continue through the year. We are excited by the opportunity to create a valuable diversification route into undervalued public equity opportunities for both Gresham House and ASI’s clients. We also welcome ASI as a shareholder in the Group.
Taking the wider pipeline into consideration, post-period end we successfully raised a further £15 million for GRID, which is currently being invested. In addition, we continue to deploy funds in BSIF and, more generally, we have a high-quality pipeline of new opportunities which our growing distribution team is making available to a wider investor audience through funds and co-investment. The anticipated next close for BSIF is also a significant step as additional well-respected investors will become clients of the Group.
RESULTS
After a period of sustained organic and acquisitive growth, it is pleasing to see the benefits of our strategy begin to flow through in our financial performance. Total income for the first half of the year grew by 209% to £15.3 million (H1 2018: £4.9 million) delivering an adjusted operating profit of £4.4 million (H1 2018: £0.4 million). After the deduction of depreciation, amortisation and exceptional items the total comprehensive net loss after tax for the period was £0.7 million (2018: £0.4 million loss).
SHAREHOLDERS
An essential element of our continued success has been the committed support of our strong shareholder base combined with our ability to attract new shareholders and broaden access to our equity. The Board continues to work closely with the Group’s growing shareholder base which now includes ASI (taking a 5.0% stake in the business as part of our joint venture together). Management and employees also continue to re-invest bonus payments in the Company, engendering greater alignment of interests and objectives for all.
OUTLOOK
Gresham House aims to continue growing organically, developing new and existing products and engaging with acquisition opportunities where strict criteria are met. The Company was pleased to pay a maiden dividend under the new management team of 3.0p in 2019 for the 2018 year, and we intend to pay a larger final 2019 dividend in 2020. As the Group increases in scale and maturity, we would expect to pay separate interim and final dividends.
The continuing market uncertainty created by geo-political and Brexit issues is not helpful but it does not prevent us from growing, due to the increasing investor demand for alternative assets, superior capital returns and income yield.
The asset classes we are involved in are long term, we therefore have confidence in the future and continue to invest and develop the Group in the interests of long-term shareholder value growth.
Anthony Townsend
Chairman
16 September 2019
CHIEF EXECUTIVE’S REPORT
In the first half of the year we have continued to successfully implement our strategy; growing organically, expanding our shareholder base and developing our pipeline of new investment opportunities, whilst focusing on consolidating and capturing synergies across the Group. Importantly, investment performance in some of our vehicles has been impressive and client service achievements have been reflected in industry awards. As a result, we have made strong progress with the priorities set out earlier this year.
We remain ambitious to continue growing the business in line with our vision to become an ‘asset to covet’, with investment in teams across the Group focused on generating superior investment performance whilst providing excellent client service and developing an enhanced distribution and sales capability for our pipeline.
PROGRESS ON 2019 PRIORITIES
I’m delighted that our growing scale and new product generation have enabled us to make strong progress against our KPIs for the business. We have delivered organic AUM growth of 8% in the first half of the year, total income up 209% and a significant increase in adjusted operating profits up 1,090%.
Organic growth in the six-month period has been driven by a number of fundraisings across our Forestry, Baronsmead VCT and GRID businesses. In the case of GRID, we raised £50 million during the period (with a further £15 million after the period end), to deploy in identified utility-scale battery storage system opportunities. GRID is well positioned to commit capital as its targeted assets pass development milestones and we anticipate full deployment of funds raised in early 2020.
The Baronsmead VCTs both undertook top-up fundraisings during the period to invest in new and existing opportunities across their portfolios. Impressively, both offers closed within ten days, demonstrating continued appetite for the team’s investment approach. These fundraisings were an encouraging sign of the progress we’re making to expand the fundraising capabilities of our Equity Funds team as we aim to continue growing AUM in our micro-cap and multi-cap strategies.
We intend to undertake further top-up fundraisings for the Group’s VCT products in addition to fundraisings for forestry and wind power funds.
Elsewhere, Gresham House Strategic plc (GHS) has been a very strong performer against Net Asset Value (NAV) and the four-year track record (since inception of our management) in Strategic Public Equity (SPE) has contributed to a track record over 15 years of substantial outperformance, across three limited partnerships and two listed vehicles. This resulted in the Group receiving a net performance fee of £0.2 million due to growth in NAV since inception exceeding the hurdle rate. GHS has achieved c.42% total NAV returns since inception, with exited investments generating IRR’s in excess of the target 15.0%.
Looking ahead, we are developing the joint venture agreed with ASI and are delighted not only by the potential investment we will be able to direct at undervalued listed equities, but also by ASI’s endorsement of what we’re doing, evidenced by its desire to form the joint venture and become a shareholder in the Group.
Our forestry operations made significant progress during the period following the appointment by AXA Investment Managers – Real Assets to manage a 4,074 hectare forestry portfolio it acquired from a number of vendors. This mandate brings an important institutional client to our business, attracted by our market-leading position in the UK forestry sector. Notably, it gives the Group a foothold in Ireland from which to develop a variety of other new opportunities and the potential to establish a presence in Europe following Britain’s proposed exit from the European Union.
Elsewhere in the Group, BSIF continues to make good progress deploying capital into essential value-added sustainable infrastructure investments that demonstrate strong defensive capabilities alongside potential new investors in advance of a further close soon.
GENERATING SHAREHOLDER VALUE
Making Gresham House an ‘asset to covet’ through the creation of shareholder value alongside client and employee satisfaction remains at the heart of our strategy.
The Group has achieved significant scale in a relatively short period of time and is benefitting from its operational capacity to continue growing AUM, generating increased momentum which brings us closer to our operating margin and profitability targets. During the period our operating margins improved to 29% from 20% at the 2018 year-end and we can see a path towards the 40%+ target in the medium to long term.
As noted in our last report to shareholders, we have focused on organic growth in 2019, bedding-down the integration of previous acquisitions, capturing synergies and developing new product launches. It is, therefore, pleasing that we have captured over £1.0 million of annualised cost synergies and delivered against our targets to create additional shareholder value.
The strength of the Group’s balance sheet has helped both the organic and acquisition growth over the last two years. We have corner-stoned new products, developed energy storage opportunities for GRID and provided reassurance to potential acquisition targets that we have the capital to execute. We have a cash generative business from both operations, as well as the strategic issuance of shares to ASI and the exercise of existing warrants in the period. This is a competitive advantage for Gresham House. We paid down the Santander credit facility in full in July 2019 and will continue to constantly keep the capital structure in mind both from an Investment Committee and Board perspective, as we identify opportunities to further build value. We were also pleased to pay the 3.0p 2018 final dividend in the period and have the intention to split dividend payments between interim and final in the medium term.
As we move ahead into 2020, we expect to see the benefits of our investment in distribution and sales capability come through strongly, helping the Group to maintain momentum. Encouragingly, we expect to have a favourable market position with respect to two continued industry drivers: increased investor allocations towards alternatives and sustainable infrastructure; and the continued drive for investor certainty around environmental, social and governance (ESG) considerations. This combination of factors will help to differentiate Gresham House in sustainable real asset sectors, including forestry, renewables and critical UK strategic infrastructure, as we continue to implement our strategy for the Group.
PEOPLE
Since beginning our journey to build Gresham House, we have always had a strong culture of excellence across the teams. As the business has grown, so has the number of people working within it – whether through acquisition or new hiring – and they bring valuable new ideas, perspectives and ways of working. In this respect, we have needed to invest in our central platform infrastructure and our challenge as a management team is to retain our focus on excellence whilst ensuring that our corporate culture has the flexibility necessary to enable all our people to perform to the best of their abilities.
External recognition of our progress in this regard serves as a useful reference. As such, we were delighted to have won the Professional Pensions UK Pensions Awards 2019 for Best Alternative Asset Manager and Wealth Briefing’s Best Alternative Asset Manager 2019 award. It was also great to celebrate the ten-year anniversary of the UK Micro-Cap Fund in the period and for Ken Wotton to be recognised for his achievements as Fund Manager of the Year 2019 in the Grant Thornton Quoted Company Awards. I am grateful to everyone working in the business for what we have achieved so far and their ongoing commitment to the delivery of our future plans.
During the period we targeted our investment in new people to drive revenue generation in fund management and distribution, as well as critical support functions such as compliance, legal affairs and finance. We are therefore pleased to welcome Richard Staveley who has recently joined as Managing Director in our Strategic Public Equity team and Catriona Buckley, from Fidelity, joining the distribution team. We have also invested in two new members of the wholesale distribution team who join us in September 2019 to grow the Micro-Cap and Multi-Cap Income Funds. In all cases, the focus of resource deployment remains on supporting our continued development and enabling the investment teams to achieve excellent outcomes for our clients.
OUTLOOK
Despite the geopolitical outlook for Britain and Europe remaining difficult, as reflected in the downward pressure seen on sterling, and global bond yield inversion, opportunities are being created and growth in our markets continues. We remain confident in our investment approach. This is a long-term business with clients seeking superior long-term returns through long-term vehicles. To this end, it is worth noting that GHS remains the top-performing small-cap fund in its class this year, and the Gresham House Group balance sheet is being managed to maximise growth opportunities.
The financial performance of the Group in the first half of 2019 was pleasing and in line with expectations with a solid base for growth later in 2020 and beyond. During the second half of the financial year we anticipate a further fundraising close for BSIF and have a pipeline of attractive opportunities where deployment will provide future exciting asset management growth. Similarly, work continues developing opportunities for GRID and on our joint venture with ASI.
Looking ahead to next year and beyond, our medium-term pipeline of new products and developments is progressing well, supplemented by the possible addition of acquisitions that fit with the Group’s strategic criteria, goals and values.
We remain confident in the future of the business and implementation of our strategy continues to proceed as planned as we increase the scale of our operations, enabling us to be more efficient, create attractive investment opportunities for clients and value for shareholders.
Tony Dalwood
Chief Executive
16 September 2019
