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Gresham House plc

Gresham House reports a strong 17% growth in AUM in H1

Gresham House plc (LON:GHE) the specialist alternative asset manager, has reported a strong 17% growth in Assets Under Management (AUM) in the first half of the year, with a 33% increase in core income and 15% increase in adjusted operating profit. The Group remained focused on delivering both organic as well as acquisition-based growth despite challenging market conditions, while continuing to broaden its client base, investing in people and enhancing its sustainability culture.  

HIGHLIGHTS

As at 30 Jun 2020As at 31 Dec 2019Change
(£m)(£m)(%)
Assets under management3,2642,797+16.7
Cash and liquid assets145.141.3+9.0
Six months to 30 Jun 2020Six months to 30 Jun 2019
(£m)(£m)(%)
Total core income17.813.4+33.3
Adjusted operating profit25.24.5+15.5
Total comprehensive net loss2.20.7-239.6

1Cash and liquid assets includes cash and investments in tangible and realisable assets

2Adjusted operating profit is defined as the net trading profit of the Group after charging interest but before depreciation, amortisation, share-based payments relating to acquisitions, profits and losses on disposal of tangible fixed assets, net performance fees, net development gains and exceptional items

 Financial Highlights  

·      AUM up 17% in H1 to £3.3 billion including +10% organic growth

·      Core income up 33% to £17.8 million (H1 2019: £13.4million)

·      Adjusted operating profit up 15% to £5.2 million (H1 2019: £4.5 million)

·      Strong balance sheet with cash and liquid assets at £45.1 million and zero debt

Operational Highlights

·      COVID-19 pandemic resilience, with no team members furloughed or use of the Coronavirus Business Interruption Loan Scheme

·      Integration of TradeRisks progressing well, enhancing strength and expertise of Housing team and increasing AUM by £184 million alongside the planned launch of Gresham House Residential Secured Income LP (shared ownership housing fund)

·      Final close of the British Strategic Investment Fund at £300 million

·      Further investment in the future growth of the business with senior appointments made including Rebecca Craddock-Taylor as Director of Sustainable Investment and David Gardner and Peter Bachmann to the International Forestry and Sustainable Infrastructure teams 

Sustainable Investment Highlights  

·      Achieved Principles for Responsible Investment scores of A+ for Strategy and Governance, A+ for Infrastructure and A for Strategic Equity divisions

·      Awarded Green Economy Mark by the London Stock Exchange, emphasising our dedication to building a greener economy and a more sustainable future

Commenting on the results, Tony Dalwood, Chief Executive Officer said:  

“We have continued to build and invest in our platform to achieve our strategic and financial objectives set out in the “GH25” plan. Our AUM growth is testament to the strength and resilience of our investment strategies and our talented team despite the challenges due to the COVID-19 pandemic.

With the strong foundation and robust balance sheet, we remain confident of maintaining our long-term growth trajectory.”

Gresham House is hosting its interim results webinar at 11:00 AM today via https://greshamhouse.com/webinar-gresham-house-plc-interim-results-2020/ 

CHAIRMAN’S STATEMENT

I am delighted to record the continued growth and momentum at Gresham House with the tenth consecutive half-year increase in AUM, under exceptionally challenging market conditions. This growth in AUM to £3.3 billion is testament to the strength and scalability of our platform and our ability to attract a diverse and growing pool of clients.

We are a long-term business with a long-term plan based on long-term investment horizons. We entered the pandemic in a favourable position due to the resilient nature of many of our assets, which are naturally less correlated, and less sensitive, to stock market movements, particularly in our Real Assets division. However, our continued investment performance has been a direct reflection of the expertise of our investment teams.

Our teams have delivered growth and performed well consistently whilst working remotely, ensuring smooth business continuity. With our successful track record of investing in public and private small businesses through our open-ended and closed-ended vehicles, we remain well positioned to support businesses crucial to the recovery of the UK economy post COVID-19.

We were very proud to receive our first PRI (Principles for Responsible Investment) scores, and to be awarded the highest rating possible, A+, for Strategy and Governance, a reflection of the robust and transparent approach that we have taken. Our investment strategies were awarded A+ in Infrastructure and A in Public Equity and Private Equity. Placing sustainability at the core of all our investment strategies has meant that we scored well above the investment industry median.

ACTIVITY IN THE PERIOD

The resilience and appeal of our assets for clients, underpinned by the growing interest in specialist and sustainable investments, has enabled us to deliver 17% growth in AUM in the first half of 2020, despite the difficult environment, of which organic growth contributed 10%. The integration of TradeRisks, the fund management business and debt advisory services group acquired in March, into the housing division is progressing well and we remain on track to deliver identified synergies.

In Real Assets, there was notable success across a growing client base. Our Strategic Equity division maintained net positive inflows into our open-ended equity funds over the period and we were pleased to win the c.£150 million investment management contract for Strategic Equity Capital plc, based on our successful Strategic Public Equity track record and resources. We are excited about the fundraising pipeline of activity that we have already established, especially in Housing, Sustainable Infrastructure, Forestry and Private Equity.

RESULTS

It has been pleasing to see the growth against the strategic and financial objectives we laid out in March this year through our five-year plan ‘GH25’. Our core income is up 33% to £17.8 million from £13.4 million in the same period last year. Adjusted operating profit grew 15% to £5.2 million from £4.5 million in the first half of 2019. This performance is particularly noteworthy given the significant level of ongoing investment in the key areas of growth in the business – our people and our ESG offering – particularly in Housing, New Energy, Sustainable Infrastructure and Forestry. The net comprehensive loss for the period was £2.2 million (H1 2019: £0.7 million), which reflected the deduction of exceptional costs relating to acquisitions, the fair value movements of balance sheet investments and contingent consideration and tax.

SHAREHOLDERS

Our successful £8.0 million equity fundraising in March demonstrated the commitment and support from our existing and new institutional shareholders, enabling us to enhance our balance sheet and proceed with identified strategic growth opportunities as we entered into the COVID-19 enforced lockdown. There is a focus on generating attractive returns from our own equity within the Group and this scrutiny will continue to be applied when looking at accelerating growth within existing product areas and potential acquisitions.

OUTLOOK

Gresham House has developed substantially under our management team and it has created significant shareholder value. The ambitions are long-term and we remain well positioned to grow sustainably in all areas of the business in the second half of the year, as we target the delivery of our objectives within ‘GH25’ and focus on generating shareholder value over the next five years.

Although there is continued market uncertainty, the quality of the individuals and the dynamic culture that exists within the business are evident. The nature of our product areas and the increasing demand for alternative assets with sustainability characteristics give us confidence in the opportunities to fundraise across the business. Whilst we may be at an inflection point in the market cycle catalysed by COVID-19, we believe that we will be able to continue to deliver superior performance for our clients.

Anthony Townsend

Chairman

17 September 2020

SUSTAINABLE INVESTMENT OVERVIEW

KEY MILESTONES

SUSTAINABLE INVESTING COMMITTEE ESTABLISHED

In the past year, we codified our approach with the establishment of a Sustainable Investing Committee, which comprises senior representatives from across the company and ensures delivery against the Sustainable Investing Policies that are embedded for each investment strategy and across each stage of the investment lifecycle.

DIRECTOR, SUSTAINABLE INVESTMENT APPOINTED

We announced the appointment of Rebecca Craddock-Taylor as Director of Sustainable Investment. Rebecca will lead the further development and integration of our existing sustainable investment policies across both the Real Assets and Strategic Equity divisions, alongside data capture to quantify the environmental and social benefits of our investment approach.

GREEN ECONOMY MARK AWARDED

We are pleased that our commitment to embedding ESG and sustainable investing across the Group has been recognised by the London Stock Exchange, which awarded us the coveted Green Economy Mark in July.

The Green Economy Mark is only awarded to listed companies that derive more than 50% of their annual revenues from products and services that help towards building a green economy and a more sustainable future.

TOP PRI SCORES RECEIVED

We were very proud to receive our first PRI (Principles for Responsible Investment) scores, and to be awarded the highest rating possible, A+ for Strategy and Governance, a reflection of the robust and transparent approach that we have taken to sustainable investment. Our investment strategies were awarded A+ in Infrastructure and A in Public Equity and Private Equity (our Housing and Forestry strategies were not assessed this year).

Placing sustainability at the core of all our investment strategies ensured that we scored well above the investment industry median.

KEY HIGHLIGHTS

GHE PLC

  • Awarded London Stock Exchange Green Economy Mark
  • Achieved top scores (A+ and A) in PRI assessment
  • Published our first Diversity & Inclusion policy
  • Committed to the #100blackinterns initiative

FORESTRY

  • Planted 8.4 million trees in 2020, equivalent to an area covering over 4,600 football pitches*
  • Our existing forestry captured the equivalent CO2 generated by 270,000 people in the UK (roughly the population of Newcastle) annually**
  • All timber harvested from our UK managed forests in the previous six months was Forest Stewardship Council (FSC) certified

* Based on 1,100 trees per hectare for broadleaves, 2,700 per hectare for conifer

** Existing forestry is captured in the UK national account, so no direct offsetting claims can be made

NEW ENERGY & SUSTAINABLE INFRASTRUCTURE

  • Largest battery storage fund / operator in the UK
  • An acre of land at our first vertical farm investment will produce the same yield as 250 acres of field-grown crops
  • Invested in WasteKnot Energy, which diverts waste from landfill and produces pellets that can replace coal
  • Solar and wind projects generated enough energy to power over 117,000 homes in the last year

HOUSING

  • Delivered 166 new shared ownership homes this year, with a total shared ownership portfolio of 205 homes
  • Our housing fund provides 2,224 retirement homes and 289 homes to local authorities, housing people who are otherwise homeless

STRATEGIC EQUITY

  • In 2019, we voted 94% for management recommendations, 6% against, and had 0% abstentions
  • Developed a formal engagement and voting policy which will be published on our website

CHIEF EXECUTIVE’S REPORT

The first half of 2020 will be remembered for the unprecedented challenges we have all faced, catalysed by global lockdowns on economies and the resulting changes in working practices and lifestyles. Strong actions by governments have softened some of the macroeconomic impacts, however, the microeconomic issues will increasingly become apparent over the next couple of years. It is therefore important to recognise the capabilities of all the Gresham House employees who have adapted so well to the challenging environment in order to continue to focus on the shareholder goals which are firmly embedded in our team’s DNA.

Technology has allowed the Group to continue functioning and communicating to a high level, although it has been necessary to alter regular routines. Importantly, we encouraged people to “over-communicate” with their colleagues and clients to make sure nothing was taken for granted. We introduced a daily management committee briefing each morning, and a new Heads of Departments weekly forum, as well as a weekly Group video call to remind everyone that whilst working from home, that they are part of a larger family, with clear goals both short and long term. I am immensely proud of everyone within Gresham House for adapting so well to keep the business moving forward.

Over the past six months, we have continued to build on our platform with both organic and acquisition-based growth; embedding sustainability, investing in talented people, broadening our client base and thereby continuing to generate long-term shareholder value. We have achieved all this despite the exceptionally difficult market conditions caused by the COVID-19 pandemic. It is particularly pleasing to report overall AUM growth of 17% in this period, demonstrating the strength of our investment strategies, with strong fundraising success and good relative performance across both our Real Assets and Strategic Equity divisions. As a result, we have made a strong start against the strategic priorities of our growth plan ‘GH25’ outlined in March this year, where we aim to create substantial shareholder value over the next five years through a combination of strategic and financial goals.

COVID-19

For our staff, protecting their safety and wellbeing has been our priority during this period and their commitment has ensured that we were able to maintain business as usual whilst seamlessly transitioning to working from home. The investments made in the prior year in our people, systems, business continuity planning and infrastructure have ensured that we have stayed agile and nimble for our clients and I’m delighted that we have been in a position to continue to recruit new talent to support our growth ambitions.

In keeping with our culture and values and our desire to support communities in need, I am pleased that the Company, Management Committee and Directors donated £100,000 in aggregate to the Trussell Trust and NHS Charities Together. In addition, we set up a Give As You Earn Scheme for all employees and the Company will match the donations made. 

We entered this unprecedented period from a position of strength, and cognisant of the challenges presented by market volatility and restrictions in many areas that we operate in. We were able to establish and position a number of identified growth areas across the platforms for further scale, supported by the resilience of the asset classes themselves, the majority of which are less correlated to general market movements. Prudent cash management has also helped us maintain a strong balance sheet position with cash of £22 million and no debt, which positions us well to deliver future growth.

Our performance in the first half of the year has been testament to the resilience and quality of the team working in challenging conditions and we look forward to building on this in the second half of 2020 and beyond.

SUSTAINABILITY

Our asset management platforms, such as forestry and renewables, naturally lend themselves to the increasing focus among governments and investors on sustainability goals. We have placed sustainability at the core of all our investment strategies and our commitment to Environmental, Social and Governance (ESG) principles is central to growing the business. In the past year, we codified our approach with the establishment of a Sustainable Investing Committee, which comprises senior representatives from across the company and ensures delivery against the Sustainable Investing Policies that are embedded for each investment strategy and across each stage of the investment lifecycle.

We have continued to make further progress over the past six months by hosting our first webinar on our approach to sustainable investing, providing examples of the application to real assets including forestry, housing, new energy and sustainable infrastructure. We also announced the appointment of Rebecca Craddock-Taylor as Director of Sustainable Investment, who will lead the further development and integration of our existing sustainable investment policies across both the Real Assets and Strategic Equity divisions, alongside data capture to quantify the social benefits from our investment approach.

Our sustainable investment credentials have been recognised with a top score rating under the PRI (Principles for Responsible Investing) assessment report for 2020, the Company’s first assessment since becoming a PRI signatory in 2018. We achieved the highest rating possible, A+ for our Strategy and Governance and, for the investment strategies covered by the scheme, an A+ for Infrastructure and As in both Public and Private Equity. This underlines the focus that we place on Environmental, Social and Governance (ESG) criteria across the whole business and reflects the robust and transparent approach that we have adopted.

We were also pleased that our commitment to embedding ESG and sustainable investing across the Group has been recognised by the London Stock Exchange, which awarded us the coveted Green Economy Mark in July. The Green Economy Mark is only awarded to listed companies that derive more than 50% of their annual revenues from products and services that help towards building a green economy and a more sustainable future.

PROGRESS ON 2020 PRIORITIES

We have made good progress against our 2020 priorities in the first half of this year, despite the exceptionally difficult market conditions. We have delivered AUM growth of 17%, with core income rising 33% and adjusted operating profit up by 15%.

Organic growth has been driven by strong fundraising success with a growing client base across Institutional, Wholesale and Family Office investors, demonstrating the attractive nature of our market-leading growth opportunities, and the continued increase in asset allocation to alternative investments.

In our Real Assets division, we raised £31 million of equity for Gresham House Energy Storage Fund plc (GRID) in March 2020. We continue to develop battery storage projects to scale GRID and are in advanced stages with two projects expected to be operational in the coming months. We achieved the successful final close in our Housing and Infrastructure Strategy, the British Strategic Investment Fund strategy (BSIF), hitting the target of £300 million, with £100 million raised in the period from three new Local Government Pension Scheme (LGPS) clients. We continue to invest these funds in sustainable housing and infrastructure projects and look forward to launching BSIF 2 in 2021. We were pleased that Peter Bachmann joined as a senior fund manager in our sustainable infrastructure unit, as we continue to add capability and resources to this growing area.

As a result of the TradeRisks acquisition, we announced the launch of a new Limited Partnership, Gresham House Residential Secure Income LP, targeting the shared ownership housing market and aiming to unlock a new supply of more affordable homes across the UK and to encourage first time buyers onto the housing ladder. Meanwhile in Forestry, we commenced fundraising for the Gresham House Forest Fund I LP, which is targeting a close in the second half of the year with a strong pipeline of assets ready to acquire. We have continued to acquire forests for existing and new clients, and the pricing remains robust as the asset class becomes increasingly of interest to institutional investors. As previously indicated, and following our initial move into Irish Forestry, we are increasing resources with the appointment of David Gardner to build our international presence, including related asset classes in carbon credits in jurisdictions such as New Zealand.

Despite market volatility, the Strategic Equity division has seen positive net inflows, including into our open-ended funds, the LF Gresham House UK Micro Cap and LF Gresham House UK Multi Cap Income funds, alongside winning the Strategic Public Equity mandate for Strategic Equity Capital plc (SEC). The Strategic Public Equity approach of using private equity techniques to invest in public companies is a growing area of the smaller company market, and Gresham House has a successful 20-year track record alongside significant resources to continue expanding the opportunity for more investors to benefit from the long-term superior performance record of this strategy. The LF Gresham House UK Multi Cap Income Fund marked its three-year anniversary on 30 June 2020. It is the best performing fund in the IA UK Equity Income sector since launch. In Private Equity, the Baronsmead VCTs raised a further £22 million in the first half of 2020 and we are planning to commence further fundraising in the second half of the year.

The original intention shared by us and Aberdeen Standard Investments (ASI), as announced in March 2019, for the formation of a joint venture relationship is no longer viewed as practicable based on a current regulatory/financial cost benefit analysis. GHAM will now enter into a distribution and marketing agreement with ASI, pursuant to which ASI will, amongst other things, provide certain marketing services for SEC.

Having focused on organic growth and integration synergies in 2019, we resumed our acquisition-based growth, with the purchase in March 2020 of TradeRisks Limited, a housing fund management business and specialist provider of debt advisory services to the housing and social infrastructure sectors. Residential Capital Management Limited, a subsidiary of TradeRisks Limited, is the manager of Residential Secure Income plc (ReSI), a listed Investment Trust seeking to deliver secure income returns to its shareholders by investing in portfolios of shared ownership, retirement and Local Authority housing which as at 31 December 2019 had gross AUM of £321 million (including committed acquisitions). I am delighted to welcome Alex Pilato, Ben Fry and Antoine Pesenti to the Gresham House family, who together considerably enhance our ability to scale our Housing strategy and we look forward to benefitting from the expertise of their highly experienced team. We remain on track with the integration process and delivering on the targeted synergies.

DELIVERING VALUE TO SHAREHOLDERS

In March, we outlined our ‘GH25’ strategy that aims to achieve both strategic and financial goals in order to double shareholder value over the next five years. With sustainability and governance at the heart of our goal to generate long-term shareholder value, we aim to:

·      grow AUM to over £6 billion;

·      increase operating margins to greater than 40%; and

·      maintain target Returns on Invested Capital of 15% or above.

Our broader strategic goals include becoming a recognised leader in sustainable investing, ensuring that our funds maintain superior returns compared to the market, building market share in niche investment product areas, developing the business internationally and generating further goodwill for the Gresham House brand. Our goals are well aligned with those of our shareholders, with senior management owning 8% of shares in the Company.

The continued positive momentum in AUM growth in the first half of the year has ensured that we have made good progress against our targets, maintaining our positive growth trajectory. Our robust balance sheet and the strong cash and net liquid asset positions have also provided us with the strength and flexibility to pursue our growth ambitions. The strong fundraising success across multiple areas in both our Real Assets and Strategic Equity divisions, has enabled us to achieve scale and to establish significant market share in critical areas of sustainable investment opportunities such as housing, infrastructure, renewable energy and forestry, which are all important building blocks of a green economy.

PEOPLE

Our greatest asset has always been our people and I am very proud of the quality of our team, who have continued to work diligently and to deliver on our objectives for the year, ensuring that we have remained fully operational during these times. We have continued to build our talented team with a number of strategic hires, who will help us to expand in their relevant areas. In addition to the appointment of Rebecca Craddock-Taylor (Sustainable Investment Director), the senior appointments to the Forestry, Housing and New Energy and Sustainable Infrastructure teams of David Gardner  (Investment Director of Forestry) focusing on international expansion, Peter Bachmann (Senior Infrastructure Investor) in sustainable infrastructure and Andrew Stirling (Head of Treasury Solutions), have maintained our commitment to investing in our people.

We are also aware of our responsibilities around diversity and inclusion and amongst various initiatives we are proud to have signed up to the #100blackinterns initiative and look forward to welcoming our first intern through this scheme next summer. More detail can be found in our diversity and inclusion policy, available on our website: greshamhouse.com/diversity-and-inclusion.

OUTLOOK

Despite clear macro and socio-economic challenges, the opportunities for growth from alternative asset allocation, underpinned by significant demand for sustainable investments, place Gresham House in a position of strength.

We have achieved a strong first half performance despite exceptionally challenging external conditions, and this has provided us with a solid foundation from which to deliver on our objectives in the second half of the year and beyond. The talent and strength of our team have underpinned outperformance in a number of our funds including the LF Gresham House UK Micro Cap, LF Gresham House UK Multi Cap Income and Gresham House Strategic plc (GHS) funds.

During the second half of the year we will continue, and anticipate commencing new fundraisings, in a number of areas including Forestry, Housing, New Energy and Sustainable Infrastructure and focusing on a number of distribution channels for our Public Equity funds.

The speed and strength of the UK economy’s recovery remains contingent upon various factors, including the extent of any second wave of the COVID-19 pandemic, levels of unemployment, Brexit trade negotiations and the scale of the recession. We expect challenging times in the real economy but the long term and resilient nature of our asset classes lead us to remain cautiously optimistic that our growing client base will continue to view our investment solutions favourably throughout these turbulent times and beyond.

Tony Dalwood

Chief Executive

17 September 2020

FINANCIAL REVIEW

In the first half of 2020 we witnessed the unprecedented impact of the COVID-19 pandemic across the world. This has provided one of the most challenging environments for businesses to operate in and Gresham House approached this period from a position of balance sheet strength and stability. We were able to continue to execute our strategy with the acquisition of TradeRisks alongside further organic growth in AUM in the first half of 2020.

Gresham House has seen core income grow in the period by 33% to £17.8 million compared to £13.4 million in the first half of 2019. This has driven the adjusted operating profits of the Group up by 15% to £5.2 million (H1 2019: £4.5 million). After the deduction of the amortisation and depreciation, exceptional items, acquisition related share-based payment charges, net losses on investments and other fair value movements and tax the total comprehensive net loss was £2.2 million for the period (H1 2019: £0.8 million).

COVID-19

We entered the COVID-19 pandemic with a strong balance sheet and as at 30 June 2020 had cash of £21.9 million. The pressure placed on many businesses forced a focus on cash and receivables. The nature of our asset management business and the quality of our clients remained strong, with core income continuing to grow in the period.

A clear focus on discretionary spend, alongside maintaining investment in the critical growth areas of the business has meant that we have remained focussed on executing our growth strategy during the period. We have therefore not utilised the government COVID-19 support initiatives of the furlough scheme or the Coronavirus Business Interruption Loan Scheme.

ASSETS UNDER MANAGEMENT

AUM grew by 17% in the first six months of the year to £3.3 billion (2019: £2.8 billion), despite the COVID-19 pandemic. In line with our strategy this was achieved through both organic growth (10%) and acquisition growth (7%).

£ millionsAUM
Dec-19
Net Fund Flows1PerformanceFunds Acquired/Won2AUM
Jun-20
Total Growth%
Strategic Equity
Public Equity283.759.0(26.3)147.6464.063.6%
Private Equity424.520.6(38.0)(55.2)351.9(17.1)%
Subtotal708.279.6(64.3)92.4815.915.2%
Real Assets
Forestry1,333.3(8.5)  72.1–  1,396.94.8%
New Energy and Sustainable Infrastructure672.897.2(17.9)–  752.111.8%
Housing82.534.0(1.2)  184.0299.3262.8%
Subtotal2,088.6122.753.0184.02,448.317.2%
Total AUM2,796.8202.3(11.3)276.43,264.216.7%

1. Including funds raised, redemptions and distributions.
2. The LMS Capital plc contract was terminated in January 2020 with a NAV of £55.2 million and is included in Funds Acquired/Won.

The Real Assets division grew by £359 million with a successful £100 million fundraising for the British Strategic Investment Fund (£34 million Housing and  £66 million Infrastructure) and £31 million for Gresham House Energy Storage plc (GRID), as well as the acquisition of the Residential Secured Income Fund plc management contract of £184 million as part of the TradeRisks transaction. Following the acquisition of TradeRisks we now separately report the Housing division from the New Energy and Sustainable Infrastructure division. We also saw strong performance in the Forestry division with £72 million of growth in the period.

The Strategic Equity division was more impacted by the COVID-19 pandemic. However, it achieved continued growth in AUM of 108 million in the period. Net fund inflows of £80 million and the winning of the £148 million Strategic Equity Capital mandate more than offset the market-driven performance reductions.

ADJUSTED OPERATING PROFIT

The adjusted operating profit for the Group grew in the first half of 2020 by 15% to £5.2 million (H1 2019: £4.5 million). We use the non-GAAP measure of adjusted operating profit as a key performance indicator for Gresham House as an alternative asset manager and have separated out net performance fees and net gains on investments. As set out in the 2019 Annual Report, the adjusted operating profit is defined as the net trading profit of the Group before deducting amortisation, depreciation and exceptional items relating to acquisition and restructuring costs and share-based payments relating to acquisitions.

ADJUSTED OPERATING PROFIT

Six months to 30 June 2020Six months to30 June 2019
£’000£’000
Total core income17,80313,358
Administration overheads (excluding amortisation, depreciation, exceptional items and acquisition related share-based payments)(12,561)(8,518)
Finance costs(5)(305)
Adjusted operating profit5,2374,535
Adjusted operating margin29.4%33.9%
Performance fees (gross)1,944
Variable compensation attributable to performance fees(1,744)
Performance fees net of costs200
Adjusted operating profit including performance fees5,2374,735
Amortisation and depreciation(4,482)(4,350)
Acquisition related share-based payments charges(296)(296)
Exceptional items(1,170)(757)
Net losses on investments and other fair value movements(898)(133)
Tax(623)144
Operating loss after tax(2,232)(657)
Loss from discontinued operations(6)(2)
Total comprehensive net income(2,238)(659)

INCOME

Core income in the period increased by 33% to £17.8 million (H1 2019: £13.4 million). This increase reflects the organic growth in AUM across the business alongside four months of revenues from the TradeRisks business since acquisition and the winning of the SEC management contract in May 2020. The Strategic Equity division was impacted by the volatility in the equity markets since March 2020, however this was offset by net fund inflows and new mandates won in the period. Markets have improved since the end of the period and we continue to see net inflows into our Strategic Equity Funds, however, volatility remains.

The long-term nature of the Group’s Real Asset management contracts highlight the stable revenue streams for the business with over £1.0 billion of AUM in Limited Partnership management contracts with a weighted average contract length of 15 years. The underlying assets within these funds are forests, infrastructure and renewable energy, which have been relatively less impacted by recent market volatility. This asset base continues to provide a stable platform to grow the business from.

ADMINISTRATION EXPENSES

Administration expenses, (excluding amortisation, depreciation, share-based payments relating to acquisitions and exceptional items) have increased to £12.6 million (H1 2019: £8.5 million) in the period. We continue to manage costs diligently while ensuring that we invest in critical areas of the business. This includes a focused investment in our distribution and investment teams as a key driver of growth, as well as in critical support functions such as compliance and legal.

The small increase in depreciation and amortisation to £4.5 million (H1 2019: £4.4 million) is primarily driven by the amortisation of the management contract acquired as part of the TradeRisks acquisition.

Exceptional items in the first half of the year of £1.2 million (2019: £0.8 million) represent the acquisition costs and restructuring costs of combining the TradeRisks business. These are considered one-off costs and have therefore been classified as exceptional in the period.

GAINS AND LOSSES ON INVESTMENTS

Gains and losses on investments in the period of £0.9 million reflect the recognition of the Group’s investments in associates as well as the fair value movements of contingent consideration relating to previous acquisitions. The treatment of GHS as an associate requires the Group to recognise its share of profits or losses in the period last reported by GHS. GHS announced its annual results for the period to 31 March 2020. However, given the impact of COVID-19 in the intervening period the Board has reviewed this accounting treatment and have adjusted for GHS’s Net Asset Value as at 30 June 2020 which shows the Group’s share of losses over the period was £127,000 (H1 2019: £37,000 profit).

Contingent consideration payable to the sellers of acquired businesses is fair valued each period end, with the movement reflecting assessments of the expected final payment as well as the discount over time. The fair value movement in the period of £0.7 million was primarily driven by the unwind of the discount (H1 2019: £0.5 million). I am pleased to announce that the investment in FIM Services Limited reached the end of its earnout period and exceeded the original acquisition targeted income.

FINANCIAL POSITION

The balance sheet remains strong with cash at the end of the period at £21.9 million, up from £19.4 million at the beginning of the year. The business continues to generate cash from operations alongside the issuance of £8.0 million of shares in March 2020 and gross cash received of £2.4 million on the sale of the Devco Project (battery storage) to GRID, which was announced in December 2019. This activity underlines the Group’s ability to generate cash to grow the business.

This cash has been used to acquire the TradeRisks business (£3.5 million) and make further investments in the development of battery storage through Devco Projects to support the pipeline for GRID.

The Devco Projects are included in the statement of financial position as assets and liabilities of a disposal group held for sale. These vehicles are consolidated under IFRS and the increase in assets and the associated liabilities reflects the investment in batteries, which has been funded by loans with GRID.

OUTLOOK

The continued growth in AUM through the turbulent first half of 2020 means the Group is well placed for the second half of 2020 and beyond. We continue to raise funds in ESG attractive asset classes such as forestry, infrastructure, housing and renewable energy and are cautiously optimistic of continued progress during the remainder of 2020.

Kevin Acton

Chief Financial Officer

17 September 2020

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.