Hancock & Gore : Half Yearly Report and Accounts

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Hancock & Gore Ltd

(Formerly: HGL Limited)

ASX: HNG

Appendix 4D

Preliminary Half-year Report

Half-year 31 March 2022

Reporting period:	31 March 2022
Previous corresponding period:	31 March 2021
Results for announcement to the market				Current	Previous
				Period	Period
				$'000	$'000
Revenues from ordinary activities	DOWN	18%	TO	802	973
Profit from ordinary activities after tax attributable to members DOWN	76% *	TO	2,473	10,157
Net profit for the period attributable to members	DOWN	76% *	TO	2,473	10,157
Earnings per share (cents per share)	DOWN	88% *	TO	1.2	9.9
Net tangible assets per share (cents per share)	UP	13%	TO	28.0	24.8

Explanation of results

• The previous period results included a one-off net revaluation gain of $7.98m, upon the initial change to investment entity reporting. Accordingly, the headline performance measures, and percentage changes, as shown above, are not considered representative of the actual comparative financial performance. Please refer to Note 3 of the attached Interim financial report for more information.

The key driver of the result for the current period was a net revaluation gain of $3.27m in respect of realised and unrealised increases in the fair value of investments during the period.

Dividends

A final dividend of 1 cent per share, in respect of the year ended 30 September 2021, was paid on 3 December 2021.

The Directors have resolved to not declare a dividend in relation to the period ending March 31, 2022, in particular due to opportunities currently presenting as a result of market volatility. Directors note that should current portfolio M&A activity result in the conclusion of a transaction for a material portfolio investment, Directors will reconsider the payment of an interim dividend at that time.

Changes in controlled entities

H&G reports as an investment entity, as defined in the accounting standards. Accordingly, only those controlled entities whose main purpose and activities relate to the investment activities of the group are consolidated, and other controlled entities are instead shown as investments held at fair value.

There were no changes in the controlled entities forming the investment entity during the period. During the prior period, on 23 March 2021, the Company acquired all of the equity in H&G Investment Management Ltd (formerly: Supervised Investments Australia Ltd).

On 2 November 2021, the Company completed the disposal of BLC Cosmetics Pty Limited. During the prior period, the Company disposed of its interests in Baker & McAuliffe Holdings Pty Limited (trading as JSB Lighting) and JSB Lighting (New Zealand) Limited. BLC Cosmetics Pty Limited, Baker & McAuliffe Holdings Pty Limited and JSB Lighting (New Zealand) Limited were all controlled entities that were not consolidated but accounted for as investments at fair value.

Audit

This report is based on accounts which have been reviewed by the Auditors. There has been no dispute or qualification in relation to these accounts or this report.

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Hancock & Gore Ltd

(Formerly: HGL Limited)

ABN 25 009 657 961

Interim financial report for the half year ended 31 March 2022

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Directors' Report

Your directors present their report on the consolidated entity ("H&G" or the "Group") consisting of Hancock & Gore Ltd (the "Company", formerly: HGL Limited) and the investment entities it controlled at the end of, or during, the half-year ended 31 March 2022.

Directors

The names and details of the Company's directors in office during the financial period and until the date of this report are set out below. All directors were in office for the entire period.

Alexander (Sandy) Beard;	Peter Miller;
Kevin Eley;	Cheryl Hayman; and
Joseph Constable.

Principal activities

The principal activities of the Group are to deliver superior long-term investment returns by investing in diversified asset categories, including listed and unlisted equities, funds management, private equity investments and direct property. H&G aims to provide active support to those investees in which it holds a significant equity stake as an aligned partner to enhance investment returns and objectives.

Operating and Financial Review

The period since 30 September 2021 has seen H&G continue its evolution as a diversified investment company with a strong balance sheet, new investment team and extensive investment opportunities available to it.

Capital raisings in the prior financial year saw H&G fundamentally transformed, with all head entity debt repaid and new cash balances available for investment. During the current financial year, H&G has further consolidated its position with additional investments, pro-active engagement to enhance the value of existing investees, and a new capital raising to further strengthen the balance sheet and replenish cash available for future investment and growth. The Board thanks all investors who participated in these capital raisings and looks forward to creating meaningful value through the use of these funds.

Key highlights in the current period include:

• Net profit before tax for the six months ended 31 March 2022 of $2.6 million;
• Net tangible assets at 31 March 2021 of $62.1 million, or 28.0 cents per share;
• Reinstatement of dividends with a final dividend for the year ended 30 September 2021 of 1 cent per share declared and paid in the period;
• Completion of the sale of BLC Cosmetics;
• Completion of two staged capital raising of $15 million before costs through the issue of 45.5 million new shares at 33 cents per share;
• Over 40% growth in the funds' management assets through organic growth and new fund development;
• Continued development of and growth in the valuations of key private equity investments;
• Progression of M&A activity for key portfolio investments; and
• Identification and due diligence completed for a strategic new private equity investment.

H&G reports a Statutory Net Profit after Tax for the period of $2.5 million, (31 March 2021: $10.2 million)

including realised and unrealised fair value gains of $3.3 million (31 March 2021: $8.8 million). The fair value gains for the prior period included the one-off reflection of the uplift in fair values, that had accrued over time, from the change to the investment entity basis of accounting. The fair value gains for the current period reflect evidence of further value enhancement emerging, particularly in relation to the Pegasus and Provider Choice/ T- Shirt Ventures investments.

In order to drive value for investees and H&G shareholders, H&G continues to actively engage with investees to grow revenues and profitability, and also to drive strategic corporate and capital management opportunities.

The Board was delighted to reinstate dividends during the period. Whilst the profit for the period has again been solid, the Board will continue to consider dividends in the light of both reported profits but also cash realisations.

At this stage, the Board has elected not to declare an interim dividend for the current financial year. In assessing the merits of declaring a dividend with the release of half year results the Directors have reflected on:

• Investment opportunities currently under review, enhanced by market uncertainty and volatility; and
• Progression of potential merger and acquisition activity in the portfolio.

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Directors' Report

Operating and Financial Review (continued)

The impacts of COVID appear to have lessened during the current half-year period. It is pleasing to see that each of our key investee entities have come through what appears to have been the worst of the COVID impacts on the economy in a solid position, although supply chain disruptions and pricing pressures remain.

The Group continues to analyse investment opportunities across several asset classes, including listed and unlisted equities, commercial property and debt financing.

Through a combination of investment performance and capital raisings, and after payment of a 1 cent per share dividend in December, Net Tangible Assets (NTA) at 31 March 2022 increased to $62.1 million or 28.0 cents per share (31 March 2021: $32.9 million or 24.8 cps).

H&G also holds approximately $20 million in carried forward revenue losses and $15 million in carried forward capital losses, calculated as at 31 March 2022, that, subject to utilisation rules, are available to offset tax on realisations of existing unrealised gains and future profits. Further, H&G retains in excess of $8 million in franking credits.

Outlook

Following an encouraging first half, and with a balance sheet capable of taking advantage of the opportunities available to the Company, the Directors are confident that H&G's investment strategy will support solid future returns.

The Board's focus remains on the continued efficient management and repositioning of the existing investment portfolio and cash resources, in pursuit of the broader investment strategy previously outlined to shareholders at recent annual general meetings.

At this point in time, however, the Board considers it premature to provide guidance in relation to performance for the full FY22 financial year.

Significant changes in the state of affairs

There have been no other significant changes in the state of affairs of the Group during the period other than those referred to in the Operating and Financial Review and the financial statements.

Events since the end of the reporting period

There have been no significant events occurring after the balance date which may affect either the Group's operations or results of those operations or the Group's state of affairs.

Likely developments and expected results of operations

Likely developments in the operations of the Group are detailed in the Operating and Financial Review and Events subsequent to balance date.

Auditor's independence declaration

A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 4.

Rounding of amounts

The Company is of a kind referred to ASIC Legislative Instrument 2016/191, relating to the 'rounding off' of amounts in the Director's Report and financial report. Amounts in the Director's Report and financial report have been rounded off to the nearest thousand dollars in accordance with the instrument.

This report is made in accordance with a resolution of directors.

Alexander (Sandy) Beard

Director

Sydney

25 May 2022

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Level 11 | 1 York Street | Sydney | NSW | 2000

GPO Box 4137 | Sydney | NSW | 2001

t: [phone] | f: [phone] [e-mail] www.uhyhnsydney.com.au

Auditor's Independence Declaration

Under Section 307C of the Corporations Act 2001

To the Directors of Hancock and Gore Limited

I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended

31 March 2022, there have been:

1. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the review; and
2. no contraventions of any applicable code of professional conduct in relation to the review.

This declaration is in respect of Hancock and Gore Limited and the entities it controlled during the financial period. LTD AND THE ENTITIES IT CONTROLLED DURING THE FINANCIAL PERIOD.

Mark Nicholaeff	UHY Haines Norton
Partner	Chartered Accountants
Sydney
Dated: 25 May 2022

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