REG - Kelso Group Holdings - Interim results for six months ended 30 June 2023
28/09/2023 07:00
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RNS Number : 8978N Kelso Group Holdings PLC 28 September 2023
Kelso Group Holdings Plc ("Kelso" or the "Company")
A highly concentrated investor in UK small and mid-cap listed companies.
Driving value enhancement through active engagement
Interim results for the six months ended 30 June 2023
Kelso, the main market listed investment company, is pleased to announce its
consolidated unaudited interim results for the six months ended 30 June 2023.
Highlights
· Raised £6.0 million in two placings of £3.0 million each at
2.0p and 2.5p
· NAV/share increased by 267% to 2.2p as at 30 June 2023 (0.6p 31
December 2022)
· Significant net investment of £5.0 million at an average cost of
63.1p, in THG plc ("THG"), resulting in a gross realised and unrealised gain
on investments of £1.76 million, a return of c.35%
· Net profit, after expenses and accrued tax and MIP costs, of
£1.0 million
· Post period end:
o sale of 1.5 million THG shares at a price of 105p, leading to a gross
profit of c£0.6 million, as we broaden the portfolio
o investment in TheWorks.co.uk plc ("TheWorks") of 2.9 million shares at an
average price of 33.4p. Current price is c.37.25p
Chairman's statement, Sir Nigel Knowles
I am delighted to have been appointed as Chairman to Kelso in January this
year, with David Charters' appointment as a Non-Executive Director following
soon after. I share the ambition of the executive directors to build Kelso
into a sizeable investment vehicle operating in the listed UK small/mid cap
arena and firmly believe that there is a significant opportunity for Kelso to
achieve outsized returns by investing in a highly focussed and select number
of undervalued companies, creating value through active engagement. The team
applies a robust and rigorous approach to analysis and due diligence to arrive
at these high conviction investments. With this concentrated focus, the team
is able to commit significant resource, working alongside key stakeholders, to
drive actions that enhance shareholder value.
The UK market, especially at the smaller end, has many examples of extreme
value. On any number of valuation metrics, the UK small cap market trades at a
significant discount to the US, the Rest of the World, or even the UK large
cap market, yet growth rates and returns outperform over the longer term. I
believe our latest investment in TheWorks, at 1.2x EV/EBITDA (excluding IFRS
16 lease liabilities), clearly demonstrates that, as we target annualised
returns of at least 25%, but aim for significantly in excess of that.
Furthermore, due to the UK value discrepancy, particularly pronounced at the
smaller end of the market, many quality UK companies are the targets of
private equity or corporate takeovers. Kelso's aim is to capitalise on these
opportunities.
In the medium term, we aim to grow our investment business which is prepared
to work actively with portfolio companies to help them create value for their
shareholders, by both challenging but also supporting their strategies.
I would like to thank all our shareholders, many of whom are successful
business managers and founders. We really value shareholder support, and I
would like to thank them for this and for the many investment ideas received
to date.
Chief Executive Review, John Goold
I am pleased to report on Kelso's first interim results for the six months to
30 June 2023. In this period, we announced an expansion of the Board,
completed two placings totalling £6.0 million, achieved a first half profit,
net of accrued tax and performance fees, of £1.0 million and increased our
NAV/share from 0.6p to 2.2p.
Our H1 profit and loss account shows a gross gain on investment of £1.76
million of which £1.47 million was unrealised and £0.29 million was
realised. Following the post period end disposal of 1.5 million THG shares at
105p we now hold 6.5 million shares in THG, valued at the period end price of
81.5p. As we release these interim results, we note that THG's share price is
c.76.2p (versus our average in price of 63.1p including financing), however,
as mentioned in a number of our previous announcements, we are confident that
the underlying inherent value will in time be reflected in the share price.
The major cost relates to staff costs of £244k which is entirely a non-cash
provision for the long-term management incentive plan, details of which have
been outlined previously. The MIP is aligned with shareholders and obviously
if the value of our investments, and ultimately shareholder returns, reduce
then this provision would reduce. The scheme crystallises 3-5 years after
inception and is fully paid in Kelso shares rather than cash. For the period,
the Directors received no salary and there were no property costs; the board
holds 21% of the share capital of Kelso. The other costs of audit and
accountancy of £61k, professional costs of £59k and £37k of administrative
costs are for the ongoing running of the business which we continue to keep to
a minimum.
We made our inaugural investment in THG during the period, holding 8.0 million
shares at an average cost of 63.1p with a mixture of cash and CFDs. We
announced our investment thesis for THG, highlighting the significant value,
based on a sum of the parts, that is, in our view, clearly inherent within the
business. We also set out in a public statement what we felt THG needed to do
to realise the value lost to shareholders since IPO. THG's share price has
certainly shown significant volatility, rising and sinking over c.30-50% twice
during the period. After our purchases at an average price of 63.1p, the
shares rallied to almost 120p following an approach from Apollo, fell back to
a low of 57p when the approach was rejected, rallied again to a peak of 92p as
shareholders anticipated strong interim results and subsequently fell to 67p
(after 30 June 2023), when THG's interim results did not fulfil hopes of or
articulate their investment strategy. We believe that management need to
manage communications around the high-level strategy and future structure of
the business and hence reduce such volatility, and work towards a break-up of
the group alongside a move to the Premium Index of the Official List. We are
supportive of the Board's improvements around governance and believe reduction
in the price of whey will lead to a much more positive H2 trading position.
Post period end, we trimmed our position in THG as we look for new investments
and broaden the portfolio, by selling 1.5 million shares at 105p generating a
realised gain of c.£0.6 million being a cash return on these shares of c.67%.
Furthermore, we made our second investment, in TheWorks, now holding 2.9
million shares at an average price of 33.0p. TheWorks is the UK's leading
family friendly retailer of value gifts, arts and crafts, toys and books with
12 of its own brands (c.25%-30% of revenue) through 525 retail outlets.
TheWorks was floated in July 2018 at a value of £100 million and a share
price of 160p. Broker forecasts, for the year to 30 April 2024, are for
revenue of £294 million, EBITDA of £10 million and net cash of £10 million
(both on a pre-IFRS 16 basis). We invested at a market cap of 22.3 million, a
valuation of 1.2x EV/EBITDA. We are supportive of the Board and their strategy
but believe that, on such a low valuation, the company should be buying back
their shares rather than paying dividends. Accordingly, we have voted against
the proposed final dividend at the company's AGM on 4 October 2023 and will
encourage the company to pursue a buy back strategy. We voted in favour of all
the other resolutions.
Kelso will only invest in a handful of investments at this stage of our
development. With our second investment now announced, we are building our
third investment and aim to start investing in a further company shortly.
Although there is value at the smaller end of the market, finding liquidity is
often not straight forward and there is a dearth of sellers which bodes well
for future price movements. Value opportunities with significant potential
capital growth, especially with some positive activist engagement, remain
plentiful. The Kelso team is working well together, and we are receiving an
increased number of investment ideas from our shareholders, UK institutions
and market contacts.
I would like to reiterate our Chairman's words of gratitude to those many
shareholders who have supported us and backed Kelso at this early stage. We
continue to welcome investment ideas for situations where we can enable change
in UK listed companies to unlock trapped value.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements has been prepared in accordance
with IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
(c) the interim management report includes a fair review of the information
required by DTR 4.2.8R (disclosure of related parties' transactions and
changes therein).
Principal Risks and Uncertainties
The principal risks and uncertainties affecting the business activities of the
Company remain those detailed in the Annual Report and Accounts 2022, a copy
of which is available on the Company website at www.kelsoplc.com.
Additional principal risks and uncertainties arising since the year end are
listed below:
Portfolio risk
The Company invested in listed shares in the period. In doing so, the group's
investments are not diversified and is exposed to market fluctuations.
Management closely monitors the market price of their investment to minimise
adverse risk and are monitoring the stock market for opportunities to
diversify the portfolio.
Contract For Differences risk
The Company invested in Contract For Differences (CFD) in the period.
Management is experienced in CFD trading and have chosen a highly respected
CFD provider to minimise counterparty risks or delays.
The Board considers that these remain a current reflection of the risks and
uncertainties facing the business for the remaining six months of the
financial year.
For further information please contact:
Kelso Group Holdings plc +44 (0) 75 4033 3933
John Goold, Chief Executive Officer
Mark Kirkland, Chief Financial Officer
Jamie Brooke, Chief Investment Officer
Zeus (Broker) +44 (0) 20 3829 5000
Nick Cowles, Ed Beddows (Investment Banking)
Ben Robertson (Corporate Broking)
Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023 (Unaudited)
Note 6 months ended 6 months ended 12 months ended 31 December 2022
30 June 2023 30 June 2022
(unaudited) (unaudited) (audited)
£ £ £
Revenue
Gains on investments 5 1,760,358 - -
Administrative expenses
Staff costs (relating to MIP) 13 (243,671) - -
Audit and accountancy fees (61,116) (10,750) (24,163)
Professional costs (59,398) (25,391) (159,972)
Other administrative expenses (36,938) (20,819) (103,722)
Profit /(Loss) from operations 1,359,235 (56,960) (287,857)
Finance expenses (63,447) - (1,467)
Profit /(Loss) before taxation 1,295,788 (56,960) (289,324)
Income tax (259,625) - -
1,036,163 (56,960) (289,324)
Profit /(Loss) for the period
Basic and diluted gain/(loss) per share (pence) 6 0.33 (0.12) (0.61)
Basic and diluted earnings /(Loss) per share from continuing operations 0.33 (0.12) (0.61)
(pence)
Consolidated Balance Sheet
As at 30 June 2023 (Unaudited)
As at As at As at
30 June 30 June 31 December
2023 2022 2022
Note (unaudited) (unaudited) (audited)
£ £ £
Assets
Current
Investments 9 6,520,000 - -
Trade and other receivables 8,497 92,441 9,006
Cash and cash equivalents 3,080,953 439,922 332,971
9,609,450 532,363 341,977
Total assets
Liabilities
Current
Trade and other payables 10 (198,028) (2,220) (44,198)
Non-current
Other payables 11 (2,156,768) - -
Deferred tax liabilities (259,625) - -
Total liabilities (2,614,421) (2,220) (44,198)
Net assets 6,995,029 530,143 297,779
Equity
Share capital 12 3,175,250 475,250 475,250
Share Premium Reserve 3,240,077 320,150 320,150
Retained Profit/ (Loss) 538,542 (265,257) (497,621)
Equity attributable to owners of the Group 6,953,869 530,143 297,779
Non-controlling interest 13 41,160 - -
Total equity 6,995,029 530,143 297,779
Net asset value per share 2.2p 1.1p 0.6p
Consolidated Changes in Equity
As at 30 June 2023 (Unaudited)
Share Capital Share Premium Retained Earnings Total attributable to owners of parent NCI Total Equity
£ £ £ £ £ £
At 1 January 2022 475,250 320,150 (208,297) 587,103 - 587,103
Comprehensive income for the period
Loss for the period - - (56,960) (56,960) - (56,960)
Total comprehensive income for the period - - (56,960) (56,960) - (56,960)
At 30 June 2022 475,250 320,150 (265,257) 530,143 - 530,143
Comprehensive income for the period
Loss for the period - - (232,364) (232,364) - (232,364)
Total comprehensive income for the period - - (232,364) (232,364) - (232,364)
At 31 December 2022 475,250 320,150 (497,621) 297,779 - 297,779
Comprehensive income for the period
Profit for the period - - 1,036,163 1,036,163 - 1,036,163
Total comprehensive income for the period - - 1,036,163 1,036,163 - 1,036,163
Transaction with owners
Issue of Share Capital 2,700,000 2,919,927 - 5,619,927 41,160 5,661,087
Total transactions with owners 2,700,000 2,919,927 - 5,619,927 41,160 5,661,087
At 30 June 2023 3,175,250 3,240,077 538,542 6,953,869 41,160 6,995,029
Consolidated Statement of Cash Flows
As at 30 June 2023 (Unaudited) As at As at As at
30 June 30 June 31 December
2023 2022 2022
(unaudited) (unaudited) (audited)
£ £ £
Cash flows from operating activities
Profit/(Loss) for the period 1,036,163 (56,960) (289,324)
Unrealised gain on investments (1,472,133) - -
Realised gain on investment (288,225) - -
Increase in MIP provision 243,671 - -
Corporation/deferred tax 259,625 - -
Finance expenses paid 63,447 - 1,467
(157,452) (56,960) (287,857)
Movement in working capital:
Decrease/(increase) in trade and other receivables (2,800) (44,852) 38,583
Increase/ (Decrease) in trade and other payables 157,140 (34,288) 7,690
Cash generated from operations (3,112) (136,100) (241,584)
Net cash used in operating activities (3,112) (136,100) (241,584)
Financing activities
Acquisition of investments (4,361,074) - -
Disposal of investments 1,514,528 - -
Issue of shares 5,619,927 - -
Issue of shares - non-controlling interest 41,160 - -
Finance costs (63,447) - (1,467)
Net cash used in financing activities 2,751,094 - (1,467)
Net cash (decrease)/increase in cash and cash equivalents 2,747,982 (136,100) (243,051)
Cash and cash equivalents at the beginning of period 332,971 576,022 576,022
Cash and cash equivalents at the end of the period 3,080,953 439,922 332,971
Notes to the interim results
1. Basis of preparation
Kelso Group Holdings Plc is a public limited company incorporated in the
United Kingdom under the Companies Act 2006 (registration number:11504186).
The Company's ordinary shares are admitted to trading on the main market of
the London Stock Exchange.
These interim financial statements for the six months ended 30 June 2023
should be read in conjunction with the financial statements for the year ended
31 December 2022, which have been prepared in accordance with International
Financial Reporting Standards ("IFRSs") as applied in accordance with the
provisions of the Companies Act 2006. The interim report and accounts do not
include all the information and disclosures required in the annual financial
statements.
2. Significant accounting policies
The interim report and accounts have been prepared in accordance with IAS34
(Interim Financial Statements) and on the basis of the accounting policies,
presentation and methods of computation as set out in the Company's December
2022 Annual Report and Accounts, except for those that relate to new standards
and interpretations effective for the first time for periods beginning on (or
after) 1 January 2023 and will be adopted in the 2023 annual financial
statements.
The financial information is presented in Pounds Sterling, rounded to the
nearest pound and has been prepared under the historical cost convention.
The interim report and accounts do not comprise statutory accounts within the
meaning of section 434 of the Companies Act 2006. These interim financial
statements were approved by the Board of Directors on 27 September 2023. The
results for the six months to 30 June 2023 and the comparative results for the
six months to 30 June 2022 are unaudited. The figures for the year ended 31
December 2022 are extracted from the audited statutory accounts of the Company
for that period.
3. New accounting standards adopted at 1 January 2023
There are no significant pronouncements which have become effective from 1
January 2023 that have a significant impact on the Group's interim condensed
consolidated financial statements.
4. Estimates and judgements
When preparing the Interim Financial Statements, management undertakes a
number of judgements, estimates and assumptions about recognition and
measurement of assets, liabilities, income and expenses. The actual results
may differ from the judgements, estimates and assumptions made by management,
and will seldom equal the estimated results.
The judgements, estimates and assumptions applied in the Interim Financial
Statements, including the key sources of estimation uncertainty, were the same
as those applied in the Group's last annual financial statements for the year
ended 31 December 2022.
5. Revenue
Revenue represents realised and unrealised gains on investments.
6 months ended 6 months ended 12 months ended 31 December 2022
30 June 2023 30 June 2022 (Audited)
(Unaudited) (Unaudited)
Realised gains 288,225 - -
Unrealised gains 1,472,133 - -
Total gains 1,760,358 - -
Realised gains were due to a switch in the THG holding from the cash account
to the CFD account.
6. Profit/(Loss) per share
Basic Profit/l(Loss) per share is calculated by dividing the Profit/(Loss)
attributable to equity holders of the Company by the weighted average number
of ordinary shares in issue during the period. There are currently no share
options in issue.
6 months ended 6 months ended 12 months ended 31 December 2022
30 June 2023 30 June 2022
(unaudited) (unaudited) (audited)
Profit/(loss) from operations £ 1,036,163 (56,960) (289,324)
Weighted average number of shares 317,525,000 47,525,000 47,525,000
Basic and Diluted profit/(loss) per share Pence 0.33 (0.12) (0.61)
7. Taxation
Deferred tax is recognised in respect of all timing differences that have
originated but not reversed at the reporting date. These have been applied on
both realised and unrealised profits.
Deferred tax is measured using tax rates and laws that have been enacted or
substantively enacted by the reporting date that are expected to apply to the
reversal of the timing difference.
Deferred tax liability has been provided in line with reported profits in
current reporting period net of past tax losses.
8. Events after the reporting period
After the period end, the Company disposed of 1.5 million THG shares realising
a profit of c.£0.6 million, a c.67% uplift, and purchased 2.8 million shares
in TheWorks at an average price of 33.4p, representing 4.7% of total issued
share capital.
9. Investments
Fully paid shares Shares acquired under CFD Total
Additions 2,744,069 3,530,102 6,274,171
Disposal (1,226,304) - (1,226,304)
Fair value adjustments 736,525 735,608 1,472,133
2,254,290 4,265,710 6,520,000
10. Current liabilities
30 June 2023 30 June 2022 31 December 2022
Trade creditors 163,810 - 9,173
Other taxes and social security 29,440 - 12,743
Other creditors 4,778 2,220 22,282
198,028 2,220 44,198
11. Non-current liabilities
30 June 2023 30 June 2022 31 December 2022
Investment funding 1,913,097 - -
Other creditors 243,671 - -
Deferred tax 259,625 - -
2,416,393 - -
At 30 June 2023, the market value of investments under CFD was £4,265,710,
with leverage of £1,913,097. The equity value of the CFD account was
£2,352,613 with cash held in the margin account of £2,005,000. Shares held
under the CFD agreement are secured by way of first fixed charge on all
instruments and related rights, including cash held in the linked share
dealing account.
12. Share capital
On 24 January 2023, the Company issued 150,000,000 ordinary shares for cash
for a value of £3,000,000 and on 24 March 2023 the Company issued an
additional 120,000,000 ordinary shares for cash for a value of £3,000,000.
The total number of ordinary shares in issue at 30 June 2023 was 317,525,000.
All the shares have the same right to receive dividends and the repayment of
capital and each share represents one vote at the shareholders' meeting on
Kelso Group Holdings Plc.
13. Related Party Transactions
As stated in the Company's financial statements at 31 December 2022, a
Management Incentive Plan ("MIP") has been established, at a cost to the
participants of £41,160, in exchange for A shares in Kelso Ltd and based on
the results for the six months to 30 June 2023, a provision in relation to the
MIP of £243,671 was made for the period.
Other than the shares relating to the MIP, Kelso Ltd is a wholly owned
subsidiary of Kelso Group Holdings Plc and acts as the main trading entity of
the Group.
14. Distribution of Interim Reports
A copy of the interim report will be available shortly on the Group's website
(www.kelsoplc.com (http://www.kelsoplc.com) )
11. Non-current liabilities
30 June 2023 30 June 2022 31 December 2022
Investment funding 1,913,097 - -
Other creditors 243,671 - -
Deferred tax 259,625 - -
2,416,393 - -
At 30 June 2023, the market value of investments under CFD was £4,265,710,
with leverage of £1,913,097. The equity value of the CFD account was
£2,352,613 with cash held in the margin account of £2,005,000. Shares held
under the CFD agreement are secured by way of first fixed charge on all
instruments and related rights, including cash held in the linked share
dealing account.
12. Share capital
On 24 January 2023, the Company issued 150,000,000 ordinary shares for cash
for a value of £3,000,000 and on 24 March 2023 the Company issued an
additional 120,000,000 ordinary shares for cash for a value of £3,000,000.
The total number of ordinary shares in issue at 30 June 2023 was 317,525,000.
All the shares have the same right to receive dividends and the repayment of
capital and each share represents one vote at the shareholders' meeting on
Kelso Group Holdings Plc.
13. Related Party Transactions
As stated in the Company's financial statements at 31 December 2022, a
Management Incentive Plan ("MIP") has been established, at a cost to the
participants of £41,160, in exchange for A shares in Kelso Ltd and based on
the results for the six months to 30 June 2023, a provision in relation to the
MIP of £243,671 was made for the period.
Other than the shares relating to the MIP, Kelso Ltd is a wholly owned
subsidiary of Kelso Group Holdings Plc and acts as the main trading entity of
the Group.
14. Distribution of Interim Reports
A copy of the interim report will be available shortly on the Group's website
(www.kelsoplc.com (http://www.kelsoplc.com) )
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