Rockwood Strategic : Annual Report 31 March 2023

31 March

2023

Compounding wealth long-term

RockwoodStrategicPlc

ReportandAccountsfortheyearended31March2023

Overview

01 Chairman's Statement

1. Investment Manager's Report

1. About the Investment Manager
2. Strategic Report 2023

Governance

02 Board of Directors

1. Corporate Governance Report

1. Audit Committee Report
2. Directors' Remuneration Report
3. Directors Remuneration Policy
4. 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 Investment Trust Company with a Premium listing on the Main Market of the London Stock Exchange. It is 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		Governance		Financial		Other
		Statements		Information

Chairman's

Statement

Noel Lamb

Chairman

Rockwood Strategic Plc

Dear Shareholder,

I am delighted to be reporting on a year of significant progress at Rockwood Strategic plc ("RKW"). Investment performance

has been excellent, and we successfully moved to a Premium Listing on the Main Market of the London Stock Exchange on

29 September 2022 (from AIM). As explained last year, this process ensures tax efficiency with Value Added Tax no longer being applied to investment management fees and performance fees, and from next year, Corporation Tax will no longer be chargeable on realised investment gains. This process incurred one-off costs of approximately £470,000. However on-going expenses (including Administration and Custody fees) have been materially lowered and the tax efficiency is compelling.

Net Asset Value ("NAV") Total Return performance in the twelve months to 31 March 2023 was +21.4% which compares to declines in the FTSE Small Cap (ex-ITs) of -15.7%.

The Total Shareholder Return in this period was +28.2%1. Management fees are charged at a fixed fee of £120,000 per annum while assets are below £60m and we are pleased that the excellent absolute performance of the portfolio during a period of falling UK smaller company prices has enabled us to pay a performance fee to the Manager. This is calculated as 10% of returns generated over a hurdle of 6% per annum (subject to a high watermark) and is achieving its purpose by incentivising the manager to deliver excellent outcomes for shareholders. RKW was the best performing UK small companies fund according to Association of Investment Companies data for the year ended

31 March 2023.

Our Investment Manager has clearly been busy, the Board is aware of a range of initiatives that occurred both during the year and are in progress to engage actively with our investments to help them create, unlock or realise value for all shareholders. Furthermore, a number of new investments have been established which the manager believes have sown the seeds of future growth in our NAV. The Board shares the view of the manager that the UK small companies market continues to provide a significant opportunity, due to the inefficient pricing of poorly researched or understood companies trading at historically low valuations. The Investment Manager is using its decades of investing experience and specialist insight to identify a small number of the very best opportunities.

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. Our portfolio's underlying companies have been steadily growing shareholder value and having that value better recognised by the wider stock market. Performance in any short period under review will be primarily due to the individual performances of a handful of our holdings and in this regard the success of the investment in Crestchic Plc should

be highlighted, an excellent case-study for our differentiated investment approach, discussed in the Investment Manager's report.

We welcomed Paul Dudley to the Board during the year. His background in corporate finance, accounting and the financing of listed companies is already proving valuable. Post year end, we achieved another milestone with the share price rising above £20. With the aim of increasing marketability and liquidity the Board is recommending a 10 for 1 stock split. Growing the NAV remains a clear priority for the Company. 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. We have put in place a block-listing facility to enable share issuance above NAV. Subsequent to year end, I am delighted to report that the discount to NAV has been eliminated entirely and we have begun to issue new shares. This is a significant achievement, given the market backdrop and alongside sustained performance and on-going marketing initiatives we hope to continue to attract new investors to the strategy.

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. As such there will be no dividend proposed this year. Our AGM will be held on 12 September for those that would like to meet the Board and Manager in person.

Noel Lamb

Chairman RKW

21 June 2023

1 These are considered to be Alternative performance Measures (APMs). See APMs on page 46.

Rockwood Strategic Plc

01

BoardofDirectors

Noel Lamb

Age: 67

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

Noel graduated from Exeter College, Oxford and is a barrister-at-law. Commissioned into the 5th Royal Inniskilling Dragoon Guards, he served as ADC to the Commandant of the Royal Military Academy Sandhurst and Adjutant of the North Irish Horse. He joined Lazard Brothers

• Co Limited in 1987 and from 1990 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. Noel is also currently the Chairman of Atlantis Japan Growth Trust and a director of Guinness Asset Management Funds.

Kenneth Lever

Age: 69

Senior Non-Executive Director Chairman of the Audit Committee

Ken is Chair of the audit committee at Rockwood Strategic, Chairman of WANdisco plc, NED of Vertu Motors plc and Deputy Chairman of Rainier Developments Limited. 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 is Chairman of the Advisory Board of the Alliance Manchester Business School. Ken graduated from the University of Manchester with a degree in Management Sciences.

Paul Dudley

Age: 51

Non-Executive Director

Paul Dudley is a Fellow of the Institute of Chartered Accountants of England and Wales and is a Member of the UK's Chartered Institute of Securities and Investment. Paul founded Aer Ventures in 2011, where he is Managing Partner, a corporate advisory business that is Authorised and Regulated by the UK's Financial Conduct Authority. Previously he worked at stockbroking firm WH Ireland where he was approved as a Qualified Executive acting as the Corporate Finance adviser on AIM corporate transactions.

Paul graduated from Durham University and began his career at PricewaterhouseCoopers. He is currently a director of a number of public and private companies including Celsius Resources Ltd, Watercycle Technologies Ltd and Pyne Gould Corporation Ltd.

02	Rockwood Strategic Plc

Overview		Governance		Financial		Other
		Statements		Information

InvestmentManager's

Report

Highlights

• NAV Total Return performance in the twelve months to 31 March 2023 of 21.4% to 1,959.56p per share which compares to declines in the FTSE Small Cap (ex-ITs) of 15.7%. The positive Total Shareholder Return of the Company in this period was 28.2%2
• NAV Total Return performance in the three years to 31 March 2023 of 116.9% which compares to the FTSE Small Cap (ex-ITs) of 49.6%. The Company's Total Shareholder Return in this period was 139.4%3
• Successful migration from AIM to a Premium Listing on the Main Market of the London Stock Exchange ("LSE")

Market backdrop

The period was very challenging for UK smaller company investors. The FTSE Small Cap (ex-ITs) fell 3 of out of four quarters with a modest rally in Q4 of 2022, mainly because sentiment had got so negative that a slight improvement in mood regarding the direction of US interest rates prompted a rally. Against this backdrop, investor money flow data and surveys indicated continued reductions to UK equities. It is difficult to pinpoint the rationale to this seemingly entrenched pessimism; partly structural such as the desire to allocate to "Global" equities rather than UK; partly aversion due to concerns about the post-Brexit economy; possibly partly due to the lack of flag-waving UK fund managers with attractive performance to highlight. It may just be the political shambles that characterised most

of the period, firstly with the departure of Boris Johnson, second through the disastrous and record-breaking short tenure of his replacement, Liz Truss. There is little doubt though that with UK Debt to GDP ratios the

2 These are considered to be APMs. See APMs on page 46. 3 These are considered to be APMs. See APMs on page 46.

highest since World War II, the tax burden at generational highs and a general lack of support for public service cost-cutting, the UK's political leaders have wafer thin room to manoeuvre fiscal policy. The lower valuation of UK equities relative to global equities and compared with historical levels, seems to have been spotted given the increasing number

of takeover approaches for UK companies by Private Equity Funds who have record amounts of capital to deploy.

UK unemployment hit its lowest level of 3.4% since 1974 and retail inflation reading 14%, the highest since 1980. Inflation is, in our view, the most important current determinant in both the outlook for markets and also the source of broader corporate, investor and central bank behaviour. During the year interest rates rose markedly around the world in an attempt to tame inflation, the UK official Bank Rate up from 0.75% to 4.25%. Jerome Powell, Chairman of the Federal Reserve, earlier in the year, made it clear "pain" was inevitable, he was still raising interest rates to new highs as Rockwood's Financial year came to a close. This is an era-defining regime change and should benefit 'value' investments over long- duration 'growth' investments and unleveraged asset classes over ones relying on debt to juice returns. Both of these characteristics should benefit Rockwood Strategic's approach.

The impact of higher interest rates characterised other key developments: noticeably the emergence of banking stress in our final quarter leading to the distressed sales of Silicon Valley Bank, Credit Suisse and First Republic Bank to better capitalised rivals. A credit squeeze commenced and is, alongside the cost of living squeeze on consumers, feeding into measly economic growth,

Richard Staveley

Lead Fund Manager

Nicholas Mills

Assistant Fund Manager

Christopher Mills

Advisory Group Member

CIO Harwood Capital LLP

Rockwood Strategic Plc

03