HGL : Annual Report to shareholders

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ANNUAL REPORT 2021

It's a wide

open road...

- THE TRIFFIDS

For personal use only

ANNUAL REPORT 2021

For personal use only

SECTION ONE

CHAIRMAN'S REPORT

HGL ANNUAL REPORT

PAGE 1

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CHAIRMAN'S REPORT

I am proud to deliver my first Chairman's report as the current custodian of an organisation with a long and enduring Australian history. Hancock & Gore (H&G) has been enabling the development of great Australian industries and businesses for over 120 years and it is my intention, along with the Board and the management team, to significantly build on the foundations created by those who have come before us.

I chose the annual report cover image and quote as it captures the essence of the opportunity in front of us. It depicts the transition from our past and captures some of the emotions evoked from two years of lockdown challenges and interruptions. "Wide Open Road" is an iconic Australian song penned by the Triffids in 1986 and whilst not enjoying massive popularity at the time it has endured, ranked in the top 100 Australian iconic songs of all time (and if you have never listened to it - well worth a listen). Likewise, I aspire to seeing H&G ranked highly amongst its listed peers and a capital partner of choice for at least the next 35 years.

The song closes with the line "now you can go anywhere that you want to go" which I think aptly sums up where we are today. 2021 has seen us move forward from some past challenges, to restructure and emerge from lockdown restrictions, significantly refresh and renew the balance sheet and install a new management team. This has enabled us to commence exploring and participating in the vast opportunities available and we are now focussed on further building our capability, resources and execution.

In the 2021 financial year, H&G saw its financial performance improve significantly, resulting in a net profit after tax of $15.6m. In addition to strong performance across all investment strategies, operations have been streamlined and the balance sheet has strengthened to $47.8m of Net Assets. The change in accounting policy for investment valuations has allowed us to reflect the value inherent in each of our investments and to assist in better evaluating future financial performance. We are pleased to have resumed the payment of dividends during the year and intend to continue to target payment of dividends from realised profits on an annual basis.

There is nothing more inspiring or motivating than playing a part in great team accomplishments, whether business, sporting, social or cultural initiatives. Success achieved by teams working together to achieve shared goals is a uniquely rewarding experience and one which we will strive to replicate in each investment with which we are involved. We believe that both goals and investment returns are optimised when interests are aligned and success is shared by stakeholders. The manner in which we assist and interact with investment partners and stakeholders is ultimately the biggest testament to how we will deal with all our partners and it is fundamental to our future success.

Whilst lockdowns and supply chain disruptions have created significant challenges, they have also created new opportunities and necessitated different ways of thinking about operations and the ways in which we meet our customer demands which will ensure stronger businesses going forward. We are grateful for the efforts of the management teams of each of the investee businesses and their focus on driving growth and efficiency in their businesses this year. It is a tribute to the management teams of Pegasus, Mountcastle, BLC and SPOS that they have been able to exceed prior year earnings and budget, to drive change and prepare to deliver improved future customer engagement and profitability. 

HGL ANNUAL REPORT

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We are grateful for the support of shareholders during the year in contributing to the two major capital raisings necessary to revitalise the balance sheet and provide a capital base for new investment opportunities. The oversubscription and widespread take up of the April share purchase plan was particularly pleasing and demonstrated the support for the Company and its intentions to broaden its investment strategy.

The Company and management team has been able to demonstrate its new capabilities in a relatively short period of time, with key new management appointments only made in the second half of the financial year. I am thankful that both Phil Christopher and Nick Atkinson have chosen to join H&G and I am excited by what they will contribute over the coming years. Similarly, we are fortunate to have the continued support of Iain Thompson and his guiding hand over operating businesses and finance and for Joseph Constable joining full time following the acquisition of the Supervised Investments funds management business. We are ultimately a people business and we will continue to build the strength of the management team and invest in our people.

2022 will undoubtedly be a different year to 2021 with a completely new set of challenges and opportunities as the world continues to adapt to living with Covid and different emerging economic challenges. In Australia, long-term fundamentals continue to be strong and we're excited by the potential opportunities presented by the current portfolio of H&G investments, the emerging deal flow pipeline, as well as our ability to seize these opportunities. We are also cognisant that inflationary pressures will present challenges, whilst cyclical market highs will unlikely be repeated in FY22 requiring a tempered approach and further diversification of investment strategy.

At the Annual General meeting in early 2022 we will seek shareholder approval to change the name of the company back to Hancock & Gore and adoption of the abbreviation of H&G. Whilst this is a relatively minor change, we believe the name change better reflects the entrepreneurial origins of the Company and the vision of its founders to build a business that was, at one stage, the second largest business in Queensland. The history of Hancock and Gore is a worthy reminder of what can be achieved with vision, execution, strong management and sufficient time and equally that great businesses can falter without embracing change.

In closing I would like to thank my fellow Board members for embracing and supporting the changes implemented, the wisdom and encouragement in dealing with issues arising during the year and availability to assist when reviewing new opportunities and seeking input.

I look forward to the opportunities presented by the "wide open road" and assisting H&G building on the strong base that has been established throughout FY 2022.

SANDY BEARD, CHAIRMAN