Rockwood Strategic says corporate dispute led to ‘significant costs’

In the annual report for the company, the chair Noel Lamb said that professional fees reached £0.67m and legal fees totalled £0.37m. He added the termination of the former investment manager, Gresham House, “led to an acceleration of performance fees, which meant manager fees reached £3.36m”.

The chair said the costs associated with the corporate actions for last year was 2.1% of starting NAV, or £1.1m.

The corporate dispute initially arose after shareholders accounting for almost half of the trust – of which the parent of its former investment manager Gresham House plc accounted for a significant proportion – called for an immediate return of capital to shareholders after its strategic review was deemed to be “inadequate” in October last year. However, the proposed wind-up was then overturned in April this year.

Lamb added in the report there was also a “material cost” for the administration of the B-share scheme, Tender and Strategic Review, all of which were consequences of the ongoing corporate activity. This he said was in part a result of the trust having over 4,200 shareholders, many of whom have less than 10 shares.

“The company is therefore exploring ways to consolidate the register for the future,” Lamb said. “Shareholders are again encouraged to cash any dividend cheques they retain. The company will seek to reduce the statute of limitations to 6 from 12 years so that unclaimed capital can be re-invested and grow future shareholder value.”

In total, administrative expenses were £5.2m for the 12 months, up from £3.9m the year prior.

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Lamb also said he and the board also believe that until the company has “gained greater scale, it will not reinstate the dividend policy and instead use the capital to compound NAV growth”.

However, he noted that shareholders “have a range of views on this matter” and they “will continue to listen to them as well as prospective shareholders and act accordingly”.

Another challenge for the company is that it is not considered an investment trust and when a tax rule changed last year it incurred a £1.6m tax charge. However it will now become a investment trust, meaning it does not have to pay VAT on management fees, which stood at £460,000 at for the 12 months to end of March this year.

The company is also “exploring a move” from the AIM to the main market of the London Stock Exchange to “help further enhance future shareholder returns,” the chair stated.

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However, Lamb added that “the portfolio has delivered excellent NAV growth despite a year of significant corporate change and elevated costs”.

NAV total return for the twelve months until 31 March 2022 was 27.5%, with a total shareholder return of 22.2%. This compares to the FTSE Small Cap (ex-ITs), which returned 3.2% in the period.

The company is invested in nine companies and has £10.5m in cash. The fund manager, Richard Staveley, said they would look to “carefully deploy” the cash into the “inefficient part of the UK market”.

“The investment opportunity for shareholders is clear: UK equities are on a discount to Global equities, Micro-cap companies are on a discount to the market, the portfolio is on a discount to micro-cap and Rockwood shares are on a discount to the portfolio,” Staveley said.

Rockwood Strategic is trading on a 13.7% discount, according to Morningstar data.

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