REG - Rockwood Strategic - Full Year Results to 31 March 2024
19/06/2024 07:00
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RNS Number : 9527S Rockwood Strategic PLC 19 June 2024
Rockwood Strategic plc
("RKW" or the "Company")
Full year results for the year ended 31 March 2024
Rockwood Strategic plc (AIM: RKW) is pleased to announce its audited results
for the year ended 31 March 2024.
Highlights
- NAV Total Return performance in the twelve months to 31 March 2024
of 5.1% to 206.04p per share, which compares to a decline in the FTSE AIM
All-Share of 8.6% and a rise in the FTSE Small Cap (ex-ITs) of 7.1%.
- Total Shareholder Return in the twelve months to 31 March 2024 was
15.4%.
- NAV Total Return performance in the three years to 31 March 2024 of
57.0%, which compares to the FTSE Small Cap (ex-ITs) of -6.8% and the FTSE AIM
All-Share of -38.5%. The Total Shareholder Return in this period was 70.1%.
- Price of shares moved from a discount to NAV of 7.1% during the
period to a premium of 1.9%.
- Significant new investor demand resulted in the issuance of
5,778,630 new shares, increasing the share count by 22.7% and, alongside
performance, growing NAV to £64.3m. NAV has now grown 58% in the last two
years, building scale.
- Five new portfolio investments purchased during the period, as funds
received from four takeovers and stock issuance were re-deployed.
- Conducted 10 for 1 stock split during the period.
- A 0.6p dividend will be proposed to shareholders at the Annual
General Meeting on 31 July 2024.
Post Period End
- NAV Total Return performance since period end to 14 June 2024 of
19.1% to 245.49p per share.
- Significant positive company developments and share price
performance in a range of investments such as RM, Filtronic and Funding
Circle.
- Further issuance of 1,005,796 new shares, increasing NAV to £79m as
at 14 June 2024.
- Fund is the No.1 Small Companies Investment Trust year-to-14 June
for NAV Total Return and over 1, 3 and 5 years, as per the Association of
Investment Companies.
Noel Lamb, Chairman of Rockwood Strategic plc, commented:
"The portfolio delivered a positive return in difficult markets, and the Board
are delighted to have fully utilised our capacity to issue up to 20% of new
shares as granted under our 2023 AGM authority, in a period when there have
been consistent UK sector fund outflows. We really are building scale at
Rockwood to the benefit of all shareholders. Clearly new investors share our
confidence that the future for this specialist strategy is positive, the
outlook for the portfolio is bright and that the opportunity to meet our
target returns in this generally over-looked part of the UK stock market is
achievable."
Richard Staveley, Fund Manager, Harwood Capital LLP said:
"Having navigated a challenging UK small companies' market, we are excited
about the underlying business turnaround momentum across the portfolio. We
expect further profit recovery and valuation re-rating in our investments and
a number of positive potential catalysts are yet to emerge. We are thankful
for the growing investor support for Rockwood's differentiated strategy and
are demonstrating our belief that we can deploy capital into this inefficient,
overlooked and undervalued part of the UK market to deliver for shareholders.
We are 'active' investors, unburdened by benchmark constraints and 'active'
with our investments to unlock, create or realise value for all stakeholders."
The full version of the RKW 2024 Annual Report and Notice of AGM has been
published and will shortly be available on the Company's website
at www.rockwoodstrategic.co.uk (https://www.rockwoodstrategic.co.uk/) .
References to page numbers throughout this announcement relates to the page
numbers within the Annual Report of the Company for the year ended 31 March
2024.
For further information, please contact:
Rockwood Strategic plc
Chairman Noel Lamb 020 7264 4444
Harwood Capital LLP Christopher Hart 020 7640 3200
Investment Manager
Singer Capital Markets Advisory LLP
Broker James Maxwell 020 7496 3000
James Fischer
CHAIRMAN'S STATEMENT
I am pleased to report a successful year for Rockwood Strategic plc ("RKW"),
achieved against challenging U.K. equity market conditions. Whilst some in our
sector are struggling to survive with the recent exodus from our domestic
market, RKW has grown Net Asset Value ("NAV") per share, increased assets
through new issuance and improved the share price from a discount to a premium
to NAV. In short, RKW has been the best performing UK small companies fund
according to Association of Investment Companies data for the previous three
and five years ended 31 March 2024.
NAV Total Return performance in the twelve months to 31 March 2024 was 5.1%(1)
which compares to an increase in the FTSE Small Cap (ex-ITs) of 7.1% and a
fall in the AIM All-Share Index of 8.6%. The Total Shareholder Return in this
period was 15.4%(1). The differentiated, stock-specific driven approach of the
strategy has shown that positive returns are possible despite negative
macroeconomic and market conditions or wider geo-political developments.
Management fees were charged at a fixed fee of £120,000 per annum whilst the
assets were below £60m, yet having recently exceeded this level, due to
sustained absolute performance and new issuance, switched to 1.0% per annum
under the terms of the Investment Management Agreement. This is competitive
with other specialist investment fund mandates. Long term shareholders may
recall the previous manager's fee level was 1.5%. The hurdle for a performance
fee was not met.
Our Investment Manager has been industrious as evidenced by 6 new holdings, a
number of positive outcomes from 'constructive engagement' in existing
investments and a plethora of marketing and investor education initiatives. Of
the 20 companies in the portfolio, 15 have been initiated since 2022. With a
3-to- 5-year typical investment thesis, the Board anticipates a fruitful
period ahead. Shareholder value realisation is expected as operational
turnarounds are delivered, strategic initiatives actioned and our investments
mature under new or evolved management and boards. It is worth remembering
that performance in any short period under review will be primarily due to the
individual performances of a handful of our holdings.
The Board shares the view of the manager that the UK small companies market
continues to provide a significant investment opportunity, due to the
inefficient pricing of poorly researched or misunderstood companies trading at
historically low valuations, further depressed by industry outflow driven
selling. The Investment Manager is using their long experience and specialist
insight to identify a small number of the very best opportunities which, if
unrecognised by domestic market participants, will inevitably be on the
receiving end of corporate interest; indeed during the year RKW received 4
takeover approaches for its portfolio companies.
Our shareholders voted for the Board's recommendation for a 10 for 1 stock
split during the first half of the year, a measure which often improves
liquidity. Growing the NAV remains a priority for the Trust. This will open up
a wider set of investment opportunities in the targeted part of the UK small
cap market where the manager can purchase significant investee company
ownership stakes. I am also delighted to report that the shares have been
trading at a 1.9% premium to NAV, unwinding last year's closing discount of
7.1%. This has allowed RKW under its authorities to issue £11.5m worth of new
shares to new investors satisfying demand. Issuance accelerated during the
financial year and the Trust has reached its 20.0% rolling annual limit. This
is no mean feat given 34 months of consecutive monthly UK fund outflows at a
sector level and the general level of sentiment towards UK equities,
illustrated by the almost entire absence of IPOs, during the period. We warmly
welcome all our new fellow shareholders, who see the investment opportunity
this market and strategy offers.
The Board believes that, until the Company has gained greater scale, it will
retain the maximum capital allowable to maximise the compounding of NAV
growth. The portfolio has generated good income though, including receiving
two special dividends, and RKW will thus return to the dividend list in a
modest way with a 0.6p final payment. Our AGM will be held on 31 July 2024 for
those that would like to meet the Board members and Investment Manager in
person. Finally, I would like to extend, on behalf of all our shareholders,
the Board's thanks to Mr Richard Staveley and all the team at Harwood Capital
who have delivered so well in the period under review.
Noel Lamb
Chairman
18 June 2024
INVESTMENT MANAGER'S REPORT
Market backdrop
This was yet another challenging period for UK small company investors with
material mood swings through the year and rising media coverage about a
weakening domestic capital market environment. With a moribund lack of new
issues, sustained retail outflows from UK funds, a stagnant (at best) economy
and interest rates rising a further 1.0% to 5.25%, the highest for 15 years,
it is not surprising sentiment has been weak. CPI inflation started the year
at an annual rate of 8.9%. The contrast has been exceptionally strong stock
market performances from US household name technology companies; Amazon,
Google (Meta), Microsoft and Apple alongside the phenomenon which is Nvidia.
These stocks are freely available to purchase now for the average individual
investor, 'benchmark chasing' fund manager and 'non-thinking' tracker or ETF
fund. It is not difficult to see how a 'broken' UK narrative is leading to
shunned domestic investment and the alternative attractions of momentum and
Ai. John Templeton's great insight into markets, though, springs to mind:
"Bull markets are born on pessimism, grow on scepticism, mature on optimism
and die on euphoria. The time of maximum pessimism is the best time to buy".
How might this statement be applied to the 'Magnificent 7' and UK small cap
equities?
What should cheer everyone up? Or maybe, more importantly, what could stop the
selling, or, we dare to ask, support the buying of UK equities, particularly
small ones? The positive market backdrop factors appear to be as follows: The
UK inflation rate has been consistently falling, to lower than half the rate a
year ago. It appears on track now for the approximate target Bank of England
rate and thus interest rates should start to fall during the next year.
Unemployment is near multi-decade lows at 3.9% and consumer confidence in
increasing, unsurprisingly when real income growth has turned positive. Market
M&A is building as professional external parties, both trade buyers and
private equity act on opportunities within the UK market, signalling value.
Sceptics will chuckle, but the announcement of the Mansion House reforms,
where a number of huge asset managers committed to increased UK investment,
including the AIM and the creation of a British ISA, do imply politicians are
now conscious that help is needed to stimulate demand for small listed
equities. Indeed, without them the country will not end up with medium sized
or large ones. These are, modest steps and will take time to impact investor
flows, but are a good base to build upon from a policy direction perspective.
The other key aspects of the market backdrop remain a robust US economy,
creating headwinds for the timing of a reduction in their interest rates and a
weak Chinese economy, where the effects of poor capital investment and lending
discipline are unwinding. High profile conflicts in Ukraine and the Middle
East have increased 'tail-risks', which when combined with Central Bank buying
and anticipation of looser monetary policy, have provided support for Gold.
Housing and property markets are weak as they adjust to higher interest rates
and tighter credit markets.
Outlook
We have provided a 'market-backdrop' section above, but as we have previously
stated, over the medium-term, market factors will not be the primary
determinant of Rockwood's returns, it will be stock-specific risk and return.
In this regard, we would express strong confidence in the portfolio. This is
predicated on three contributing factors:
· Firstly the current valuations of our holdings are materially below our
estimate of their combined intrinsic value. Low starting valuations are
critical to future positive returns.
· Secondly, and rather frustratingly, a number of our investments have fallen in
price during the year despite their fundamentals actually improving or
management and Board evolutions having been completed. In essence, these
stocks are on track with our medium-term theses, indeed further up the
maturity curve towards shareholder value delivery, yet the current malaise in
markets has led to lower prices than a year ago. Our experience suggests this
will be a temporary dislocation.
· Thirdly, during the year we deployed a material amount of capital into new
holdings. This has been even more than we anticipated at the start of the year
when the proceeds from the Crestchic takeover had increased cash to 21.1% of
NAV: We have had a number of takeover bids in the year, validating our
approach to identifying unrecognised value, which has also been re-invested.
We have also had the proceeds of new issuance to invest. Cumulatively this has
meant we have been able to buy more of our maturing investments at favourable
prices and also we have, in a buyer's market, been able to purchase 6 new
investments, all of which we target at least 100.0% upside, and represented
24.0% of the portfolio at period end.
An understanding of the maturity stage of the portfolio holdings is paramount
to the confidence which underpins our view of the future NAV growth
opportunity. To simply illustrate, Flowtech Fluidpower's new management team
is now fully in place with initiatives to improve returns underway. In 2023
they generated 5.3% operating margins. Management are targeting "mid-teens".
At RM, their new strategy and cost savings were unveiled by the new management
team, in which they stated their new goal to quintuple 2023 EBITDA. At Trifast
the operating margin in the year to March 2024 is expected to be c.5.0%. The
company target is 10.0%, re-committed to by the new management team. All three
stocks fell in value during the period. We bought more of all three stocks.
During the year our proposed candidate for the Board was appointed to RM and
Nick Mills of Harwood joined the Board of Trifast. Already, Jamie Brooke of
the Rockwood Investment Advisory Group is on the Board of Flowtech Fluidpower.
The main virtue required now is patience. Material profit recovery is likely
at all of these key holdings above, alongside many others.
Overall, the portfolio holdings are well-financed with strong balance sheets
in almost all cases, or are de-leveraging quickly in the remainder. We
finished the year with £3.9m of net current assets, 6.1% of NAV. We expect a
hasty reversal of negative sentiment when interest rates start falling. Our
pipeline of new investments remains busy with due diligence finished on some,
where we wait patiently for an optimised entry point and is on-going on
others, where we feel no rush to execute until we have sufficient clarity on
the 'margin of safety'.
We expect the pickup in trade buyer acquisition activity and public-to-private
transactions to accelerate in the coming years for our targeted part of the UK
stock market. If the stock market doesn't fairly value or provide growth
capital to UK listed small companies then alternative solutions for
shareholders will emerge. This dynamic should deliver material, absolute NAV
growth for the current portfolio holdings as it did during the year. Whilst a
dead IPO market is not 're-populating' the UK market, we expect this to
eventually pick up again as broader confidence improves.
We ended with 7 'Core' holdings and 12 'Springboard Opportunities' with the
top ten holdings accounting for almost the same as the prior year end at 64.3%
of NAV.
Investment Philosophy
· Value' investor mindset and free cash flow focused
· Seek proven businesses, identifiable assets
· Establish mean reversion potential (profitability, balance sheet and valuation
re-rating)
· Identify catalysts for change
· Develop exit thesis to mitigate illiquidity risks (3-5-year time horizon)
· Engage with all stakeholders to de-risk and add value
We believe that investment returns are generated by purchasing a share for
less than the intrinsic worth of the company, (a 'value' philosophy), which is
enhanced by identifying companies which can increase their fundamental
intrinsic worth over time, thus avoiding 'value traps'. We seek to optimise
the IRR by identifying 'catalysts' which will unlock the share's discount to
the business's worth or accelerate value creation. For 'core' investments we
ourselves may be the 'catalyst' through the provision of capital, insight and
personnel through constructive engagement with the Board, management and other
stakeholders.
Top 10 Holdings as % of NAV
Company Sector %
RM plc Education services 9.4
Trifast Industrials 8.4
M&C Saatchi Media 8.1
Funding Circle Financial Services 6.8
Filtronic Technology 6.7
STV Group Media 5.3
Centaur Media Media 5.2
Pressure Technologies Industrials 4.8
Argentex Group Financial Services 4.8
Flowtech Fluidpower Distribution 4.8
Total 64.3
Cash and equivalents Cash and equivalents 6.1
Top 5 Investment Portfolio Holdings Commentary
RM Plc 9.4% Net Assets ('Core')
Cost: £4.96m, Value as at 31 March 2024, £6.07m, IRR to date 23.4%
The company is an established and leading supplier to the education market. It
has three divisions: firstly an educational supplies business which reaches
90.0% of UK Primary schools selling everything from basic supplies to bespoke
teaching aids, often encouraged by the curriculum. The second is a leading
assessment business which marks exams from the International Baccalaureate to
A-levels both in the UK and abroad. The final division provides outsourced
technology services to groups of schools. During the year the company's
lenders extended their facilities to the company, which is important given
elevated debt levels. The new CEO completed a number of senior hires,
including a new CFO and we were very pleased to see Christopher Humphries
appointed Senior Independent Director. The new strategy has been unveiled
which rightly targets improved focus and we believe strongly that RM should
move to a single division business, paying off its debt in the process. The
business which has a long history of cash generation, now stabilised after the
recent collapse in profitability and we expect material profit growth over the
coming years, indeed management are targeting 5x the 2023 EBITDA outcome. We
believe that the shares have a 'sum-of-the-parts' valuation materially above
the current share price and expect the evolved Board and new management team
to create and realise considerable shareholder value through a well-managed
divisional disposal process and operational turnaround.
Trifast 8.4% Net Assets ('Core')
Cost: £5.64m, Value as at 31 March 2024, £5.38m, IRR to date -4.6%
The company is an international manufacturer (30.0%) and distributor (70.0%)
of fasteners (nuts 'n' bolts) and has been established for a number of
decades. With 34 locations, of which 7 are high volume manufacturing sites, 15
billion parts are sold per year and over 1200 employees. Sales exceed £240m
with a long history of profitability and cash generation. The company has
material net assets and is well invested in plant and machinery. However,
returns have fallen and Return on Capital Employed ("ROCE") is poor. The
operating margin is depressed vs its long history and competitors and a
management and Board evolution has now been completed. This included the
appointment of Nick Mills from Harwood as a Non-Executive Director ("NED"). A
restructuring program to deliver savings is underway and we expect progress
from a c.5.0% operating margin to a 10.0% operating margin over the next 2-3
years. 75.0% of sales are customer-specific branded products with an 18-year
average tenure of the top ten customers, the largest being <7.5% sales. Net
Debt had become elevated not least due to a bulging inventory position of over
£100m, which is now unwinding. We can identify a significant multi-year
turnaround and recovery opportunity with scope to materially increase cash
generation, improve returns and profits leading to a normalisation and
expansion of the valuation.
M&C Saatchi 8.1% Net Assets ('Springboard/Opportunity')
Cost: £3.32m, Value as at 31 March 2024, £5.22m, IRR to date 22.8%
The company is one or the world's best known global advertising and
communications advice agencies with clients stretching from governments to
supra-national organisations (e.g. The World Bank) to the world's leading
consumer brands (e.g. Samsung) and social media sites (e.g. TikTok). Following
a period of turmoil, the Board and management team have undergone significant
change. Under the dynamic new Chair, the business has been making considerable
operating savings, disposing of loss-making operations and streamlining the
business, including the move to shared services. H2 2023 results demonstrated
a turnaround is underway, which as it matures should highlight a growing, high
margin, low capital intense, highly cash generative, international business.
They also clearly expose the exciting activities the business undertakes in
'Passion' sectors, such as sport, alongside their almost unique 'world issues'
non-cyclical division which advises a range of governments and supra-national
organisations. The upside to our view of fair value is considerable. Profit
progress should be made in 2024 irrespective of the tough end market
conditions, however when these inevitably pick-up, the profit recovery
potential will be supercharged. The company has almost finished buying out its
minority partners, has now put in place a new CEO, CFO, co-Creative Directors
and has net cash. The shares still remain below the rejected level of the 2022
takeover offer.
Funding Circle (New Holding) 6.8% Net Assets ('Springboard/Opportunity')
Cost: £3.48m, Value as at 31 March 2024, £4.34m, IRR to date 303.0%
(Note the IRR is unhelpful for evaluation purposes, due to the mathematical
extrapolation and annualisation of a strong initial performance, after a very
short holding period)
The company has developed a leading UK and US Small and medium ("SME") sized
company lending platform matching professional lending demand with SME
financing leads where they are poorly served by the mainstream banks. The
platform generates income in fees for arranging the loans and servicing them,
of which there are c.£3.5bn currently under management. To date 140,000
businesses have successfully borrowed over $16bn, enhancing a huge 'data lake'
of over 2bn data points on 29 million businesses, feeding the fast approval
process. The impairment record has been in-line with expectations for the type
of loan risk, initial expectations that 'peer-to-peer' lending would nourish
the platform have not been met and the company has steadily built income from
professional capital sources. However, it has been loss-making to date. The
company was valued at c.£1.5bn in its 2018 IPO. We have established an
investment at a c.£110m market capitalisation, a deep discount to book value
as we note the company has £173m of unrestricted cash, £50m of regulatory
driven restricted cash, and over £60m of loans, made to facilitate the
platform. Since our purchase the company has started evolving the Board,
announced a £25m buy-back and that they are in discussions to sell the US
business to focus on the UK activities. We are in support of all these
initiatives, yet desire some cost-cutting and restructuring to ensure the UK
business is stand-alone profitable. Once achieved, the value of this platform,
if it can continue to grow, will be very significant.
Filtronic 6.7% Net Assets ('Springboard/ Opportunity')
Cost: £1.53m, Value as at 31 March 2024, £4.29m, IRR to date 257.6%
The company is an independent, world leader in Radio Frequency ("RF")
applications and technology. This is the art of converting analogue to digital
signals and mastering the various wavelengths on the spectrum to communicate
data effectively. The business has been in existence for many years and works
with world leading clients in its sectors, historically Telecommunications (5G
rollout for instance), Defence (Radar applications for example) and critical
communications. The business disposed of a lot of activities a number of years
ago and now operates profitably in its niches, but lacks scale. The
opportunity for shareholders centres on the opening up of a new, potentially
huge market for Filtronic that would transform sales and profitability of the
company and create strategic value within the supply chain. The market is
'Space'. The company has started to win important contracts with "the world's
leading Low Earth Orbit satellite company" as well as the European Space
Agency. The US company SpaceX has been transforming the economics of space
travel allowing many more launches and the creation of huge satellite
networks, the largest of which is Starlink. Filtronic has been winning
contracts to supply components for the ground stations of its customer and is
in trials for being within the satellite itself. The company has net cash and
potentially a very bright future as other constellation projects mature,
existing clients grow and achieves scale.
Portfolio Activity
Purchases
We added materially to our shareholdings in a number of existing investments
increasing the number of shares held, the largest are shown in the following
table:
Company % increase in shareholding during the year
RM 45.4
Trifast 190.9
M&C Saatchi 42.8
Titon Group 218.7
Argentex 336.5
Hostmore 256.2
Titon 3.6% Net Assets ('Core')
Cost: £2.32m, Value as at 31 March 2024, £2.34m, IRR to date 1.6%
The company has migrated from 'Springboard' to 'Core' as we purchased over
27.0% of the company's equity during the year. A leading UK manufacturer of
building ventilation products and supplier of other door and window hardware,
the company has had a succession of CEOs, falling profitability and lacked
strategic focus in recent years. However, the company is very asset rich with
cash on the balance sheet, (too much) stock, a large freehold asset site, and
has a growing mechanical ventilation business where competitors deliver
attractive levels of profitability. This industry has strong growth prospects
and regulatory drivers. Our investment has been made at a substantial discount
to book value. We successfully proposed Jamie Brooke, of Rockwood's Investment
Advisory Group, replace the longstanding Chairman and we expect significant
improvements in focus, strategic clarity, and profitability going forward. A
new CEO joins shortly with experience in improving operations and we see scope
for material shareholder value creation and realisation.
Argentex 4.8% Net Assets ('Springboard/Opportunity')
Cost: £3.71m, Value as at 31 March 2024, £3.08m, IRR to date -20.6%
This investment has not performed to our thesis over the medium term.
Frustratingly, following our initial investment the shares performed strongly
as a new management team was put in place to take the business forward after a
co-founder/CEO departed. However, the team failed to calibrate cost investment
effectively and insufficient growth in their FX services was delivered, only
temporarily helped by the volatility around the Liz Truss Prime Ministerial
phase and our gains were more than fully reversed. A new Chair has been
appointed and a full new team is now being created (CEO, CFO, CTO). We still
standby by our original thesis that the business is inherently profitable,
lacks capital intensity, has huge growth potential both domestically and
overseas and is cash generative, however a reset of leadership and some
evolution of strategy is necessary to recover and build shareholder value. We
are awaiting these plans from the new team. It is now 2 years from the initial
purchase, and thus we desire a ruthless focus on shareholder value in order to
meet our target returns over an acceptable time period.
New holdings
The Investment Team have been actively deploying capital during these
depressed market conditions to seed returns for shareholders over the medium
term.
STV 5.3% NAV, Market capitalisation £109m
The company is the No.1 Scottish commercial broadcaster, recently being
re-awarded a further 10 year license, which incorporates its leading digital
platform, the 'STV Player'. In recent years the company has expanded its
content production capabilities and is the largest regional UK studios
business with over 40 'returning' series. As the most popular peak time TV
channel in Scotland, STV reaches 3 out of 4 Scottish adults every month (2.9m)
and attracts 3x the audience of its nearest commercial competitor. Remaining
profitable, the difficult and cyclical advertising spend environment has
impacted recent performance yet has scope for meaningful recovery. The digital
activities are very high margin and have been consistently growing with
millions of registered and active users who can be served better targeted and
thus higher value adverts. Debt levels are conservative but the company is
saddled with a legacy pension scheme with a large deficit, which is consuming
a lot of cashflow to resolve. In time this will stop and we would expect the
Board of STV to be accelerating this process if it made sense for
shareholders. We believe the low valuation reflects an out of date perception
of business mix, as the content business is now larger than linear TV
activities and has been recently announcing new production wins with Apple,
NBC, the BBC and Netflix implying solid growth prospects and creative
reputational momentum.
Restore 4.2% NAV, Market capitalisation £296m
Restore dropped significantly below our maximum market cap for initial
purchases of £250m during the period, following a profit warning, resulting
in a fantastic investment opportunity in this unique services business. The
company manages over 22m boxes of paper records for a wide range of
businesses, including 80.0% of the FTSE 100, which is a highly profitable
activity generating over 30.0% profit margins. Over the years, complimentary
activities have been developed and the company is now UK No.1 in shredding,
office technology destruction/recycling, scanning, and office relocations. The
long-time CEO has returned to the group after a period of underperformance of
the business and we expect renewed vigour, growth and improved profitability
to emerge. Despite recovering well since our investment the valuation remains
on a deep discount to history and its prodigious cash flows and we expect
further significant progress.
Capital Limited 3.2% NAV, Market capitalisation £174m
The company's two key founders remain heavily involved and invested in the
business they have successfully created over the last 15 years. The company
started out providing drilling services to small African based mining
companies and, having developed a reputation of best in class health and
safety, service levels and efficiency, has gradually built a diversified
client base including a number of world's major mining companies. The rig
fleet is now deployed across several continents and is complimented by other
services, the most important for our thesis being the 'laboratory services'
division which is providing leading edge, environmentally friendly assays and
sample testing to its clients. Capital's strong margins, and attractive
returns on capital will be enhanced by the strong growth of this division,
competitors are valued very highly. Whilst Capital has activities across a
number of metals, it still retains a bias to Gold. We expect further growth in
its key projects, realisations from its strategic equity stakes in early-stage
clients and an eventual realisation of value in the laboratories business. The
valuation looks anomalous given the ROCE and growth record, its asset base and
prospects.
James Fisher & Sons 4.0% NAV, Market capitalisation £130m
Unlike the other four new holdings above, James Fisher shares have fallen
since our initial purchase. We expect a full recovery of our investment,
indeed have high confidence in, at least, meeting our target returns over the
next 3-5 years. This quality marine, energy and defence group with a very long
corporate history had lost focus, capital discipline and stressed the balance
sheet. The new management team is already simplifying the group, taking out
costs and has released conservative medium-term financial targets, which would
result in much higher levels of profitability and returns on capital. We
entered this investment with known risk around their high debt levels, but
just prior to period end, a large proposed disposal was announced which will
radically de-gear the company, allowing the operational recovery to unfold.
Within the remaining activities are leading edge specialist diving expertise,
growing services to global offshore wind farms, emergent defence products and
cash generative shipping related services. We expect considerable valuation
upside as the turnaround progresses and risks abate.
Sales
We exited 4 material holdings and received a capital return from Bonhill prior
to its de-listing. We await a final modest payment to shareholders. We also
received special dividends from Centaur Media and Galliford Try.
City Pub Company - realised IRR 43.4%, gain £1.49m
This represented a very clear 'opportunity' for Rockwood, when we began buying
in May 2022. The carefully put together group of over 50, mainly freehold,
pubs has been led by the proven industry expert, Clive Watson. The pubs
experienced a sustained period of stress due to the COVID-19 impact on leisure
activity and then the cost of living squeeze, so trading has been challenging.
However, independent assessment of the value of the pubs, despite this
context, was much greater than the value placed on the shares by the stock
market. This opportunity proved attractive to the highly regarded and (much)
older pub group of Youngs & Co. They will benefit from the removal of
duplicate central costs, management synergies, improved buying terms and gain
a high quality, well located, estate. Their offer at a 46.0% premium was
mainly cash and some Young & Co shares, which remained in the portfolio at
year-end.
Onthemarket.com - realised IRR 94.0%, gain £928,000
Also on the receiving end of an attractive takeover offer, Onthemarket.com,
the UK property portal, was introduced to the portfolio in February 2023. Our
thesis centred on the progress the company had made in recent years,
moving into attractive free cash flow generation and with scope for price
rises given the huge discount charged relative to the dominant market leader,
Rightmove. The low valuation appeared at odds with future potential and the
company's strong balance sheet. However, a multi-billion dollar US company
with expertise in the sector, has cut short our expected holding period with a
cash takeover offer at a 56.0% premium.
Finsbury Food Group - realised IRR 33.4%, gain £554,000
A significant UK manufacturer of cakes and Bread products with particularly
high market share in branded 'celebration' cakes such as Birthday cakes
branded Disney, Minions, Mary Berry etc. We flagged in last year's annual
report that the company's M&A ambitions were "somewhat constrained by a
seemingly inappropriately low stock market multiple" and that Private Equity
may find the situation attractive. We were therefore not surprised when a
takeover offer emerged. Frustratingly, the premium was modest and the
valuation placed on the group was below our view of fair value. However, the
long-standing management team supported the move off market and other
shareholders accepted the offer or sold to arbitrageurs who did and the
approach was successful. We did achieve over double our target IRR in this
investment and have found lots of opportunity for reinvestment since.
Smoove - realised IRR 2.0%, gain £246,000
A protracted bid process also occurred for our investment in Smoove,
originally ULS Technology, during the period. In this instance the bidder was
Pexa Group, an Australian listed group. This investment has not met our target
returns, primarily, in our view, due to the decision to invest a lot of the
cash proceeds received from a divisional disposal in 2022, alongside further
P&L investment (losses), into an expensive technology refresh project.
Harwood built a larger stake in the business and engaged with the Board to
reassess what was best for shareholders. The eventual offer received was at a
69.0% premium, which meant we made a modest positive return on investment,
however due to the elongated process and losses racked up by the new
management team, our original thesis was not successful in achieving our
target returns.
Update on Pressure Technologies Pressure Technologies
Equity: 20.0% of Issued Share capital, 4.8% Net Assets ("Core")
Cost: £4.26m, Value as at 31 March 2024, £3.1m, IRR to date
-8.4%
Loan: £750,000, IRR to date 25.0%
Warrants: 966,679. Maturity 2028. Exercise price 32p
The company has two divisions; the industry leading Chesterfield Special
Cylinders ("CSC") which manufactures and services a range of high-end
industries and customers including the Ministry of Defence and the emergent
Hydrogen economy. Secondly, the Precision Machined Components division
("PMC"), which manufactures high specification parts primarily for the oil and
gas industry. The investment was initiated in early 2019, however cash
generation has not been as expected and the company has required a number of
external capital injections. During the period, Richard Staveley joined the
Board as a NED and subsequently Rockwood arranged a loan to the company at a
14.25% interest rate, with a 3.0% arrangement fee, and some warrants with full
security over the company's assets. The loan is 'bridging' in nature as the
company has pleasingly agreed to exit the PMC division. If successful, this
process should bring in sufficient cash resources to both repay the loan and
provide future funding for CSC. The PMC division is benefitting from the
improved oil and gas pricing environment resulting in recovering activity
levels. We expect a successful sale to result in a focused business which
should lead to a fairer valuation of its qualities and potential.
Conclusion
As managers we have invested more of our own personal money in the shares of
Rockwood Strategic during the year and have a management contract which
rewards success. We see a real opportunity to compound wealth for all
shareholders over the long-term and the potential for a revitalised but
inefficient stock market full of opportunities to deliver our target returns.
During the year the great Charlie Munger and the legendary behavioural finance
pioneer Daniel Kahneman passed away, both have had a significant influence on
how your manager has developed Rockwood's approach to successful stock market
investing. Charlie would hopefully be pleased with Rockwood's concentrated
approach, valuation discipline, and focus on cash generation, whilst Daniel
would urge us to keep reminding ourselves of the various biases we will
continue to succumb to as active investors. Both advocate the importance of
patience, increasingly in short supply we would argue, yet critical for the
success of our investments in Rockwood and also for shareholders who want to
benefit from this strategy.
Richard Staveley
Statement of Comprehensive Income for the year ended 31 March 2024
Year ended 31 March 2024 Year ended
31
March
Revenue Capital Total 2023
Notes £'000 £'000 £'000 £'000
Income 2 1,114 - 1,114 1,348
Net gains on investments at fair value - 2,715 2,715 8,991
Total income 1,114 2,715 3,829 10,339
Administrative expenses
Investment Manager fee 3 (191) - (191) (112)
Performance fee 3 - - - (625)
Other expenses 4 (581) (161) (742) (1,172)
Return before finance costs and taxation 342 2,554 2,896 8,430
Finance costs (1) - (1) -
Return before taxation 341 2,554 2,895 8,430
Taxation 5 - - - (1)
Return for the year 341 2,554 2,895 8,429
Basic and Diluted earnings per ordinary share for profit from continuing 1.25p 9.34p 10.59p 33.17p
operations and for profit for the year (pence)(*)
(*) In accordance with IAS 33 'Earnings per Share', the comparative return per
ordinary share figures have been restated using the new number of shares in
issue following the ten for one share split. For weighted average purposes,
the share split has been treated as happening on the first day of the
accounting period. See note 12 for further details.
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.
Statement of Financial Position for the year ended 31 March 2024
31 March 31 March
2024 2023
Notes £'000 £'000
Non-current assets
Investments at fair value through profit or loss 8 60,322 39,255
Current assets
Cash and cash equivalents 4,761 11,631
Trade and other receivables 9 281 73
5,042 11,704
Total assets 65,364 50,959
Current liabilities
Trade and other payables 10 (1,103) (541)
Performance fee payable - (625)
Total liabilities (1,103) (1,166)
Net current assets 3,939 10,538
Net assets 64,261 49,793
Represented by:
Share capital 12 1,560 1,281
Share premium 24,347 13,063
Revenue reserve 18,565 24,105
Capital reserve 8,435 -
Capital redemption reserve 11,354 11,344
Total equity 64,261 49,793
The NAV per share on 31 March 2024 is 206.04p pence (2023: 195.96 pence
restated for the sub-division of each ordinary share into 10 new ordinary
shares, approved at the AGM held on 12 September 2023 and completed on 11
October 2023).
Noel Lamb Kenneth Lever
Chairman Director
These Financial Statements were approved and authorised for issue by the Board
of Directors on 18 June 2024. Signed on behalf of the Board of Directors.
Statement of Cash Flows for the year ended 31 March 2024
Year ended 31 March Year ended 31 March
2024 2023
£'000 £'000
Notes
Cash flow from operating activities
Return for the year 2,895 8,429
Net gains on investments at fair value (2,715) (8,991)
(Increase)/decrease in trade receivables (52) 90
(Decrease)/increase in trade and other payables (652) 664
Share split costs 28 -
Corporation tax paid - (1,581)
Net cash outflow from operating activities (524) (1,389)
Cash flows from investing activities
Purchases of investments (30,336) (20,015)
Sales of investments 12,573 22,528
Net cash (outflow)/inflow from investing activities (17,763) 2,513
Cash flows from financing activities
Gross proceeds of share issue(*) 11,527 -
Share issue costs (110) -
Share split costs (28) -
Net cash inflow from financing activities 11,417 -
(Decrease)/increase in cash and cash equivalents (6,870) 1,124
Reconciliation of net cash flow movements in funds
Cash and cash equivalents at the beginning of the year 11,631 10,507
(Decrease)/increase in cash and cash equivalents (6,870) 1,124
Cash and cash equivalents at end of year 4,761 11,631
* Excludes share issues not received at 31 March 2024 totalling £156,000.
Statement of Changes in Equity for the year ended 31 March 2024
Ordinary Share Capital Redemption
Share Revenue Capital Total
D shares Capital Premium Reserve* Reserve Reserve Equity
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 31 March 2022 10 1,271 13,063 15,320 - 11,344 41,008
Profit and total comprehensive income for the year - - - 8,429 - - 8,429
Total profit and comprehensive income for the year 10 1,271 13,063 23,749 - 11,344 49,437
Contributions by and distributions to owners
Return of unclaimed special dividends and capital payments
- - - 356 - - 356
Balance at 31 March 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 - 289 11,284 - - - 11,573
Profit and total comprehensive income for the year - - - 341 2,554 - 2,895
Balance at 31 March 2024 - 1,560 24,347 18,565 8,435 11,354 64,261
* The revenue reserve can be distributed in the form of dividends.
Notes to the 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. Basis of preparation and material accounting policies
Basis of preparation
Following the Company's approval as an investment trust company on 1 April
2023, the annual Financial Statements of the Company for the year to 31 March
2024 have been 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 have also been prepared in accordance with the SORP for
investment trust companies issued in July 2022, except to any extent where it
conflicts with IFRS.
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).
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 £64.3 million (March 2023: £49.8
million) and 98.5% of the Company's portfolio of investments consist listed
equities which, should the need arise, can be liquidated to settle
liabilities. The rest of the Company's portfolio consisted of 1.2% in a loan
and 0.3% in other unquoted investments. There are no other contractual
obligations other than those already in existence and which are predictable.
At the year end, Pressure Technologies had an outstanding loan of £0.75
million with the Company. The loan is valued at par which is approximate to it
fair value and there is no reason to doubt its recoverability as pressure
technologies had £13.6 million net assets on its balance sheet as per the
annual report dated 30 September 2023 and had first charge over the assets of
pressure technologies.
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.
Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business.
Material 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 8. 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.
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. Fixed income securities are designated at fair value which is
approximation of its par value.
After initial recognition, investments are measured at fair value, with
movements in fair value of investments and impairment of investments
recognised in the 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).
· Level 3 - valued using significant unobservable inputs (including the
Company's own assumptions in determining the fair value of investments). There
are £907,000 level 3 financial assets (31 March 2023: £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.
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.
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.
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.
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.
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 0.0%. The estimated effective tax
rate is 0.0% 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.
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.
Share capital and reserves
The share capital represents the nominal value of the Company's ordinary
shares. As at 31 March 2024 there were 31,189,090 (31 March 2023 - 25,410,460,
restated due to 1 for 10 share issue) Ordinary shares of 5p each in issue.
During the year 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.
Adoption of New and Revised Standards New standards, interpretations and
amendments adopted from 1 March 2023
There are no new standards impacting the Company that have had a significant
effect on the annual financial statements for the year ended 31 March 2024.
Disclosure of Accounting Policies (Amendments to IAS 1 Presentation of
Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements)
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice
Statement 2. The amendments aim to make accounting policy disclosures more
informative by replacing the requirement to disclose 'significant accounting
policies' with 'material accounting policy information'. The amendments also
provide guidance under what circumstance, the accounting policy information is
likely to be considered material and therefore requiring disclosure. These
amendments have no effect on the measurement or presentation of any items in
the financial statements of the Company nor do they affect the disclosure of
accounting policies of the Company.
Definition to accounting estimates (Amendments to IAS 8)
The amendment is to help entities to distinguish between accounting policies
and accounting estimates. The amendments are effective for annual periods
beginning on or after 1 January 2023.
Deferred tax assets and liabilities (Amendments to IAS 12)
Amendment to provide a temporary exception to the requirements regarding
deferred tax assets and liabilities. The amendments are effective for annual
periods beginning on or after 1 January 2023.
These amendments have no effect on the measurement or presentation of any
items in the financial statements of the Company nor do they affect the
disclosure of accounting policies of the Company.
Standards issued but not yet effective
There are no standards or amendments not yet effective which are relevant or
have a material impact on the Company.
2. Income
Year ended 31 March Year ended 31 March
2024 2023
Total Total
£'000 £'000
Income from listed investments
Dividends 811 925
Loan note interest income 40 274
Loan arrangement fee 22 40
873 1,239
Other income
Bank interest 241 109
Total income 1,114 1,348
3. Investment management and performance fee
Year ended 31 March Year ended 31 March
2024 2023
£'000 £'000
Investment Manager fee 191 112
Performance fees - 625
191 737
Under the terms of the Investment Management Agreement (7 April 2022) with
Harwood Capital LLP, the Company will pay the Investment Manager a performance
fee equal to 10.0%. of outperformance over the higher of a 6.0% per annum
total return hurdle and the high watermark. The 6.0%. per annum compounds
weekly and the performance fee is calculated annually. Provided that the
Company's average NAV is at or below £100 million, performance fees in any
performance fee period are capped at 3.0%. of the Company's average NAV for
the relevant performance fee period. In such instance, performance fees in
excess of the 3.0%. cap will not be paid and will instead be deferred into the
next performance fee period. If the average NAV exceeds £100 million, the
performance fee shall be further limited such that the combined investment
management and performance fees shall not exceed 3.0%. of the Company's
average NAV. In such instance, performance fees in excess of the cap will not
be deferred and will not become payable at any future date.
The performance fee is calculated annually for each performance fee period,
which is aligned with the Company's accounting year. It is accounted for on an
accrual basis and is recognised in the Statement of Comprehensive Income once
a performance fee is triggered during the performance fee period. The Hurdle
was not surpassed in the year and therefore there was no performance fee.
4. Other expenses
Year ended 31 March 2024 Year ended 31 March 2023
Income Capital Total Total
£'000 £'000 £'000 £'000
Auditors remuneration 47 - 47 37
Director's fees 102 - 102 95
Professional fees 336 - 336 420
Investment Trust Company conversion costs - - - 470
Other general overheads 96 - 96 83
Transaction costs - 133 133 67
Share split costs - 28 28 -
581 161 742 1,172
5. Taxation
Year ended Year ended
31 March 31 March
2024 2023
UK corporation tax
Corporation tax liability at 25.0% (2023: 19.0%) - 1
- 1
Current tax - 1
Tax on profit from ordinary activities - 1
Factors affecting the tax charge for the current period
The tax assessed for the year is different than that resulting from applying
the standard rate of corporation tax in the UK: 25.0% (2023: 19.0%).
The differences are explained below:
Year ended Year ended
31 March 2024 31 March 2023
Income Capital Total Total
£'000 £'000 £'000 £'000
Current tax reconciliation
Return before taxation 341 2,554 2,895 8,430
Tax at UK corporation tax rate of 25.0% (2023: 19.0%) 85 639 724 1,602
Tax effects of:
Non-taxable dividends (202) - (202) (227)
Non-deductible expenditure 3 - 3 103
Chargeable gains not subject to tax - (639) (639) (1,341)
Movement in deferred tax not recognised 114 - 114 (136)
Total tax charge for the year - - - 1
Deferred tax
At 31 March 2024, the Company had losses of £143,306,000 (31 March 2023:
£143,142,000) that are potentially available to offset future taxable
revenue. A deferred tax asset of £35,827,000 (31 March 2023: £35,786,000),
based on the enacted UK corporation tax rate of 25.0% that applied from 1
April 2023, has not been recognised because the Company is not expected to
generate sufficient taxable income in future periods that the carried forward
tax losses can be utilised against.
6. Earnings per share
Basic earnings per share is calculated by dividing the profit/loss
attributable to ordinary shareholders by the weighted average number of
Ordinary Shares during the year. Diluted earnings per share is calculated by
dividing the profit/loss attributable to shareholders by the adjusted weighted
average number of Ordinary Shares in issue.
Year ended 31 March 2024 Year ended 31 March 2023
Basic and Basic and
Weighted diluted Weighted diluted
average earnings average earnings
Net Return Ordinary per share Net Return Ordinary per share
£'000 Shares pence £'000 Shares pence
Revenue 341 27,356,247 1.25 8,429 25,410,460* 33.17
Capital 2,554 27,356,247 9.33 - 25,410,460* -
Total 2,895 10.58 8,429 33.17
As at 31 March 2024, the total number of shares in issue was 31,189,090 (2023:
25,410,460, restated due to 1 for 10 share issue). No shares were bought back
by the Company (2023: None). There are no share options outstanding at the end
of the year.
* Restated to reflect the subsequent 10 for 1 share split.
7. Dividends
The Company is recommending a dividend of 0.6p to shareholders in respect of
the year ended 31 March 2024 (2023: none). No unclaimed historic dividends
were reclassified to revenue reserve during the year (2023: £355,855).
8. Investments at fair value through profit or loss
Year ended 31 March 2024
Investments in quoted companies (Level 1) Other unquoted investments
(Level 3)
Total
Opening Cost at beginning of year 33,374 - 33,374
Opening unrealised appreciation at the beginning of the year 5,881 - 5,881
Opening fair value at the beginning of the year 39,255 - 39,255
Movements in the year:
Transfer between levels* (41) 41 -
Purchases at cost 30,175 750 30,925
Sales proceeds (12,573) - (12,573)
Realised gain on disposal 3,262 - 3,262
Change in unrealised(depreciation)/appreciation at the end of the year (635) 88 (547)
Closing Fair value at the end of the year 59,443 879 60,322
Closing cost at the end of the year 54,197 791 54,988
Closing unrealised appreciation at the end of the year 5,246 88 5,334
Closing fair value at the end of the year 59,443 879 60,322
Year ended 31 March 2023
Investments in quoted companies (Level 1) Other unquoted investments
(Level 3)
Total
Opening Cost at beginning of year 19,129 2,917 22,046
Opening unrealised appreciation at the beginning of the year 9,563 - 9,563
Opening fair value at the beginning of the year 28,692 2,917 31,609
Movements in the year:
Purchases at cost 19,120 1,207 20,327
Sales proceeds (17,548) (4,124) (21,672)
Realised gain on disposal 12,673 - 12,673
Change in unrealised (depreciation) at the end of the year (3,682) - (3,682)
Closing Fair value at the end of the year 39,255 - 39,255
Closing cost at the end of the year 33,374 - 33,374
Closing unrealised appreciation at the end of the year 5,881 - 5,881
Closing fair value at the end of the year 39,255 - 39,255
* For the year ended 31 March 2024, there was a transfer from Level 1 to
Level 3 of £69,175 Bonhill group due to voluntary liquidation.
The following table analyses investments carried at fair value at the end of
the year, by the level in the fair value hierarchy into which the fair value
measurement is categorised. The different levels are defined as follows:
I. level one measurements are at quoted prices (unadjusted) in
active markets for identical assets or liabilities;
II. level two measurements are valuations techniques with all material
inputs observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices); and
III. level three measurements are valuations not based on solely
observable market data (that is, the measurement requires significant
unobservable inputs).
The fair values of the Company's investments is summarised as follows:
31 March
2024 2023
£'000 £'000
Level 1 59,415 39,255
Level 2 - -
Level 3 907 -
60,322 39,255
Fair values of financial assets and financial liabilities
Financial assets and liabilities are carried in the Statement of Financial
Position at either their fair value (investments), or the Statement of
Financial Position amount is a reasonable approximation of the fair value
(dividends receivable, accrued income, accruals, and cash at bank).
As at 31 March 2024 and 31 March 2023, all investments, except for the
investments in the table below, fall into the category 'Level 1' under IFRS 7
fair value hierarchy.
A summary of the level 3 investments are as follows:
31 March 2024 31 March 2023
Investments included £'000 Investments included £'000
Fair value Bonhill group 69 - -
Pressure Technologies
- Loan Notes 750 - -
- Warrants 88 - -
907 - -
Valuation policy: Every three months, the Investment Manager within Harwood
Capital LLP is asked to revalue the investments that he looks after and submit
his valuation recommendation to the Valuation and Pricing ("V&P")
Committee. The V&P Committee considers the recommendation made, and
approves or adjust the valuation as required.
Level 3 investments have been valued in accordance with the IPEV guidelines.
The valuation incorporates all relevant factors that market participants would
consider in setting a price.
Methods applied include cost of investment, price of recent investments, net
assets and earnings multiples.
Although the Manager believes that the estimates of fair values are
appropriate, the use of different methodologies or assumptions could lead to
different measurements of fair values.
Subsequent adjustments in price are determined by the Manager's Valuation and
Pricing Committee.
Investments in quoted companies (Level 1) have been valued according to the
quoted bid price as at 31 March 2024.
At the year-end, the Company held 20.0% of the aggregate nominal value of
voting equity of Pressure Technologies, in ordinary share capital. Pressure
Technologies is incorporated in the UK and at its year end 30 September 2024
had capital and reserves of £13.6 million and had made a revenue loss of
£1.1 million.
9. Trade and other receivables
31 March 31 March
2024 2023
£'000 £'000
Proceeds due from share issues 156 -
Other debtors 112 63
Prepayments 13 10
281 73
10. Trade and other payables
31 March 31 March
2024 2023
£'000 £'000
Due to Brokers 901 312
Trade Creditors 202 229
1,103 541
There were no other creditors as at 31 March 2024 (2023: none).
11. Performance fees payable
31 March 31 March
2024 2023
£'000 £'000
Performance fees payable - 625
12. Issued capital
Allotted, called-up and fully paid:
For the year ended 31 March 2024 £'000
2,541,046 ordinary shares of 50p each listed at 31 March 2023 1,271
146,863 ordinary shares of 50p each issued before the share split 73
24,191,181 ordinary shares issued through the share split -
4,310,000 ordinary shares of 5p each issued after the year 216
31,189,090 ordinary shares of 5p each listed at 31 March 2024 1,560
2,000,000 D shares of 0.5p each listed at 31 March 2023 10
2,000,000 D shares of 0.5p cancelled during the year (10)
D shares of 0.5p each listed at 31 March 2024 -
Allotted, called-up and fully paid:
For the year ended 31 March 2023 £'000
2,541,046 ordinary shares of 50p each listed at 31 March 2022 1,271
Nil ordinary shares of 50p each issued during the year 73
2,541,046 ordinary shares of 50p each listed at 31 March 2023 1,559
2,000,000 D shares of 0.5p each listed at 31 March 2022 10
NIL D shares of 0.5p issued during the year -
D shares of 0.5p each listed at 31 March 2023 10
At the AGM of the Company held on 12 September 2023, shareholders approved a
resolution for a ten for one share split such that each shareholder would
receive 10 shares with a nominal value of 5 pence each for every one share
held. Expenses associated with the share split amount to £28,000.
The Company's shares are listed on the premium segment of the Main Market on
the London Stock Exchange under reference RKW.
In order for the Company's conversion to an Investment Trust to be successful,
all of its ordinary share capital needed to be listed as trading on a UK
regulated market. The Deferred Shares which were issued as D Shares in October
2009 to incentivise the investment manager at the time were not admitted to
trading on AIM and were economically valueless. The entire 2,000,000 Deferred
Shares were bought back by the Company for 1 penny in aggregate and thereafter
cancelled.
13. Financial instruments and financial risk management
The Company invests in quoted and unquoted companies in accordance with the
investment policy. In addition to investments in smaller listed companies in
the UK, the Company maintains liquidity balances in the form of cash held for
follow-on financing and debtors and creditors that arise directly from its
operations. As at 31 March 2024, £59.4 million of the Company's net assets
were invested in quoted investments, £0.9 in unquoted investments and £4.7
million in liquid balances (31 March 2023: £39.3 million in quoted
investments, £nil in unquoted investments and £11.7 million in liquidity).
In pursuing its investment policy, the Company is exposed to risks that could
result in a reduction in the value of net assets and consequently funds
available for distribution by way of dividend or for re-investment.
The main risks arising from the Company's financial instruments are due to
fluctuations in market prices (market price risk), credit and liquidity risk
and cash flow interest rate risk; credit risk and liquidity risk are also
discussed below. The Board regularly reviews and agrees policies for managing
each of these risks and they are summarised below. These have been in place
throughout the current and preceding years.
All financial assets with the exception of investments, which are held at fair
value through profit or loss, are categorised as financial assets at amortised
cost and all financial liabilities are categorised as amortised cost,
amortised cost is a reasonable approximation of its fair value.
a) Market risk
i) Price risk
Market price risk arises from uncertainty about the future valuations of
financial instruments held in accordance with the Company's investment
objectives. These future valuations are determined by many factors but include
the operational and financial performance of the underlying investee
companies, as well as market perceptions of the future of the economy and its
impact upon the economic environment in which these companies operate. This
risk represents the potential loss that the Company might suffer through
holding its investment portfolio in the face of market movements, which was a
maximum of £59.6 million (2023: £39.3 million).
The investments in fixed interest stocks of unquoted companies that the
Company holds are not traded and as such the prices are more uncertain than
those of more widely traded securities.
The Board's strategy in managing the market price risk is determined by the
requirement to meet the Company's investment objective. Risk is mitigated to a
limited extent by the fact that the Company holds investments in several
companies. At 31 March 2024, the Company held interests in 20 companies (2023:
18 companies). The Directors monitor compliance with the investment policy,
review and agree policies for managing this risk and monitor the overall level
of risk on the investment portfolio on a regular basis.
Market price risk sensitivity
The Board considers that the value of investments in quoted equity instruments
is ultimately sensitive to changes in quoted share prices. The value of
investments in Pressure Technologies, where the valuation methodology is to
estimate the value of the conversion option of the instrument, is similarly
linked to quoted share prices. The table below shows the impact on the return
and net assets if there were to be a 25.0% (2023: 25.0%) movement in overall
share prices.
As at 31 March 2024 +25% -25%
Impact per share Impact per share
Impact Impact
Security Valuation basis Fair value £'000 (in pence) £'000 (in pence)
Quoted investments Latest share price 59,443 14,861 47.65 (14,861) (47.65)
As at 31 March 2023 +25% -25%
Impact per share Impact per share
Impact Impact
Security Valuation basis Fair value £'000 (in pence) £'000 (in pence)
Quoted investments Latest share price 39,255 9,814 38.62* (9,814) (38.62)*
* Restated for the sub-division of each ordinary share into 10 new ordinary
shares.
The impact of a change of 25.0% (2023: 25.0%) has been selected as this is
considered reasonable given the current level of volatility, observed both on
a historical basis, and market expectations for future movement.
A sensitivity has not been performed for the other unquoted investments held
by the Company at 31 March 2024 as they were not deemed to be material. There
were none at 31 March 2023. as there is no exposure to market price risk in
the valuation methodology applied for these investments. Interest rates are
less volatile than market prices; therefore, the Company has deemed it
inappropriate to consider a 25.0% upward or downward move in interest rates.
Interest rates are determined by monetary policy and have been kept
historically low due to quantitative easing and therefore we do not believe
that interest rates will be as volatile as share prices.
ii) Currency risk
The Company does not hold any significant assets or liabilities denominated in
a currency other than sterling, the functional currency. The transactions in
foreign currency for the Company are highly minimal. Therefore, currency risk
sensitivity analysis was not performed as the results would not be
significantly affected by movements in the value of foreign exchange rates.
iii) Cash flow interest rate risk
As the Company has no borrowings, it only has limited interest rate risk. The
impact is on income and operating cash flow and arises from changes in market
interest rates. Some of the Company's cash resources are placed in an interest
paying current account to take advantage of preferential rates and are subject
to interest rate risk to that extent.
b) Credit risk
Credit risk is the risk that a counterparty will fail to discharge an
obligation or commitment that it has entered into with the Company.
The Company's maximum exposure to credit risk is:
31 March 31 March
2024 2023
£'000 £'000
Loan stock investments 750 -
Cash and cash equivalents 4,761 11,631
Trade and other receivables 281 73
5,972 11,704
Credit risk relating to loan stock investments in unquoted companies is
considered to be part of market risk.
The Company's cash balances at 31 March 2024 and 2023 were held in
institutions currently rated A or better by Fitch. Given these ratings, the
Company does not expect any counterparty to fail to meet its obligations and
therefore, no allowance for impairment is made for bank deposits.
c) Liquidity risk
The Directors consider that there is no significant liquidity risk faced by
the Company. The Company maintains sufficient liquidity in cash and liquid
investments to pay accounts payable and accrued expenses. All liabilities are
current and repayable upon demand.
14. Capital disclosures
The Company's objective has been to maximise shareholder value from all
assets, which in recent years has been to realise its portfolio at the most
advantageous time and reinvest the proceeds to grow shareholder value per
share over the long-term.
The capital subscribed to the Company has been managed in accordance with the
Company's objectives. The available capital at 31 March 2024 is £64.3 million
(31 March 2023: £49.8 million) as shown in the Statement of Financial
Position, which includes the Company's share capital and reserves.
The total amount of revenue reserve for the year is £18.566 million (2023:
£24.105 million) which is fully distributable and can be utilised for any
future dividends.
The Company has no borrowings and there are no externally imposed capital
requirements other than the minimum statutory share capital requirements for
public limited companies.
15. Related party transactions and transactions with the Investment Manager
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:
31 March 2024 31 March 2023
Performance fee Nil £0.63 million
Management fee £0.05 million £0.11 million
Total £0.05 million £0.74 million
As at 31 March 2024, the following shareholders of the Company that are
related to Harwood had the following interests in the issued shares of the
Company as follows:
31 March 2024 31 March 2023
Harwood Holdco Limited 8,340,000 Ordinary Shares 7,340,000 Ordinary Shares*
R Staveley 321,380 Ordinary Shares 256,890 Ordinary Shares*
* Restated to reflect the 10 for 1 share split completed in October 2023
The Directors' remuneration and their interest in the Company are disclosed in
the Director's remuneration review in the annual report.
There are no other material related party transactions of which we are aware
in the year ended 31 March 2024.
Investment Management Fees:
A monthly management fee of £10,000 (inclusive of VAT, if any) until the
Company's NAV equalled £60 million or higher (NAV threshold).
The NAV Threshold was met on 16 February 2024, since then, Harwood has been
entitled to a management fee of 1/12th of an amount equal to 1.0% of the Net
Asset Value before deduction of that month's Investment Management Fee and
before deduction of any accrued Performance Fees.
Performance Fees:
Harwood will also be entitled to a performance fee equal to 10.0% of
outperformance over the higher of a 6.0% per annum total return hurdle and the
high watermark. The 6.0% per annum compounding weekly and the performance fee
will be calculated annually.
Provided that the Company's average NAV is at or below £100 million,
performance fees in any performance fee period will be capped at 3.0% of the
Company's average NAV for the relevant performance fee period. In such
instance, performance fees in excess of the 3.0% cap will not be paid and will
instead be deferred into the next performance fee period.
16. Subsequent events note
Share issues:
The Company issued for cash 1,005,608 ordinary shares of 5 pence each in April
and May 2024 from its block listing facility at an average price of 232.64
pence per share.
Footnotes:
1 - These are considered to be Alternative Performance Measures (APMs) and are
available on page 51 of the Annual Report.
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