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.
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
Investment Manager
|
Christopher Hart
|
020 7640 3200
|
Singer Capital Markets Advisory
LLP
Broker
|
James Maxwell
James Fischer
|
020 7496 3000
|
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
operations and
for profit
for the
year (pence)*
|
|
1.25p
|
9.34p |
10.59p
|
33.17p
|
|
|
|
|
|
|
* 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
|
Notes
|
31 March
2024
£'000
|
31 March
2023
£'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
Chairman
|
Kenneth Lever
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
|
Notes
|
Year
ended 31 March
2024
£'000
|
Year
ended 31 March
2023
£'000
|
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
|
Share
|
Revenue
|
Capital
|
Capital Redemption
|
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.
|
Year
ended 31 March
2024
|
Year
ended 31 March
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
2024
|
Year
ended 31 March
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.
|
|
Year ended 31 March 2024
|
|
Year ended
31
March 2023
|
|
Income
£'000
|
Capital
£'000
|
Total
£'000
|
Total
£'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
2024
|
31 March
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
31
March 2024
|
|
Year
ended
31 March
2023
|
Income
£'000
|
Capital
£'000
|
Total
£'000
|
Total
£'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.
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.
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
£'000
|
2023
£'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
£'000
|
2023
£'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
£'000
|
2023
£'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
|
Impact per
share
|
Impact
|
Impact per
share
|
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
|
Impact per
share
|
Impact
|
Impact per
share
|
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
£'000
|
2023
£'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.
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.