REG - Rockwood Strategic - Interim Results
22/11/2023 07:00
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RNS Number : 1963U Rockwood Strategic PLC 22 November 2023
Rockwood Strategic Plc
("RKW or the "Company")
Interim results for the six months to 30 September 2023
Rockwood Strategic Plc (LSE: RKW) is pleased to announce its unaudited results
for the six months ended 30 September 2023 (the "Period").
Highlights for the period:
§ Net Asset Value (NAV) Total Return in the period of -5.5% to 1851.59p/share
which compares to a decline in the FTSE AIM All Share Index of -10.3% and an
increase in the FTSE Small Cap (ex-ITs) Index of 2.9%. Total Shareholder
Return in the Period was -2.5%(1).
§ NAV Total Return performance in the year to 30th September 2023 of 28%
which compares to the FTSE AIM All Share Index of -9.9% and the FTSE Small Cap
(ex-ITs) of 8.8%. The Total Shareholder Return in the same one year period was
25.4%(1).
§ NAV Total Return performance in the three years to 29th September 2023 of
80.3% which compares to the FTSE AIM All Share return of -24.3% and the FTSE
Small Cap (ex-ITs) of 35%. The Total Shareholder Return in the same three-year
period was 114%(1).
§ No. 1 ranked fund over the last 1, 3 and 5 years by Net Asset Value Total
Return in the AIC UK Small Companies sector. Ranked No.2 over 1 year and No.1
over 3 and 5 years by Total Shareholder Return ('TSR').
§ New shares issued via our block listing programme at a small premium to Net
Asset Value, growing the shareholder base by 5.7%.
§ Cash of £3.5m at the end of the Period (representing 7% of NAV).
§ Four new investments were made across a range of industry sectors and our
investment in Trifast Plc was increased with the holding re-categorised as
'Core'. Post period end Nick Mills from the Rockwood Investment Team was
appointed as a Non-Executive Director of Trifast Plc.
§ Takeover approach for Finsbury Food Plc generating an unrealised IRR of
38.5% at period end.
§ Post period end takeover offers were received for Smoove Plc (69.3% premium
to previous day's close before commencement offer period), Onthemarket Plc
(93.7% premium to three month volume weighted average price) and The City Pub
Group Plc (65% premium to the three month volume weighted average price).
Noel Lamb, Chairman of Rockwood Strategic Plc, commented:
"The first half of our financial year has been a challenging one for UK small
company stock market investors, with sustained outflows from the asset class
amidst negative sentiment as interest rates continued to rise against a
subdued economic backdrop. For those with sensible time horizons these are
typically the conditions for positive future medium-term returns, not least
due to the heavily depressed valuations of small company shares relative to
history. Private Equity and Trade Buyers are clearly recognising the
opportunities created by this environment with the drumbeat of takeovers
within Rockwood's portfolio continuing throughout 2023. We are delighted that
during the period the long-standing share price discount to Net Asset Value
was closed and we were able to grow our shareholder base."
Richard Staveley, Fund Manager, Harwood Capital, commented:
"Illegitimi non carborundum" is our mentality currently. There has been a
wealth of managerial and Board changes at Rockwood investee companies during
the period. We are excited by the quality of these appointments and their
credentials for creating operational and strategic change which should in time
lead to considerable growth in shareholder value. We are receiving takeover
approaches left, right and centre and expect more to be forthcoming if the
stock market does not recognise the deeply undervalued future cashflow
potential of our portfolio. The redeployment of takeover receipts fills us
with great excitement given our pipeline of new opportunities and these
'buyer's' market conditions. When the market environment eventually changes
we expect the re-rating of our holdings to be material as investors belatedly
react to the catalysts that are now in place across the portfolio for improved
profitability and value creation. This in turn should lead to a
re-acceleration of the compounding of Rockwood shareholders' wealth via net
asset value growth."
The full version of the RKW interim report will be available on its website
shortly at www.rockwoodstrategic.co.uk (http://www.rockwoodstrategic.co.uk)
For further information, please contact:
Rockwood Strategic Plc
Noel Lamb Chairman noellamb@finnebrogue.co.uk
Harwood Capital LLP
Investment Manager Christopher Hart 020 7640 3200
Singer Capital Markets Advisory LLP James Maxwell
Broker Alex Bond 020 7496 3000
James Fischer
About Rockwood Strategic Plc
Rockwood Strategic plc ("RKW") is an Investment Trust managed by Harwood
Capital LLP and listed on the premium segment of the Main Market of the London
Stock Exchange that invests in a focused portfolio of smaller UK public
companies. The strategy identifies undervalued investment opportunities, where
the potential exists to improve returns and where the company is benefitting,
or will benefit, from operational, strategic or management changes. These
unlock, create or realise value for investors.
About Harwood
Harwood Capital LLP ("HC LLP") was incorporated in 2003 and is the investment
manager for RKW and of Harwood Private Clients. It is an investment adviser to
North Atlantic Smaller Companies Investment Trust Plc. HC LLP is a wholly
owned subsidiary of Harwood Capital Management Limited and is authorised and
regulated by the Financial Conduct Authority ("FCA"), authorisation number
224915. Led by Christopher Mills, the funds managed and advised by HC LLP
follow an active value approach towards the businesses in which they invest.
Chairman's Statement for the half year to 30 September 2023
While the UK stock market conditions have been subdued during the first half
of our financial year, the energy at Rockwood Strategic has remained buoyant.
Net Asset Value (NAV) Total Return in the period reduced -5.5% to
1,851.62p/share which outperformed a decline in the FTSE AIM All Share Index
of -10.3%. However, I am delighted to report that during the period we issued
new shares via our block listing programme at a small premium to Net Asset
Value, growing the shareholder base for our proven and differentiated strategy
by 5.7%. This is a significant achievement, as very few of the 300 or more
Investment Trusts across the entire industry are valued at a premium to NAV at
the end of this period and few have been capable of issuing shares during it.
Furthermore, the average discount to NAV across the market for UK listed
Investment Trusts is currently wider than usual. UK equities appear out of
favour and, in the open- ended fund sector, have now experienced over two
years of monthly withdrawals. It is against this difficult backdrop that
Rockwood Strategic has managed to close its long-standing discount and begin
to grow the strategy with new investors who, like the Board, can see the
potential for positive medium-term returns and the potential to continue our
sector beating performance. The Board believes that the current environment is
ripe for attractive investments to generate our performance objective and
pleased to observe the Investment Manager deploying capital. A larger fund
will benefit shareholders by allowing the investment team to widen its
practical universe for establishing influential stakes in companies under
£250m market capitalisation and will of course lead to cost benefits with
improved scale. There is also a range of communication and marketing
initiatives that are being under taken by the Investment Manager to reach a
wider audience.
Following the successful vote at the AGM, we have also conducted, post period
end, a stock split of 10 for 1 which will increase the accessibility of
Rockwood Strategic to smaller investors. It is these smaller investors, and
indeed larger ones, that the Treasury has begun to consider actively in terms
of improving the overall environment for UK equity investing. The health of
our market is clearly challenged. A number of investors have migrated to
global equity mandates, with others recently being attracted to emerging
alternative asset classes. The lure of higher cash and bond yields has become
a further distraction. The 'Mansion House' reforms are but one step towards
encouraging investment in small British businesses; yet more is clearly needed
to incentivise further the savings of domestic investors into small, listed
companies which provide so many jobs within the UK, utilise our world-class
service sector and create capital investment. Furthermore, the long-term
returns from investing in UK small companies have been excellent. There has
been much made of the recent 'de-equitisation', or reduction of number of
companies, on the London Stock Exchange and initiatives are seemingly under
review to address and reverse this. With well over 750 operating companies in
the combined indices of the AIM All-share, FTSE Small and FTSE Fledgling, the
board is confident that our concentrated approach is well placed and needs
only to identify a small number of the very best opportunities which it is
well equipped to do.
Noel Lamb
Chairman, Rockwood Strategic Plc
21 November 2023
Investment Manager's Report
Introduction
During the 6 month period to 30 September we increased the number of holdings
to twenty-one, alongside adding to a number of existing holdings, as a soft UK
stock- market provided the opportunity to purchase investments we believe will
at least meet our 15% IRR criteria over the next 3-5 years. Stock specific
risk and hence stock specific returns are the primary factors producing the
NAV result for the period. We now have 8 'Core' holdings (target 5-10) and 13
'Springboard / opportunities' (target 10-25) with the top ten holdings
accounting for 64.2% of NAV at period end. Cash was £3.5m at the end of the
period, representing 7% of NAV having reduced from 21.2% in March 2023.
We continue to identify companies which will benefit from operational,
strategic or management initiatives. The stock market valuations for these
companies are usually depressed as they have fallen out of favour due to
reduced profitability, strategic error or poor management. All of these can be
reversed, typically generating significant shareholder value recovery.
However, the current market backdrop is providing even greater valuation
anomalies; time horizons seem to be shortening and many investment funds are
experiencing outflows. Our approach of engaging with stakeholders alongside
our own material shareholding is differentiated and proving effective. When
the stock market doesn't recognise the improvements subsequently made and the
value on offer, increasingly private equity investors and trade buyers are.
Market Commentary
The last six months have surprised most market commentators. Economies have
proved reasonably resilient, at stagnant levels of growth, whilst monetary
policy has continued to tighten. The FTSE Aim All Share Index fell 10.3% and
is now down 44.7 % from its peak in September 2021. OPEC co- ordination
alongside resilient US growth and regional geo-political tensions have caused
the oil price to rise 18% from $77.9 to $92.2. UK interest rates rose from
4.25% to 5.25%. There are some signs that inflation has peaked but a material
reduction has not occurred yet (Core inflation September 2023 6.3%) and
Central Banks remain committed to this goal in their public statements. The
share-price rises of mega-US technology stocks appears the only consensual
positive trend and feels as if its sucking in all spare capital, herd-like,
whilst UK equity valuations are at their lowest for a generation. The IPO
market is moribund. However, merger and acquisition activity is clearly
increasing as savvy trade buyers and private equity firms exploit the
liquidity hungry, redemption heavy UK equity market. The 'transmission
mechanism' of higher interest rates has clearly had slower effects than in
previous rate cycles, albeit insolvencies are picking up, as is unemployment
off a very low base and house prices are falling. We believe the lag is due to
a hangover from the COVID related government largesse to both consumers and
corporates, which we perceive has nearly fully unwound and the move in recent
years by large parts of both groups to extend their interest rate protection
on debt at the previously very low levels. This is gradually unwinding.
The 'Mansion House' reforms hopefully represent the 'starting-gun' for more
initiatives to improve the attractiveness of small UK businesses, but it will
take time. As we move into an election year competing policy announcements
will emerge, so we urge all parties to take seriously the health of the UK
stock market. Its primary purpose is to raise capital and support UK
businesses when they reach a certain maturity and whilst many schemes exist
for very small private businesses, more is needed to encourage investors to
deploy capital to our public market. It is a key source of employment, tax
receipts and UK investment. The alternative is everyone buys Nvidia, now
valued at c.$1 trillion.
We stated in previous reports that we would anticipate limited sustained
market recovery until 'core' inflation is demonstrably falling and the market
can have real confidence to anticipate the commencement of monetary easing. We
believe the portfolio holdings are deeply undervalued, almost all are very
well financed, all have the potential for operational improvements and
strategic improvements too which can drive shareholder value irrespective of
the doom and gloom. Takeover interest continues to emerge for a number of our
holdings due to their attractive cash flow generation and market positions and
we expect realisations to produce material NAV uplifts and cash for
re-investment. We do see a high probability of a recession and expect market
profit expectations to fall further and have built this backdrop into the
margin of safety we expect in our holding valuations and the extent of profit
recovery we are expecting from the businesses and their management teams many
of which evolved positively during the period.
Portfolio performance
The portfolio is very concentrated and therefore it should be expected that
over any shorter period, such as a year, a dominant stock or two will drive
performance.
Performance 1 Year 3 Year
(all indices are excluding investment trusts) H1 2023 to 30 Sept to 30 Sept
RKW TSR1(1) (2.5%) 25.4% 114.0%
RKW NAV Total Return1(1) (5.5%) 28.0% 80.3%
FTSE Small Cap Total Return (SMXX) 2.9% 8.8% 35.0%
FTSE AIM All Share Total Return (TAXXG) (10.3%) (9.9%) (24.3%)
FTSE All Share Total Return (ASX) 1.4% 13.8% 39.8%
Source: Bloomberg and Company as at 30 September 2023
The NAV fell due to modest weakness across the portfolio in thinly traded
markets dominated by negative investor sentiment and increasing interest
rates. Soft economic conditions led to reduced short term profitability
expectations at M&C Saatchi and Flowtech Fluidpower whilst the recovery
from one part of one division at RM Plc has, to date, been slower than
expected. Much more positively, Finsbury Food received a takeover approach
(unrealised IRR 38.5% at period end) and Galliford Try announced material
special dividends, an enhanced dividend policy and strong further recovery in
profitability. Overall, the NAV Total Return outperformed the AIM All Share
Index where most of our investments reside.
Portfolio highlights & investment activity
The period ended with 21 holdings, of which the top 10 constitute 64.2% of
NAV.
Top ten shareholdings Shareholding in company Portfolio
(30 September 2023) £m NAV
RM Plc 4.8 9.8% 9.6%
Trifast Plc 4.1 3.7% 8.2%
M & C Saatchi Plc 3.5 2.0% 7.0%
Flowtech Fluidpower 3.3 6.1% 6.6%
Centaur Media Plc 3.2 6.0% 6.6%
Galliford Try Holdings PLC 3.0 1.2% 6.1%
Finsbury Food 2.7 1.9% 5.4%
City Pub Co 2.6 2.9% 5.2%
Van Elle 2.5 5.6% 5.0%
Titon Holdings 2.3 26.7% 4.5%
Other investments (11) 14.3 - 28.7%
Cash and other working capital items 3.5 - 7.1%
Total NAV 49.8 100.0%
Trifast, the distributor and manufacturer of fasteners, has become a 'core'
holding. During the period the Chair has been replaced, a new CEO has been
appointed and post period end Nick Mills, member of the Investment Management
team, has been appointed a Non-Executive Director of the company. In line with
all 'core' holdings, the business has the opportunity for significant
operational improvements, is materially undervalued relative to our estimates
of the company's future cash flow generation and now has the catalysts in
place to ensure shareholder value is maximised over the next 3-5 years. Its
current operating margins are depressed relative to history, however a new
Enterprise Resource Planning system has been deployed which should ultimately
lead to improved financial performance. The business is international, and
whilst much internal work must be done under the new CEO and relatively
recently appointed new CFO and COO, which will drive profitability over the
medium-term, industrial end-market conditions are currently 'soft'.
Bonhill, the international B2B media business providing Business Information,
Events and Data & Insight propositions to the global Financial Services
community, de-listed after returning capital from asset sales via a tender
offer. This investment has not met our target returns, however due to the
'margin of safety' we identified at the outset and our subsequent efforts, via
taking a Non-Executive Director position at the company, we were able to
almost fully protect our invested capital through the break-up and sale of the
business. We remind shareholders that Rockwood Strategic also made a
profitable loan to the company during this realisation phase and we await to
receive, post the period end, a final payment before the company enters
voluntary insolvency.
New Investments
Four new investments were made and a number of existing holdings were
increased. We highlight two at the Interim stage.
These were all classified by the manager as either "springboards" or
"opportunities" and as such each individual investment did not exceed 4% of
NAV at inception. We target eventually 10-25 of these style holdings as
Rockwood Strategic builds, we had 13 at period end. The former are investments
which meet our investment criteria of being able to deliver 15% IRRs over a
time horizon of five years (thereby doubling in value) which have the
opportunity for, or are experiencing, operational, strategic and management or
Board changes which should deliver, unlock or create shareholder value. Once
identified, we ideally want to invest 5-15% of NAV in order to have material
exposure within the strategy and also a stake in the company of similar size,
ensuring an influential voice with which we can engage with the company and
stakeholders.
James Fisher & Sons
The stock is a classic 'fallen angel' in our view. They provide specialist
engineering services to the energy, defence, renewables and marine markets and
has a 175-year-old business history, 2367 employees with operations in 18
countries. Previous management misfired on capital allocation through an
over-energetic acquisition strategy with the inevitable lack of integration,
loss of operational control and distressed balance sheet through a build-up of
excessive debt. Operating margins halved. A set-piece Rockwood opportunity, we
believe.
At c. £165m market capitalisation at period end, 2022 sales were £478m,
Ebitda £67.5m and PBT £16.2m. The financial recovery opportunity is material
with the company targeting a mean reversion back to 10% margin and 15% ROCE.
The Defence business was loss-making in 2022 and Marine Services only made
3.5%, so it's clear where critical improvements are needed. Our due diligence
has given us confidence the order book can grow, in particular in Defence.
We believe a high quality new Chairman, CEO and CFO have been appointed (in
that order) and the highly experienced Jean Vernet (formally divisional MD at
Smiths Group Plc) has already re-organised the group into 3 divisions and
appointed new Heads of each (2 of which are external). Net Debt remains
elevated and thus we expect further portfolio rationalisation to accelerate
debt reduction alongside improved cash generation.
The shares have been valued on significantly higher multiples over the years
and thus our thesis combines both improved profitability and improved
valuation multiples in time.
Restore
'Comebacks' in sport often raise mixed emotions, the same is true in business,
one only needs to ask Disney shareholders. Restore, however, we believe has
been exceptionally lucky to have been able to bring back former CEO Charles
Skinner. Charles built the business very successfully between 2009 and 2019
and set the company on the path to a market leadership position in a range of
office services, most importantly document storage. This division has 22.4m
boxes of records under management, 975 staff, 52 sites and is UK no.2 after
Iron Mountain, it makes over 30% profit margins and is 70% of total profit.
At the end of the period the market capitalisation was £240 million having
risen since our purchase on both Charles's appointment and a new major HMRC
contract win. In 2022 They had sales of £279m and Ebitda of £76m with PBT of
£41m. Adjacencies such as shredding, scanning, digital storage, technology
recycling and office relocation have all developed over the years, however
following the departure of Charles, costs have increased, operational control
has slipped, financial management deteriorated and a material de-rating of the
company has occurred. Typically for recovery situations it takes a decent
period (often up to a year) for new management to really get to grips with the
business they are going to be turning around. Seasoned practitioners which
populate Rockwood Strategic investments usually hit the ground running. In
Charles case he will hit the ground sprinting. We look forward to the results
from his leadership and the fruits from this opportunistic investment in the
period.
Portfolio Updates
There has been considerable progress across the portfolio, particularly with
regard to the appointment of key management and Board members to our
investments, all of which we are delighted with and who we expect to make
major positive impacts on the companies in the years ahead leading to the
unlocking, growth and realisation of shareholder value. The importance of
these individuals should not be under-played as in many cases it de-risks our
investment theses as we move past the point of having the right people in
place to turnaround our target investments.
· Mike England has been appointed CEO of Flowtech Fluidpower. Mike was
previously COO of FTSE 100 constituent RS Group (previously
Electrocomponents). He has already made a series of senior management changes
at the business and identified a number of work-streams to improve operational
performance. In the first half of the year operating margins were 5.7%. The
company is now targeting "mid-teens" medium-term. We see achieving sustainable
double-digit margins as a catalyst for a material re-rating alongside balance
sheet improvements due to better working capital management.
· Simon Goodwin and Christopher Humphrey have been respectively
appointed CFO and NED of RM Plc. We are particularly pleased about
Christopher's appointment as we initially proposed him to the Board.
Christopher's deep and relevant corporate experience including in particular
his time at Anite Plc will be invaluable to RM as they try to recover
shareholder value. Since investing in this stressed, turnaround situation
there has been 4 newly appointed NEDs, a CEO, a CFO, a Head of Transformation,
new Heads of Digital and Real Estate and their disastrous technology project
has been brought under control. We believe this represents huge progress in
just one year to deliver our medium-term investment thesis, which, once debt
has been reduced, should lead to considerable upside for Rockwood Strategics
NAV.
· Zyllah Byng-Thorne has been appointed Executive Chair of M&C
Saatchi following the retirement of Moray McClennan. In line with peers,
M&C Saatchi's traditional creative advertising division has had weak
end-market conditions to contend with. This means that the overdue and
identified cost-cutting, streamlining and efficiency opportunities are even
more important to be delivered. Zyllah's reputation is not pedestrian and we
expect swift progress over the next 18 months alongside an unemotional
appraisal of various agencies and activities within the group. Progress on the
removal of minority interests should also be achieved.
· Stephen Welker has been appointed Chair of Hostmore, the owner of the
TGI Fridays franchise in the UK. This household name casual dining brand has
stood the test of time and has been achieving noticeably improved customer
ratings in the last year. With over 80 units, the business has entered a
challenging phase for the UK consumer. However, Stephen is no stranger to
turnarounds having been part of the Sherbourne team that have successfully
identified and led a number in the UK market. The CEO and CFO have now also
been replaced, the cash-consumptive store opening programme paused and a
series of initiatives to stabilise and improve profitability put in place.
Free cash flow generation should ramp up allowing a reduction in elevated debt
and eventually material shareholder value creation.
· Finally, breakthrough contract wins were announced by Filtronic Plc
with the European Space Agency and a leading global provider of low earth
orbit satellites, in addition to prestigious grant funding with the Ministry
of Defence's Technology Exploitation Programme. Filtronic has a been a
supplier to the MOD for many years and also into telecommunications hardware
markets via a key market-leading client. Its IP and technology know-how in the
'Radio frequency' sector is arguably unrivalled and as a result, when a new
end-market emerges, the company has found itself in an enviable position. That
end-market is 'Low earth orbiting' satellites, whose growth prospects appear
material due to the advances in rocket technology in particular by SpaceX.
Filtronic needs to scale its revenues to grow shareholder value whilst it
increases its strategic value in the emerging supply chain for the satellite
industry. Progress in the Space sector might just be the solution.
Outlook
We believe that the stock market continues to materially undervalue our
portfolio holdings. Identified measures to build profitability should offset,
and in many cases exceed, negative impacts from a challenging external
environment. Robust balance sheets should protect the downside. We have
material influence through our large stakes and Board representations to help
ensure shareholder value remains a focus and strategies evolve appropriately.
'Engagement' activities added value in the period and we have a number of
initiatives underway for the rest of the year. We continue to identify new
investments to deliver on our investment objectives which will replace the
realisations expected in the second half.
As discussed above, this market down cycle is already quite extended and the
effect of higher interest rates is starting to impact economies. Once Central
Banks are comfortable inflation is tamed, monetary policy should ease and a
marked improvement in stock-market conditions, if history is anything to go
by, is likely. In the first stages of a market recovery, if history does rhyme
or repeat then UK small companies should lead and those with value and
recovery characteristics will perform even better. We are not overly focused
on predicting the immediate market outlook though, but sticking to identifying
investments where our target absolute returns can be achieved over the next
3-5 years, irrespective.
Richard Staveley Investment Manager
21 November 2023
Unaudited Condensed Statement of Comprehensive Income
for the six months ended 30 September 2023
Six months to 30 September 2023 Six months to 30 September
(Unaudited) 2022
(Unaudited)
Capital
Total
Revenue Total
Notes £'000 £'000 £'000 £'000
Income 14 538 - 538 493
Net (losses)/gains on investments at fair value - (3,126) (3,126) (3,850)
Total income 538 (3,126) (2,588) (3,357)
Expenses
Investment management fee 15 (60) - (60) (52)
Performance fee 15 - - - -
Other expenses (286) (44) (330) (875)
Total expenses (346) (44) (390) (927)
Return before taxation 192 (3,170) (2,978) (4,284)
Taxation 11 - - - -
Return for the period 192 (3,170) (2,978) (4,284)
Basic and diluted earnings per ordinary share (pence) 7.29p (120.36p) (113.07p) (168.58p)
The total column of the statement is the Statement of Comprehensive Income of
the Company prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the United Kingdom. The supplementary revenue
and capital columns are presented for information purposes as recommended by
the Statement of Recommended Practice ("SORP") issued by the Association of
Investment Companies ("AIC").
All items in the above Statement derive from continuing operations. No
operations were acquired or discontinued during the period. The notes on pages
13 to 16 form part of these financial statements.
Unaudited Condensed Statement of Financial Position
as at 30 September 2023
As at 30 September As at 31 March As at 30 September
2023 2023 2022
(Unaudited) (Audited) (Unaudited)
Notes £'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 16 46,242 39,255 34,318
Current assets
Trade and other receivables 146 73 125
Cash and cash equivalents 3,879 11,631 4,970
4,025 11,704 5,095
Total assets 50,267 50,959 39,413
Current liabilities
Trade and other payables (498) (541) (1,109)
Tax liability - - (1,580)
Performance fee payable - (625) -
Total liabilities (498) (1,166) (2,689)
Total assets less current liabilities 49,769 49,793 36,724
Net assets 49,769 49,793 36,724
Represented by:
Share capital 1,344 1,281 1,281
Share premium account 15,944 13,063 13,063
Capital reserve 11,354 11,344 11,344
Capital redemption reserve 2,711 - -
Revenue reserve 18,416 24,105 11,036
Total equity attributable to equity holders of the Company 49,769 49,793 36,724
Basic and diluted net asset value per ordinary share (pence) 1,851.6p 1,959.6p 1,445.3p
The financial statements were approved by the Board of Directors on 21
November 2023 and signed on its behalf by:
Noel Lamb Kenneth Lever
Chairman
Director
The notes form part of these financial statements.
Unaudited Condensed Statement of Cash Flows
for the six months ended 30 September 2023
Six months to 30 September Period ended Six months to 30 September
2023 31 March 2022
(Unaudited) 2023 (Unaudited)
Notes £'000 (Audited) £'000
£'000
Cash flow from operating activities
Return before tax (2,978) 8,430 (4,284)
Losses/(gains) on investments held at fair value through profit and loss 3,126 (8,991) 3,850
Decrease/(increase) in receivables 1 (772) (360)
(Decrease)/increase in creditors (668) 663 290
Dividend income (371) - -
Portfolio dividend income received 297 862 169
Corporation tax paid - (1,581) -
Net cash outflow from operating activities (593) (1,389) (335)
Cash flows from investing activities
Purchases of investments (11,636) (20,015) (9,594)
Sales of investments 1,523 22,528 4,392
Net cash (outflow)/inflow from investing activities (10,113) 2,513 (5,202)
Cash flows from financing activities
Gross proceeds of share issue 2,997 - -
Share issue costs (43) - -
Net cash inflow from financing activities 2,954 - -
(Decrease)/increase in cash and cash equivalents for the period (7,752) 1,124 (5,537)
Reconciliation of net cash flow movements in funds
Cash and cash equivalents at the beginning of the period 11,631 10,507 10,507
(Decrease)/increase in cash and cash equivalents (7,752) 1,124 (5,537)
Cash and cash equivalents at end of period/year 3,879 11,631 4,970
The notes form part of these financial statements.
Unaudited Condensed Statement of Changes in Equity
for the six months ended 30 September 2023
Capital Redemption
D shares Ordinary Share Share Revenue Capital Reserve Total
£'000 Capital Premium Reserve* £'000 £'000 £'000
£'000 £'000 £'000
Period ended 30 September 2023 (unaudited)
Opening balance as at 1 April 2023 10 1,271 13,063 24,105 - 11,344 49,793
Unrealised appreciation transferred at 1 April 2023 - - - (5,881) 5,881 - -
Cancellation of D shares (10) - - - - 10 -
Gross proceeds of share issue - 73 2,881 - - - 2,954
Total comprehensive income for the period - - - 192 (3,170) - (2,978)
As at 30 September 2023 - 1,344 15,944 18,416 2,711 11,354 49,769
for the six months ended 30 September 2022
Capital Redemption
D shares Ordinary Share Share Revenue Capital Reserve Total
£'000 Capital Premium Reserve* £'000 £'000 £'000
£'000 £'000 £'000
Period ended 30 September 2022 (unaudited)
Opening balance as at 1 April 2022 10 1,271 13,063 15,320 - 11,344 41,008
Total comprehensive income for the period - - - (4,284) - - (4,284)
As at 30 September 2022 10 1,271 13,063 11,036 - 11,344 36,724
* The revenue reserve can be distributed in the form of dividends. The notes
form part of these financial statements.
Notes to the Unaudited Condensed Interim Financial Statements
Rockwood Strategic Plc (the Company) is a public company incorporated in the
UK and registered in England and Wales (registration number: 03813450).
The Company carries on the business as an investment trust company within the
meaning of Sections 1158/1159 of the Corporation Tax Act 2010.
1. Principal Accounting Policies
These interim financial statements for the period ending 30 September 2023
have been prepared on a going concern basis, under the historical cost
convention, modified by the valuation of investments at fair value.
Following the Company's approval as an investment trust company on 1 April
2023, the annual financial statements of the Company for the period to 31
March 2024 will be prepared in accordance with UK adopted international
accounting standards. They will also be prepared in accordance with applicable
requirements of England and Wales company law and reflect the following
summarised policies which will be adopted and applied consistently. The
financial statements will also be prepared in accordance with the SORP for
investment trust companies issued in July 2022, except to any extent where it
conflicts with IFRS.
The interim financial statements information contained in this interim report
does not constitute full statutory accounts as defined in Section 434 of the
Companies Act 2006.
In order better to reflect the activities of an investment trust company and
in accordance with guidance issued by the AIC, supplementary information which
analyses the Statement of Comprehensive Income between items of a revenue and
capital nature has been presented alongside the Statement of Comprehensive
Income.
The functional and presentational currency of the Company is Pounds Sterling
and has been determined on the basis of the currency of the Company's share
capital and the currency in which dividends and expenses are paid. The
Financial Statements are presented to the nearest thousand (£'000).
2. Going concern
In assessing the Company as a going concern, the Directors have considered the
market valuations of the portfolio investments, the current economic outlook
and forecasts for Company costs.
The Company is in a net asset position of £49.8 million (March 2023: £49.8
million, September 2022: £36.7 million) and 100% of the Company's portfolio
of Investments consist listed equities which, should the need arise, can be
liquidated to settle liabilities. There are no other contractual obligations
other than those already in existence and which are predictable.
The Company's forecasts and projections, taking into account the current
economic environment and other factors, including reasonably possible changes
in performance, show that the Company is able to operate within its available
working capital and continue to settle all liabilities as they fall due for
the foreseeable future. The Company has consistent, predictable ongoing costs
and major cash outflows, such as for the payment of dividends, are at the full
discretion of the Board.
Therefore, the Directors taking into the consideration the above assessment
are satisfied that the Company's ability to continue as a going concern and
are satisfied that the Company has adequate resources to continue in
operational existence for a period of at least 12 months from the date when
these financial statements were approved.
3. Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business.
4. Significant Accounting Judgements, Estimates and Assumptions
The preparation of financial statements requires the use of estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. It also requires Management to exercise
their judgement in the process of applying the accounting policies. The main
area of estimation is in the inputs used in determination of the valuation of
the unquoted investments in Note 16. Although these estimates are based on
management's best knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
Management believes that the underlying assumptions are appropriate and that
the Company's financial statements are fairly presented.
5. Investments at fair value through profit or loss
All investments held by the Company are designated as "fair value through
profit or loss". As the Company's business is investing in financial assets
with a view to profiting from their return in the form of interest, dividends
or increase in fair value. Listed equities, unquoted equities and fixed income
securities are classified as fair value through profit or loss on initial
recognition. The Company manages and evaluates the performance of these
investments on a fair value basis in accordance with its investment strategy.
Investments are initially recognised at cost, being the fair value of the
consideration.
After initial recognition, investments are measured at fair value, with
movements in fair value of investments and impairment of investments
recognised in the Condensed Statement of Comprehensive Income and allocated to
the capital column. For quoted equity shares fair value is generally
determined by reference to quoted market bid prices or closing prices for SETS
(London Stock Exchange's electronic trading service) stocks.
IFRS 13 requires an entity to classify fair value measurements using a fair
value hierarchy that reflects the significance of the inputs used in making
the measurements. The fair value hierarchy has the following classifications:
· Level 1 - valued using quoted prices in active markets for identical
investments.
· Level 2 - valued using other significant observable inputs (including
quoted prices for similar investments, interest rates, prepayments, credit
risk, etc). There are no level 2 financial assets (31 March 2023: £nil, 30
September 2022: £nil).
· Level 3 - valued using significant unobservable inputs (including the
Company's own assumptions in determining the fair value of investments). There
are no level 3 financial assets (31 March 2023: £nil, 30 September 2022:
£nil).
Unquoted investments are valued in accordance with the International Private
Equity and Venture Capital Valuation ("IPEV") Guidelines. Their valuation
incorporates all factors that market participants would consider in setting a
price. The primary valuation techniques employed to value the unquoted
investments are earnings multiples, recent transactions and the net asset
basis.
6. Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with
banks and other short-term highly liquid investments with original maturity of
3 months or less that are readily convertible to a known amount of cash and
are subject to an insignificant risk of changes in value.
7. Foreign currency
Transactions in currencies other than Sterling are recorded at the rate of
exchange prevailing on the date of the transaction. Items that are denominated
in foreign currencies are retranslated at the rates prevailing on Statement of
Financial Positions. Any gain or loss arising from a change in exchange rate
subsequent to the date of the transaction is included as an exchange gain or
loss in the capital reserve or the revenue reserve depending on whether the
gain or loss is capital or revenue in nature.
8. Trade debtors and creditors
Trade debtors and creditors are held at amortised cost and are accounted for
at fair value when an asset or liability is incurred as these are short term
in nature.
9. Revenue
Dividend income from investments is recognised when the Company's right to
receive payment has been established, normally the ex-dividend date.
Where the Company has elected to receive its dividends in the form of
additional shares rather than cash, the amount of cash dividend foregone is
recognised as income. Any excess in the value of shares received over the
amount of cash dividend foregone is recognised as a capital gain in the
Statement of Comprehensive Income.
Interest income is recognised in line with coupon terms on a time-apportioned
basis. Special dividends are credited to capital or revenue according to their
circumstances.
10. Expenses
All expenses are accounted for on an accruals basis and are allocated wholly
to revenue with the exception of Performance Fees which are allocated wholly
to capital, as the fee is payable by reference to the capital performance of
the Company, and transaction costs which are also allocated to capital.
11. Taxation
The charge for taxation is based on the net revenue for the year and takes
into account taxation deferred or accelerated because of temporary differences
between the treatment of certain items for accounting and taxation purposes.
The Company has an effective tax rate of 0%. The estimated effective tax rate
is 0% as investment gains are exempt from tax owing to the Company's status as
an investment trust and there is expected to be an excess of management
expenses over taxable income and thus there is no charge for corporation tax.
Deferred tax is provided using the liability method on temporary differences
between the tax bases of assets and liabilities and their carrying amount for
financial reporting purposes at the reporting date. Deferred tax assets are
only recognised if it is considered more likely than not that there will be
suitable profits from which the future reversal of timing differences can be
deducted. In line with recommendations of the SORP, the allocation method used
to calculate the tax relief expenses charged to capital is the 'marginal'
basis. Under this basis, if taxable income is capable of being offset entirely
by expenses charged through the revenue account, then no tax relief is
transferred to the capital account.
12. Equity dividends payable
Equity dividends payable are recognised when the shareholders' right to
receive payment is established. For interim dividends this is when they are
paid and for final dividends this is when they are approved by shareholders.
13. Share capital and reserves
The share capital represents the nominal value of the Company's ordinary
shares. As at 30 September 2023 there were 2,687,909 (31 March 2023 -
2,541,046) Ordinary shares of 50p each in issue. Subsequent to the period end
a share sub-division of its existing ordinary shares on a ten for one basis
took effect on the 11 October 2023.
The share premium account represents the accumulated premium paid for shares
issued above their nominal value less issue expenses. This reserve cannot be
distributed.
The capital reserve represents realised and unrealised capital and exchange
gains and losses on the disposal and revaluation of investments and of foreign
currency items. Realised gains can be distributed, unrealised gains cannot be
distributed.
The revenue reserve represents retained profits from the income derived from
holding investment assets less the costs associated with running the company.
This reserve can be distributed, if positive.
14. Income
30 September 31 March 30 September
2023 2023 2022
Revenue Revenue Revenue
£'000 £'000 £'000
Income from listed investments
UK dividends 371 925 226
Loan note interest income - 274 232
Loan arrangement fee - 40 -
371 1,239 458
Other income
Deposit income 167 109 35
Total income 538 1,348 493
15. Investment management and performance fees
30 September 31 March 30 September
2023 2023 2022
Revenue Capital Total Total Total
£'000 £'000 £'000 £'000 £'000
Investment management fee 60 - 60 112 52
Performance fees - - - 625 -
60 - 60 737 52
16. Investments at fair value through profit or loss
The Company is required to classify fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. All Investments at 30 September 2023 are classified as Level 1.
30 September 31 March 30 September
2023 2023 2022
Level 1 Level 1 Level 1
£'000 £'000 £'000
Financial assets
Quoted equities at fair value 46,242 39,255 34,318
46,242 39,255 34,318
17. Half-Yearly Report
The financial information in this Report does not comprise statutory accounts
within the meaning of Section 434 - 436 of the Companies Act 2006. The
financial information for the year ended 31 March 2023 has been extracted from
published accounts that have been delivered to the Registrar of Companies, and
on which the report of the Company's auditor was unqualified and contained no
statement under Section 498 (2), (3) or (4) of the Companies Act 2006.
The financial information for the six months ended 30 September 2023 and 30
September 2022 has not been audited or reviewed by the Company's auditor.
18. Net Asset Values
As at 30 September As at 31 March
2023 2023
Attributable net assets (£'000) 49,769 49,793
Number of Ordinary shares in issue 2,687,909 2,541,046
Net asset value per share (pence) 1,851.62 1,959.56
19. Related party transactions
The related parties of Rockwood Strategic Plc are its Directors, persons
connected with its Directors and its Investment Manager and significant
shareholder Harwood Capital LLP (Harwood).
The total payable to Harwood is as follows:
As at 30 September As at 31 March
2023 2023
£'000 £'000
Performance fee - 625
Management fee 30 112
Total 30 737
As at 30 September 2023, the following shareholders of the Company that are
related to Harwood had the following interests in the issued shares of the
Company as follows:
As at 30 September As at 31 March
2023 2023
Ordinary Shares Ordinary Shares
Harwood Holdco Limited 734,000 734,000
R Staveley 32,138 25,689
There are no other material related party transactions of which we are aware
in the period ended 30 September 2023.
Alternative Performance Measures (APMS)
Alternative Performance Measures (APMs)
APMs are often used to describe the performance of investment companies
although they are not specifically defined under FRS 102. The Directors assess
the Company's performance against a range of criteria which are viewed as
relevant to both the Company and its market sector. APM calculations for the
Company are shown below.
Total Return
A measure of performance that includes both income and capital returns. This
takes into account capital gains and reinvestment of dividends paid out by the
Company into its Ordinary Shares on the ex-dividend date. This is calculated
for both the Share Price and the Net Asset Value.
Premium/(Discount)
The amount, expressed as a percentage, by which the share price is more/(less)
than the Net Asset Value per Ordinary Share.
Ongoing Expenses
A measure, expressed as a percentage of the average daily net asset values
during the period, of the regular, recurring costs of running an investment
company. This includes the Investment Management fee and excludes any variable
performance fees.
1 These are considered to be Alternative performance Measures (APMs). See
APMs within the announcement.
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