Gresham House plc Reports strong H1, more than doubling AUM

Gresham House plc, (LON:GHE) the specialist alternative asset manager, has today 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

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, Gresham House plc 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.”

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