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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Menhaden Resource Efficiency Plc | LSE:MHN | London | Ordinary Share | GB00BZ0XWD04 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 104.00 | 103.00 | 105.00 | 104.00 | 103.50 | 104.00 | 58,264 | 08:00:21 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -18.43M | -20.54M | -0.2588 | -4.02 | 82.55M |
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Menhaden PLC
(the "Company")
Annual Report for the year ended 31 December 2018
The Annual Report will be posted to shareholders on 11 April 2019.
Copies may be obtained from the Company Secretary: Frostrow Capital LLP at 25
Southampton Buildings, London WC2A 1AL.
A copy of the Annual Report will be submitted to the National Storage Mechanism
and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm
The Annual Report will also be available on the Company's website -
www.menhaden.com where up to date information on the Company, including monthly
NAVs, share prices and fact sheets, can also be found.
Frostrow Capital LLP, Company Secretary - 0203 709 8734
1 April 2019
Strategic Report
Company Performance
As at 31 As at 31
December 2018 December
2017
NAV per share 90.6p 92.1p
Share price 67.0p 68.5p
Share price discount to NAV per share 26.1% 25.6%
NAV per share (total return) -1.6% 7.8%
Share price (total return) -2.2% 3.2%
Total ongoing charges 2.1% 2.1%
The MSCI World Total Return Index (in sterling) returned -3.0% (2017: +11.8%).
This report contains terminology that may be unfamiliar to some readers. The
Glossary gives definitions for frequently used terms.
Company Summary
Investment Themes
Theme Description
Clean energy Companies producing power from clean sources such as solar
production or wind
Resource and energy Companies focused on improving energy efficiency (e.g. in
efficiency buildings or manufacturing processes) or creating
emissions reduction products or services
Sustainable transport Companies in the transport sector focused on helping to
reduce harmful air emissions/distance travelled
Water and waste Companies with products or services that enable reductions
management in usage/volumes and/or smarter ways to manage water and
waste
Chairman's Statement
I present our fourth annual report since the launch of the Company in July
2015. This report covers the year ended 31 December 2018.
Performance
The Company's net asset value ("NAV") per share total return for the year was
-1.6% (2017: +7.8%) and the share price total return was -2.2% (2017: +3.2%).
While the Company does not have a formal benchmark and our Portfolio Manager
does not invest by reference to an index, during the year the MSCI World Total
Return Index (in sterling) fell by 3.0% (2017: +11.8%). By way of additional
comparison, the WilderHill New Energy Global Innovation Index (in sterling)
fell by 14.1% (2017: +17.0%) and the AIC Environmental Sector fell by 4.2%
(2017: +12.0%).
Our Portfolio Manager has provided a full description of the development and
performance of the portfolio over the year in the Portfolio Manager's Review.
While it is disappointing that our performance figures for the year are
negative, the Board is encouraged by the Company's outperformance of the above
mentioned comparators, confirming the Portfolio Manager's investment strategy.
The Board will continue to keep the ongoing development of the portfolio under
close review.
Share Price Discount
At the year-end, the discount to NAV per share at which the Company's shares
trade had widened slightly to 26.1% (2017: 25.6%). This is a matter that the
Board considers at each Board meeting. As reported previously, the Board is of
the opinion that share buybacks are not in the interests of shareholders at
this time, as this would reduce the size of the Company and increase the
ongoing charges ratio. Instead, and in addition to monitoring the Portfolio
Manager's performance, the Board and the AIFM continue to focus on the
Company's marketing and distribution strategy.
Company Name
As shareholders will have noted already, the Company's name was changed on 14
December 2018 from Menhaden Capital PLC to Menhaden PLC. Share certificates
showing the old name are still valid and therefore no new share certificates
have been issued.
Impact Report
This year we have again integrated the Company's impact reporting within the
annual report. The relevant section is in the Strategic Report and will also be
made available as a separate document, which will include the methodological
detail, on the website www.menhaden.com.
Dividend
The Company complies with the United Kingdom's investment trust rules regarding
distributable income and the Company's dividend policy is that the Company will
pay a dividend as a minimum to maintain investment trust status.
Shareholders will note that in 2018 the Company made a revenue profit and that
revenue losses from previous years have now been reversed. As a result, the
Board recommends to shareholders for the first time, the payment of a modest
dividend to allow the Company to comply with the investment trust rules
regarding distributable income.
Subject to shareholder approval at the forthcoming AGM, a final dividend of
0.7p per share will be paid on 5 June 2019 to shareholders on the register on 3
May 2019. The associated ex-dividend date is 2 May 2019.
Outlook
Global growth is weakening and geopolitical issues continue to cause
uncertainty and volatility in stock markets. Despite this backdrop, our
Portfolio Manager remains optimistic about the long-term outlook for the
environmental sector in general and the opportunities for the companies in your
portfolio in particular. As such they will continue to focus on selecting
stocks whose strong prospects will be crucial in the long term.
The Board continues to support the Portfolio Manager's investment strategy and
believes that it should provide positive returns for the long-term investor.
Annual General Meeting
The Company's fourth Annual General Meeting ("AGM") will again be held at the
offices of Herbert Smith Freehills, Exchange House, Primrose Street, London
EC4A 2EG on Wednesday, 29 May 2019 at 12 noon.
As notified to shareholders last year, this year we have not included paper
forms of proxy to accompany the notice of AGM at the end of this report.
Shareholders can vote online by visiting www.signalshares.com and following
instructions. However, any shareholders who require a hard copy form of proxy
may request one from the registrar, Link Asset Services. Instructions are set
out in the Notice of AGM later in this report.
The AGM provides shareholders with an opportunity to meet the Directors and to
receive a presentation from our Portfolio Manager. I hope as many shareholders
as possible will attend and I look forward to meeting you at that time,
together with my Board colleagues. Any shareholders who are unable to attend or
who wish to discuss any matters with the Board are invited to contact me
through the Company Secretary.
Sir Ian Cheshire
Chairman
1 April 2019
Investment Objective and Policy
Investment Objective
The Company's investment objective is to generate long-term shareholder
returns, predominantly in the form of capital growth, by investing in
businesses and opportunities, delivering or benefitting from the efficient use
of energy and resources irrespective of their size, location or stage of
development.
Whilst the Company pursues an active, non-benchmarked total return strategy,
the Company is cognisant of the positioning of its portfolio against the MSCI
World Total Return Index (in sterling). Accordingly, the Portfolio Manager will
take notice of the returns of that index with a view to outperforming it over
the long term.
Investment Strategy
The implementation of the Company's investment objective has been delegated to
Frostrow Capital LLP ("Frostrow" or the "AIFM") by the Board. Frostrow has, in
turn and jointly with the Company, appointed Menhaden Capital Management LLP as
the Portfolio Manager.
Details of the Portfolio Manager's approach are set out in the Investment
Process section and in their review later in this report.
While the Board's strategy is to allow flexibility in managing the investments,
in order to manage investment risk it has imposed various investment, gearing
and derivative guidelines and limits, within which Frostrow and the Portfolio
Manager are required to manage the investments, as set out below.
Any material changes to the investment objective or policy require approval
from shareholders.
Investment Policy
The Company's investment objective is pursued through constructing a
conviction-driven portfolio consisting primarily of direct listed and unlisted
holdings across asset classes and geographies.
Asset Allocation
The Company invests, either directly or through external funds, in a portfolio
that is comprised of three main allocations:
* listed equity;
* yield assets; and
* special situations.
The flexibility to invest across asset classes affords the Company two main
benefits:
* it enables construction of a portfolio based on an assessment of
market cycles; and
* it enables investment in all opportunities which benefit from the
investment theme.
It is expected that the portfolio will comprise approximately 15 to 30
positions.
Geographic Focus
Although the portfolio is predominantly focused on investments in developed
markets, if opportunities that present an attractive risk and reward profile
are available in emerging markets then these may also be pursued.
While many of the companies forming the portfolio are headquartered in the UK,
USA or Europe, it should be noted that many of those companies are global in
nature, so their reporting currency may not reflect their actual geographic or
currency exposures.
Investment Restrictions
Subject to any applicable investment restrictions contained in the Listing
Rules from time to time, the Portfolio Manager will not make an investment if
it would cause the Company to breach any of the following limits at the point
of investment:
* no more than 20% of the Company's gross assets may be invested,
directly or indirectly through external funds, in the securities of any single
entity; and
* no more than 20% of the Company's gross assets may be invested in a
single external fund.
Hedging
The Company may enter into any hedging or other derivative arrangements which
the Portfolio Manager (within such parameters as are approved by the Board and
the AIFM and in accordance with the Company's investment policy) may from time
to time consider appropriate for the purpose of efficient portfolio management,
and the Company may for this purpose leverage through the use of options,
futures, options on futures, swaps and other synthetic or derivative financial
instruments.
Cash Management
There is no restriction on the amount of cash or cash equivalent instruments
that the Company may hold and there may be times when it is appropriate for the
Company to have a significant cash position instead of being fully or near
fully invested.
Borrowing and Leverage Limits
The Company may incur indebtedness for working capital and investment purposes,
up to a maximum of 20% of the net asset value at the time of incurrence. The
decision on whether to incur indebtedness may be taken by the Portfolio Manager
within such parameters as are approved by the AIFM and the Board from time to
time. There will be no limitations on indebtedness being incurred at the level
of the Company's underlying investments (and measures of indebtedness for these
purposes accordingly exclude debt in place at the underlying investment level).
At the date of this report, the Company had no borrowings.
In addition, under the AIFMD rules, the Company is required to set maximum
leverage limits. Leverage is defined under the AIFMD as any method by which the
total exposure of an AIF is increased. Further explanation is provided in the
Glossary.
During the year under review, the maximum leverage limits were 200% on a gross
basis and 120% on a commitment basis. With effect from 15 February 2019, the
Board and the AIFM decided to raise the commitment limit from 120% to 200% in
order to increase flexibility and allow the Portfolio Manager to take
appropriately sized positions in strategies and instruments designed to protect
shareholders' funds and hedge against market risk where that strategy or
instrument does not meet the strict definition of a hedge under the AIFMD
rules.
The borrowing limit of a maximum of 20% of net asset value remains in place and
this change to the leverage limit will only be utilised by investments designed
to reduce the risk and protect the capital of the Company.
As at 31 December 2018, the Company employed leverage through the use of
foreign currency forwards to partially hedge the Company's US dollar and euro
exposures, resulting in leverage of 128.2% under the gross method and 100.7%
under the commitment method. Further details are shown in the note 14 to the
financial statements.
Other Investment Restrictions
The Company will at all times invest and manage its assets with the objective
of spreading risk and in accordance with its published investment policy.
The Listing Rules currently restrict the Company from investing more than 10%
of its total assets in other listed closed-ended investment funds, save that
this restriction does not apply to investments in closed-ended investment funds
which themselves have published investment policies to invest no more than 15%
of their total assets in other listed closed-ended investment funds. The
Company will comply with this investment restriction (or any variant thereof)
for so long as such restriction remains applicable.
At the date of this report, the Company was not invested in any closed-ended
investment funds.
In the event of any material breach of the investment restrictions applicable
to the Company, shareholders will be informed of the actions to be taken by the
AIFM through an announcement to the Stock Exchange.
Portfolio
Investments held as at 31 December 2018
Investment Country/ Fair Value GBP % of Total Net
region '000 Assets
X-ELIO*1 Spain 15,594 21.5
Safran France 7,159 9.9
Alphabet United States 6,938 9.6
Airbus France 6,858 9.4
Calvin Capital*2 Britain 3,867 5.3
Terraform Power United States 2,879 4.0
Ocean Wilsons Holding Bermuda 2,871 4.0
Canadian Pacific Railway Canada 2,858 3.9
Union Pacific United States 2,821 3.9
Brookfield Renewable Partners Canada 2,612 3.6
Top Ten investments 54,457 75.1
Air Products & Chemicals United States 2,462 3.4
Atlantica Yield Britain 2,372 3.3
TCI Real Estate Partners Fund United States 1,519 2.1
III*
Waste Management, Inc. United States 1,310 1.8
Infigen Energy Australia 1,286 1.8
WCP Growth Fund LP* Britain 947 1.3
Perfin Apollo 12* Brazil 711 1.0
NJS Co Japan 388 0.5
Atlantica Yield 7.00% 15/11/ Britain 159 0.2
2019
Total investments 65,611 90.5
Net Current Assets 6,897 9.5
Total Net assets 72,508 100.0
1 Investment made through Helios Co-Invest L.P.
2 Investment made through KKR Evergreen Co-Invest L.P.
* Unquoted
Investment Business Description Theme
X-ELIO*1 Develops and operates solar energy assets Clean energy
production
Safran Supplies energy efficient systems equipment Sustainable transport
for aerospace, defence & security
Alphabet Parent company of Google which uses 100% Resource and energy
renewable energy efficiency
Airbus Designs and manufactures aircraft with Sustainable transport
fuel-efficient engines
Calvin Capital*2 Invests in utility infrastructure assets Resource and energy
including smart meters efficiency
Terraform Power Operates contracted renewable energy assets Clean energy
production
Ocean Wilsons Operates ports and provides (lower climate Resource and energy
Holding impact) maritime services in Brazil efficiency
Canadian Pacific Owns and operates (fuel-efficient) freight Sustainable transport
Railway railways in Canada and the USA
Union Pacific Provides (fuel-efficient) rail freight Sustainable transport
services in the USA
Brookfield Open-ended fund investing in hydroelectric and Clean energy
Renewable wind facilities production
Partners
Air Products & Sells gases and chemicals which help Resource and energy
Chemicals industries to use energy more efficiently efficiency
Atlantica Yield Owns and manages contracted renewable energy Clean energy
assets production
TCI Real Estate Invests in energy efficient real estate Resource and energy
Partners Fund projects efficiency
III*
Waste Northern American provider of waste management Water and waste
Management, Inc. and environmental services management
Infigen Energy Develops, owns and operates renewable energy Clean energy
generation assets production
WCP Growth Fund Growth capital fund managed by specialist Resource and energy
LP* private equity firm efficiency
Perfin Apollo 12 Builds and operates energy transmissions lines Resource and energy
* in Brazil efficiency
NJS Co Offers environmental, water and sewerage Water and waste
consulting services in Japan management
Portfolio Manager's Review
Investment & Business Review
Menhaden PLC launched in an initial public offering on the main market of the
London Stock Exchange on 31 July 2015. The Company focuses on opportunities
arising from the more efficient use of energy and resources. Menhaden Capital
Management LLP considers all opportunities through a value lens, with the aim
of identifying investments - publicly traded and private - with low downside
risk relative to return, backed by identifiable assets or cash flows, at
attractive valuations.
Performance
During 2018, the Company's NAV per share decreased from 92.1p to 90.6p. This
represents a decline of 1.6% for the year, and compares to a decline in the
MSCI World Index of 3.0%. The Company's share price traded at a 26.1% discount
to NAV as at 31 December 2018. The contribution to the 1.6% NAV per share
decline over the period is summarised below:
Asset Category 31 December Contribution
2018 %
NAV %
Quoted Equities 48.2 (1.5)
Private Investments 29.1 4.6
Yield Investments 13.2 (1.1)
Liquidity 10.6 -
Foreign exchange forwards (1.1) (1.5)
Gross return
Expenses - (2.1)
Net Assets 100.0% (1.6)
There is no doubt that 2018 was a difficult year for investors, with all major
asset classes producing negative returns for the year. Equity markets were
characterised by dramatic and sometimes seemingly irrational share price moves.
Whilst we are disappointed that our portfolio produced a negative return for
the year, we note that our portfolio outperformed on a relative basis in these
down markets. Our relentless focus on companies offering predictable financial
performance and value, combined with a significant weighting to cash
(approximately 10% throughout the year), served us well in 2018.
Quoted Equity
The quoted equity portfolio's contribution to the decline was -1.5% for the
year and as at 31 December 2018 accounted for 48.2% of the portfolio. We
continued to rotate our quoted equities portfolio towards conviction holdings
in established businesses with strong competitive positioning and highly
predictable and stable cash flows. Our quoted equities portfolio outperformed
the MSCI World Index (sterling) by 1.5% for the year. Our core holdings in Air
Products, Airbus, Alphabet, Ocean Wilsons Holdings and Safran all ended the
year in positive territory.
Safran was the stand-out performer in our public equities portfolio for the
year, gaining 25.4% and adding 2.0% to our NAV. Safran manufactures aviation
engines that are approximately 15% more fuel efficient than the industry
standard. The company reported excellent results for the year to date
delivering organic growth of 10.5% for the first nine months of this year over
the same period last year. It is on track to deliver 1,100 LEAP engines for
2018 with transition costs from CFM 56 to LEAP running better than
expectations. At its Capital Market Day in November, the company published
solid medium-term targets with group revenues expected to grow at mid-single
digits organically and margins to be in the range of 16-18% over 2018-22
estimates. Management expects to return c.75% of cumulative free cash flow to
shareholders over the medium term, with c.50% through dividends and a further
c.25% through buybacks.
During January we added Alphabet, parent company of Google, to the portfolio.
Google is the world's largest buyer of electricity generated from renewable
sources: 2,600 megawatts, which represents 100% of the electricity used by the
company. We like businesses with strong market positions, and Google has a very
strong position globally in search, with that position being strengthened
significantly over time as more and more people switch to mobile, which favours
Google. The company is highly cash generative, with an expected free cash flow
conversion of around half of EBITDA during the next five years. Google's share
price has lagged its technology peers in recent months, and offers good value
at these levels, in our view.
We decided to sell our position in transport provider First Group in February,
having decided that the group no longer presents an attractive risk to reward
ratio due to its poor competitive positioning and highly levered balance sheet.
In April we added Ocean Wilsons Holding to the portfolio. The company controls
Brazilian port terminal operator Wilson Sons, which has an asset base with high
barriers to entry and substantial operating leverage to growth in Brazil's
international trade shipping sector. On a per unit basis, shipping has the
lowest climate impact of any freight method, producing between 10-40 grams of
CO2 per metric ton of freight per km of transportation, which is around half
that even of rail freight. Currently Ocean Wilsons Holding is trading at a
material discount to its peers, on a forward EV/EBITDA of less than 7x, in
comparison to peers which trade on average at around 10x, and a recent large
transaction which took place at more than 14x. Ocean Wilsons Holding enables us
to obtain exposure to Wilson Sons at a discount of around 30%, which offers us
a markedly asymmetric risk-reward profile whilst providing a dividend yield of
circa 5%. Although the shares surged 25% in July following an announcement that
the Board of Wilson Sons was initiating a strategic review to consider how best
to unlock value from within the group, the share price sharply reverted
following Q2 results. We expect to hear the conclusion of the strategic review
in 2019.
We sold our position in Volkswagen during May, crystallising a total return of
circa GBP2 million. Initially, we took the decision to redeploy the proceeds into
Porsche Holdings, which offers exposure to Volkswagen (of which Porsche is the
holding company) at a significant discount. However, Porsche declined sharply
in the days after this redeployment and we took the decision quickly to cut our
losses (0.7% of the NAV) and sell the position entirely. Whilst we believe that
Volkswagen is well placed to take a leading position in the global market for
electric vehicles we have begun to question the attractiveness of the broader
automotive industry at what is, in our view, an increasingly late stage of the
global economic cycle.
In June we initiated positions in Union Pacific and Canadian Pacific Railways.
Rail is substantially the most fuel efficient onshore form of freight
transportation. Both of these rail freight leaders benefit from tangible
barriers to entry and are positioned to benefit from both volume and pricing
growth, helped by the current capacity constraints in the trucking sector.
Canadian Pacific has emerged from a significant turnaround between 2012 and
2016 through the implementation of precision scheduled railroading (PSR). As
such, the company continues to drive growth on the back of market share gains
from rail peer Canadian National, as well as the trucking market, with
significant opportunities identified for the next two years. Union Pacific on
the other hand is at the beginning of this journey with the ongoing
implementation of PSR under its Unified Plan 2020. The productivity gains were
already apparent in its strong Q4 2018 results, and we believe the appointment
of the new COO, Jim Vena from Canadian National, gives further credibility to
the company's strategy to unlock major efficiency gains.
In June we also sold our position in Adient, which makes lightweight seating
and other automotive parts, following successive profit warnings and continuing
operational challenges at the company. The last straw for us was the departure
of the CEO/Chairman ahead of the company's fiscal Q3 2018 results. In addition,
our cautious outlook for the automotive industry given the escalating trade-war
as well as the increasingly late stage of the economic cycle, significantly
undermined our conviction of upside value in Adient over the medium term.
We sold our position in poorly performing European wind turbine manufacturer
Senvion during the summer, following a period of poor financial performance
which can be blamed in part on industry-related factors, and particularly
ongoing cost deflation and consequent pressure on margins. However, the
replacement of the CEO with the CFO brought additional uncertainty at an
already challenging time.
Australian wind power developer and operator Infigen was the worst performer in
the portfolio for the year, declining by 48.8%, which cost us 1.7% of NAV. The
significant decline of the Australian dollar, combined with continued
uncertainty around renewables policy in Australia, were factors underlying the
poor share price performance of Infigen. We continue to closely monitor
developments affecting the renewable energy market in Australia, and the
progress of the development of Infigen's substantial pipeline of new assets.
We added Waste Management to the portfolio in October, as a way to gain
exposure to growth in the waste sector. The North American provider of waste
management services is highly concentrated geographically, being the largest
player in the US operating across 48 states, with a dominant market share of
20%. In addition, Waste Management benefits from stable volumes and pricing
power owing to its ownership of landfill sites. In our view the group offers an
appealing combination of predictable free cash flow generation, solid
competitive position and a shareholder friendly management team.
Whilst Airbus shares performed well during the first nine months of the year,
this positive performance was mostly reversed in the fourth quarter with the
shares ending the year only marginally higher. Operationally, Airbus made
notable progress and managed to fulfil its revised pledge to deliver 800
aircraft in 2018. The group will cease production on the loss-making A380
programme in 2021 and is now aiming to produce 63 aircraft per month as part of
its A320 program in the same year. The new A320neo aircraft are expected to
deliver up to 20% fuel efficiency savings, which will be key in helping the
airline industry achieve its goal of carbon neutral growth after 2020. Finally,
Airbus also announced the internal appointment of French engineer, Guillaume
Faury, as its new CEO and Dominik Asam, formerly of Infineon Technologies, as
its new CFO, both effective from April 2019.
Yield Investments
Our portfolio of yield investments represented 13.2% of our total NAV at the
end of June, and declined by 7.8% during the period, costing us 1.1% of our
NAV.
During March we decided to commit US $15 million to the TCI Real Estate
Partners Fund III ("TCI"). TCI is an investment firm headquartered in London
with US$26 billion under management. The founder, Chris Hohn, has passed the
majority of his wealth to a children and climate change-focused foundation
named the Children's Investment Fund Foundation (CIFF), a UK charity. Whilst
TCI has focused on global equities, the firm created a credit strategy in 2009
for CIFF. This strategy provides asset-backed loans to prime real estate
development projects that are best in class in terms of energy efficiency and
environmental standards. The strategy has generated returns of circa 11%
annually since inception. Due to the success of the strategy, TCI invited a
limited number of investors to participate alongside CIFF in the new fund.
There is no management fee on the fund and investors will pay a carried
interest of 20% over a hurdle of 6%. The fund has an expected life of 5-7
years.
In June we decided to exit our positions in Brazilian water utilities Copasa,
Sanepar and Sabesp, given the heightened political uncertainty in Brazil ahead
of the elections in October, as well as weakening of the currency as the
Brazilian real hit a 2-year low in June.
Brookfield Renewable Energy suffered a share price decline of 16.9% during the
year, costing us 0.7% of our NAV. After a strong 2017, when the shares rose
14.2%, the share price was initially hurt by rising US Treasury yields, along
with other yield plays. However, the continued weakness through the year
perplexed us. We continue to view Brookfield as both a best in class operator
and allocator of capital, which possesses a portfolio of advantaged renewable
power assets. With the current organic development pipeline and contract
escalators underpinning both cash flow and distribution growth, we continue to
see a bright future ahead for the group.
Private investments
We successfully sold our interest in the Alpina Fund during July. This sale
brought us cash proceeds of around GBP2.3 million, in addition to the circa GBP1.6
million received during June from the sale of portfolio company Dolan.
Moreover, the sale of this position releases us from the remaining drawdown
commitment to the Alpina Fund of circa GBP2.3 million.
Our holding in private solar developer and operator X-ELIO was marked up by
25.2% during the year, adding 4.3% to our NAV. X-ELIO successfully completed
the sale of a 186MW portfolio of operating and under-construction solar assets
in Japan to the Development Bank of Japan and Tokyu Land. The enterprise value
of the deal was $720 million, and the equity proceeds to X-ELIO (net of all
transaction expenses) was US$241 million. X-ELIO plans on retaining the sale
proceeds in the company to fund the construction of its secured tariff pipeline
of projects in Mexico, Spain and Japan. X-ELIO's remaining operating solar
assets have continued to perform strongly, and the company has made significant
progress in its development pipeline during the year.
Our other private co-investment with KKR's infrastructure team, Calvin Capital,
the UK's market-leading domestic energy metering company, was also written up
during the year, by 3.8%, adding 0.2% to our NAV. Calvin's portfolio of meters
has increased substantially during the year, and the proportion of Calvin's
total portfolio represented by new 'smart' meters is now more than half for the
first time. The financial out-performance against the original plan has been
driven largely by increased compensation for old-fashioned 'dumb' meters (such
as termination payments), good cost management by Calvin's management team, and
some efficiency programs. Moreover, Calvin has secured its first overseas
contract in Australia. At the end of the year, we received our first dividend
from Calvin of GBP142,000.
Outlook
As we exit 2018 we are happy with the overall quality of our portfolio. We now
own a number of competitively positioned businesses, which benefit from real
barriers to entry and which can deliver material earnings growth in the coming
years. Moreover, with the sale of our interest in the Alpina Fund, our exposure
to legacy private equity fund positions now represents less than 1% of the
portfolio and our remaining portfolio of private investments are all alongside
top tier operators, with whom we are co-invested on a fee-free basis, and
backed by assets with predictable cash-flows.
However, we are mindful that the global economy appears to have entered a
period of at least slowing economic growth, which could pose a prolonged
headwind for both equity and credit markets at a time of escalated corporate
leverage.
We intend to continue focusing on what we can control. That means preserving
our capital and deploying it into opportunities which offer the best balance
between risk and reward across asset classes. In our view this is the path to
superior and sustainable investment performance.
Menhaden Capital Management LLP
Portfolio Manager
1 April 2019
Investment Committee
Menhaden Capital Management LLP has been appointed as the Company's Portfolio
Manager. The Portfolio Manager's Investment Committee makes all investment and
disinvestment decisions in respect of the Company.
Graham Thomas
Graham Thomas is the non-executive chairman of the Investment Committee. Before
founding Menhaden Capital Management LLP with Ben Goldsmith, Graham chaired the
Executive Committee of RIT Capital Partners plc. Prior to this, Graham was the
head of the Standard Bank Group's US$3 billion Principal Investment Management
division, which was established in 2008 under his leadership. He joined
Standard Bank from MidOcean Partners in London, where he was a founding
partner. Before MidOcean Partners, he was an Executive Director in the
Investment Banking division of Goldman Sachs & Co.
Graham is currently CEO of private equity firm, Stage Capital, and on the
investment committee of Apis Partners. He is a Rhodes Scholar with degrees from
Oxford and the University of Cape Town.
Ben Goldsmith
Ben is the Chief Executive Officer of Menhaden Capital Management LLP. Before
co-founding Menhaden Capital Management LLP, Ben co-founded the WHEB group, one
of Europe's leading energy and resource-focused fund investment businesses. Ben
is a director of Cavamont Holdings, the Goldsmith family's investment holding
vehicle. Ben also chairs the UK Conservative Environment Network, a group which
has a preference for decentralised, market-orientated solutions to
environmental and resource issues. In March 2018, Ben was appointed as a
non-executive director of the Department for Environment, Food and Rural
Affairs.
Luciano Suana
Luciano is an investment manager at Menhaden Capital Management LLP. Before
joining Menhaden Capital Management LLP, Luciano was a Director of Barclays
Capital in the Capital Markets division where he ran the credit trading
operations for Brazil out of São Paulo. Before Barclays, Luciano was a Director
of Dresdner Kleinwort in London. There he focused mainly on Infrastructure,
Utilities and Real Estate assets as head of the Illiquids Credit group.
Luciano holds a Licenciatura in business administration from Universitat
Autònoma de Barcelona and was granted the Premio Extraordinario de Fin de
Carrera for outstanding academic performance.
Investment Process
Investment Process
The portfolio management team, which has day to day responsibility for managing
the portfolio, is led by Luciano Suana, and comprises Ben Goldsmith, Edward
Pybus and Jessica Kaur.
The portfolio management team presents investment opportunities to the
Investment Committee, which is chaired by Graham Thomas.
Thematically, the team seeks to invest in opportunities, publicly traded or
private, which either deliver or benefit from the more efficient use of energy
and resources. All investment opportunities are assessed through a value lens,
with the aim of acquiring investments with low downside risk, backed by
identifiable assets and cash flows, at attractive valuations. The team seeks to
invest with a long-term perspective, and with high conviction. Consequently,
the portfolio comprises around 20 positions and the team aims for portfolio
turnover to be low.
When identifying suitable investment opportunities, the portfolio management
team is cognisant of the UK Stewardship Code and the UN Principles of
Responsible Investment.
Investment Committee
The Investment Committee meets weekly in order to consider the investment
opportunities presented by the portfolio management team. All investment
decisions must be made with the unanimous consent of all members of the
Investment Committee unless one of the members has a potential conflict of
interest, in which case that member will excuse himself from that particular
decision.
Strategic Advisory Group
The Investment Committee is supplemented by a Strategic Advisory Group, which
assists the Committee in implementing the Company's investment objective and
policy. The Strategic Advisory Group does not have a formal mandate or
responsibilities, but meets with the Investment Committee from time to time to
discuss the macroeconomic environment, factors affecting the broad investment
theme of the Company, market conditions and portfolio construction.
Investment Network
The portfolio management team has access to a proprietary investment network,
which includes a group of investment managers of external funds and, from time
to time, external experts and advisers. The portfolio management team believe
that this is of benefit to the investment process and helps to source
opportunities that they believe would not otherwise be available to the
Company.
Business Review
The Strategic Report has been prepared solely to provide information to
shareholders to assess how the Directors have performed their duty to promote
the success of the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are listed
on the premium segment of the Official List and traded on the main market of
the London Stock Exchange.
The Company is an Alternative Investment Fund ("AIF") under the European
Union's Alternative Investment Fund Managers Directive ("AIFMD") and has
appointed Frostrow Capital LLP as its Alternative Investment Fund Manager
("AIFM").
As an externally managed investment trust, all of the Company's day-to-day
management and administrative functions are outsourced to service providers. As
a result, the Company has no executive directors, employees or internal
operations.
The Board
Details of the Board of Directors of the Company are set out below.
All Directors will seek re-election by shareholders at the Annual General
Meeting to be held on 29 May 2019.
Board Focus and Responsibilities
With the day-to-day management of the Company outsourced to service providers,
the Board's primary focus at each Board meeting is reviewing the investment
performance and associated matters such as future outlook and strategy,
gearing, asset allocation, investor relations, marketing and industry issues.
In line with its primary focus, the Board retains responsibility for all the
key elements of the Company's strategy and business model, including:
* continuous review of the investment objective and policy,
incorporating the investment guidelines and limits;
* review of the maximum levels of gearing and leverage the Company may
employ;
* review of performance against the Company's KPIs and peer group;
* review of the performance and continuing appointment of service
providers; and
* maintenance of an effective system of oversight, risk management and
corporate governance.
The investment objective and policy, including the related limits and
guidelines, are set out at the outset of this report, along with the details of
the leverage and gearing levels allowed.
Details of the principal KPIs and further information on the principal service
providers, their performance and continuing appointment, along with details of
the principal risks and how they are managed, follow within this Business
Review.
The Corporate Governance Statement includes a statement of compliance with
corporate governance codes and best practice. The Audit Committee Report
contains an outline of the internal control and risk management framework
within which the Board operates.
Key Performance Indicators ("KPIs")
The Board monitors the following KPIs, details of which can be found in the
Company Performance section:
* Net asset value ("NAV") per share total return;
* Share price total return;
* Discount/premium of share price to NAV per share;
* Ongoing charges ratio; and
* Performance against the MSCI World Total Return Index (in sterling)
and the Company's peer group.
Please refer to the Glossary beginning for definitions of these terms and an
explanation of how they are calculated.
NAV per share total return
The Directors regard the Company's NAV per share total return as being the
overall measure of value delivered to shareholders over the long-term. This
reflects both the net asset value growth of the Company and any dividends paid
to shareholders.
Share price total return
The Directors regard the Company's share price total return to be a key
indicator of performance and monitor this closely. This reflects the return to
the investor on mid-market prices, assuming any dividends paid are reinvested.
Share price discount/premium to NAV per share
The share price discount/premium to NAV per share is considered a key indicator
of performance as it impacts the share price total return and can provide an
indication of how investors view the Company's performance and its investment
objective.
Ongoing charges ratio
The Board is conscious of expenses and aims to ensure there is a balance
between good quality services and costs.
The ongoing charge ratio reflects the costs incurred directly by the Company
and is calculated in accordance with the AIC guidance on ongoing charges.
MSCI World Total Return Index
Whilst the Company pursues an active, non-benchmarked total return strategy,
the Board considers the NAV per share total return performance against the MSCI
World Total Return Index measured on a net total return, sterling-adjusted
basis.
The Board also monitors the Company's NAV return against its peer group and
other relevant indices such as the Wilderhill New Energy Global Innovation
Index (in sterling) and the AIC Environmental Sector. Details are given in the
Chairman's Statement.
A full description of performance during the year under review and the
portfolio is contained in the Portfolio Manager's Review.
Principal Service Providers
The principal service providers to the Company are Frostrow Capital LLP
("Frostrow" or the "AIFM"), Menhaden Capital Management LLP ("MCM" or the
"Portfolio Manager") and J.P. Morgan Europe Limited (the "Depositary"). Details
of their key responsibilities and their contractual arrangements with the
Company follow.
AIFM
The Board has appointed Frostrow as the designated AIFM for the Company on the
terms and subject to the conditions of the alternative investment fund
management agreement between the Company and Frostrow (the "AIFM Agreement").
The AIFM Agreement assigns to Frostrow overall responsibility to manage the
Company, subject to the supervision, review and control of the Board, and
ensures that the relationship between the Company and Frostrow is compliant
with the requirements of the AIFMD. Frostrow, under the terms of the AIFM
Agreement provides, inter alia, the following services:
* risk management services;
* marketing and shareholder services;
* administrative and secretarial services;
* advice and guidance in respect of corporate governance requirements;
* maintenance of the Company's accounting records;
* preparation and dispatch of the annual and half yearly reports and
monthly factsheets; and
* ensuring compliance with applicable tax, legal and regulatory
requirements.
The notice period on the AIFM Agreement is six months and termination can be
initiated by either party.
AIFM Fee
Under the terms of the AIFM Agreement, Frostrow receives a periodic fee equal
to 0.225% per annum of the Company's net assets up to GBP150 million, 0.220% per
annum of the net assets in excess of GBP150 million and up to GBP500 million, and
0.175% per annum of the net assets in excess of GBP500 million.
Portfolio Manager
MCM is responsible for the management of the Company's portfolio of investments
under a delegation agreement between MCM, the Company and Frostrow (the
"Portfolio Management Agreement"). Under the terms of the Portfolio Management
Agreement, MCM provides, inter alia, the following services:
* seeking out and evaluating investment opportunities;
* recommending the manner by which cash should be invested, divested,
retained or realised;
* advising on how rights conferred by the investments should be
exercised;
* analysing the performance of investments made; and
* advising the Company in relation to trends, market movements and
other matters which may affect the investment objective and policy of the
Company.
Portfolio Management Fee
MCM receives a periodic fee equal to 1.25% of the Company's net assets up to GBP
150 million and 1.00% of the Company's net assets in excess of GBP150 million.
Performance Fee
Dependent on the level of the long-term performance of the Company, MCM is
entitled to a performance fee.
In respect of a given three year performance period, a performance fee may be
payable equal to 10% of the amount, if any, by which the Company's adjusted NAV
at the end of that performance period exceeds the higher of (a) a compounding
hurdle on the gross proceeds of the IPO of 5% per annum; and (b) a high
watermark*. The performance fee is subject to a cap in each performance period
of an amount equal to the aggregate of 1.5% of the weighted average NAV in each
year (or part year, as applicable) of that performance period.
*see Glossary for further details
Depositary
The Company has appointed J.P. Morgan Europe Limited as its Depositary in
accordance with the AIFMD on the terms and subject to the conditions of an
agreement between the Company, Frostrow and the Depositary (the "Depositary
Agreement"). The Depositary provides the following services, inter alia, under
its agreement with the Company:
* safekeeping and custody of the Company's custodial investments and
cash;
* processing of transactions; and
* foreign exchange services.
The Depositary must take reasonable care to ensure that the Company is managed
in accordance with the Financial Conduct Authority's Investment Funds
Sourcebook, the AIFMD and the Company's Articles of Association.
Under the terms of the Depositary Agreement, the Depositary is entitled to
receive an annual fee of the higher of GBP40,000 or 0.175% of the net assets of
the Company up to GBP150 million, 0.15% of the net assets in excess of GBP150
million and up to GBP300 million, 0.1% of the net assets in excess of GBP300
million and up to GBP500 million and 0.05% of the net assets in excess of GBP500
million. In addition, the Depositary is entitled to a variable custody fee
which depends on the type and location of the custodial assets of the Company.
The Depositary has delegated the custody and safekeeping of the Company's
assets to JPMorgan Chase Bank N.A., London branch (the "Custodian").
The notice period on the Depositary Agreement is 90 days if terminated by the
Company and 120 days if terminated by the Depositary.
Evaluation of the AIFM and the Portfolio Manager
The performance of the AIFM and the Portfolio Manager is reviewed continuously
by the Board and the Company's Management Engagement Committee (the "MEC") with
a formal evaluation process being undertaken each year. As part of this
process, the Board monitors the services provided by the AIFM and the Portfolio
Manager and receives regular reports from them. The MEC reviewed the
appropriateness of the appointment of the AIFM and the Portfolio Manager in
November 2018 with a recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager, under the terms described above, is in the interests of shareholders
as a whole. In coming to this decision, the MEC and the Board took into
consideration, inter alia, the following:
* the quality of the service provided and the quality and depth of
experience of the company management, company secretarial, administrative and
marketing team that the AIFM allocates to the management of the Company; and
* the quality of service provided by the Portfolio Manager to the
management of the portfolio; and the level of performance in the portfolio in
absolute terms and by reference to the MSCI World Total Return Index and other
relevant indices.
Principal Risks and Uncertainties
In fulfilling its oversight and risk management responsibilities the Board
maintains a framework of key risks which affect the Company and the related
internal controls designed to enable the Directors to manage/mitigate these
risks as appropriate. The Directors have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity.
The principal risks can be categorised under the following broad headings:
* investment risk;
* financial risk;
* operational risks (including accounting, cyber security, compliance
and regulatory risks); and
* shareholder relations and share price performance risk.
Further information on the internal controls and the risk management framework
can be found below. The following sections detail the risks the Board considers
to be the most significant to the Company under these headings.
Investment Risk
The Board recognises that investment risk is the most significant risk to which
the Company is exposed through investing in quoted and unquoted securities,
both in the UK and overseas. As a result, it is exposed to the risk of changes
in asset prices and foreign exchange rates. Investment risk is comprised of two
main aspects: market risk and concentration risk.
Market risk is the risk that the value of investments will change due to the
overall performance of financial markets or macro-economic factors. It cannot
be eliminated through diversification, though it can be potentially reduced
through hedging. The Company's policy on hedging is set out in the Investment
Policy section.
Concentration risk is the risk that the value of an investment or a small
number of similar investments changes due to factors specific to them or the
sector in which they operate. This type of risk can be reduced through
diversification of the portfolio. The Board have set diversification
requirements relating to both individual investments and asset allocation,
within which the investment portfolio is managed, but investors should be aware
that the Company expects to invest in a relatively concentrated portfolio of
securities. The Company is therefore exposed to the potentially higher
volatility arising from a concentrated portfolio and risks specific to the
sectors in which it invests, such as global energy and commodity prices or
withdrawal of government subsidies for renewable energy.
To manage investment risk the Board has appointed the AIFM and the Portfolio
Manager to manage the Company within the remit of the investment objective and
policy. Compliance with the investment objective and policy is monitored daily
by the AIFM and reported to the Board on a monthly basis.
Regular reports are received from the AIFM and the Portfolio Manager on stock
selection and asset allocation, and they report at each Board meeting on the
portfolio and performance of the Company, including the rationale for stock
selection decisions, the make-up of the portfolio, potential new holdings and
the investment strategy.
Financial Risk
In addition to market and concentration risk, discussed above, the Company is
exposed to credit risk arising from the use of counterparties. If a
counterparty were to fail, the Company could be adversely affected through
either delay in settlement or loss of assets.
The most significant counterparty to which the Company is exposed is J.P.
Morgan Europe Limited, the Depositary, which is responsible for the safekeeping
of the Company's custodial assets.
Credit risk is managed by the Board through:
* reviewing the arrangements with, and services provided by, the
Depositary to ensure that the security of the Company's custodial assets is
being maintained;
* reviewing the Portfolio Manager's approved list of counterparties,
the Company's use of those counterparties and the process for monitoring and
adding to the approved counterparty list; and
* monitoring of counterparties, including reviewing their internal
control reports and credit ratings, as appropriate.
Further information on the use of financial instruments and their risks,
including credit risk, can be found in note 14 to the Financial Statements.
Details of the work undertaken in regard to verifying ownership and the
valuation of unquoted (non-custodial) assets is set out in the Audit Committee
Report.
Operational Risk
The Company is an externally managed investment trust and as such has no
employees or systems of its own. The Company is therefore dependent on its
service providers, particularly the AIFM and the Portfolio Manager. It is
exposed to the risk associated with the departure of a key member of the AIFM
or Portfolio Manager, for whom there could be no guarantee of a suitable
replacement being found, and a disruption to, or a failure of, its service
providers' systems, which could lead to a failure to comply with applicable law
and regulations resulting in reputational damage and/or financial loss to the
Company.
To manage these risks the Board:
* monitors on a regular basis the performance of the AIFM and the
Portfolio Manager, including developments within their teams;
* receives a monthly compliance report from Frostrow, which includes,
inter alia, details of compliance with applicable laws and regulations;
* reviews internal control reports and key policies, including measures
taken to mitigate cyber risks and the disaster recovery procedures of its
service providers;
* maintains a risk matrix with details of risks to which the Company is
exposed, the controls relied on to manage those risks and the frequency of the
controls operation; and
* receives updates on pending changes to the regulatory and legal
environment and progress towards the Company's compliance with such changes.
The Board has considered whether the UK's exit from the European Union
('Brexit') poses a discrete risk to the Company. While movements in exchange
rates can affect the Company's net asset value, and sharp or unexpected changes
in investor sentiment, or tax and regulatory changes, can lead to short term
selling pressure on the Company's shares, the Board believes that Brexit is
unlikely to affect the Company's business model or whether the Company's shares
trade at a premium or discount to the net asset value per share over the longer
term. However, Brexit may have an adverse impact on some of the Company's
portfolio companies which have an exposure to the UK and/or European markets,
both in terms of their operations and the manner in which their distributions
are treated for tax purposes. The Board, the AIFM and the Portfolio Manager
will continue to monitor developments as they occur.
Shareholder Relations and Share Price Performance Risk
The Company is also exposed to the risk, particularly if the investment
strategy and approach are unsuccessful, that the Company may underperform
resulting in the Company becoming unattractive to investors and a widening of
the share price discount to NAV per share.
In managing this risk the Board:
* reviews the Company's investment objective in relation to the market,
economic conditions and the operation of the Company's peers;
* discusses at each Board meeting the Company's future development and
strategy;
* reviews an analysis of the shareholder register and reports from the
Company's corporate stockbroker at each Board meeting; and
* actively seeks to promote the Company to current and potential
investors.
Company promotional activities have been delegated to Frostrow, who report to
the Board, on a quarterly basis, on these activities.
Viability Statement
The Directors have carefully assessed the Company's current position and
prospects as described in the Chairman's Statement and the Portfolio Manager's
Review, as well as the Principal Risks and Uncertainties and have formed a
reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next five financial years.
The particular factors the Directors have considered in assessing the prospects
of the Company, its ability to liquidate its portfolio, and in selecting a
suitable period for this assessment are as follows:
* the Board and the Portfolio Manager will continue to adopt a
long-term view when making investments. When making a new investment the
anticipated holding period can be five years or more.
* the portfolio includes investments traded on major international
stock exchanges and there is a spread of investments by size of company. It is
estimated that approximately 45% of the portfolio could be liquidated, in
normal market conditions, within seven trading days;
* the Company's expenses are predictable and modest in comparison with
the assets and there are no capital commitments foreseen which would alter that
position;
* the Company has no employees, only non-executive Directors, and
consequently does not have employment related liabilities or responsibilities;
and
* the Company will offer its shareholders a continuation vote at the
AGM in 2020.
The Company is intended to operate over the long-term; however due to the
limitations and uncertainties inherent in predicting market conditions the
Directors have determined that five years is the longest period for which it is
reasonable to make this assessment.
In carrying out their assessment, the Directors made the following assumptions:
* investors will wish to continue to have exposure to the type of
companies that the Company invests in, namely those companies that deliver or
benefit from the efficient use of energy and resources;
* the performance of the Company will be satisfactory;
* the threats to the Company's solvency or liquidity incorporated in
the Principal Risks will be managed or mitigated; and
* the majority of shareholders will vote in favour of the continuation
of the Company in 2020.
Based on the results of this review, the Directors have formed a reasonable
expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the next five financial years.
Company Promotion
The aim of the Company's promotional activities is to encourage demand for the
Company's shares. The Company has appointed Frostrow to provide marketing
services in the belief that a well-marketed company is more likely to grow over
time, is more likely to have a diverse and stable shareholder register and be
more likely to trade at a superior rating to its peers.
Frostrow looks to promote the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers
and a range of execution-only platforms:
Frostrow regularly meets with institutional investors, discretionary wealth
managers and execution-only platform providers;
Making Company information more accessible:
Frostrow works to raise the profile of the Company by targeting key groups
within the investment community, holding annual investment seminars, overseeing
PR output and managing the Company's website and wider digital offering,
including webcasts and social media. Frostrow also manages the investor
database and produces all key corporate documents, distributes monthly
factsheets, annual reports and updates from the Portfolio Manager on portfolio
and market developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders:
Frostrow maintains regular contact with sector broker analysts and other
research and data providers, and provides the Board with up-to-date and
accurate information on the latest shareholder and market developments.
In addition the Board has appointed Kepler Partners LLP to produce and
distribute market research on the Company.
Board Diversity
The Board strongly supports the principle of boardroom diversity, of which
gender is one important aspect, and the recommendations of Lord Davies' review.
The Board's aim is to have a broad range of approaches, backgrounds, skills and
experience represented on the Board and to make appointments on merit against
objective criteria, including diversity. The Board currently comprises one
woman and three men, meeting Lord Davies' original recommendation.
Social, Human Rights and Environmental Matters
The Company is an externally-managed investment trust within the AIC
Environmental Sector and invests in companies and markets which deliver or
benefit from the more efficient use of energy or resources. It does not have
any employees or premises, nor does it undertake any manufacturing or other
operations. All its functions are outsourced to third party service providers
and therefore the Company does not have any employee or direct human rights
issues, nor does it have any direct, material environmental impact.
As an investment company, the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the Company
falls outside the scope of the Modern Slavery Act 2015. The Company's suppliers
are typically professional advisers and the Company's supply chains are
considered to be low risk in this regard.
The Board believes that the integration of financially material environmental,
social and governance ("ESG") issues into investment decision-making can reduce
risk and enhance returns. In addition, the on-going engagement and dialogue
with investee companies, including through proxy voting, are key parts of an
asset stewardship role. Accordingly, the Directors encourage the Portfolio
Manager to ensure the Company's investments adhere to best practice in the
management of ESG issues, and encourage them to have due regard to the UN
Global Compact and UN Principles of Responsible Investment. The Portfolio
Manager's statement of compliance with the Financial Reporting Council UK
Stewardship Code is available at www.frc.org.uk. The Board has reviewed this
statement as well as the proxy voting decisions made on the Company's behalf.
The Company produces an annual impact report setting out the environmental
purpose of the Company and the impact it has, or intends to deliver. The report
is included within this Annual Report and is published as a separate document
on www.menhaden.com.
Performance and Future Developments
An outline of performance, investment activity and strategy, market background
during the year and the future outlook, is provided in the Chairman's Statement
and the Portfolio Manager's Review.
The Portfolio Manager believes that companies that supply products and services
that help to conserve scarce resources, reduce negative environmental impacts
and improve resource efficiency are likely to enjoy faster growing end markets.
The Directors continue to believe that environmental and resource-efficiency
solutions together with the Portfolio Manager's investment strategy should
provide good returns for the long-term investor.
It is expected that the Company's strategy will remain unchanged in the coming
year.
A continuation vote will be put to shareholders at the AGM to be held in 2020
and every five years thereafter.
This Strategic Report has been signed for and on behalf of the Board.
Sir Ian Cheshire
Chairman
1 April 2019
Impact Report
A Resource Efficient Route to Returns
As a publicly-listed investment trust, Menhaden's core aim is to generate
long-term profits for shareholders. To achieve this, the Company looks to
invest in high quality and predictable businesses which can deliver sustainable
returns.
The Portfolio Manager uses a fundamental, research-oriented approach to
identify potential investee companies. Their investment process includes an
assessment of resource efficiency. This covers topics such as product
re-design, reducing raw/waste materials and emissions, product re-cycling,
re-use, or re-purposing, and the extent of environmental disclosures and
reporting. This approach helps Menhaden make a positive impact on society and
the environment.
As part of this approach the Board strongly believes that the communication of
the environmental metrics of the portfolio, alongside the Company's financial
performance is of significant value to the shareholders. That is why in this
Impact Report Menhaden has attempted to quantify and report on, to the extent
possible, the positive impacts of its portfolio. This is the third year in
which Menhaden has reported on impact and this report reflects this three-year
period as well as for 2018.
A Thematic Portfolio
The Portfolio Manager has consistently organised the Company's portfolio around
four investment themes: i) clean energy production; ii) sustainable transport;
iii) resource and energy efficiency; and iv) water and waste management.
Clean energy
A total of six clean energy companies generated approximately 54,000 MWh of
electricity in 2018. These include investments such as X-ELIO, a global leader
in renewable energy, whose total clean energy generation increased by 30% on
the previous year.
Sustainable transport
The additions of rail firms to the sustainable transport holdings has
contributed to a significant increase in total fuel savings and emissions avoided, compared to other forms of transport. Over five million litres of fuel have been saved this year by the three holdings in this theme. Resource and energy efficiency This theme covers a wide range of companies that have created energy efficiencies or emission reductions through their products or services. One of Menhaden's new allocations in 2018 was Ocean Wilsons Holdings, a company with a strong set of initiatives to reduce internal water consumption. Waste & water management Two companies were added in this theme in 2018. These were US-based Waste Management and NJS, a small Japanese engineering consulting firm. Through its business activities Waste Management diverted nearly 14 million tonnes of waste from landfill. The company has reported a total 54 million tonnes of avoided CO2e from recycling materials and converting waste-to-energy. Our Impact in 2018 Each year Menhaden estimates the total greenhouse gas emissions, water and waste levels saved through its investee firms. The assessment is made across the scope of Menhaden's listed portfolio companies and including its biggest private holding X-ELIO. All calculations are based on the proportion that Menhaden holds of each entity as of 31 December 2018 and is based on best estimates using publicly disclosed data. A full account of the methodology is available in the technical annex online. Menhaden's share of its portfolio holdings in 20181 helped generate over 54,000 MWh of clean electricity, equivalent to powering over 14,000 houses for a year and helped avoid over 40,000 tonnes of greenhouse gases being emitted to the atmosphere - equivalent to taking 27,000 cars off the road. (1 Does not include NJS for whom limited sustainability data was available. For a full explanation of our impact methodology please see Appendix www.menhaden.com.) Impact reporting is an evolving practice and the Company acknowledges that some of the methods and data expressed here tell only a partial picture. The Company recognises that some of our holdings, by the nature of their business, do intrinsically have some negative environmental impacts too. However, we hope that this data demonstrates that investing in companies and projects that take environmental, social and governance (ESG) factors into account can be an approach that benefits both profits and the planet. A Move Towards Solid Returns In this reporting period the investment strategy of the Portfolio Manager has been one characterised by a move towards sustainable returns for the long run. This is reflected in our approach to impact too. Hence, as well as investments in potentially high-growth, high-impact entities such as Calvin Capital, an asset investment company which built its foundations on the UK smart meter roll out, the Company has also allocated capital to providers of the large-scale infrastructure required for a low carbon economy. For example, new investments this year include those in rail companies Union Pacific and Canadian Pacific and in Brazilian maritime services provider Oceans Wilson. Shipping offers the lowest quantity of carbon dioxide (CO2) emissions on a per unit basis compared to other transport, and railroads provide the most resource efficient means of land transportation. The Company's investment in Alphabet is also a stake in the future clean energy market. Google, for whom Alphabet is the parent company, is the world's largest corporate buyer of renewable power, with their commitments reaching 2.6 gigawatts (2,600 megawatts) of wind and solar energy. Three Years of Reporting Impact Since 2016 Menhaden has calculated an annual estimate of the positive impacts of its share of its portfolio holdings against four key criteria: greenhouse gas (GHG) emissions saved, clean electricity generated, water saved and waste diverted from landfill. After taking into account changes to the portfolio companies and methods for calculating the impacts of different companies, our best estimate of our impact over a three-year period is demonstrated in the following graphic: Sustainable Development Goals Menhaden is a supporter of the UN Sustainable Development Goals (SDGs) and contributes to the challenge of achieving them through many of its portfolio companies. We consider our four investment themes contribute to at least six SDGs as follows: Clean Energy Production Australian wind and solar developer Infigen Energy has been one of the driving forces behind the nation's shift from a coal powerhouse to a global leader in renewable energy generation. In 2018, the firm generated more than 1,549 GWh of clean energy2. (2 https://www.infigenenergy.com/wp-content/uploads/2018/08/ FY18-Results-Presentation.pdf) Renewable energy holdings such as X-ELIO and Brookfield Renewable Partners make an important contribution to ensuring the economy aligns with the Paris Agreement commitment to keep global warming below 2ºC. Resource and Energy Efficiency Waste Management's recycling and repurposing solutions demonstrate the integral role the circular economy can play in diverting waste from landfills. The company has reported a total of 54 million tonnes of avoided CO2-equivalent (CO2e) from recycling materials and converting waste-to-energy3. (3 http://sustainability.wm.com/operations/carbon-footprint.php) Sustainable Transport Freight companies Union Pacific and Canadian Pacific Railway are reducing greenhouse gas emissions for the transportation of goods. Moving freight by rail instead of by truck cuts GHG emissions by 75%4. (4 https://www.aar.org/issue/freight-rail-and-the-environment/) Water and Waste Management Environmental engineering firm NJS treats wastewater at its sewage stations, restoring the water supply, protecting the planet from toxins, and helping to combat water scarcity. Maritime services firm Ocean Wilsons Holdings protects ecosystems by reducing pollution and toxins through streamlined supply chains. Menhaden portfolio impacts around the world A diversified, multi-regional approach to investing means the positive environmental impacts of Menhaden's portfolio companies are felt around the globe. 1. Canada Canadian Pacific Railway has improved fuel efficiency by 16% since 2012 through upgraded infrastructure, technology and fuel practices. The firm has sent close to 750,000 scrap wood rail ties to power generation facilities as part of energy recovery5. (5 https://www.cpr.ca/en/about-cp/corporate-sustainability) 2. USA Waste Management's use of single-stream recycling, where all recyclables are mixed together in one collection bin has on average led to 40% more recyclable materials collected. The company now boasts 50 single-stream facilities and has purchased more than one million tons of additional recycling capacity6. (6 http://www.wm.com/thinkgreen/how-we-thinkgreen.jsp) 3. Peru Solar provider X-ELIO has developed the 21 MW Tacna Solar Park and the 20 MW Panamericana Solar Park in Peru. The two solar farms combined avoid more than 34,000 tonnes of CO2/year, while supplying nearly 30,000 households with clean energy7,8. (7 https://x-elio.com/project/tacna-solar-2/) (8 https://x-elio.com/project/panamericana-solar-2/) 4. Uruguay Power has played a central role in the diversification of Uruguay's energy mix with the installation of its Carapé I and II wind farms. The two wind projects generate more than 360,000 MWh of renewable energy annually, enough to meet the electricity needs of over 158,000 Uruguayans9. (9 https://www.iadb.org/en/news/news-releases/2013-10-31/ project-to-increase-wind-power-generation-in-uruguay%2C10620.html) 5. UK Asset investment company Calvin Capital is helping the UK's largest energy suppliers to meet the government's commitment to offer smart meters to all homes and small businesses by the end of 2020, which is expected to deliver billions in total savings through reduced energy use. To date, Calvin Capital has funded approximately 3.5 million smart meters10. (10 https://www.calvincapital.com/smart-metering) 6. France Aircraft component manufacturer Safran's LEAP engine has set the gold standard for the aviation industry. The engine reduces fuel consumption by 15% and nitrogen oxide emissions by 50% compared to current industry standard engines11. (11 https://www.safran-group.com/media/20110628_leap-greener-more-efficient) 7. China Manufactured in Harbin in China, Airbus' A350 XWB airliner uses state-of-the-art engineering aerodynamics and advanced technologies to record a 25% reduction in CO2 emissions and nitrogen oxide emissions that are 31% lower than the International Civil Aviation Organization's industry12. (12 https://www.airbus.com/company/responsibility-sustainability/ minimising-environmental-impact.html) 8. Taiwan Alphabet, through its subsidiary Google, is the world's largest corporate buyer of renewable power. At its data centres, such as the one in Changhua County Taiwan, the firm uses night time cooling and thermal energy storage systems to make them 50% more energy efficient than the industry average.13 (13 https://www.google.com/about/datacenters/inside/locations/changhua-county/) 9. Australia Windfarm developer Infigen Energy generates more than 1,549 GWh of clean energy annually through its seven wind farms across Australia. All of Infigen's generators are 100% Greenpower accredited14 and it is a member of the We Mean Business Coalition and the Clean Energy Council. (14 https://www.infigenenergy.com/wp-content/uploads/2018/08/ FY18-Results-Presentation.pdf) Governance Board of Directors Sir Ian Cheshire (Chairman) Sir Ian Cheshire was the Group Chief Executive of Kingfisher plc from January 2008 until February 2015. Prior to that he was Chief Executive of B&Q Plc from June 2005. Before joining Kingfisher in 1998 he worked for a number of retail
businesses including Sears plc where he was Group Commercial Director.
Sir Ian is the Chairman of Maisons du Monde and Barclays UK, the ring-fenced
retail bank. He is the Government lead non-executive director and a
non-executive director of Barclays PLC and Barclays Bank PLC.
In addition, Sir Ian is Chair of the RSA Commission on food, farming and the
countryside and President of the Business Disability Forum.
Sir Ian was knighted in the 2014 New Year Honours for services to Business,
Sustainability and the Environment.
Duncan Budge
Duncan Budge is Chairman of Dunedin Enterprise Investment Trust plc and Artemis
Alpha Trust plc, and a non-executive director of Lazard World Trust Fund
(SICAF), Lowland Investment Company plc, Biopharma Credit plc and Asset Value
Investors Ltd.
He was previously a director of J. Rothschild Capital Management from 1988 to
2012 and a director and chief operating officer of RIT Capital Partners plc
from 1995 to 2011. Between 1979 and 1985 he was with Lazard Brothers & Co. Ltd.
Emma Howard Boyd
Emma Howard Boyd is the Chair of the Environment Agency, an ex-officio board
member of the Department for Environment, Food & Rural Affairs, and has
recently been appointed as the UK Commissioner to the Global Commission on
Adaptation.
Emma serves on a number of boards and advisory committees including the
Environment Agency Pension Fund Investment Committee, The Prince's Accounting
for Sustainability Project, ShareAction, the Green Finance Institute and the
30% Club.
She has worked in financial services for over 25 years, in corporate finance
and fund management. As Director of Stewardship at Jupiter Asset Management
until July 2014, Emma was integral to the development of their expertise in the
corporate governance and sustainability fields. This work included research
and analysis on companies' environmental, social and governance performance,
engaging with companies at board level and public policy engagement.
Howard Pearce
Howard Pearce is the founder of HowESG Ltd, a specialist environmental, asset
stewardship, and corporate governance consultancy business. His non-executive
roles include independent Chair of the Bank of Montreal Global Asset Management
(EMEA) Responsible Investment Advisory Council, independent Chair of the Boards
of the Avon and Wiltshire Pension Funds, and Non-Executive Director of Response
Global Media Limited, the publishers of Responsible-Investor.com (ESG and
sustainable finance).
Previously he was a Board member and Chair of the Audit Committee of Cowes
Harbour Commission, and a Trustee and Chair of the Investment and Audit
Committees of the NHS 'Above and Beyond' charity. Between 2003 and 2013 Howard
was the Head of the Environment Agency pension fund and a member of its
Pensions and Investment Committee. Under his leadership, the fund won over 30
awards in the UK, Europe and globally for its financially and environmentally
responsible investment, best practice fund governance, public reporting and
e-communications.
Meeting Attendance
The number of scheduled meetings of the Board and its committees held during
the year and each Director's attendance, is shown below:
Type and number of meetings held in 2018 Board Audit Management
(4) Committee Engagement
(3) Committee
(1)
Sir Ian Cheshire 4 N/A* 1
Duncan Budge 4 3 1
Emma Howard Boyd 4 3 1
Howard Pearce 4 3 1
*As Chairman of the Board, Sir Ian Cheshire is not a member of the Audit
Committee.
In addition to the above, a number of ad hoc Board and committee meetings were
held to consider matters such as the approval of regulatory announcements.
Directors' Interests
The Directors' beneficial interests in the Company's shares, together with
those of their families, are set out below.
Ordinary Shares of 1p each
31 December 31 December
2018 2017
Sir Ian Cheshire 115,000 115,000
Duncan Budge 10,000 10,000
Emma Howard Boyd 18,000 18,000
Howard Pearce 25,000 15,000
Total 168,000 158,000
No changes have been notified to the date of this report.
Directors' Report
The Directors present their annual report on the affairs of the Company
together with the audited financial statements and the Independent Auditors'
Report for the year ended 31 December 2018. Disclosures relating to
performance, future developments and risk management can be found within the
Strategic Report.
Business and Status of the Company
The Company is registered as a public limited company in England and Wales
(registered number 09242421) and is an investment company within the terms of
Section 833 of the Companies Act 2006 (the "Act"). Its shares are traded on the
main market of the London Stock Exchange, which is a regulated market as
defined in Section 1173 of the Act.
The Company has received approval from HM Revenue & Customs as an investment
trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. In the
opinion of the Directors, the Company continues to direct its affairs so as to
qualify for such approval.
Company Name
On 14 December 2018, the Company's name was changed from Menhaden Capital PLC
to Menhaden PLC.
Continuation of the Company
In accordance with the Company's Articles of Association, shareholders will
have an opportunity to vote on the continuation of the Company at the 2020
Annual General Meeting and every five years thereafter.
Results and Dividends
The results attributable to shareholders for the year are shown on the Income
Statement. In 2018 the Company made a revenue profit and revenue losses from
previous years have now been reversed. Under investment trust rules regarding
distributable income, a final dividend must be paid to allow the Company to
comply with those rules.
Subject to shareholder approval at the forthcoming AGM, a final dividend of
0.7p per share will be paid on 5 June 2019 to shareholders on the register on 3
May 2019. The associated ex-dividend date is 2 May 2019.
Alternative Performance Measures
The Financial Statements set out the required statutory reporting measures of
the Company's financial performance. In addition, the Board assesses the
Company's performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised at the outset
of this report and explained in greater detail in the Strategic Report, under
the heading 'Key Performance Indicators'.
Definitions of the terms used and the basis of calculation adopted are set out
in the Glossary.
Substantial Interests in Share Capital
The Company was aware of the following substantial interests in the voting
rights of the Company as at 28 February 2018, the latest practicable date
before publication of the Annual Report.
28 February 2019 31 December 2018
Shareholder Number % of Number % of
of issued of issued
Ordinary share Ordinary share
Shares capital Shares capital
Cavenham Private Equity 13,246,268 16.56 13,246,268 16.56
Generali Versicherung 6,000,000 7.50 6,000,000 7.50
Kendall Family Investments 5,000,000 6.25 5,000,000 6.25
Aachen Muenchener Versicherung 4,000,000 5.00 4,000,000 5.00
Santino Global Assets 3,000,000 3.75 3,000,000 3.75
Laxey Partners - - 2,798,000 3.50
Rathbones 2,570,000 3.21 2,610,305 3.26
The Grantham Foundation 2,600,000 3.25 2,600,000 3.25
Ravenscroft 2,458,500 3.07 2,568,500 3.21
As at 31 December 2018 and to the date of this report, the Company had
80,000,001 Ordinary Shares in issue.
Capital Structure
The Company's capital structure at the end of the year under review and to the
date of this report was comprised of 80,000,001 Ordinary Shares of 1p nominal
value each.
The voting rights of the Ordinary Shares on a poll are one vote for each share
held.
No shares were issued or repurchased during the year and to the date of this
report.
There are no:
* restrictions on transfer of, or in respect of the voting or dividend
rights of, the Company's Ordinary Shares;
* agreements, known to the Company, between holders of securities
regarding the transfer of Ordinary Shares; or
* special rights with regard to control of the Company attaching to the
Ordinary Shares.
At the end of the year under review and to the date of this report, the
Directors had shareholder authority to issue a further 919,999,999 Ordinary
Shares and to repurchase no more than 14.99% of the Company's issued share
capital per annum. These authorities will expire on 1 July 2020 unless
previously revoked, varied or renewed by the Company in a general meeting.
Going Concern
The content of the investment portfolio, trading activity, the Company's cash
balances and revenue forecasts, and the trends and factors likely to affect the
Company's performance are reviewed and discussed at each Board meeting. The
Directors, having considered a detailed assessment, are satisfied that it is
appropriate to continue to adopt the going concern basis in preparing the
financial statements as a significant proportion of the Company's holdings are
readily realisable and, accordingly, the Company has adequate financial
resources to continue in operation for at least the next 12 months.
Beneficial Owners of Shares - Information Rights
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar or to the Company directly.
Greenhouse Gas Emissions
As the Board has engaged external firms to undertake the investment management,
corporate secretarial and custodial activities of the Company, the Company has
no greenhouse gas emissions to report from its operations, nor does it have
responsibility for any other emissions-producing sources under the Companies
Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Company produces an annual impact report which is included within the
Annual Report and also published separately on www.menhaden.com. The impact
report provides further detail on the environmental goals and impact of the
Company.
Directors' & Officers' Liability Insurance Cover
Directors' and officers' liability insurance cover was maintained by the
Company during the year ended 31 December 2018. It is intended that this policy
will continue for the year ending 31 December 2019 and subsequent years.
Directors' Indemnities
During the year under review and to the date of this report, indemnities were
in force between the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted by law, in
respect of certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also indemnified against
the costs of defending criminal or civil proceedings or any claim by the
Company or a regulator as they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs to the Company. The
indemnities are qualifying third party indemnity provisions for the purposes of
the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
Other Statutory Information
The following information is disclosed in accordance with the Companies Act
2006:
* the rules on the appointment and replacement of directors are set out
in the Company's articles of association (the "Articles"). Any change to the
Articles would be governed by the Companies Act 2006.
* subject to the provisions of the Companies Act 2006, to the Articles,
and to any directions given by special resolution, the business of the Company
shall be managed by the Directors who may exercise all the powers of the
Company. The powers shall not be limited by any special powers given to the
Directors by the Articles and a meeting of the Directors at which a quorum is
present may exercise all the powers exercisable by the Directors. The
Directors' powers to issue and buy back shares, in force at the end of the
year, are recorded in the Directors' Report.
* there are no agreements:
(i) to which the Company is a party that might affect its control
following a takeover bid; and/or
(ii) between the Company and its directors concerning compensation for
loss of office.
Listing Rule 9.8.4
The Directors confirm that there are no disclosures to be made in regard of
Listing Rule 9.8.4.
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of information commissioned
by the Organisation for Economic Cooperation and Development and incorporated
into UK law by the International Tax Compliance Regulations 2015. CRS requires
the Company to provide certain additional details to HMRC in relation to
certain shareholders. The reporting obligation began in 2016 and is an annual
requirement. The Company's registrar, Link Asset Services, has been engaged to
collate such information and file the reports with HMRC on behalf of the
Company.
Political Donations
The Company has not made, and does not intend to make, any political donations.
Disclosure of Information to Auditors
Each Director in office at the date of this report confirms that:
* to the best of each Director's knowledge and belief, there is no
information relevant to the preparation of their report of which the Company's
Auditors are unaware; and
* each Director has taken all the steps a director might reasonably be
expected to have taken to be aware of relevant audit information and to
establish that the Company's Auditors are aware of that information.
This information is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
Annual General Meeting
The Company's Annual General Meeting ("AGM") will be held at the offices of
Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG
on Wednesday, 29 May 2019 at 12 noon.
Explanatory notes to the proposed resolutions can be found later in this
report.
The Board considers that the proposed resolutions are in the best interests of
the shareholders as a whole. Accordingly, the Board unanimously recommends to
the shareholders that they vote in favour of the resolutions to be proposed at
the forthcoming AGM, as the Directors intend to do in respect of their own
beneficial holdings.
By order of the Board
Frostrow Capital LLP
Company Secretary
1 April 2019
Statement of Directors' Responsibilities
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. The Directors are responsible for preparing
the financial statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors have:
* selected suitable accounting policies and applied them consistently;
* made judgements and estimates that are reasonable and prudent;
* followed applicable UK accounting standards; and
* prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Directors' Report and other
information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
FCA.
The financial statements are published on the Company's website
www.menhaden.com and via Frostrow's website www.frostrow.com. The maintenance
and integrity of these websites, so far as it relates to the Company, is the
responsibility of Frostrow. The work carried out by the Auditors does not
involve consideration of the maintenance and integrity of these websites and,
accordingly, the Auditors accept no responsibility for any changes that have
occurred to the financial statements since they were initially presented on
these websites. Visitors to the websites need to be aware that legislation in
the United Kingdom governing the preparation and dissemination of the financial
statements may differ from legislation in their jurisdiction.
Responsibility Statement of the Directors in respect of the Annual Report
The Directors confirm to the best of their knowledge that:
* the financial statements within this Annual Report, prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the year ended
31 December 2018; and
* the Chairman's Statement, Strategic Report and the Directors' Report
include a fair review of the information required by 4.1.8R to 4.1.11R of the
FCA's Disclosure and Transparency Rules.
The Directors consider that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary to assess
the Company's position, performance, business model and strategy.
On behalf of the Board
Sir Ian Cheshire
Chairman
1 April 2019
Corporate Governance Statement
The Board has considered the principles and recommendations of the 2016 AIC
Code of Corporate Governance (the "AIC Code") by reference to the AIC Corporate
Governance Guide for Investment Companies (the "AIC Guide"). The AIC Code, as
explained by the AIC Guide, addresses all the principles set out in the 2016 UK
Corporate Governance Code (the "UK Code"), as well as setting out additional
principles and recommendations on issues that are of specific relevance to the
Company.
The Board considers that reporting against the principles and recommendations
of the AIC Code will provide better information to shareholders and the
Financial Reporting Council has confirmed that by following the AIC Code and
the AIC Guide, boards of investment companies will meet their obligations in
relation to the UK Corporate Governance Code and paragraph 9.8.6 of the UK
Listing Rules.
During 2018, a new UK Corporate Governance Code was published by the Financial
Reporting Council, which applies to companies with financial years beginning on
or after 1 January 2019. A corresponding AIC Code of Corporate Governance was
published at the beginning of February 2019, also applying to companies with
financial years beginning on or after 1 January 2019. The Company will report
against the principles and recommendations of the new AIC Code in its next
annual report.
The AIC Code and the AIC Guide can be viewed on the AIC's website
www.theaic.co.uk and the UK Code can be viewed on the Financial Reporting
Council website www.frc.org.uk.
Statement of Compliance
The Company has complied with the recommendations of the 2016 AIC Code and the
relevant provisions of the UK Code, except as set out below:
The UK Code includes certain provisions relating to:
* the role of the chief executive;
* executive directors' remuneration; and
* the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in the UK Code, the
Board considers these provisions are not relevant to the position of the
Company as it is an externally managed investment company. In particular, all
of the Company's day-to-day management and administrative functions are
outsourced to third parties. As a result, the Company has no executive
directors, employees or internal operations. Therefore the Company has not
reported further in respect of these provisions.
The Board and Committees
Responsibility for effective governance lies with the Board. The governance
framework of the Company reflects the fact that as an externally managed
investment company, it has no employees and outsources portfolio management
services to Menhaden Capital Management LLP and risk management, company
management, company secretarial, administrative and marketing services to
Frostrow Capital LLP.
The Board
Chairman - Sir Ian Cheshire
Three additional non-executive Directors, all considered independent.
Key roles and responsibilities:
- to provide leadership and set strategy within a framework of prudent
effective controls which enable risk to be assessed and managed;
- to ensure that a robust corporate governance framework is
implemented; and
- to challenge constructively and scrutinise performance of all
outsourced activities.
Management Engagement Committee
Chairman - Sir Ian Cheshire
All Directors
Key roles and responsibilities:
- to review regularly the contracts, the performance and the
remuneration of the Company's principal service providers.
Audit Committee
Chairman - Howard Pearce
Duncan Budge, Emma Howard Boyd
Key roles and responsibilities:
- to review the Company's financial reports;
- to oversee the risk and control environment; and
- to review the performance of the Company's external Auditors.
Copies of the full terms of reference, which clearly define the
responsibilities of each committee can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting, and can be
found on the Company's website at www.menhaden.com.
The Directors have decided that, given the size of the Board, it is unnecessary
to form separate remuneration and nomination committees; the duties that would
fall to those committees are carried out by the Board as a whole.
Board of Directors
Directors' Independence
The Board consists of four non-executive Directors, each of whom is independent
of Frostrow and Menhaden Capital Management LLP ("MCM"). No member of the Board
has been an employee of the Company, Frostrow, MCM or any of its service
providers. Accordingly, the Board considers that all the Directors are
independent and there are no relationships or circumstances which are likely to
affect or could appear to affect their judgement.
Board Evaluation
During the course of 2018 the performance of the Board, its committees and
individual Directors (including each Director's independence and ability to
devote sufficient time to their role) was evaluated through a formal assessment
process led by the Chairman.
The Chairman is satisfied that the structure and operation of the Board
continues to be effective and relevant and that there is a satisfactory mix of
skills, experience, length of service and knowledge of the Company.
All Directors will submit themselves for annual re-election by shareholders.
Following the evaluation process, the Board recommends that shareholders vote
in favour of their re-election at the Annual General Meeting.
Policy on Director Tenure
The Board subscribes to the view expressed within the AIC Code that
long-serving directors should not be prevented from forming part of an
independent majority. It does not consider that a director's tenure necessarily
reduces his/her ability to act independently. The Board's policy on tenure is
that continuity and experience are considered to add significantly to the
strength of the Board and, as such, no limit on the overall length of service
of any of the Directors, including the Chairman, has been imposed. In view of
its non-executive nature, the Board considers that it is not appropriate for
the Directors to be appointed for a specified term, although new Directors will
be appointed with the expectation that they will serve for a minimum of three
years, subject to shareholder approval.
Appointments to the Board
The rules governing the appointment and replacement of directors are set out in
the Company's Articles of Association. Where the Board appoints a new director
during the year, that director will stand for election by shareholders at the
next Annual General Meeting. When considering new appointments, the Board will
seek to add persons with complementary skills or skills and experience which
fill any gaps in the Board's knowledge and who can devote sufficient time to
the Company to carry out their duties effectively. The Company is committed to
ensuring that any vacancies arising are filled by the most qualified
candidates. The Board recognises the value of diversity in the composition of
the Board and accordingly, the Board will ensure that a diverse group of
candidates is considered should any vacancies arise. The Board's diversity
policy is set out in more detail in the Strategic Report.
Subject to there being no conflict of interest, all Directors are entitled to
vote on candidates for the appointment of new Directors and on the
recommendation for shareholders' approval for the Directors seeking re-election
at the Annual General Meeting. The Chairman will not chair the meeting when the
Board is dealing with the appointment of his successor.
Induction/Development
New appointees to the Board will be provided with a full induction programme.
The programme will cover the Company's investment strategy, policies and
practices. New directors will also be given key information on the Company's
regulatory and statutory requirements as they arise including information on
the role of the Board, matters reserved for its decision, the terms of
reference for the Board committees, the Company's corporate governance
practices and procedures and the latest financial information. Directors are
encouraged to participate in training courses where appropriate.
Conflicts of Interest
In line with the Companies Act 2006, the Board has the power to authorise any
potential conflicts of interest that may arise and impose such limits or
conditions as it thinks fit. A register of interests and potential conflicts is
maintained and is reviewed at every Board meeting to ensure all details are
kept up to date. It was resolved at each Board meeting during the year under
review that there were no direct or indirect interests of a Director that
conflicted with the interests of the Company. Appropriate authorisation will be
sought prior to the appointment of any new director or if any new conflicts or
potential conflicts arise.
Exercise of Voting Powers
The Board has delegated authority to MCM (as Portfolio Manager) to vote the
shares owned by the Company that are held on its behalf by its Custodian.
The Board has instructed that the Portfolio Manager submit votes for such
shares wherever possible and practicable. The Portfolio Manager may refer to
the Board on any matters of a contentious nature.
Further details of the Company's voting record can be found in the Portfolio
Manager's Stewardship Report on the Company's website www.menhaden.com.
Anti-Bribery and Corruption Policy
The Board has adopted a zero-tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit from
themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at www.menhaden.com. The policy is reviewed regularly by the Audit
Committee.
Prevention of the Facilitation of Tax Evasion
In response to the implementation of the Criminal Finances Act 2017, the Board
adopted a zero-tolerance approach to the criminal facilitation of tax evasion.
A copy of the Company's policy on preventing the facilitation of tax evasion can be found on the Company's website www.menhaden.com. The policy is reviewed annually by the Audit Committee. Independent Professional Advice The Board has formalised arrangements under which the Directors, in the furtherance of their duties, may seek independent professional advice at the Company's expense. The Company has also arranged Directors' and Officers' Liability Insurance which provides cover for legal expenses under certain circumstances. This was in force for the entire period under review and up to the date of this report. Company Secretary The Directors have access to the advice and services of a Company Secretary through its appointed representative which is responsible to the Board for ensuring that the Board procedures are followed and that the Company complies with applicable rules and regulations. The Company Secretary is also responsible for ensuring good information flows between all parties. Board Meetings and Relations with the Investment Manager The Board is responsible for strategy and reviews the continued appropriateness of the Company's investment objective, strategy and investment restrictions at each meeting. The Board meets regularly throughout the year and representatives from Frostrow and MCM are in attendance at each Board meeting to address questions on specific matters and to seek approval for specific transactions which the AIFM is required to refer to the Board. The Chairman encourages open debate to foster a supportive and co-operative approach for all participants. The primary focus at regular Board meetings is the review of key investment and financial data, revenue and expense projections, analyses of asset allocation, transactions and performance comparisons, share price and net asset value performance, marketing and shareholder communication strategies, the risks associated with pursuing the investment strategy, peer group information and industry issues. The Board reviews the discount or premium to net asset value per share of the Company's share price at each Board meeting and considers the effectiveness of the Company's marketing and communication strategies, as well as any recommendations on share buybacks and issuance. The Board has reviewed the Portfolio Manager's Statement of Compliance with the UK Stewardship Code, which is available on the FRC website www.frc.org.uk. Shareholder Communications Shareholder Relations Representatives of Frostrow and MCM regularly meet with institutional shareholders and private client asset managers to discuss strategy, to understand their issues and concerns and, if applicable, to discuss corporate governance issues. The results of such meetings are reported at the following Board meeting. An analysis of the Company's shareholder register is provided to the Directors at each Board meeting. The Board receives marketing reports from Frostrow. The Board reviews and considers the marketing plans on a regular basis. Reports from the Company's broker are submitted to the Board on investor sentiment and industry issues. Shareholder Communications The Company aims to provide shareholders with a full understanding of the Company's investment objective, policy and activities, its performance and the principal investment risks by means of informative annual and half yearly reports. This is supplemented by the monthly publication through the London Stock Exchange, of the net asset value of the Company's shares. The Company's website (www.menhaden.com) is regularly updated with monthly fact sheets and provides useful information about the Company, including the Company's financial reports and announcements. All substantive communications regarding any major corporate issues are discussed by the Board taking into account representations from the AIFM, the Portfolio Manager, the Auditor, legal advisers and the Corporate Stockbroker, as appropriate. The Board supports the principle that the AGM be used to communicate with all investors. It is the intention that all Directors will attend the AGM under the chairmanship of the Chairman of the Board. All shareholders are encouraged to attend the AGM, where they are given the opportunity to question the Chairman, the Board and representatives of the AIFM and the Portfolio Manager. The Portfolio Manager will make a presentation to shareholders covering the investment performance and strategy of the Company at the forthcoming AGM. Details of proxy votes received in respect of each resolution will be made available to shareholders at the meeting and will also be published on the Company's website, www.menhaden.com. The Directors welcome the views of all shareholders and place considerable importance on communications with them. Shareholders wishing to communicate with the Chairman, or any other member of the Board, may do so by writing to the Company Secretary at the offices of Frostrow. Significant Holdings and Voting Rights Details of the substantial interests in the Company's Shares, the voting rights of the shares and the Directors' authorities to issue and repurchase the Company's shares, are set out in the Directors' Report. Nominee Share Code Where the Company's shares are held via a nominee company name, the Company undertakes: * to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance; and * to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available. Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company's general meeting. By order of the Board Frostrow Capital LLP Company Secretary 1 April 2019 Audit Committee Report Statement from the Chairman I am pleased to present the Audit Committee report for the year ended 31 December 2018. The Committee met three times during the year under review. The role of the Committee is to ensure that shareholder interests are properly protected in relation to the application of financial reporting and internal control principles and to assess the effectiveness of the audit. The Committee's role and responsibilities are set out in full in its terms of reference which are available on request from the Company Secretary and can be seen on the Company's website (www.menhaden.com). A summary of the Committee's main responsibilities and how it has fulfilled them is set out below. Composition The Audit Committee comprises Howard Pearce (Chairman of the Committee), Duncan Budge and Emma Howard Boyd. The Committee considers that each member has recent and relevant experience in accounting, auditing or financial reporting and that the Committee as a whole has experience relevant to the investment trust industry. Responsibilities The Committee's main responsibilities during the year under review were: 1. To review the Company's annual and half-year reports. In particular, the Audit Committee has considered whether the annual report was fair, balanced and understandable, allowing shareholders to easily assess the Company's strategy, business model, financial position and performance. This review also included scrutiny of the valuation of investments, accounting policies and other significant reporting matters. 2. To review the risk management and internal control processes of the Company and its key service providers. Further details are provided in the Internal Controls and Risk Management section. 3. To recommend the appointment of the external Auditor, agreeing the scope of their work and their remuneration, and reviewing their independence. During the year the nature and scope of the audit together with the audit plan were considered by the Committee. The Committee concluded that the appropriate areas of audit risk relevant to the Company had been identified and that there were suitable audit procedures in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements. 4. To consider any non-audit work to be carried out by the Auditor. The Audit Committee will consider the extent and nature of any non-audit work performed by the Auditor and seek assurance that such work does not impinge on their independence and is a cost effective way to operate. 5. To consider the need for an internal audit function. Since the Company delegates its day to day operations to third parties and has no employees, the Committee determined that there is no requirement for such a function. The Committee considers the need for such a function on an annual basis. Meetings and Business The following matters were dealt with at the Committee's meetings: March 2018 * Review of the Committee's terms of reference; * Review of the Company's annual results; * Approval of the Annual Report, the Impact Report and unquoted investment valuations; * Review of risk management, internal controls and compliance; * Review of the outcome and effectiveness of the audit and any matters arising; and * Review of the need for an internal audit function. September 2018 * Review of the Company's non-audit services policy; * Review of the Company's half yearly results; * Approval of the Half Yearly Report and financial statements and unquoted investment valuations; * Review of risk management, internal controls and compliance; * Review and approval of formal audit tender guidelines; and * Review of the Company's anti bribery and corruption policy and the measures put in place by the Company's service providers. November 2018 * Review of the Auditor's plan and terms of engagement for the 2019 audit; and
* Review of risks, internal controls and compliance.
Performance Evaluation
The Committee reviewed the results of the annual evaluation of its performance
at the November 2018 Board meeting. As part of the evaluation, the Committee
reviewed the following:
* the composition of the Committee;
* the performance of the Committee Chairman;
* how the Committee had monitored compliance with corporate governance
regulations;
* how the Committee had considered the quality and appropriateness of
financial accounting and reporting;
* the Committee's review of significant risks and internal controls;
and
* the Committee's assessment of the independence, competence and
effectiveness of the Company's eternal Auditor.
It was concluded that the Committee was performing satisfactorily and there
were no formal recommendations made to the Board.
Internal Controls and Risk Management
The Board has overall responsibility for risk management and for the review of
the internal controls of the Company, undertaken in the context of its
investment objective.
A summary of the principal risks facing the Company is provided in the
Strategic Report.
The review covers the key business, operational, compliance and financial risks
facing the Company. In arriving at its judgement of what risks the Company
faces, the Board has considered the Company's operations in light of the
following factors:
* the nature of the Company, with all management functions outsourced
to third party service providers;
* the nature and extent of risks which it regards as acceptable for the
Company to bear within its overall investment objective;
* the threat of such risks becoming a reality; and
* the Company's ability to reduce the incidence and impact of risk on
its performance.
Against this background, a risk matrix has been developed which covers all key
risks that the Company faces, the likelihood of their occurrence and their
potential impact, how these risks are monitored and mitigating controls in
place.
The Board has delegated to the Audit Committee responsibility for the review
and maintenance of the risk matrix and it reviews, in detail, the risk matrix
each time it meets, bearing in mind any changes to the Company, its environment
or service providers since the last review. Any significant changes to the risk
matrix are discussed with the whole Board. There were no changes to the
Company's risk management processes during the year and no significant failings
or weaknesses were identified from the Committee's most recent risk review.
The Committee reviews internal controls reports from its principal service
providers on an annual basis. The Committee is satisfied that appropriate
systems have been in place for the year under review and up to the date of
approval of this report.
Significant Reporting Matters
The Committee considered the significant issues in respect of the Annual Report
including the financial statements. The table below sets out the key areas of
risk identified and also explains how these were addressed.
Significant risk How the risk was addressed
Valuation, The valuation of investments is undertaken in accordance with
existence and the accounting policies in note 1 to the financial statements.
Ownership of Controls are in place to ensure that valuations are appropriate
investments, in and existence is verified through reconciliations with the
particular Depositary. The Committee discussed with Frostrow and MCM the
unquoted process by which the unquoted investments are valued, and
investments ownership documented, including the reconciliation process with
the Depositary. They also reviewed the valuation of the
unquoted investments as at 31 December 2018, including the
level of any discounts to net asset value applied to the
unquoted valuations, to ensure that they were carried out in
accordance with the accounting policy set out in note 1(b) to
the financial statements. Having reviewed the valuations, the
Committee confirmed that they were satisfied that the
investments had been valued correctly.
Risk of revenue The Committee took steps to gain an understanding of the
being misstated processes in place to record investment income and
due to the transactions. In addition, the Committee reviewed the treatment
improper of fixed income returns on debt securities.
recognition of
revenue.
Financial Statements
The Board has asked the Committee to confirm that in its opinion the Board can
make the required statement that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy. The Committee has given this confirmation on the basis of its review
of the whole document, underpinned by involvement in the planning for its
preparation and review of the processes to assure the accuracy of factual
content.
The Committee is satisfied that it is appropriate for the Board to prepare the
financial statements on the going concern basis.
The Audit Committee also reviewed the financial position and principal risks of
the Company in connection with the Board's statement on the longer-term
viability of the Company, which is set out in the Strategic Report.
External Auditor
In addition to the reviews undertaken at Committee meetings, I met with Grant
Thornton UK LLP ("Grant Thornton") on 6 March 2019 to discuss the outcome of
the audit and the draft Annual Report. The Committee also met with Grant
Thornton without Frostrow or the Portfolio Manager being present to discuss the
outcome of the audit on 22 March 2019.
In order to fulfil the Committee's responsibility regarding the independence of
the Auditor, the Committee reviewed:
* the senior audit personnel in the audit plan for the year;
* the Auditor's arrangements concerning any conflicts of interest; and
* the statement by the Auditor that they remain independent within the
meaning of the regulations and their professional standards.
In order to consider the effectiveness of the audit process, we reviewed:
* the Auditor's execution and fulfilment of the agreed audit plan and
the audit partner's leadership of the audit team;
* the quality of the report arising from the audit itself and the
communications from the Auditor; and
* feedback from Frostrow on the conduct of the audit.
The Committee is satisfied with the Auditor's independence and the
effectiveness of the audit process, together with the degree of diligence and
professional scepticism brought to bear.
Non-Audit Services
The Auditor did not carry out any non-audit work during the year. The Audit
Committee will monitor the level of non-audit work carried out by the Auditor,
if any, and seeks assurances from the Auditor that they maintain suitable
policies and procedures ensuring independence, and monitors compliance with the
relevant regulatory requirements on an annual basis.
The Company operates on the basis whereby the provision of non-audit services
by the Auditor is only permissible where no conflicts of interest arise, the
service is not expressly prohibited by audit legislation, where the
independence of the Auditor is not likely to be impinged by undertaking the
work and the quality and the objectivity of both the non-audit work and audit
work will not be compromised. In particular, non-audit services may be provided
by the Auditor if they are inconsequential or would have no direct effect on
the Company's financial statements and the audit firm would not place
significant reliance on the work for the purposes of the statutory audit.
Auditor's Reappointment
Grant Thornton have been the appointed external Auditor since the Company
launched in 2015. Grant Thornton carried out the audit for the period ending 31
December 2015 and the years ended 31 December 2016, 2017 and 2018 and were
considered independent by the Board.
Marcus Swales has been the audit partner for the past three years.
As a public company listed on the London Stock Exchange, the Company is subject
to mandatory auditor rotation requirements. The Company will put the external
audit out to tender at least every 10 years and change auditor at least every
20 years. The Committee will, however, continue to consider annually the need
to go to tender for audit quality or independence reasons and the Audit
Committee has adopted formal audit tender guidelines to govern the audit tender
process.
The Committee conducted a review of the performance of the Auditor during the
audit period and concluded that performance was satisfactory and there were no
grounds for change.
Grant Thornton have indicated their willingness to continue to act as Auditor
to the Company for the forthcoming year and a resolution for their
re-appointment will be proposed at the Annual General Meeting.
Howard Pearce
Chairman of the Audit Committee
1 April 2019
Directors' Remuneration Report
Statement from the Chairman
I am pleased to present the Directors' Remuneration Report to Shareholders. An
ordinary resolution for the approval of this report will be put to shareholders
at the Company's forthcoming Annual General Meeting. The law requires the
Company's Auditor to audit certain disclosures provided in this report. Where
disclosures have been audited, they are indicated as such and the Auditor's
opinion is included in their report to shareholders.
The Board considers the framework for the remuneration of the Directors on an
annual basis. It reviews the ongoing appropriateness of the Company's
remuneration policy and the individual remuneration of the Directors by
reference to the activities and particular complexities of the Company and in
comparison with other companies of a similar structure and size. This is
in-line with the AIC Code.
The Board as a whole considered the level of Directors' fees at their meeting
in November 2018 and determined that it was appropriate to maintain them at
their current levels for 2019.
The Directors are remunerated exclusively by fixed fees in cash and do not
receive bonus payments or pension contributions from the Company, hold options
to acquire shares in the Company, or other benefits.
All Directors are entitled to the reimbursement of reasonable out of pocket
expenses incurred by them in order to perform their duties as directors of the
Company.
No advice from remuneration consultants was received during the period under
review.
As noted in the Strategic Report, all of the Directors are non-executive and
therefore there is no Chief Executive Officer. The Company does not have
employees. Therefore there is no CEO or employee information to disclose.
Single total figure of remuneration (audited)
Date of 2018 2017
appointment Taxable Taxable
Director to the Board Fees expenses Total Fees expenses Total
Sir Ian Cheshire 3 October 50,000 - 50,000 50,000 - 50,000
2014
Duncan Budge 3 October 40,000 - 40,000 40,000 - 40,000
2014
Emma Howard Boyd 3 October 40,000 - 40,000 40,000 - 40,000
2014
Howard Pearce 3 October 40,000 3,852 43,852 40,000 2,558 42,558
2014
TOTAL 170,000 3,852 173,852 170,000 2,558 172,558
No payments have been made to any former directors. It is the Company's policy
not to pay compensation upon leaving office for whatever reason. None of the
fees referred to in the above table were paid to any third party in respect of
the services provided by any of the Directors.
Directors' Interests in the Company's Shares (audited)
Ordinary Ordinary
Shares Shares
of 1p each of 1p each
as at as at
31 Dec 2018 31 Dec 2017
Sir Ian Cheshire 115,000 115,000
Duncan Bridge 10,000 10,000
Emma Howard Boyd 18,000 18,000
Howard Pearce 25,000 15,000
Total 168,000 158,000
No changes have been notified to the date of this report.
The Company does not have share options or a share scheme, and does not operate
a pension scheme. None of the Directors are required to own shares in the
Company.
Statement of Voting at the AGM
At the Annual General Meeting held in May 2018 the results in respect of the
resolution to approve the Directors' Remuneration Report were as follows:
Votes cast for Votes cast against Votes withheld
33,946,523 0 0*
100% 0%
* Votes withheld are not votes by law and are therefore not counted in the
calculation of votes for or against a resolution.
The results in respect of the resolution to approve the Director's Remuneration
Policy (at the AGM held in May 2016) were as follows:
Votes cast for Votes cast against Votes withheld
33,122,809 0 0*
100% 0%
* Votes withheld are not votes by law and are therefore not counted in the
calculation of votes for or against a resolution.
By order of the Board
Sir Ian Cheshire
Chairman
1 April 2019
Directors' Remuneration Policy
The Company's remuneration policy is that the remuneration of each Director
should be commensurate with the duties, responsibilities and time commitment of
each respective role and consistent with the requirement to attract and retain
directors of appropriate quality and experience. The remuneration should also
be comparable to that of investment trusts of similar size and structure.
Directors are remunerated in the form of fixed fees payable monthly in arrears.
There are no long or short-term incentive schemes, share option schemes or
pension arrangements and the fees are not specifically related to the
Directors' performance, either individually or collectively.
The Directors' remuneration is determined within the limits set out in the
Company's Articles of Association. The present limit is GBP500,000 in aggregate
per annum.
It is the Board's intention that the remuneration policy will be considered by
shareholders at the annual general meeting at least once every three years. If,
however, the remuneration policy is varied, shareholder approval will be sought
at the AGM following such variation. The Board will formally review the
remuneration policy at least once a year to ensure that it remains appropriate.
This policy was last approved by shareholders at the AGM held in 2016.
Accordingly, an ordinary resolution for the approval of this policy will next
be considered by shareholders at the forthcoming Annual General Meeting to be
held on 29 May 2019. It is intended that this policy will remain in place for
the following financial year and subsequent financial periods.
No communications have been received from shareholders regarding Directors'
remuneration. The Board will consider any comments received from shareholders
on the remuneration policy.
This policy, together with the Directors' letters of appointment, may be
inspected at the Company's registered office.
The current and projected Directors' fees for 2018 and 2019 are shown in the
table below. The Company does not have any employees.
Directors' Fees Current and Projected
Total
Fees (GBP) Fees (GBP)
2019 2018
Sir Ian Cheshire 50,000 50,000
Duncan Budge 40,000 40,000
Howard Pearce 40,000 40,000
Emma Howard Boyd 40,000 40,000
170,000 170,000
Any new director appointed to the Board will, under current remuneration
levels, receive a fee of GBP25,000 per annum. Directors who serve on the Audit
Committee receive an additional fee of GBP15,000 per annum. The Chairman receives
an additional fee of GBP25,000 per annum.
All Directors are non-executive, appointed under the terms of letters of
appointment and none has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first
annual general meeting after their appointment and to re-election every three
years thereafter. The terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving office.
Independent Auditor's Report to the Members of Menhaden PLC
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Menhaden PLC (the 'Company') for
the year ended 31 December 2018, which comprise the Income Statement, the
Statement of Changes in Equity, the Statement of Financial Position, the
Statement of Cash Flows and Notes to the Financial Statements, including a
summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard 102 The Financial
Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom
Generally Accepted Accounting Practice).
In our opinion, the financial statements:
* give a true and fair view of the state of the Company's affairs as at
31 December 2018 and of its net return for the year then ended;
* have been properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
* have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the 'Auditor's responsibilities for the audit of the
financial statements' section of our report. We are independent of the Company
in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC's Ethical Standard as
applied to public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual
report, in relation to which the ISAs (UK) require us to report to you whether
we have anything material to add or draw attention to:
* the disclosures in the annual report that describe the principal
risks and explain how they are being managed or mitigated;
* the directors' confirmation that they have carried out a robust
assessment of the principal risks facing the Company, including those that
would threaten its business model, future performance, solvency or liquidity;
* the directors' statement about whether the directors considered it
appropriate to adopt the going concern basis of accounting in preparing the
financial statements and the directors' identification of any material
uncertainties to the Company's ability to continue to do so over a period of at
least twelve months from the date of approval of the financial statements;
* whether the directors' statement relating to going concern required
under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially
inconsistent with our knowledge obtained in the audit; or
* the directors' explanation of the annual report, as to how they have
assessed the prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Overview of our audit approach
* Overall materiality: GBP725,000, which represents 1% of the Company's
net assets
* Key audit matters were identified as valuation, existence and
ownership of unquoted and quoted investments, and completeness and occurrence
of investment income
* Our audit approach was a on investments at the year during the year.
There was year risk based substantive audit focused end and investment income
recognised no change in our approach from prior year
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included those
that had the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Key Audit Matter How the matter was addressed in the audit
Valuation, existence and ownership of Unquoted investments
unquoted and quoted investments
The Company's investment objective is to Our audit work included, but was not
generate long-term shareholders returns, restricted to:
mainly in the form of capital growth.
* understanding management's
This objective is pursued through a process to value unquoted investments
portfolio comprising of unquoted and through discussions with management and
quoted holdings. examination of control reports on third
party administrators, and assessing
As at the year end, the Company holds a whether the accounting policy for unquoted
small number of significant holdings in investments is in accordance with the
unquoted investments and number of quoted requirements of United Kingdom Generally
investments. Accepted Accounting Practice and the
Statement of Recommended Practice ('SORP')
The investment portfolio at the year end issued by Association of Investment
had a carrying value of GBP66 million, of Companies ('AIC');
which GBP43 million of investments were
listed on recognised stock exchanges. * considering whether the
techniques applied for valuing unquoted
As different valuation approaches are investments were in accordance with
applied to the different types of published guidance, principally the
investments, there are risks that the International Private Equity and Venture
investment valuation recorded in the Capital Valuation Guidelines. This was
Statement of Financial Position may be done through obtaining and reviewing the
misstated. Also, there is a risk that investment valuation policies of the
investments recorded might not exist or private equity funds, review of the fund's
might not be owned by the Company. latest available audited financial
statements, review of the fund's latest
We therefore identified valuation, quarterly reports and discussion with the
existence and ownership of investments as fund's management where applicable;
a significant risk, which was one of the
most significant assessed risks of * agreeing the valuation of
material misstatement. unquoted investments to year end fair
values as reported in valuation statements
received directly from the investee funds;
and
* substantively testing a sample
of additions and disposals of unquoted
investments during the year by agreeing
such transactions to bank statements and
notifications from the investee funds.
Quoted investments
Our audit work included, but was not
restricted to:
* understanding management's
process to value quoted investments
through discussions with the management
and examination of control reports on
third party administrators, and assessing
whether the accounting policy for unquoted
investments is in accordance with the
requirements of United Kingdom Generally
Accepted Accounting Practice and the SORP
issued by the AIC;
* agreeing the valuation of quoted
investments to an independent source of
market prices and nominal holdings to
confirmation from the custodian in order
to obtain comfort over existence and
ownership of investments; and
* substantively testing a sample
of additions and disposals of unquoted
investments during the year by agreeing
such transactions to list of trade
confirmations and bank statements as
applicable.
The Company's accounting policy on
investments is shown in note 1(b) to the
financial statements and related
disclosures are included in note 7. The
Audit Committee identified valuation,
existence and ownership of the Company's
investments as a significant issue in its
report, where the Committee also described
the action that it has taken to address
this issue.
Key observations
Our testing did not identify any material
misstatements in the valuation of the
Company's investment portfolio as at the
year end, nor were any issues noted with
regards to the existence or the Company's
ownership of the underlying investments at
the year end.
Completeness and occurrence of investment Our audit work included, but was not
income restricted to:
The Company aims to provide long-term * assessing whether the Company's
shareholder returns by investing in accounting policy for revenue recognition
businesses and opportunities delivering or is in accordance with the requirements of
benefiting from the efficient use of United Kingdom Generally Accepted
energy and resources. Income from Accounting Practice and the AIC SORP and
investments is a significant, material testing its consistent application on
item in the income statement. revenue recognised during the year;
Under International Standard on Auditing * substantively testing income
(UK) 240 'The auditor's responsibilities transactions to assess if they were
relating to fraud in an audit of financial recognised in accordance with the policy;
statements', there is a presumed risk of
fraud in revenue recognition. * for investments held during the
year, obtaining the ex-dividend dates and
We therefore identified completeness and rates for dividends declared during the
occurrence of investment income as a year from an independent source and
significant risk, which was one of the agreeing the expected dividend
most significant assessed risks of entitlements to those recognised in the
material misstatement. Income Statement and agreeing dividend
income recognised by the Company to an
independent source. For unquoted
investment this was achieved by obtaining
distribution notices issued during the
year directly from the investee funds; and
* assessing the categorisation of
corporate actions and special dividends to
identify whether the treatment is correct.
The Company's accounting policy on income,
including its recognition, is shown in
note 1(c) to the financial statements and
related disclosures are included in note
2. The Audit Committee identified
recognition of income as a significant
issue in its report, where the Committee
also described the action that it has
taken to address this issue.
Key observations
Our testing did not identify any material
misstatements in the amount of revenue
recognised during the year.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality in
determining the nature, timing and extent of our work and in evaluating the
results of that work.
We determined materiality for the audit of the financial statements as a whole
to be GBP725,000, which is 1% of net assets. This benchmark is considered the
most appropriate because net assets, which primarily comprise the Company's
investment portfolio, are considered to be the key driver of the Company's
total return performance and form a part of the net asset value calculation.
Materiality for the current year is higher than the level that we determined
for the year ended 31 December 2017. In both years materiality was calculated
using 1% of the Company's expected net assets. The preliminary net asset value
at 31 December 2017 was lower than the final audited net asset value, resulting
in a lower materiality for that year.
We use a different level of materiality, performance materiality, to drive the
extent of our testing and this was set at 75% of financial statement
materiality.
We also determine a lower level of specific materiality for certain areas such
as investment income and related party transactions, being the management fee
and directors' remuneration.
We determined the threshold at which we will communicate misstatements to the
audit committee to be GBP36,260. In addition we will communicate misstatements
below that threshold that, in our view, warrant reporting on qualitative
grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough
understanding of the Company's business, its environment and risk profile and
in particular included:
* obtaining an understanding of relevant internal controls at both the
Company and third-party service providers. This included obtaining and reading
internal controls reports prepared by the third-party service providers on the
description, design, and operating effectiveness of the internal controls at
the investment manager, custodian and administrator; and
* performing substantive audit procedures on specific transactions,
which included journal entries and individual material balances and
disclosures, the extent of which was based on various factors such as our
overall assessment of the control environment and our evaluation of the design
and implementation of controls that address significant audit risk.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report, other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility
to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we
conclude that those items meet the following conditions:
* Fair, balanced and understandable - the statement given by the
directors that they consider the annual report and financial statements taken
as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's performance, business model
and strategy, is materially inconsistent with our knowledge obtained in the
audit; or
* Audit committee reporting - the section describing the work of the
audit committee does not appropriately address matters communicated by us to
the audit committee is materially inconsistent with our knowledge obtained in
the audit; or
* Directors' statement of compliance with the UK Corporate Governance
Code - the parts of the directors' statement required under the Listing Rules
relating to the Company's compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in accordance with
Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.
Our opinions on other matters prescribed by the Companies Act 2006 is
unmodified
In our opinion, the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
* the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements and those reports have been
prepared in accordance with the legal requirements;
* the information about internal control and risk management systems in
relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Rules and
Transparency Rules sourcebook made by the Financial Conduct Authority (the FCA
Rules), is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements; and
* information about the Company's corporate governance code and
practices and about its administrative, management and supervisory bodies and
their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have not identified
material misstatements in:
* the strategic report or the directors' report; or
* the information about internal control and risk management systems in
relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
* adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by us; or
* the financial statements and the part of the directors' remuneration
report to be audited are not in agreement with the accounting records and
returns; or
* certain disclosures of directors' remuneration specified by law are
not made; or
* a Corporate Governance Statement has not been prepared by the
Company.
Responsibilities of directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these financial
statements.
We are responsible for obtaining reasonable assurance that the financial
statements taken as a whole are free from material misstatement, whether caused
by fraud or error. Owing to the inherent limitations of an audit, there is an
unavoidable risk that material misstatements of the financial statements may
not be detected, even though the audit is properly planned and performed in
accordance with the ISAs (UK). Our audit approach is a risk-based approach and
is explained more fully in the 'An overview of the scope of our audit' section
of our audit report.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Other matters which we are required to address
We were appointed by on 23 May 2016. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 4
years.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Company and we remain independent of the Company in conducting
our audit.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Marcus Swales
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
1 April 2019
Financial Statements
Income Statement
For the year ended For the year ended
31 December 2018 31 December 2017
Revenue Capital Total Revenue Capital Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
(Losses)/gains on 7 - (1,035) (1,035) - 6,189 6,189
investments at fair
value through profit
or loss
Income from 2 1,509 - 1,509 828 - 828
investments
AIFM and Portfolio 3 (218) (873) (1,091) (209) (837) (1,046)
management fees
Other expenses 4 (432) - (432) (454) (60) (514)
Net return/(loss) 859 (1,908) (1,049) 165 5,292 5,457
before taxation
Taxation on net return 5 (135) - (135) (48) - (48)
Net return/(loss) 724 (1,908) (1,184) 117 5,292 5,409
after taxation
Return/(loss) per 6 0.9p (2.4)p (1.5)p 0.1p 6.6p 6.7p
share
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 31 December 2018
Ordinary Special Capital Revenue Total
share reserve reserve reserve GBP'000
capital GBP'000 GBP'000 GBP'000
GBP'000
At 31 December 2017 800 77,371 (4,539) 60 73,692
Net (loss)/return after taxation - - (1,908) 724 (1,184)
At 31 December 2018 800 77,371 (6,447) 784 72,508
For the year ended 31 December 2017
Ordinary Special Capital Revenue Total
share reserve reserve reserve GBP'000
capital GBP'000 GBP'000 GBP'000
GBP'000
At 31 December 2016 800 77,371 (9,831) (57) 68,283
Net return after taxation - - 5,292 117 5,409
At 31 December 2017 800 77,371 (4,539) 60 73,692
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
Notes As at As at
31 December 31 December
2018 2017
GBP000 GBP000
Fixed assets
Investments at fair value through profit or loss 7 65,611 63,333
Current assets
Debtors 8 131 85
Derivative financial instruments at fair value 7 - 454
through profit or loss
Cash 7,732 9,987
7,863 10,526
Creditors: amounts falling due within one year
Other creditors 9 (182) (167)
Derivative financial instruments at fair value 7 (784) -
through profit or loss
Net current assets 6,897 10,359
Total net assets 72,508 73,692
Capital and reserves
Ordinary share capital 10 800 800
Special reserve 77,371 77,371
Capital reserve 15 (6,447) (4,539)
Revenue reserve 784 60
Total shareholders' funds 72,508 73,692
Net asset value per share 11 90.6p 92.1p
The financial statements were approved by the Board of Directors and authorised
for issue on 1 April 2019 and were signed on its behalf by:
Sir Ian Cheshire
Chairman
The accompanying notes are an integral part of these financial statements.
Menhaden PLC (formerly Menhaden Capital PLC) - Company Registration Number
09242421 (Registered in England and Wales)
Statement of Cash Flows
Notes For the For the
year ended year ended
31 December 31 December
2018 2017
GBP000 GBP000
Net cash outflow from operating activities 12 (184) (885)
Investing activities
Purchases of investments (28,170) (27,891)
Sales of investments 26,099 22,891
Net cash (outflow)/inflow from investing (2,071) (5,000)
activities
(Decrease)/increase in cash and cash equivalents (2,255) (5,885)
Cash and cash equivalents at beginning of the 9,987 15,872
year
Cash and cash equivalents at end of the year 7,732 9,987
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2018
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these financial statements, are set
out below:
(a) Basis of Preparation
The financial statements have been prepared in accordance with United Kingdom
company law, FRS 102 'The Financial Reporting Standard applicable in the UK and
Ireland', the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in November 2014
and updated in February 2018 (the 'SORP'), the historical cost convention, as
modified by the valuation of investments at fair value through profit or loss
and on a going concern basis.
The Company's financial statements are presented in sterling, being the
functional and presentational currency of the Company. All values are rounded
to the nearest thousand pounds (GBP'000) except where otherwise indicated.
Fair value measurements are categorised into a fair value hierarchy based on
the degree to which the inputs to the fair value measurements are observable
and the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
* Level 1 - Quoted prices in active markets;
* Level 2 - Inputs other than quoted prices included within Level 1
that are observable (ie developed using market data), either directly or
indirectly.
* Level 3 - Inputs are unobservable (ie for which market data is
unavailable)
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in
accordance with the SORP, supplementary information which analyses the Income
Statement between items of a revenue and capital nature has been presented
alongside the Income Statement. The net revenue return is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Sections 1158 and 1159 of the Corporation Tax
Act 2010.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting estimates will, by
definition, seldom equal the related actual results.
The key estimates, and assumptions, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities relate to
the valuation of the Company's unquoted (Level 3) investments. 31.2% (2017:
31.1%) of the Company's portfolio is comprised of unquoted investments. These
are all valued in line with accounting policy 1(b). Under the accounting policy
the reported net asset value methodology has been adopted in valuing those
investments.
Key sources of estimation uncertainty
As the Company has judged that it is appropriate to use reported NAVs in
valuing the unquoted investments as set out in Note 14 (vi), the Company does
not have any key assumptions concerning the future, or other key sources of
estimation uncertainty in the reporting period, which may have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Whilst the Board considers the methodologies and assumptions adopted in the
valuation of unquoted investments are supportable, reasonable and robust,
because of the inherent uncertainty of valuation, the values used may differ
significantly from the values that would have been used had a ready market for
the investment existed and the differences could be significant. These values
may need to be revised as circumstances change and material adjustments may
still arise as a result of a reappraisal of the unquoted investments fair value
within the next year.
In using a figure of 25% in the disclosures in relation to unquoted investments
the Directors had regard to the nature of the investments, the wide range of
possible outcomes, and public information on secondary market transactions in
private equity funds.
(b) Investments Held at Fair Value Through Profit or Loss
All investments are measured on initial recognition and at subsequent reporting
dates at fair value in accordance with FRS 102 Section 11: Basic Financial
Instruments and Section 12: Other Financial Instruments Issues.
Purchases and sales of quoted investments are recognised on the trade date
where a contract exists whose terms require delivery within a time frame
determined by the relevant market. Purchases and sales of unlisted investments
are recognised when the contract for acquisition or sale becomes unconditional.
Changes in the fair value of investments and gains and losses on disposal are
recognised in the Income Statement as 'gains or losses on investments'. Also
included within this caption are transaction costs in relation to the purchase
or sale of investments, including the difference between the purchase price of
an investment and its price at the time of purchase. The fair value of the
different types of investment held by the Company is determined as follows:
* Quoted Investments
Fair value is deemed to be bid, or last trade, price depending on the
convention of the exchange on which it is quoted.
* Unquoted Investments
Unquoted investments are fair valued using recognised valuation methodologies
in accordance with the International Private Equity and Venture Capital
Association valuation guidelines (IPEVCA Guidelines).
Where an investment has been made recently the Company may use cost as the best
indicator of fair value. In such a case changes or events subsequent to the
relevant transaction date would be assessed to ascertain if they imply a change
in the investment's fair value.
The Company's unquoted investments comprise of limited partnerships or other
entities set up by third parties to invest in a wider range of investments, or
to participate in a larger investment opportunity than would be feasible for an
individual investor, and to share the costs and benefits of such investment.
For these investments and in line with the IPEVCA Guidelines, the fair value
estimate is based on the attributable proportion of the reported net asset
value of the unquoted investment derived from the fair value of underlying
investments. Valuation reports, provided by the manager or general partner of
the unquoted investments are used to calculate fair value where there is
evidence that the valuation is derived using fair value principles that are
consistent with the Company's accounting policies and valuation methods. Such
valuation reports may be adjusted to take account of changes or events to the
reporting date, or other facts and circumstances which might impact the
underlying value.
If a decision to sell an unquoted investment or portion thereof has been made
then the fair value would be the expected sales price where this is known or
can be reliably estimated.
Where a portion of an unquoted investment has been sold the level of any
discount, implicit in the sale price, will be reviewed at each measurement date
for that unquoted investment taking account of the performance of the unquoted
investment, as well as any other factors relevant to the value of the unquoted
investment.
(c) Investment Income
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company's right
to receive payment is established. UK dividends are shown net of tax credits
and foreign dividends are grossed up at the appropriate rate of withholding
tax.
Fixed returns on non-equity shares and debt securities are recognised on a time
apportionment basis so as to reflect the effective yield when it is probable
that economic benefit will flow to the Company. Where income accruals
previously recognised, but not received, are no longer considered to be
reasonably expected to be received, due to doubt over their receipt, then these
amounts are reversed through expenses.
Income distributions from limited partnership funds are recognised when the
right to the distribution is established.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
* expenses which are incidental to the acquisition or disposal of an
investment, are charged to the capital column of the Income Statement; and
* expenses are charged to the capital column of the Income Statement
where a connection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the portfolio management and
AIFM fees have been charged to the Income Statement in line with the Board's
expected long-term split of returns, in the form of capital gains and income,
from the Company's portfolio. As a result 20% of the portfolio management and
AIFM fees are charged to the revenue column of the Income Statement and 80% are
charged to the capital column of the Income Statement.
Any performance fee accrued or paid is charged in full to the capital column of
the Income Statement.
(e) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue using the marginal basis. Deferred taxation is provided on all
timing differences that have originated but not been reversed by the Statement
of Financial Position date other than those differences regarded as permanent.
This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the reversal of timing differences can be deducted. Any liability to deferred
tax is provided for at the rate of tax enacted or substantially enacted.
(f) Foreign Currency
Transactions recorded in overseas currencies during the year are translated
into sterling at the exchange rate ruling on the date of the transaction.
Assets and liabilities denominated in overseas currencies are translated into
sterling at the exchange rates ruling at the date of the statement of financial
position.
Any gains or losses on the translation of foreign currency balances, whether
realised or unrealised, are taken to the capital or the revenue column of the
Income Statement, depending on whether the gain or loss is of a capital or
revenue nature.
(g) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant risk of
changes in value.
(h) Capital Reserves
The following are transferred to this reserve: gains and losses on the
realisation of investments; changes in the fair values of investments; and,
expenses, together with the related taxation effect, charged to capital in
accordance with the Expenses Policy.
Any gains in the fair value of investments that are not readily convertible to
cash are treated as unrealised gains in the capital reserve.
(i) Special Reserve
During 2016, in order to enable the Company to make share repurchases out of
distributable reserves and to increase the distributable reserves available to
facilitate the payment of future dividends, following the approval of the
Court, the share premium account was cancelled and the balance of the account
was transferred to the Special Reserve.
2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
2018 2017
GBP'000 GBP'000
Income from investments
UK listed dividends 155 125
Unquoted distributions 142 -
Overseas dividends 1,196 589
Fixed interest income 16 114
1,509 828
Total income comprises:
Dividends 1,493 714
Interest 16 114
1,509 828
3. AIFM AND PORTFOLIO MANAGEMENT FEES
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
AIFM fee 33 133 166 32 128 160
Portfolio management fee 185 740 925 177 709 886
218 873 1,091 209 837 1,046
4. OTHER EXPENSES
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Directors' remuneration 170 - 170 170 - 170
Employers NIC on 18 - 18 18 - 18
directors' remuneration
Auditors' remuneration 35 - 35 32 - 32
for the audit of the
Company's financial
statements
Registrar fees 23 - 23 21 - 21
Broker fees 30 - 30 30 - 30
Legal and professional 13 - 13 56 53 109
costs
Depositary and custody 53 - 53 50 - 50
fees
Other costs 90 - 90 77 7 84
Total expenses 432 - 432 454 60 514
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
5. TAXATION ON NET RETURN
(a) Analysis of charge in period
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Corporation tax
Overseas taxation 135 - 135 48 - 48
(b) Factors affecting current tax charge for the year
Approved investment trusts are exempt from tax on capital gains made within the
Company.
The tax charged for the period is lower than the standard rate of corporation
tax in the UK of 19.0% (2017: 19.25%). The difference is explained below.
2018 2017
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Net return/(loss) before 859 (1,908) (1,049) 165 5,292 5,457
taxation
Corporation tax at 19.0% 163 (362) (199) 32 1,019 1,051
(2017: 19.25%)
Non-taxable gains on - 196 196 - (1,191) (1,191)
investments
Overseas withholding 135 - 135 48 - 48
taxation
Non taxable overseas (247) - (247) (113) - (113)
dividends
Non taxable UK dividends (29) - (29) (24) - (24)
Excess management 113 166 279 105 172 277
expenses
Total tax charge 135 - 135 48 - 48
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current period. The
Company has not provided for deferred tax on capital profits and losses arising
on the revaluation or disposal of investments, as it is exempt from tax on
these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of GBP831,000 (17% tax rate)
(2017: GBP585,000, 17%) as a result of excess management expenses. It is not
anticipated that these excess expenses will be utilised in the foreseeable
future. The reduction in the standard rate of corporation tax was substantially
enacted on 13 September 2016 and will be effective on 1 April 2020.
6. (LOSS)/RETURN PER SHARE
2018 2017
GBP'000 GBP'000
The return per share is based on the following figures:
Revenue return/(loss) 724 117
Capital (loss)/return (1,908) 5,292
(1,184) 5,409
Weighted average number of shares in issue during the period 80,000,001 80,000,001
Revenue return per ordinary share 0.9p 0.1p
Capital (loss)/return per ordinary share (2.4)p 6.6p
(1.5)p 6.7p
The calculation of the total, revenue and capital returns/(losses) per Ordinary
Share is carried out in accordance with IAS 33 Earnings per share.
7. INVESTMENTS
2018 2017
Derivative Derivative
Quoted Unquoted Financial Quoted Unquoted Financial
Investments Investments Instruments Total Investments Investments Instruments Total
* *
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Opening balance
Cost at 1 37,625 22,780 - 60,405 38,630 20,386 - 59,016
January
Investment 5,171 (2,243) 454 3,382 (2,024) (4,445) - (6,469)
holding gains/
(losses) at 1
January
Valuation at 1 42,796 20,537 454 63,787 36,606 15,941 - 52,547
January
Movement in the
period:
Purchases at 24,772 3,402 - 28,174 22,311 5,631 - 27,942
cost
Sales - proceeds (21,240) (4,637) (222) (26,099) (20,130) (2,761) - (22,891)
- (losses)/gains (2,446) 894 222 (1,330) (3,186) (476) - (3,662)
on sales
Net movement in (909) 2,442 (1,238) 295 7,195 2,202 454 9,851
investment
holdings
(losses)/gains
Valuation at 31 42,973 22,638 (784) 64,827 42,796 20,537 454 63,787
December
Closing balance
Cost at 31 38,711 22,439 - 61,150 37,625 22,780 - 60,405
December
Investment 4,262 199 (784) 3,677 5,171 (2,243) 454 3,382
holding gains/
(losses) at
31 December
Valuation at 31 42,973 22,638 (784) 64,827 42,796 20,537 454 63,787
December
*Derivative financial instruments comprise foreign exchange forwards. Further
details are included in note 14.
2018 2017
GBP'000 GBP'000
Losses based on historical cost - sales (1,330) (3,662)
Movement in investment holding gains in the year 295 9,851
(Losses)/gains on investments (1,035) 6,189
Purchase transaction costs were GBP13,000 (2017: GBP23,000). These comprise mainly
commission and stamp duty.
Sales transaction costs were GBP15,000 (2017: GBP30,000). These comprise mainly
commission.
8. DEBTORS
2018 2017
GBP'000 GBP'000
VAT recoverable 15 20
Withholding tax recoverable 75 33
Prepayments and accrued income 41 32
131 85
9. OTHER CREDITORS
2018 2017
GBP'000 GBP'000
Amounts falling due within one year
Other creditors 182 167
10. SHARE CAPITAL
2018 2017
GBP'000 GBP'000
Issued and fully paid:
Ordinary shares of 1p 800 800
11. NET ASSET VALUE PER SHARE
2018 2017
Net asset value per share 90.6p 92.1p
Net asset value per share
The net asset value per share is based on the assets attributable to equity
shareholders of GBP72,508,000 (2017: GBP73,692,000) and on the number of Ordinary
Shares in issue at the year end of 80,000,001.
12. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2018 2017
GBP'000 GBP'000
(Losses)/gains before finance costs and taxation (1,049) 5,457
Deduct: Losses/(gains) made on investments 1,035 (6,189)
(14) (732)
(Increase)/decrease in other debtors (4) 7
Increase/(decrease) in creditors and accruals 15 (34)
Effective interest rate amortisation (4) (51)
Net taxation suffered on investment income (177) (75)
Net cash outflow from operating activities (184) (885)
13. RELATED PARTIES
The following are considered to be related parties:
* Frostrow Capital LLP
* The Directors of the Company
Details of the relationship between the Company and the Company's AIFM are
disclosed in the Strategic Report. Details of fees paid to Frostrow by the
Company can be found in note 3. All material related party transactions have
been disclosed in note 3. Details of the remuneration of all Directors can be
found in note 4. Details of the Directors' interests in the capital of the
Company can be found in the Directors' Remuneration Report.
Ben Goldsmith, a member of the Portfolio Manager, holds a minority membership
interest in Alpina Partners LLP (formerly WHEB Capital Partners LLP), the
investment manager of the WCP Growth Fund LP. He also has a small carried
interest participation in this fund.
14. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company's financial instruments comprise securities and other investments,
cash balances and certain debtors and creditors that arise directly from its
operations.
As an investment trust, the Company invests in equities and other investments
for the long term so as to achieve its investment objective. In pursuing its
investment objective, the Company is exposed to a variety of risks that could
result in a reduction in the Company's net assets.
The main risks that the Company faces arising from its use of financial
instruments are:
(i) market risk (including foreign currency risk, interest rate risk and
other price risk)
(ii) liquidity risk
(iii) credit risk
These risks, with the exception of liquidity risk, and the Directors' approach
to the management of them, are set out in the Strategic Report. The AIFM, in
close co-operation with the Board and the Portfolio Manager, co-ordinates the
Company's risk management.
(i) Other price risk
In pursuance of the Company's Investment Objective the Company's portfolio is
exposed to the risk of fluctuations in market prices and foreign exchange
rates.
The Board manage these risks through the use of investment limits and
guidelines as set out on in the Investment Policy, and monitor the risks
through monthly compliance reports from Frostrow, with reports from Frostrow
and the Portfolio Manager also presented at each Board meeting. In addition,
Frostrow monitor the exposure of the Company and compliance with the investment
limits and guidelines on a daily basis.
Other price risk sensitivity
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been
25% higher or lower while all other variables had remained constant: the
revenue return would have decreased/increased by GBP48,000 (2017: GBP46,000); the
capital return would have increased/decreased by GBP16,209,000 (2017: GBP
15,341,000); and, the return on equity would have increased/decreased by GBP
16,161,000 (2017: GBP15,295,000). The calculations are based on the portfolio as
at the respective dates of the Statement of Financial Position and are not
representative of the year as a whole.
(ii) Foreign currency risk
A significant proportion of the Company's portfolio positions are denominated
in currencies other than sterling (the Company's functional currency, and the
currency in which it reports its results). As a result, movements in exchange
rates can significantly affect the sterling value of those items.
Foreign currency risk is managed and maintained in conjunction with other price
risk as described above.
Foreign currency exposure
The fair values of the Company's assets and liabilities that are denominated in
foreign currencies are shown below:
2018 2017
Current Current
Investments Derivatives assets Net Investments Derivatives assets Net
*
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
U.S. dollar 41,523 (13,715) 16 27,824 25,093 (12,921) 13 12,185
Euro 14,018 (13,032) 75 1,061 25,159 (12,884) 33 12,308
Other 2,385 - 10 2,395 6,415 - - 6,415
57,926 (26,747) 101 31,280 56,667 (25,805) 46 30,908
*Derivatives comprise foreign currency forwards used to partially hedge the
Company's exposure to overseas currencies.
Foreign currency sensitivity
The following table details the sensitivity of the Company's net return for the
year and shareholders' funds to a 10% increase and decrease in sterling against
the relevant currency.
These percentages have been determined based on market volatility in exchange
rates over the period since launch. The sensitivity analysis is based on the
Company's significant foreign currency exposures at each Balance Sheet date.
2018 2017
USD EUR Other USD EUR Other
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Sterling depreciates 3,083 116 262 1,511 1,278 702
Sterling appreciates (2,522) (95) (215) (1,236) (1,045) (575)
(iii) Interest rate risk
Interest rate changes may affect:
- the level of income receivable from floating and fixed rate
securities and cash at bank and on deposit;
- the fair value of investments in fixed interest securities.
Interest rate exposure
The exposure of financial assets and liabilities to fixed and floating interest
rates, is shown below.
At 31 December 2018, the Company held 0.2% (2017: 0.3%) of the portfolio in
debt instruments. The exposure is shown in the table below:
2018 2017
Fixed Floating Fixed Floating
rate rate rate rate
GBP'000 GBP'000 GBP'000 GBP'000
Quoted debt investments 159 - 156 -
Cash - 7,732 - 9,987
159 7,732 156 9,987
Interest rate sensitivity
If interest rates had been 1% higher or lower and all other variables were held
constant, the Company's net return for the year ended 31 December 2018 and the
net assets would increase/decrease by GBP77,000 (2017: GBP100,000).
(iv) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
The main liquidity requirements the Company may face are its commitments to the
investments in limited partnership funds, as set out in note 16. These
commitments can be drawn down on 3 or 10 days notice, although it is considered
unlikely that they would all be drawn at once. Frostrow and the Portfolio
Manager are in regular contact with the managers of the limited partnership
funds, as a part of which they would be made aware, and plan accordingly, of
any material drawdowns under those commitments.
The Company's assets comprise quoted securities (equity shares, fixed income
and fund investments), cash, and unquoted limited partnership funds and
investments. Whilst the unquoted investments are illiquid, short-term
flexibility is achieved through the quoted securities, which are liquid, and
cash which is available on demand.
The liquidity of the quoted securities is monitored on a monthly basis to
ensure that there is sufficient liquidity to meet the company's liabilities and
any forthcoming drawdowns.
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a financial loss. The quoted
debt investments are managed as part of an investment portfolio, and their
credit risk is considered in the context of their overall investment risk.
Credit risk exposure
2018 2017
GBP'000 GBP'000
Quoted debt investments 159 156
Derivative financial instruments - 454
Current assets:
Other receivables (amounts due from brokers, dividends and 116 65
interest receivable)
Cash 7,732 9,987
(vi) Hierarchy of investments
The Company's investments are valued within a fair value hierarchy that
reflects the significance of the inputs used in making the fair value
measurements as described in the accounting policies.
Level 1 Level 2 Level 3 Total
As of 31 December 2018 GBP'000 GBP'000 GBP'000 GBP'000
Investments 42,814 159 22,638 65,611
Derivatives - (784) - (784)
Level 1 Level 2 Level 3 Total
As of 31 December 2017 GBP'000 GBP'000 GBP'000 GBP'000
Investments 42,640 156 20,537 63,333
Derivatives - 454 - 454
Level 3 investments as of 31 December 2018
Value
Cost GBP Ownership Valuation
basis
KKR Evergreen Co-Invest LP 1 GBP3,518,000 3,867,000 1.25% NAV
Perfin Apollo 12 FIP BRL3,577,000 711,000 5.80% NAV
Helios Co-Invest LP 2 US$12,562,000 15,594,000 6.00% NAV
WCP Growth Fund LP GBP7,742,000 947,000 10.30% Discount to
NAV
TCI Real Estate Partners Fund III US$1,927,000 1,519,000 1.29% NAV
Ltd
1 Described as Calvin Capital in the portfolio statement
2 Described as X-ELIO in the portfolio statement
The WCP Fund made net drawdowns of GBP133,000 during the year. Helios Co-Invest
LP's (Helios) fair value increased by GBP3,673,000 and a further investment of
US$553,000 was made into Helios.
Perfin Apollo 12 FIP and TCI Real Estate Partners Fund III Limited made
drawdowns of BRL524,000 and US$1,925,000, respectively, during the year. In
addition Calvin Capital made a distribution of GBP141,000.
The Company sold half its stake in the Alpina Fund for GBP1,205,000 during 2018.
The cost of the stake sold was EUR2,428,000 and its previous carrying value
(adjusted for distributions and drawdowns prior to the sale) was GBP1,182,000.
If a 25% discount to NAV was applied to the NAV of the level 3 investments as
at 31 December 2018, or the discount already applied was increased by 25%, the
impact would have been a decrease of GBP5,660,000 in net assets and the net
return for the year.
Level 3 investments as of 31 December 2017
Value
Cost GBP Ownership Valuation
basis
Alpina Partners Fund LP EUR3,529,000 3,620,000 4.70% NAV
KKR Evergreen Co-Invest LP 1 GBP3,518,000 3,500,000 1.25% NAV
Perfin Apollo 12 FIP BRL3,054,000 680,000 5.80% NAV
Helios Co-Invest LP 2 US$12,562,000 11,675,000 6.00% NAV
WCP Growth Fund LP GBP7,742,000 1,062,000 10.30% Discount to
NAV
1 Described as Calvin Capital in the portfolio statement
2 Described as X-ELIO in the portfolio statement
During 2017 the WCP Growth Fund LP (WCP Fund) was written down by GBP1,346,000
and the Alpina Partners Fund LP (Alpina Fund) was written up by GBP1,352,000 . In
addition, the WCP Fund made net capital distributions of GBP561,000 during the
year and the Alpina Fund made net drawdowns of GBP547,000. Helios Co-Invest LP's
(Helios) fair value increased by GBP1,871,000 and it made a capital distribution
of GBP363,000.
If a 25% discount to NAV was applied to the NAV of the level 3 investments as
at 31 December 2017, or the discount already applied was increased by 25%, the
impact would have been a decrease of GBP5,134,000 in net assets and the net
return for the year.
(vii) Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to a maximum of 20% of the Company's net
assets. Currently the Company does not have any gearing and there are no
facilities in place.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as disclosed on the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company's capital on an ongoing basis.
This includes a review of:
- the planned level of gearing, which takes into account the Portfolio
Manager's view of the market;
- the need to buy back equity shares, either for cancellation or to
hold in treasury, in light of any share price discount to net asset value per
share;
- the need for new issues of equity shares; and,
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
15. CAPITAL RESERVE
2018 2017
Capital Reserves Capital Reserves
Investment
Holding Investment
(Losses) Holding
Other /Gains Total Other Losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January (7,921) 3,382 (4,539) (3,362) (6,469) (9,831)
Net (losses)/gains on (1,330) 295 (1,035) (3,662) 9,851 6,189
investments
Expenses charged to capital (873) - (873) (897) - (897)
At 31 December (10,124) 3,677 (6,447) (7,921) 3,382 (4,539)
Sums within the Total Capital Reserve less unrealised gains (those on
investments not readily convertible to cash) are available for distribution. In
addition the Revenue Reserve is available for distribution.
16. FINANCIAL COMMITMENT
The Company has made commitments to provide additional funds to the following
investments:
Sterling Local curreny Notice of
Commitment Commitment drawdown
KKR Evergreen Co-Invest LP GBP175,000 - 10 business days
Perfin Apollo 12 FIP GBP2,922,000 BRL14,422,000 10 days
WCP Growth Fund LP GBP135,000 - 10 business days
Helios Co-Invest LP GBP49,000 US$62,000 3 business days
TCI Real Estate Partners Fund III GBP10,265,000 US$13,073,000 10 business days
Limited
17. THE COMPANY
The Company is a public limited company (PLC) incorporated in England and
Wales, with registered office at One Wood Street, London, EC2V 7WS. The
Company's principal place of business is 25 Southampton Buildings, London, WC2A
1AL.
On 14 December 2018, the Company's name was changed from Menhaden Capital PLC
to Menhaden PLC.
Further Information
Shareholder Information
Financial Calendar
31 December Financial Year End
March/April Final Results Announced
May Annual General Meeting, Final Dividend
30 June Half Year End
September Half Year End Results Announced
Annual General Meeting
The Annual General Meeting of Menhaden PLC will be held at the offices of
Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG
on Wednesday, 29 May 2019 at 12 noon.
Share Prices
The Company's Ordinary Shares are listed on the London Stock Exchange under
'Investment Companies'. The price is given daily in the Financial Times and
other newspapers.
Change of Address
Communications with shareholders are mailed to the address held on the share
register. In the event of a change of address or other amendment this should be
notified to the Company's Registrars, Link Asset Services, under the signature
of the registered holder.
Net Asset Value
The net asset value of the Company's shares can be obtained on the Company's
website at www.menhaden.com and is published monthly via the London Stock
Exchange.
AIFMD Disclosures
The Company's AIFM, Frostrow Capital LLP and the Company are required to make
certain disclosures available to investors in accordance with the Alternative
Investment Fund Managers Directive ("AIFMD").
Those disclosures that are required to be made pre-investment are included
within an Investor Disclosure Document which can be found on the Company's
website www.menhaden.com.
The periodic disclosures to investors are made below:
* Information on the investment strategy, sector investment focus and
principal stock exposures are included in the Strategic Report.
* None of the Company's assets are subject to special arrangements
arising from their illiquid nature.
* There are no new arrangements for managing the liquidity of the
Company or any material changes to the liquidity management systems and
procedures employed by Frostrow.
* The Strategic Report and note 14 to the Financial Statements set out
the risk profile and risk management systems in place. There have been no
changes to the risk management systems in place during the year under review
and no breaches of the risk limits set, with no breach expected.
* The maximum level of leverage did not change in the year under
review: during the year ended 31 December 2018, the maximum permitted levels
were 200% on a gross basis and 120% on a commitment basis (see Glossary for
further details). Gross leverage was 128.2% (2017: 121%) and commitment
leverage was 100.1% (2017: 100.1%).
* With effect from 15 February 2019, leverage on a commitment basis was
changed from 120% to 200%. The maximum permitted leverage level on a gross
basis remained 200%.
* No right of re-use of collateral or any guarantee granted under the
leveraging arrangement has arisen during the period.
* Following completion of an assessment of the application of the
proportionality principle to the FCA's AIFM Remuneration Code, the AIFM has
disapplied the pay-out process rules with respect to it and any of its
delegates. This is because the AIFM considers that it carries out non-complex
activities and is operating on a small scale.
Note: These disclosures are not audited by the Company's statutory auditor.
Glossary
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
Compounding Hurdle
The payment of a performance fee is conditional on the Company's NAV being
above the high watermark and the return on the gross proceeds from the IPO of
the Company exceeding an annualised compound return of 5%.
Discount or Premium
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Gearing
In simple terms gearing is borrowing. An investment trust can borrow money to
invest in additional investments for its portfolio. The effect of the borrowing
on shareholders' funds is called 'gearing'. If the Company's assets grow,
shareholders' funds grow proportionately more because the debt remains the
same. But if the value of the Company's assets falls, the situation is
reversed. Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gearing represents borrowings at par less cash and cash equivalents expressed
as a percentage of shareholders' funds.
Potential gearing is the company's borrowings expressed as a percentage of
shareholders' funds.
High Watermark
The high watermark is the highest net asset value that the Company has reached.
Its initial level was set at 100p on the launch of the Company.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive,
leverage is any method which increases the Company's exposure, including the
borrowing of cash and the use of derivatives. It is expressed as a ratio
between the Company's exposure and its net asset value and can be calculated on
a gross and a commitment method. Under the gross method, exposure represents
the sum of the Company's positions after the deduction of sterling cash
balances, without taking into account any hedging and netting arrangements.
Under the commitment method, exposure is calculated without the deduction of
sterling cash balances and after certain hedging and netting positions (as
detailed in the AIFMD) are offset against each other.
Net Asset Value (NAV)
The value of the Company's assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV per share is also
described as 'shareholders' funds' per share. The NAV is often expressed in
pence per share after being divided by the number of shares which are in issue.
The NAV per share is unlikely to be the same as the share price which is the
price at which the Company's shares can be bought or sold by an investor. The
share price is determined by the relationship between the demand and supply of
the shares.
NAV Total Return
The theoretical total return on shareholders' funds per share, including an
assumed GBP100 original investment at the beginning of the period specified,
reflecting the change in NAV assuming that any dividends paid to shareholders
were reinvested at NAV at the time the shares were quoted ex-dividend. A way of
measuring investment management performance of investment trusts which is not
affected by movements in the Share price discount/premium.
Share Price Total Return
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested, usually expressed as a percentage.
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised ongoing
charges, excluding finance costs, taxation, performance fees and exceptional
items, and expressing them as a percentage of the average daily net asset value
of the Company over the year.
31 December 31 December
2018 2017
GBP'000 GBP'000
Total Operating Expenses 1,523 1,560
Deduct: Non-recurring items - (2)
Investment due diligence costs - (103)
Adjusted Operating Expenses 1,523 1,453
Average Net Assets during the year 73,983 70,680
Ongoing Charges 2.1% 2.1%
Risk warnings
- Past performance is no guarantee of future performance.
- The value of your investment and any income from it may go down as
well as up and you may not get back the amount invested. This is because the
share price is determined by the changing conditions in the relevant stock
markets in which the Company invests and by the supply and demand for the
Company's shares.
- As the shares in an investment trust are traded on a stock market,
the share price will fluctuate in accordance with supply and demand and may not
reflect the underlying net asset value of the shares; where the share price is
less than the underlying value of the assets, the difference is known as the
'discount'. For these reasons, investors may not get back the original amount
invested.
- Although the Company's financial statements are denominated in
sterling, it may invest in stocks and shares that are denominated in currencies
other than sterling and to the extent they do so, they may be affected by
movements in exchange rates. As a result, the value of your investment may rise
or fall with movements in exchange rates.
- Investors should note that tax rates and reliefs may change at any
time in the future.
- The value of ISA and Junior ISA tax advantages will depend on
personal circumstances. The favourable tax treatment of ISAs and Junior ISAs
may not be maintained.
Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of Menhaden PLC will be
held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose
Street, London EC2A 2EG on Wednesday, 29 May 2019 at 12 noon for the following
purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and accept the Annual Report for the year ended 31
December 2018.
2. To declare a final dividend of 0.7p per ordinary share for the year
ended 31 December 2018.
3. To re-elect Sir Ian Cheshire as a Director of the Company.
4. To re-elect Duncan Budge as a Director of the Company.
5. To re-elect Emma Howard Boyd as a Director of the Company.
6. To re-elect Howard Pearce as a Director of the Company.
7. To re-appoint Grant Thornton UK LLP as the Company's Auditor and to
authorise the Audit Committee to determine their remuneration.
8. To receive and approve the Directors' Remuneration Report for the
year ended 31 December 2018.
9. To approve the Directors' Remuneration Policy as set out on page 46
of the Annual Report for the year ended 31 December 2018.
Special Business
To consider and, if thought fit, pass the following resolution as a special
resolution:
General Meetings
10. THAT the Directors be authorised to call general meetings (other than
the Annual General Meeting of the Company) on not less than 14 clear days'
notice, such authority to expire on the conclusion of the next Annual General
Meeting of the Company or if earlier, on the expiry 15 months from the date of
the passing of the resolution.
By order of the
Board
Registered Office:
One Wood Street
London EC2V 7WS
Frostrow Capital LLP
Company Secretary
1 April 2019
Notes
1. Members are entitled to appoint a proxy to exercise all or any of
their rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company.
2. A vote withheld is not a vote in law, which means that the vote will
not be counted in the calculation of votes for or against the resolutions. If
no voting indication is given, a proxy may vote or abstain from voting at his/
her discretion. A proxy may vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the meeting.
3. This year, hard copy forms of proxy have not been included with this
notice. Members can vote by: logging onto www.signalshares.com and following
instructions; requesting a hard copy form of proxy directly from the
registrars, Link Asset Services, at enquiries@linkgroup.co.uk; or, in the case
of CREST members, utilising the CREST electronic proxy appointment service in
accordance with the procedures set out below. To be valid any appointment of a
proxy must be completed, signed and received at Link Asset Services, PXS1, 34
Beckenham Road, Beckenham, Kent BR3 4ZF no later than 12 noon on 27 May 2019.
4. In the case of a member which is a company, the instrument appointing
a proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power of
attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any
CREST Proxy Instruction (as described below) will not prevent a shareholder
attending the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated
under section 146 of the Companies Act 2006 to enjoy information rights (a
"Nominated Person") may, under an agreement between him/her and the shareholder
by whom he/she was nominated, have a right to be appointed (or have someone
else appointed) as a proxy for the meeting. If a Nominated Person has no such
proxy appointment right or does not wish to exercise it, he/she may, under any
such agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the
appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated
Persons. The rights described in these paragraphs can only be exercised by
shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities
Regulations 2001, only shareholders registered on the register of members of
the Company (the "Register of Members") at close of business on Monday, 27 May
2019 (or, in the event of any adjournment, on the date which is two days before
the time of the adjourned meeting) will be entitled to attend and vote or be
represented at the meeting in respect of shares registered in their name at
that time. Changes to the Register of Members after that time will be
disregarded in determining the rights of any person to attend and vote at the
meeting.
9. As at 29 March 2019 (being the last business day prior to the
publication of this notice) the Company's issued share capital consists of
80,000,001 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 29 March 2019 are 80,000,001.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting, excluding non-business days. For this
purpose, the time of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST Application Host) from which the
issuer's agent is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time any change of instructions to
proxies appointed through CREST should be communicated to the appointee through
other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. 13. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 14. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Register of Members in respect of the joint holding (the first named being the most senior). 15. Members who wish to change their proxy instructions should submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. 16. Members who have appointed a proxy using a hard-copy proxy form and who wish to change the instructions using another hard-copy form, should contact Link Asset Services on 0871 664 0300 (calls cost 12p per minute plus network extras). Lines are open 9.00 a.m. to 5.30 p.m. Monday to Friday. 17. If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. 18. In order to revoke a proxy instruction, members will need to inform the Company. Members should send a signed hard copy notice clearly stating their intention to revoke a proxy appointment to Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power of attorney) must be included with the revocation notice. If a member attempts to revoke their proxy appointment but the revocation is received after the time for receipt of proxy appointments then, subject to paragraph 4, the proxy appointment will remain valid. Explanatory Notes to the Resolutions Resolution 1 - To receive the Annual Report The Annual Report for the year ended 31 December 2018 will be presented to the Annual General Meeting (AGM). These financial statements accompany this Notice of Meeting and shareholders will be given an opportunity at the meeting to ask questions. Resolution 2 - To approve a Final Dividend The rationale for the payment of a final dividend is set out in the Chairman's Statement and the Directors' Report. Resolutions 3 to 6 - Re-election of Directors Resolutions 2 to 5 deal with the re-election of each Director. Biographies of each of the Directors can be found in the Governance section of the Annual Report. Resolution 7 - Re-appointment of Auditor and the determination of their remuneration Resolution 6 relates to the re-appointment of Grant Thornton UK LLP as the Company's independent Auditor to hold office until the next AGM of the Company and also authorises the Audit Committee to set their remuneration. Following the implementation of the Competition and Markets Authority order on Statutory Audit Services, only the Audit Committee may negotiate and agree the terms of the Auditors' service agreement. Resolutions 8 and 9 - Directors' Remuneration Report and Remuneration Policy It is mandatory for all listed companies to put their report on Directors' remuneration to a shareholder vote every year and their report on the Directors' remuneration policy to a shareholder vote every three years. After the forthcoming AGM on 29 May 2019, the remuneration policy will next be put to shareholders at the AGM in 2022 unless any material changes are made to it, in which case it will be put to shareholders at the next AGM following such changes. The Directors' Remuneration Report and the Remuneration Policy are set out in full in the Annual Report. Resolution 10 - General Meetings Special Resolution No. 9 seeks shareholder approval for the Company to hold General Meetings (other than the AGM) on 14 clear days' notice. The Company will only use this shorter notice period where it is merited by the purpose of the meeting and will endeavour to give at least 14 working days' notice if possible, in line with the recommendations of the UK Corporate Governance Code. Recommendation The Board considers that the resolutions relating to the above items are in the best interests of shareholders as a whole. Accordingly, the Board unanimously recommends to the shareholders that they vote in favour of the above resolutions to be proposed at the forthcoming AGM as the Directors intend to do in respect of their own beneficial holdings totalling 168,000 shares. Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement. END END
(END) Dow Jones Newswires
April 01, 2019 07:59 ET (11:59 GMT)
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