Rockwood Strategic : Annual Report 31 March 2022

31 March

2022

Compoundingwealthlong-term

RockwoodStrategicPlc

(formerly, Gresham HouseStrategic plcandRockwoodRealisationplc) ReportandAccountsfortheyearended31March2022

Overview

1. Chairman's Statement

1. Board of Directors
2. Investment Manager's Report

1. About the Investment Manager
2. Strategic Report 2022

Governance

1. Corporate Governance Report

1. Audit Committee Report
2. Directors' Remuneration Report
3. Directors' Report

1. Directors' Responsibility Statement
2. Independent Auditor's Report

Financial Statements

1. Statement of Comprehensive Income
2. Statement of Financial Position
3. Statement of Cash Flows
4. Statement of Changes in Equity
5. Notes to the Financial Statements

Other Information

1. Notice of Annual General Meeting

1. Corporate Information

Throughout this report we use the more concise terms RKW or the Company.

Rockwood Strategic Plc is an AIM-quoted investment company invested in a focused portfolio of smaller UK public companies.

The strategy identifies undervalued shares, where the potential exists to improve returns and where

the company is benefitting, or will benefit, from operational, strategic or management changes. These unlock, create or realise shareholder value for investors.

Overview		Financial	Other
Governance	Statements	Information

Chairman's

Statement

Noel Lamb

Chairman

Rockwood Strategic Plc

Dear Shareholder,

Of the many significant dates since we last reported, one stands out amongst the others. On 25th April 2022, 96% of voting shareholders supported the board's proposed resolution

to adopt a new active investment policy. This ensures the future of the Company and capitalises on the proven track record. Taking over as chairman towards the end of January, the Company was in the middle of a brief phase when shareholders had supported a resolution proposed by our then largest shareholder and previous manager to realise its investments and return the proceeds. £25 million was returned to shareholders during this time. £10.4m or 300p per share was returned by means of a B-share scheme and a further £14.6m was returned through a tender offer at 1551.17 pence per share. The NAV per share (net of these distributions) rose from 1,512.8p to 1613.8p in the reporting period.

Developments during the year sometimes took place at incredible speed. The composition of the shareholder register has changed markedly, the board composition has evolved, the investment manager has changed and the short period during which the Company was in orderly windup has now ceased. The Company's intention is to grow net assets materially over the coming years through a combination of

investment performance and new fund raising. The strategy followed will be similar to that which has successfully driven significant shareholder value in recent years. It is a strategy that is clearly differentiated and suited to the long-term capital that the Company retains. The board is particularly pleased with the appointment of Harwood Capital as investment manager to deliver this strategy.

Christopher Mills was lead fund manager during the realisation phase in the latter part of the year. He is moving into Rockwood's Investment Advisory Group (IAG) and Richard Staveley, previously lead fund manager for the strategy, having joined Harwood, has been re-appointed to this role. With over 150 years of cumulative investment experience, shareholders will clearly benefit from the insights the IAG will bring to Richard and the investment team.

The Company's corporate activity during the year led to significant costs, with professional fees totalling £0.67m and legal fees totalling £0.37m. In addition, the termination of the investment management agreement with Gresham House led to an acceleration of performance fees which meant manager fees reached £3.36m. This was despite the new manager, Harwood Capital, charging zero fees

for its services from October 2021 to year-end. Costs associated with the various corporate actions of last year totalled £1.10m, or 2.09% of starting NAV. There was a material cost to the Company of administering the B-share scheme, Tender and Strategic Review, not least because of the very significant (over 4,200) number of shareholders, many of whom have fewer than

10 shares. The Company is therefore exploring ways to consolidate the register for the future. 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.

Following a thorough review of service providers, the Company (supported by the actions of Harwood Capital) has significantly reduced its future corporate running costs. Management fees are much reduced and will be charged at a fixed fee of £120,000 while assets are below £60m from 25th April 2022, mitigating a key concern for many investors about the size of the Company. Growing the NAV is a clear priority for the Company. This will open up a wider set of investments in the target part of the UK small cap market where the manager can purchase significant investee company stakes.

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Chairman's Statement (continued)

With effect from April 2021, U.K. tax law changed with the regard to the use of historic tax losses in reducing taxable profits, lowering the extent these can be utilised

in any one year. The company previously benefitted from a significant Corporation Tax shield in the form of over £125m of brought forward tax losses. Following the changes, the maximum tax shield that can be used in any one financial year is limited to £5m. As a result, there is a Corporation Tax charge for the current year of approximately £1.58m.

In addition, unlike an Investment Trust, the Company remains liable to be charged for Value Added Tax, which is charged to the Company on all fees and expenses including the investment management and performance fees. Consequently the Company paid a further £0.46m in VAT on the management fees and performance fee which it is unable to reclaim. The board wishes to improve our tax efficiency as fast as possible, hence there will be a recommendation to shareholders

to support a move to the main market on the London Stock Exchange from AIM and convert to an Investment Trust. The Company, in this new form, would no longer incur VAT on fees, including management and performance fees, and Corporation Tax under the current HMRC rules. The cash payback from converting is expected to be swift. This move should also widen our audience of potential investors.

From an investment perspective this Annual Report covers a year in which only one further investment was made on behalf

of shareholders by the previous manager, Gresham House. The new manager, Harwood Capital, was not mandated to re-deploy capital until the new investment policy was approved by shareholders on 25th April

2022. This one additional investment has, since year-end, been sold back to the previous investment manager at cost. The investment portfolio, as the investment manager's report explains in more detail, is in fine fettle. Unlike most situations when an investment manager changes, your company's investments are known extremely well to the new manager. There will be no need for any material portfolio restructuring or the costs associated with it. During the year, significant realised gains were made from the sale of Augean Plc, RPS Group Plc, National World Plc, Universe Group Plc and Ted Baker Plc. Offsetting these were losses realised from the complete disposals of Fulcrum Utility Services Plc and SpaceandPeople Plc, a company which entered the portfolio in 2015 in a stock-swap from the previous manager.

The investment backdrop for the portfolio has been volatile, with the COVID-19 Omicron variant induced lockdowns, the inflection in the interest rate cycle, rising inflation, soaring energy prices, and the awful developments in Ukraine. Against this backdrop, I might highlight why the Company's investment strategy is so attractive. In spite of sustained negative macroeconomic and geo-political news 'headlines', our portfolio's underlying companies have been steadily growing shareholder value and having that value better recognised by the wider stock market. This is a truly 'active' and focused strategy and performance over the medium-term will be primarily due to stock-specific factors and outcomes, not macro-economic ones. Performance in any short period under review will be due to the individual performances of a handful of our holdings.

There are many to thank for their help in navigating the Company through the last year. You know who you are, even if not named here. In particular, I should mention David Potter, Helen Sinclair and Charles Berry for their many years of service to the Company and thank Ken Lever for his on-going support through this challenging period of stakeholder management. I would also like

to thank Graham Bird for all his work as a director over the past year. Graham has had an excellent grasp of the portfolio and been impartial, but will not seek re-election due to a very full workload of other commitments.

The board believes that, until the Company has gained greater scale, it will not reinstate the dividend policy and instead use the capital to compound NAV growth. Our shareholders do have a range of views on this matter. We will continue to listen to them as well as prospective shareholders and act accordingly.

Rockwood Strategic faces an exciting future. The Company now has a more appropriately sized cost base, it will ensure tax efficiency shortly, it has an outstanding and experienced manager to drive shareholder value, and a differentiated investment strategy which we expect to deliver attractive returns over the years ahead.

Noel Lamb

Chairman RKW

22nd June 2022

02	Rockwood Strategic Plc

Overview				Financial		Other
	Governance		Statements		Information

BoardofDirectors

Noel Lamb

Age: 66

Independent, Non-Executive Chairman (appointed 20th January 2022)

Noel is also the Chairman of the Atlantis Japan Growth Trust and a director of Guinness Asset Management Funds. Noel graduated from Exeter College, Oxford University and is a barrister-at-law. He joined Lazard Brothers

• Co Limited in 1987 and from 1992 to 1997 he was the managing director of Lazard Japan Asset Management where he was the fund manager for their Japanese equities. In 1997, he moved to the Russell Investment Group where he established the investment management capability of Russell in London. In 2002, he was promoted to Chief Investment Officer in North America where he managed assets of $150bn until his departure in 2008.

Kenneth Lever

Age: 68

Senior Non-Executive Director, Chairman of the Audit Committee

Ken is Chair of the audit committee at Rockwood Strategic, Chairman of Biffa plc and RPS Group plc and NED of Vertu Motors plc. Ken was previously Chief Executive of Xchanging plc and during his career has held listed company executive board positions with Tomkins plc, Albright and Wilson plc, Alfred McAlpine plc and private equity owned Numonyx BV.

In his early career Ken qualified as a Chartered Accountant and became a partner in Arthur Andersen. Until 2014 Ken was a member

of the UK Accounting Standards Board. He graduated from Manchester University with a degree in Management Sciences.

Graham Bird Age: 52 Non-Independent

Non-Executive Director

Graham is the CFO of XP Factory and is experienced in fund management and in building both corporate advisory and asset management businesses. Formerly the Fund Manager of Gresham House Strategic. Graham spent six years as a senior executive at PayPoint plc, most recently as director of strategic planning and corporate development.

He was also executive chairman and president of PayByPhone, a multi-national division of PayPoint operating out of Canada, the UK and France between 2010-2014. Graham began his career in audit and corporate finance at Deloitte and Cazenove and holds an MA in Economics from the University of Cambridge.

Graham will retire from the Board at the conclusion of the AGM to be held on 13 September 2022 and will not seek re-election.

Rockwood Strategic Plc

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