TIDMRKW
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 GBP3.5m 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
For further information, please contact:
Rockwood Strategic Plc
Noel Lamb Chairman noellamb@finnebrogue.co.uk
Harwood Capital LLP Christopher
Investment Manager Hart 020 7640 3200
Singer Capital Markets Advisory James Maxwell
LLP Alex Bond
Broker James Fischer 020 7496 3000
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 GBP250m 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 GBP3.5m 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 H1 2023 to 30 Sept to 30 Sept
investment trusts)
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 Portfolio
(30 September 2023) GBPm in company 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. GBP165m market capitalisation at period end, 2022 sales
were GBP478m, Ebitda GBP67.5m and PBT GBP16.2m. 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 GBP240
million having risen since our purchase on both Charles's
appointment and a new major HMRC contract win. In 2022 They had
sales of GBP279m and Ebitda of GBP76m with PBT of GBP41m.
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 Six months
to 30 September to 30 September
2023 2022
(Unaudited) (Unaudited)
Capital Total
Revenue Total
----- --------- ------------------------ --------- ------------------
Notes GBP'000 GBP'000 GBP'000 GBP'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 As at As at 30
September 31 March September
2023 2023 2022
(Unaudited) (Audited) (Unaudited)
Notes GBP'000 GBP'000 GBP'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 Period Six months
to 30 September ended to 30 September
2023 31 March 2022
Notes (Unaudited) 2023 (Unaudited)
GBP'000 (Audited) GBP'000
GBP'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
D shares Ordinary Share Revenue Capital Redemption Total
GBP'000 Share Premium Reserve* GBP'000 Reserve GBP'000
Capital GBP'000 GBP'000 GBP'000
GBP'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
D shares Ordinary Share Revenue Capital Redemption Total
GBP'000 Share Premium Reserve* GBP'000 Reserve GBP'000
Capital GBP'000 GBP'000 GBP'000
GBP'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 (GBP'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 GBP49.8 million (March
2023: GBP49.8 million, September 2022: GBP36.7 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: GBPnil, 30 September 2022: GBPnil).
-- 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: GBPnil, 30 September 2022: GBPnil).
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
GBP'000 GBP'000 GBP'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
------- ------- ------- -------- ------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'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
GBP'000 GBP'000 GBP'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
(GBP'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
GBP'000 GBP'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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END
IR FLFVDLALLFIV
(END) Dow Jones Newswires
November 22, 2023 02:00 ET (07:00 GMT)
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