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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sherborne Investors (guernsey) C Limited | LSE:SIGC | London | Ordinary Share | GG00BZ3C3B94 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 55.75 | 54.00 | 56.50 | 0.00 | 08:00:06 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | -42.37M | -47.55M | -0.0679 | -8.21 | 390.25M |
From Apr 2019 to Apr 2024
TIDMSIGC
RNS Number : 2440L
Sherborne Investors (Guernsey)C Ltd
18 April 2018
18 April 2018
Sherborne Investors (Guernsey) C Limited
Annual Report and Consolidated Financial Statements
For the period from 25 May 2017 to 31 December 2017
Company Summary
Hot Features
Premium
The Company Sherborne Investors (Guernsey)
C Limited (the "Company") is a
Guernsey domiciled limited company
and its shares are admitted to
trading on the London Stock Exchange
Specialist Fund Segment ("SFS").
The Company was incorporated on
25 May 2017. The Company commenced
dealings on the SFS on 12 July
2017.
Investment Objective To realise capital growth from
investment in a target company
identified by the Investment Manager,
with the aim of generating a significant
capital return for Shareholders.
Investment Policy To invest, through its investment
in the Investment Partnership,
in a company which is publicly
quoted which it considers to be
undervalued as a result of operational
deficiencies and which it believes
can be rectified by the Investment
Manager's active involvement,
thereby increasing the value of
the investment. The Company will
only invest in one target company
at a time.
Investment Manager The General Partner and the Investment
Partnership have appointed Sherborne
Investors Management (Guernsey)
LLC to provide investment management
services to the Investment Partnership.
Chairman's Statement
Our initial public offering of shares was completed on 12 July 2017, raising gross proceeds of GBP700 million. The net proceeds of the offering were placed in short-term bank deposits pending investment in a limited partnership interest in SIGC, LP (Incorporated) ("SIGC, LP") which is managed by Sherborne Investors Management (Guernsey) LLC, the Investment Manager.
In August 2017 the Board of Directors of the Company approved an investment by SIGC, LP in a Selected Target Company ("STC") and also the price up to which the Investment Manager could purchase shares in it. Approximately GBP85 million was invested in this company, but, due to a change in investment prospects, the Investment Manager elected to liquidate the shareholding in October 2017 realising a gain of approximately 10% on invested capital. The capital and net profits were returned to the Company pending investment in a New Selected Target Company.
The Board subsequently approved a New Selected Target Company, Barclays PLC ("Barclays"), and at 31 December 2017, SIGC, LP had invested GBP307 million in Barclays. On 19 March 2018 the Company noted that Barclays had released to the market a notification of interest stating that three funds managed by affiliates of the Investment Manager, of which SIGC, LP is one, had purchased 5.16% of the voting rights of Barclays.
The Investment Manager advised the Board of the Company that its turnaround assumptions indicate a potential return on the Barclays investment in line with the Investment Manager's customary return objectives.
At 31 December 2017, the net asset value attributable to shareholders of the Company was GBP695,881,385, or 99.41 pence per share.
The Company intends to continue to pursue its strategy as set out in its prospectus.
We are grateful for your continued support and will keep you informed of the status of our investments as they develop.
Board of Directors
Talmai Morgan (65) (Chairman)
Appointed to the Board 25 May 2017
Mr Morgan has been a non-executive director of a number of publicly listed investment companies since 2005. He is currently Chairman of NB Private Equity Partners Limited as well as Sherborne Investors (Guernsey) B Limited. He also sits on the board of John Laing Infrastructure Fund Limited. From January 1999 to June 2004, Mr Morgan was Director of Fiduciary Services and Enforcement at the Guernsey Financial Services Commission where he was responsible for the design and implementation of Guernsey's law relating to the regulation of fiduciaries, administration businesses and company directors. He was also particularly involved in Working Groups of the Financial Action Task Force and the Offshore Group of Banking Supervisors. Prior to 1999, Mr Morgan held positions at Barings and the Bank of Bermuda. Mr. Morgan qualified as a barrister in 1976 and holds an M.A. in Economics and Law from the University of Cambridge.
Trevor Ash (71) (Director)
Appointed to the Board 25 May 2017
Mr Ash has been a non-executive director of a number of investment entities since 1999, including funds managed by Rothschild, Insight, Cazenove, Merrill Lynch and Thames River Capital. He is also a non-executive director of Sherborne Investors (Guernsey) B Limited. He was formerly Chairman of JPEL Private Equity Limited. Prior to 1999, Mr Ash spent 27 years with the Rothschild Group in various capacities, most recently as Managing Director of Rothschild Asset Management (CI) Limited and as a non-executive director of Rothschild Asset Management Limited in London. Mr Ash is a fellow of the Chartered Institute for Securities & Investment.
Christopher Legge (62) (Audit Committee Chairman)
Appointed to the Board 25 May 2017
Mr Legge is a Chartered Accountant having started his career at Pannell Kerr Forster (PKF), before moving to Ernst & Young in 1983, where he became a partner in 1986 and managing partner Guernsey in 1998. Since leaving Ernst & Young in 2003 he has taken on a number of non-executive directorships. He is currently non-executive director of Third Point Offshore Investors Limited, Ashmore Global Opportunities Limited, NB Distressed Debt Investment Fund Limited, TwentyFour Select Monthly Income Fund Limited, John Laing Environmental Assets Group Limited and Sherborne Investors (Guernsey) B Limited. Mr Legge is an FCA and holds a BA (Hons) in Economics from the University of Manchester.
Ian Brindle (74) (Director)
Appointed to the Board 25 May 2017
Mr Brindle was the Senior Partner of Price Waterhouse from 1991 to 1998 and Chairman of PricewaterhouseCoopers until 2001. Mr Brindle was a member of the Accounting Standards Board between 1992 and 2001 and Deputy Chairman of the Financial Reporting Review Panel between 2001 and 2008. Mr Brindle is a non-executive director of Electra Private Equity PLC and has served as a non-executive director on a number of Boards including F&C Asset Management PLC, Spirent Communications PLC, Elementis PLC and 4 Imprint Group PLC.
Directors' Strategic Report
The Directors present their annual report on the affairs of Sherborne Investors (Guernsey) C Limited (the "Company") and its subsidiaries (together, the "Group"), together with the audited consolidated financial statements, for the period from inception on 25 May 2017 to 31 December 2017.
Principal activities and investing policy
The Company is a Guernsey domiciled company incorporated on 25 May 2017 with limited liability. The Company's shares were admitted to trading on the SFS on 12 July 2017.
The Company, via SIGC Midco Limited, is a limited partner in SIGC, LP (Incorporated) (the "Investment Partnership"), a limited partnership registered in Guernsey on 24 May 2017. The Company aims to provide investors with capital growth through its investment in the Investment Partnership to which it has committed GBP700,000,000.
The Company's investment policy, which it will effect indirectly through its investment in the Investment Partnership, is to invest in a company which is publicly quoted, and which the Investment Manager considers to be undervalued as a result of operational deficiencies and which it believes can be rectified by the Investment Manager's active involvement, thereby increasing the value of the investment (a "Turnaround"). Accordingly, the investment will not be passive. The Company's investment may be made on-market or off-market.
The Company may invest, through the Investment Partnership, in a company operating in any economic sector but will only be invested in one company at a time. Thus, it will not seek to reduce risk through diversification. The choice of target company will be subject to a vote in the affirmative of a majority in interest of the limited partners of the Investment Partnership, in effect giving the Board a veto on such decision since the Company owns, and is currently expected to continue to own, more than 50 per cent. of the interests in the Investment Partnership.
The investment in a target company is intended to be in shares, but could also be in warrants, convertibles, derivatives and any other equity, debt or other securities.
Depending on the size of the investment, all or part of the Company's assets will be invested in the Selected Target Company through the Investment Partnership, less the Minimum Capital Requirements. The investment objective and investment policy of the Investment Partnership are the same as those of the Company.
The holding period for investments is neither fixed nor predictable, but the Company expects that a typical holding period would be greater than one year. The average holding period of the four completed UK Turnarounds in companies with which the Investment Manager's key personnel have been involved is 28 months; however, this should not be taken as being indicative of the holding period to be adopted in effecting the Company's investment policy.
The Investment Partnership may engage in hedging transactions to protect the market value of its investment in any company in which it is invested and may also engage in stock lending.
The Company and the Investment Partnership do not currently intend to undertake borrowings, but are permitted to do so. Any borrowings undertaken by the Company and the Investment Partnership will not, in aggregate, be greater than 30 per cent. of the Company's Gross Assets as measured at the time that such borrowings are incurred.
In the event that the Board considers it appropriate to amend materially the investment objective or policy of the Company, Shareholder approval to any such amendment will be sought.
Risk Management
The Directors are responsible for supervising the overall management of the Company, whilst the day-to-day management of the Company's assets has been delegated to the Investment Manager. Portfolio exposure has been limited by the guidelines which are detailed within the Principal Activities and Investment Policy section of the annual report. In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Ipes Group, and this is subject to review by the Audit Committee and the Board.
The principal risks facing the Company relate to the Company's investment activities and these risks include the following:
-- performance risk; -- market risk; -- relationship risk; and -- operational risk
An explanation of these principal risks and how they are managed is set out below.
The Board can confirm that the principal risks of the Company, including those which would threaten its business model, future performance, solvency or liquidity have been robustly assessed for the period ended 31 December 2017.
-- Performance risk - The Board is responsible for approving the Investment Manager's recommended investment in a STC and monitoring the performance of the Investment Manager. An inappropriate strategy or poor execution of strategy may lead to underperformance. To manage that risk the Investment Manager will typically have several potential target companies under review at any one time in various stages of analysis. The Investment Manager's recommendation of a STC includes an assessment of the capital appreciation potential of the proposed investment, assuming certain operating improvements and capital realignment are successfully implemented. The Company intends that its holding in the STC will be less than 30% of the outstanding shares, so that it is not required to make a bid for the entire company. Accordingly, the Company will not control the STC. The Investment Manager's involvement in the turnaround of the STC requires the support of other independent shareholders. The Board receives and reviews regular reports of the Investment Partnership's ownership interest in the STC and other information that impacts its turnaround strategy.
-- Market risk - Market risk arises from uncertainty about the future operating performance and market response to the Company's investment in the STC. The Company's investment approach is to invest in only one company at a time. Such investment concentration may subject the Company to greater market fluctuation and loss than might result from a diversified investment portfolio. The market's valuation of the STC is also subject to fluctuations in overall market prices as well as fluctuations in the industry sectors in which the STC operates. The Investment Manager does not typically hedge against overall market or sector fluctuations. The Company also may use a limited amount of short-term leverage to acquire a portion of its ownership interest in the STC which will amplify the results of the STC. In addition to interest and dividend income received from the STC, the source of debt repayment could come from the proceeds realised from the sale of a portion of the STC. The Group's market risk is managed by the Investment Manager in accordance with policies and procedures in place as disclosed in the Group's prospectus.
-- Relationship risk - Neither the Company nor the Investment Partnership has a physical presence (employees and/or premises). The Company and Investment Partnership are heavily dependent on the Investment Manager for the selection of an appropriate STC and for the day-to-day management and operation of the STC's business and the execution of its Turnaround.
-- Operational risk - Operational risk is reviewed by the Board at each Board meeting. The Board also monitors the Group's investment performance and activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines. Further, at each Board meeting, the Board receives reports from the Company Secretary and Administrator in respect of compliance matters and duties performed by it on behalf of the Company.
Other risks faced by the Company are described in detail within the Company's Offering Document and can be obtained at www.sherborneinvestorsguernseyc.com.
The Board have considered the Company's solvency and liquidity risk and disclosure of this is made in Note 15 of the Consolidated Financial Statements and in the viability statement below.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the viability of the Company over the period ending 31 December 2020. The Directors have determined that the three year period to 31 December 2020 is the maximum period over which to provide its viability statement in order to keep in line with its investment strategy. The holding period for the investment in the STC is neither fixed nor predictable, but the Company expects that a typical holding period would be sufficient to execute the Investment Manager's Turnaround Strategy.
The Directors have identified the following factors as potential contributors to ongoing viability:
-- The principal risks documented in the Directors' Strategic Report as set out above; -- The liquidity of the Company's portfolio; and -- The ongoing relevance of the Company's investment objective in the current environment.
The Company, through its investment in the Investment Partnership, holds cash balances and securities of the STC.
Based on the foregoing, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its obligations as and when they fall due over the three year period to 31 December 2020.
Subsequent events
Details of events that have occurred after the date of the Consolidated Statement of Financial Position are provided in Note 13 to the Consolidated Financial Statements.
Dividend policy
The Company's dividend policy, subject to the discretion of the Directors who reserve the right to retain amounts for Minimum Capital Requirements, is to pay dividends to Shareholders following receipt of any distributions from the Investment Partnership, subject always to compliance with the solvency test prescribed by the Companies (Guernsey) Law, 2008, as amended (the "Companies Law"). This will be dependent on the frequency with which the STC pays dividends to its shareholders (of which the Investment Partnership may be one) as well as the extent such dividends are first required to be used to repay outstanding indebtedness.
Dividend
No dividends were declared or paid during the Period.
Business review
A review of the Company's business during the period and an indication of likely future developments are contained in the Chairman's Statement.
Capital
Details of the Company's capital are provided in Note 10 to the Consolidated Financial Statements. All shares carry equal voting rights.
Substantial interests
As at 31 March 2018, the Company had received notification of the following material shareholdings of greater than 3 per cent:
Number of
Ordinary % of issued
Shareholder Shares share capital
------------------------- ------------ ---------------
Invesco Limited 155,000,000 22.1%
Columbia Threadneedle 129,298,511 18.5%
Aviva plc 99,824,647 14.3%
Fidelity International
Limited 70,000,000 10.0%
Janus Henderson Group
plc 51,000,000 7.3%
Jupiter Fund Management
plc 25,000,000 3.6%
Sherborne Investors GP,
LLC 25,000,000 3.6%
Schroders plc 23,660,000 3.4%
The Directors currently hold no shares in the Company.
Independent Auditor
Deloitte LLP were appointed as auditors during the period. A resolution to confirm the appointment of the auditors to the Company will be proposed at the Annual General Meeting of the Company on 22 May 2018. Deloitte LLP has indicated their willingness to continue as auditors.
Directors' Remuneration Report
Remuneration Policy & Components
The Board endeavours to ensure the Remuneration Policy reflects and supports the Company's strategic aims and objectives throughout the period under review. It has been agreed that, due to the small size and structure of the Company, a separate Remuneration Committee would be inefficient; therefore the Board is responsible for discussions regarding remuneration. No external remuneration consultants were appointed during the period under review.
As per the Company's Articles of Association, all Directors are entitled to such remuneration as is stated in the Company's Prospectus or as the Company may by ordinary resolution determine; the aggregate overall limit is currently set at GBP250,000. Subject to this limit, it is the Company's policy to determine the level of Directors' fees, having regard for the level of fees payable to non-executive Directors in the industry generally, the role that individual Directors fulfil in respect of responsibilities related to the Board and Audit Committee and the time dedicated by each Director to the Company's affairs. Base fees are set out below.
Base Fees and Fees Received 2017 Actual Base fee
GBP GBP
----------------------------- ------------ ---------
Chairman (Mr Talmai Morgan) 30,082 50,000
----------------------------- ------------ ---------
Audit Committee Chairman
(Mr Christopher Legge) 24,066 40,000
----------------------------- ------------ ---------
Non-executive Director (Mr
Trevor Ash) 21,058 35,000
----------------------------- ------------ ---------
Non-executive Director (Mr
Ian Brindle) 21,058 35,000
----------------------------- ------------ ---------
Total 96,264 160,000
----------------------------- ------------ ---------
As outlined in the Articles of Association, the Directors may also be paid for all reasonable travelling, hotel and other out-of-pocket expenses properly incurred in the attendance of Board or Committee meetings, General meetings, or meetings with shareholders of the Company or otherwise in the discharge of their duties; and all reasonable expenses properly incurred by them seeking independent professional advice on any matter that concerns them in the furtherance of their duties as Directors of the Company, such expenses having been immaterial during 2017.
No Director has any entitlement to pensions, paid bonuses or performance fees, granted share options or has been invited to participate in long-term incentive plans. No loans have been extended to a Director by the Company and neither have any loans to a Director been guaranteed by the Company.
None of the Directors have a service contract with the Company. Each of the Directors has entered into a letter of appointment with the Company, subject to election at the first Annual General Meeting, or as determined in line with the Company's Articles, and re-election at subsequent Annual General Meetings in accordance with the Company's Articles and all due regulations and provisions. The Directors do not have any interests in contractual arrangements with the Company or its investment during the period under review, or subsequently. Each appointment can be terminated in accordance with the Company's Articles and without compensation. No notice period is stated in the Articles and is terminable at will of both parties.
Directors' and Officers' liability insurance cover is maintained by the Company but is not considered a benefit in kind nor does it constitute part of the Directors' Remuneration. The Company's Articles indemnify each Director, Secretary, agent and officer of the Company, former or present, out of assets of the Company in relation to charges, losses, liabilities, damages and expenses incurred during the course of their duties, in so far as the law allows and provided that such indemnity is not available in circumstances of fraud, wilful misconduct or negligence.
Corporate Governance Report
As an unregulated Guernsey incorporated company quoted on the SFS, the Company is not required to comply with the UK Corporate Governance Code or the GFSC Finance Sector Code of Corporate Governance. The Directors, however, place great importance on ensuring that high standards of corporate governance are maintained. Accordingly, the Directors will take appropriate measures to ensure that the Company operates with due consideration to any codes of corporate governance that the Board deems appropriate and may choose to operate in accordance with the UK Corporate Governance Code and/or the GFSC Finance Sector Code of Corporate Governance, in each case having regard to the Company's size and nature of business. The Board perceives that good corporate governance practice is necessary for delivering sustainable value, enhancing business integrity and maintaining shareholder confidence in the Company. To further these aims, the Board has decided to voluntarily comply with the UK Corporate Governance Code dated April 2016 (the "Code"), which sets out guidance in the form of principles and provisions for companies to follow good corporate governance practice. Further information on the Code can be obtained from www.frc.org.uk.
Except as disclosed within the report, the Board is of the view that throughout the period ended 31 December 2017, the Company complied with the recommendations of the Code and the provisions of the Code. Key issues affecting the Company's corporate governance responsibilities, how they are addressed by the Board and application of the Code are presented below.
Section A: Leadership
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness on all aspects of its role.
Board Responsibilities
The Board ensures that the Company's contracts of engagement with the Investment Manager, Administrator and other service providers are operating satisfactorily so as to ensure the safe and accurate management and administration of the Company's affairs and business and that they are competitive and reasonable for Shareholders. Terms of Reference that contain a formal schedule of matters reserved for the Board of Directors and its duly authorised Committee for decision has been approved and can be reviewed at the Company's registered office.
Management of the Investment Partnership is the responsibility of Sherborne Investors (Guernsey) GP, LLC, the General Partner, which has delegated investment decisions and day-to-day management of the Investment Partnership to the Investment Manager under the terms of an investment management agreement. Through its majority interest in the Investment Partnership, the Company and therefore the Board, has the ability to approve proposed investments and to remove the General Partner. The performance of the Investment Manager is subject to regular review by the Board.
Other matters for the Board include review of the Company's overall strategy and business plans; approval of the Company's half-yearly and annual Financial Statements; review and approval of any alteration to the Group's accounting policies or practices and valuation of investments; approval of any alteration to the Company's capital structure; approval of dividend policy; appointments to the Board and constitution of Board Committees; and performance review of key service providers.
The Company holds appropriate Directors' and Officers' Liability Insurance cover in respect of any legal action taken against the Board.
Board Composition
The Board consists of four non-executive members. For further information relating to the Board, please refer to Board of Directors. Due to the size and structure of the Company, the appointment of a senior independent director is not deemed appropriate.
Board Committees
The Board has established an Audit Committee composed of all members of the Board, all of whom are independent. The Chairman of the Board is included as a Committee member to enable a full understanding of the issues facing the Company, but is not appointed as its Chair. The Committee, its membership and its terms of reference are kept under regular review by the Board.
The Audit Committee meets at least twice a year and is responsible for ensuring that the financial performance of the Company is properly reported on and monitored, including reviews of the annual and interim accounts, results announcements, internal control systems and procedures and accounting policies.
The Audit Committee considers the scope and effectiveness of the Company's external audit. The Company's auditor, Deloitte LLP may also provide additional non-audit services to the Company, which in the Audit Committee's opinion, will not compromise the independence of Deloitte LLP's audit team. Further information is provided in the Report of the Audit Committee.
Board and Committee Meeting Attendance
The Board met five times during the period. Individual attendance at Board and Audit Committee meetings is set out below.
Board Audit Committee
---------------- ------ ----------------
Talmai Morgan 5 1
Trevor Ash 4 1
Christopher
Legge 5 1
Ian Brindle 4 1
Total Meetings
for Period 5 1
---------------- ------ ----------------
Division of Responsibilities
There are no executive Directors appointed to the Board. The non-executive Directors responsibilities are clearly defined within the Schedule of Matters reserved to the Board. All day-to-day functions are outsourced to external service providers.
The Chairman
Appointed to the position of Chairman of the Board on 25 May 2017, Talmai Morgan is responsible for leading the Board in all areas, including determination of strategy, organising the Board's business and ensuring the effectiveness of the Board and individual Directors. He also endeavours to produce an open culture of debate within the Board.
Role of the non-executive Directors
The Board is composed entirely of non-executive Directors, who meet as required without the presence of the Investment Manager and service providers to scrutinise the achievement of agreed goals and objectives, and monitor performance. Through the Audit Committee, they are able to ascertain the integrity of financial information and confirm that all financial controls and risk management systems are robust. In addition, a non-executive Director may provide a written statement outlining any concerns to the Chairman upon resignation.
See the statements on Board and Committee responsibilities for further information.
Section B: Effectiveness
The Board believes that its balance of skills, experience and knowledge, provides for a sound base from which the interest of investors will be served to a high standard.
Board Composition & Independence
For the purposes of assessing compliance with the Code, the Board considers the Directors are independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of their independent judgment.
Composition of the Board is explained in Section A of the Corporate Governance Report.
Talmai Morgan, Trevor Ash and Christopher Legge are directors of Sherborne Investors (Guernsey) B Limited, a company with similar investment objectives and the same Investment Manager as the Company. As Sherborne Investors (Guernsey) B Limited has a different STC, it is the Board's view that this does not affect their independence.
Board Appointments Process
Appointment Process
There is currently no Nominations Committee for the Company as it is deemed that the size, composition and structure of the Company would mean the process would be inefficient and counter-productive.
The Board has chosen not to adopt a definitive policy with quantitative targets for board diversity. The Board believes that the current mix of skills, experience, knowledge and age of the Directors is appropriate to the requirements of the Company. In accordance with the Code, any Director who has served on the Board for longer than six years will be subject to rigorous review to ensure the need for progressive refreshing of the Board is complied with.
Commitment
Chairman's Commitment
Prior to the Chairman's appointment, discussions were undertaken to ensure the Chairman was sufficiently aware of the time needed for his role, and agreed to upon signature of his appointment letter. Other significant commitments of the Chairman were disclosed prior to appointment to the Board, and any changes declared as and when they arise. These commitments, and their subsequent impact, can be identified in his biography.
Non-executive Directors' Commitments
The terms and conditions of appointment for non-executive Directors are outlined in their letters of appointment, and are available for inspection by any person at the Company's registered office during normal business hours and at the AGM for fifteen minutes prior to and during the meeting. As with the Chairman, significant appointments are declared prior to appointment, any changes reported as and when appropriate.
Development
The Board considers that the Company's Directors should develop their skills and knowledge through participation at relevant courses. The Chairman is responsible for reviewing and discussing the training and development of each Director according to identified needs. Upon appointment, all Directors participate in discussions with the Chairman and other Directors to understand the responsibilities of the Directors, in addition to the Company's business and procedures. The Company also provides regular opportunities for the Directors to obtain a thorough understanding of the Company's business by regularly meeting members of the senior management team from the Investment Manager and other service providers, both in person and by phone.
Information and Support
Information Provided to the Board
Reports and papers, containing relevant, concise and clear information, are provided to the Board and Committees in a timely manner to enable review and consideration prior to both scheduled and ad-hoc specific meetings. This ensures that Directors are capable of contributing to, and validating, the development of Company strategy and management. The regular reports also provide information that enables scrutiny of the Company's Investment Manager and other service providers' performance. When required, the Board has sought further clarification of matters with the Investment Manager and other service providers, both in terms of further reports and via in-depth discussions, in order to make a more informed decision for the Company.
Company Secretary
Under the direction of the Chairman, the Company Secretary facilitates the flow of information between the Board, Committees, Investment Manager and other service providers' through the development of comprehensive meeting packs, agendas and other media.
Full access to the advice and services of the Company Secretary is available to the Board; in turn, the Company Secretary is responsible for advising on all governance matters through the Chairman. The Articles and schedule of matters reserved for the Board indicate the appointment and resignation of the Company Secretary is an item reserved for the full Board. A review of the performance of the Company Secretary is undertaken by the Board on a regular basis.
Evaluation
Board and Director Evaluation
Using a pre-determined template based on the Code's provisions as a basis for review, the Board intends to undertake an evaluation of its performance and that of the Audit Committee. Due to the shorter than usual first financial period covered by these Financial Statements the Board has agreed that this will first be completed in January 2019. Additionally, an evaluation focusing on individual commitment, performance and contribution of each Director will be conducted. The Chairman will meet with each Director to fully understand their views of the Company's strengths and to identify potential weaknesses. If appropriate, new members would be proposed to resolve the perceived issues, or a resignation sought. Due to the size and structure of the Board the evaluation of the Chairman of the Board and Audit Committee is dealt with within the Board and Audit evaluations.
Given the Company's size and the structure of the Board, no external facilitator or independent third party is used in the performance evaluation.
New Directors would receive an induction from the Investment Manager. All Directors receive other relevant training as necessary.
Re-election and Board Tenure
The Board has considered the need for a policy regarding tenure of office; however, the Board believes that any decisions regarding tenure should consider the Company's investment objective and the average length of seeking to achieve that, the need for continuity and maintenance of knowledge and experience and to balance this against the need to periodically refresh Board composition and have a balance of skills, experience, age and length of service.
Each Director is required to be elected by shareholders at the first Annual General Meeting following his initial appointment to the Board. The Board recommends the on-going re-election of each Director and supporting biographies, including length of service, are disclosed.
Section C: Accountability
The Directors' Responsibility Statement confirms that the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as a whole, whilst the Chairman's Statement includes a fair view of the development and performance of the business and the position of the Group.
Financial and Business Reporting
Financial and Business Information
An explanation of the Directors' roles and responsibilities in preparing the Annual Report and Accounts for the period ending 31 December 2017 is provided in the Directors' Strategic Report and Statement of Directors' Responsibilities.
Further information enabling shareholders to assess the Company's performance, business model and strategy can be sourced in the Chairman's Statement and the Directors' Strategic Report.
In respect of the UK Criminal Finances Act 2017 which has introduced a new corporate criminal offence ("CCO") of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board confirms it is committed to zero tolerance towards the criminal facilitation of tax evasion.
Going concern
The Consolidated Financial Statements have been prepared on the going concern basis. The net current asset position at period end is GBP388,042,664. The net current asset position as at 28 February 2018 is GBP167,292,048. Therefore, after making enquiries and based on the sufficient cash reserves as at 31 December 2017, the Directors are of the opinion that the Group has adequate resources to continue its operational activities for the foreseeable future. The Board is therefore of the opinion that the going concern basis should be adopted in the preparation of the Consolidated Financial Statements. Further detail can be found in the Viability Statement.
Investment Manager
After careful consideration of Sherborne Investment Management (Guernsey) LLC's ("SIMG") performance, primarily in terms of advice, managing the portfolio and communicating effectively with shareholders, the Board agreed that it would be in the best interests of the Company that SIMG continue on the current agreed contractual terms.
The Investment Management Agreement will continue in force until terminated: (i) upon the dissolution of the Investment Partnership; (ii) by the Investment Manager, voluntarily, upon 180 days' prior written notice to the Managing Partner and the Investment Partnership; or (iii) automatically upon removal of the General Partner.
Risk Management and Risk Control
The Board is required to annually review the effectiveness of the Company's key internal controls such as financial, operational and compliance controls and risk management. As this is the Company's first set of financial statements covering a shorter than normal financial period it is agreed that the first review of controls and risk management will occur during 2018. The Board has documented the controls to be reviewed and will review their effectiveness on an ongoing basis thereafter. The controls are designed to ensure that the risk of failure to achieve business objectives is managed rather than eliminated, and are intended to provide reasonable, rather than absolute, assurance against material misstatement or loss. Through regular meetings and meetings of the Audit Committee, the Board seeks to maintain full and effective control over all strategic, financial, regulatory and operational issues. The Board maintains an organisational and committee structure with clearly defined lines of responsibility and delegation of authorities.
The Company's system of internal control includes inter alia the overall control exercise, procedures for the identification and evaluation of business risk, the control procedures themselves and the review of these internal controls by the Audit Committee on behalf of the Board. Each of these elements that make up the Company's system of internal control is explained in further detail as follows:
(i) Control environment
The Company is ultimately dependent upon the quality and integrity of the staff and management of both its Investment Manager, Sherborne Investors Management (Guernsey) LLC, and Administration & Company Secretarial service provider, Ipes (Guernsey) Limited. In each case, qualified and able individuals have been selected at all levels. The staff of both the Investment Manager and Administrator, are aware of the internal controls relevant to their activities and are also collectively accountable for the operation of those controls. Appropriate segregation and delegation of duties is in place. The Audit Committee undertakes a review of the Company's financial controls on a regular basis.
In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Ipes Group, which is subject to review by the Audit Committee and the Board.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's investment. This is managed by the Investment Manager, who undertakes regular analysis and reporting of business risks in relation to the target company, who then propose appropriate courses of action to the Board for their review.
(iii) Key procedures
In addition to the above, the Board's key procedures involve a comprehensive system for reporting financial results to the Board regularly. A review of controls is conducted by the Audit Committee annually, and a twice-yearly review of investment valuations by the Board, including reports on the underlying investment performance.
Due to the size and nature of the Company and the outsourcing of key services to the Administrator and Investment Manager, the Company does not have an internal audit function. It is the view of the Board that the controls in relation to the operating, accounting, compliance and IT risks performed robustly throughout the period. In addition, all have been in full compliance with the various policies and external regulations, including:
-- Investment policy, as outlined in the IPO documentation
-- Personal Account Dealing
-- Whistleblowing Policy
-- Anti-Bribery Policy
-- Applicable Financial Conduct Authority Regulations
-- Treatment and handling of confidential information
-- Conflicts of interest
-- Compliance policies
-- Market Abuse Regulation
The Company has delegated the provision of all services to external service providers whose work is overseen by the Board. Each year a short questionnaire will be circulated to all external service providers requesting thorough details in regards to controls, personnel and information technology, amongst others. This is in order to provide additional detail when reviewing the performance pursuant to their terms of engagement. This will first occur during 2018.
There were no protected disclosures made pursuant to the whistleblowing policy of service providers in relation to the Company, during the period ended 31 December 2017.
In summary, the Board considers that the Company's existing internal controls, coupled with the analysis of risks inherent in the business models of the Company and its subsidiaries, continue to provide appropriate tools for the Company to monitor, evaluate and mitigate its risks.
Audit Committee and Auditors
Audit Committee Responsibilities
The Audit Committee is intended to assist the Board in discharging its responsibilities for the integrity of the Company's financial statements, as well as aid the assessment of the Company's internal control effectiveness and objectivity of external auditors. Further information on the Committee's responsibilities is given in the Report of the Audit Committee.
The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Investment Manager, including their own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders' investment and the Group and Company's assets, is maintained. An internal audit function specific to the Group is therefore considered unnecessary, as explained within the Corporate Governance Report.
Section D: Remuneration
Level and Components of Remuneration
Directors are paid in accordance with agreed principles covering various functions. Further information can be sourced in the Directors' Remuneration Report.
Procedures
The Company has a formal remuneration policy, outlined in the Directors' Remuneration Report.
Section E: Relations with Shareholders
Dialogue with Shareholders
The Directors place a great deal of importance on communication with shareholders. The Investment Manager and Broker aim to meet with large shareholders at least annually. The Board also receives reports from the Brokers on shareholder issues. The Annual Report and Financial Statements are widely distributed to other parties who have an interest in the Company's performance, and are available on the Company's website.
All Directors are available for discussions with the shareholders, in particular the Chairman and the Audit Committee Chairman, as and when required.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was introduced as from 22 July 2014, aims to harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and imposes obligations on managers who manage or distribute Alternative Investment Funds ("AIFs") in the EU or who market shares in such funds to EU investors.
After seeking professional regulatory and legal advice, the Company was established in Guernsey as a Non-EU AIF, appointing Sherborne Investors Management (Guernsey) LLC to act as the Non-EU AIFM.
The marketing of shares in AIFs that are established outside the EU (such as the Company) to investors in any EU member state is prohibited unless certain conditions are met. Certain of these conditions are outside the Company's control as they are dependent on the regulators of the relevant third country (in this case Guernsey) and the relevant EU member state entering into regulatory co-operation agreements with one another.
Currently, the National Private Placement Regime ("NPPR") provides a mechanism to market Non-EU AIFs that are not allowed to be marketed under the AIFMD domestic marketing regimes. The Board is utilising NPPR in order to market the Company, specifically in the UK. The Board is working with the Company's advisers to ensure the necessary conditions are met, and all required notices and disclosures are made under NPPR. Eligible AIFMs will be able to continue to use NPPR until at least 2018.
Any regulatory changes arising from implementation of AIFMD (or otherwise) that limit the Company's ability to market future issues of its shares may materially adversely affect the Company's ability to carry out its investment policy successfully and to achieve its investment objective, which in turn may adversely affect the Company's business, financial condition, results of operations, NAV and/or the market price of the Ordinary Shares.
The Board, in conjunction with the Company's advisers, will continue to monitor the development of AIFMD and its impact on the Company.
Foreign Account Tax Compliance Act ("FATCA") and The OECD Common Reporting Standards ("CRS")
FATCA became effective on 1 January 2013 and is being gradually implemented internationally. The legislation is aimed at determining the ownership of US assets in foreign accounts and improving US Tax compliance with respect to those assets.
More than 90 jurisdictions, including 33 member countries of the Organisation for Economic Co-operation and Development ("OECD") and the G20 members, have committed to implement the Common Reporting Standard for automatic exchange of tax information ("CRS"). Building on the model created by FATCA, the CRS creates a global standard for the annual automatic exchange of financial account information between the relevant tax authorities.
The Board in conjunction with the Company's service providers and advisers have ensured the Company's compliance with FATCA and CRS's requirements to the extent relevant to the Company.
Constructive Use of the AGM
The Notice of AGM is sent out at least 20 working days in advance of the meeting. All shareholders will have the opportunity to put questions to the Board or Manager, either formally at the Company's Annual General Meeting on 22 May 2018, informally following the meeting, or in writing at any time during the year via the Company Secretary. The Company Secretary is available to answer general shareholder queries at any time throughout the year.
Report of the Audit Committee
The Board is supported by the Audit Committee, which comprised all the Directors during the period; including the Chairman of the Board to enable a greater understanding of the issues facing the Company. The Board has considered the composition of the Committee and is satisfied that there are sufficient recent relevant skills and experience, in particular with the Chairman of the Audit Committee, Chris Legge, having a background as a chartered accountant. The Board is also satisfied that the Committee as a whole has competence relevant to the sector in which the Company operates.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are outlined in the Committee's Terms of Reference, available at the registered office, including:
-- Monitoring the integrity of the financial statements of the Company and any formal announcement relating to the Company's financial performance, consideration of the viability statement and reviewing significant financial reporting judgements contained within said statements and announcements;
-- Reviewing the Company's internal financial controls, and the Company's internal control and risk management systems;
-- Monitoring the need for an internal audit function annually;
-- Monitoring and reviewing the scope, independence, objectivity and effectiveness of the external auditors, taking into consideration relevant regulatory and professional requirements;
-- Making recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditors and approving their remuneration and terms of engagement, which in turn can be placed to the shareholders for their approval at the Annual General Meeting;
-- Development and implementation of the Company's policy on the provision of non-audit services by the external auditors, as appropriate;
-- Reviewing the arrangements in place to enable Directors and staff of service providers to, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company;
-- Providing advice to the Board on whether the annual financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy; and
-- Reporting to the Board on how the Committee discharged all relevant responsibilities, undertaken by the Chairman at each Board meeting.
Financial Reporting
The Primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Investment Adviser and the Auditor the appropriateness of the Annual Report and Audited Consolidated Financial Statements and Interim Condensed Consolidated Financial Statements, concentrating on, amongst other matters:
-- The quality and acceptability of accounting policies and practices;
-- The clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;
-- Material areas in which significant judgements have been applied or there has been discussion with the Auditor;
-- Whether the Annual Report and Audited Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for the shareholders to assess the Company's performance, business model and strategy; and
-- Any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the audit committee considers reports from the Administrator and Investment Adviser and also reports from the Auditor on the outcomes of their half-year review and annual audit. The audit committee supports Deloitte LLP in displaying the necessary professional scepticism their role requires.
The Committee met once during the period under review; individual attendance of Directors is outlined. The main matters discussed at that meeting were:
-- Review of auditor independence;
-- Review and approval of the annual audit plan of the external auditors;
-- Discussion and approval of the fee for the external audit;
-- Review of the Company's key risks and internal controls; and
-- Consideration of the 2016 UK Corporate Governance Code, Guidance on Audit Committees and other regulatory guidelines, and the subsequent impact upon the Company.
The Committee has also reviewed and considered the whistleblowing policies in place for the Investment Manager and Administrator, and is satisfied the relevant staff can raise concerns in confidence about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit Committee appointed for the purpose, shall attend each Annual General Meeting of the Company, prepared to respond to any shareholder questions on the Audit Committee's activities.
Internal Audit
The Audit Committee considers at least once a year whether or not there is a need for an internal audit function. Currently, the Audit committee does not consider there to be a need for an internal audit function, given that there are no employees in the Group and all outsourced functions are with parties / administrators who have their own internal controls and procedures. This is evidenced by the internal control reports provided by the providers, which give sufficient assurance that a sound system of internal control is maintained.
Significant Risks in Relation to the Financial Statements
Throughout the period, the Audit Committee identified a number of significant issues and areas of key audit risks in respect of the Annual Report and Financial Statements. The Committee reviewed the external audit plan at an early stage and concluded that the appropriate areas of audit risk relevant to the Company had been identified and that suitable audit procedures had been put in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements. The below table sets out the key areas of risk identified and how the Committee addressed the issues.
Significant Issues Actions to Address Issue
--------------------------- --------------------------------------
Valuation and ownership The Audit Committee and Board
of investment- focus review detailed portfolio
upon one target company valuations on a regular basis
means that any errors throughout the period under
in valuation, depending review, and receive confirmation
on their size, can from the Investment Manager
be highly material. that the pricing basis is
A key risk is incorrect appropriate and in line with
pricing used based relevant accounting standards.
on requirement of
IFRS taking into account
the market for those
shares.
--------------------------- --------------------------------------
Calculation of fees The Audit Committee reviewed
to related parties the calculations of fees
and basis of calculation to ensure no material misstatements,
of the incentive fee which also included discussions
- fees paid to Investment with the Investment Manager
Manager and Administrator to determine whether the
may be materially investment should be classed
misstated. as a Turnaround or Stake
Building Investment. Regular
review and comparison of
the LPA and Administration
Agreement are undertaken
to ensure that all fees are
as contractually stated.
Board approval of all invoices
also reduces this risk.
--------------------------- --------------------------------------
Auditor Tenure and Objectivity
The Company's auditors, Deloitte LLP, have been appointed to act pursuant to an Engagement Letter signed on 30 October 2017. The Committee reviews the auditor's performance on a regular basis with a detailed formal review conducted on an annual basis to ensure the Company receives an optimal service. The re-appointment of the Company's auditor will be subject to annual shareholder approval at the Annual General Meeting. The Auditors are required to rotate the audit partner regularly every 5 years. There are no contractual obligations restricting the choice of external auditor and the company will consider putting the audit services contract out to tender at least every ten years. In line with the FRC's suggestions on audit tendering, this will be considered further when the audit partner rotates, therefore will be discussed during 2022.
Deloitte LLP will regularly update the Committee on the rotation of audit partners, staff, level of fees in proportion to overall fee income of the Company, details of any relationships between the auditor, the Company and any target company, and also provides overall confirmation from the auditors' of their independence and objectivity.
In addition to the audit related remuneration, GBP80,000 non-audit fees were paid to the Auditor in relation to the reporting accountant services at IPO.
The Audit Committee undertook a formal review of the external auditor for the period ended 31 December 2017, with no issues arising. As a result of their review, the Committee is satisfied that Deloitte LLP is independent of the Company, the Investment Manager and other service providers and recommends the continuing appointment of the auditors to the Board. There are currently no plans for retendering the audit.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and Financial Statements is a comprehensive process requiring input from a number of different contributors. In order to reach a conclusion on whether the Company's financial statements are fair, balanced and understandable, the Board has requested that the Committee advise on whether it considers that the Annual Report
and Financial Statements fulfils these requirements. In outlining their advice, the Committee has considered the following:
-- The comprehensive documentation that is in place outlining the controls in place for the production of the Annual Report, including the verification processes in place to confirm the factual content;
-- The detailed reviews undertaken at various stages of the production process by the Investment Manager, Administrator and the Committee that are intended to ensure consistency and overall balance; and
-- The controls enforced by the Investment Manager, Administrator and other third party service providers to ensure complete and accurate financial records and security of the Company's assets.
As a result of the work performed during the period, the Audit Committee has concluded it has acted in accordance with its terms of reference and ensured the independence and objectivity of the external auditor. The Annual Report for the period ended 31 December 2017, 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, and has reported on these findings to the Board. The Board's conclusions in this respect are set out in the Statement of Directors' Responsibilities.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements for each financial period which give a true and fair view, in accordance with applicable laws and regulations, of the state of affairs of the Company and of the profit and loss of the Company for that period.
The Companies (Guernsey) Law, 2008 requires the directors to prepare financial statements for each financial year. The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. In preparing these financial statements, International Accounting Standard 1 ("IAS1") requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The Directors confirm that they have complied with the above requirements in preparing the Consolidated Financial Statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and 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 (Guernsey) Law, 2008. 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 the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
-- the Chairman's Statement, Directors' Strategic Report and Corporate Governance Statement include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
-- the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
In accordance with section 249 of the Companies (Guernsey) Law, 2008, each of the Directors confirms that, to the best of their knowledge:
-- There is no relevant audit information of which the Company's auditors are unaware;
-- All Directors have taken the necessary steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of said information.
Independent Auditor's Report to the Members of Sherborne Investors (Guernsey) C Limited
Report on the audit of the financial statements
Opinion
In our opinion the financial statements:
* give a true and fair view of the state of the group's
affairs as at 31 December 2017 and of its profit for
the period then ended;
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
* have been prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements of
Sherborne Investors (Guernsey) C Limited plc
(the 'parent company') and its subsidiaries
(the 'group') which comprise:
* the Consolidated Statement of Comprehensive Income
* the Consolidated Statement of Financial Position
* the Consolidated Statement of Changes in Equity
* the Consolidated Statement of Cash Flows
* the related notes 1 to 15
The financial reporting framework that has been
applied in their preparation is applicable law
and IFRSs as adopted by the European Union.
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 group in accordance
with the ethical requirements that are relevant
to our audit of the financial statements in
the UK, including the Financial Reporting Councils
('FRC's') Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We confirm that the non-audit services prohibited
by the FRC's Ethical Standard were not provided
to the group or the parent company.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis
for our opinion.
Summary of our audit approach
---------------------------------------------------------------------------------------------------------------------------------------
Key audit The key audit matters that we identified
matters in the current year were:
* Valuation and ownership of Investments at fair value
through profit or loss
* Basis of calculation of the incentive fee
-------------------------------------------------------------- -----------------------------------------------------------------------
Materiality The materiality that we used for
the group financial statements was
GBP13,919,000 which was determined
on the basis of 2% of net asset value.
-------------------------------------------------------------- -----------------------------------------------------------------------
Scoping Audit work to respond to the risks
of material misstatement was performed
directly by the group audit engagement
team.
-------------------------------------------------------------- -----------------------------------------------------------------------
Conclusions relating to going concern, principal
risks and viability statement
Going concern We confirm that
We have reviewed the directors' we have nothing
statement in note 1 to the financial material to report,
statements about whether they add or draw attention
considered it appropriate to adopt to in respect
the going concern basis of accounting of these matters.
in preparing them and their identification We confirm that
of any material uncertainties we have nothing
to the group's ability to continue material to report,
to do so over a period of at least add or draw attention
twelve months from the date of to in respect
approval of the financial statements. of these matters.
We are required to state whether
we have anything material to add
or draw attention to in relation
to that statement required by
Listing Rule 9.8.6R(3) and report
if the statement is materially
inconsistent with our knowledge
obtained in the audit.
Principal risks and viability
statement
Based solely on reading the directors'
statements and considering whether
they were consistent with the
knowledge we obtained in the course
of the audit, including the knowledge
obtained in the evaluation of
the directors' assessment of the
group's ability to continue as
a going concern, we are required
to state whether we have anything
material to add or draw attention
to in relation to:
-- the disclosures 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 group, including those
that would threaten its business
model, future performance, solvency
or liquidity; or
-- the directors' explanation
as to how they have assessed the
prospects of the group, 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 group 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.
We are also required to report
whether the directors' statement
relating to the prospects of the
group required by Listing Rule
9.8.6R(3) is materially inconsistent
with our knowledge obtained in
the audit.
Key audit matters
Key audit matters are those matters that, in
our professional judgement, 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 which 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.
Valuation and ownership of investments at fair
value through profit or loss
-----------------------------------------------------------------------------------------------------------------------------------
Key audit The investment balance at 31 December
matter description 2017 had a fair value of GBP307.9m,
representing 44% of the net asset
value of the Group. This is comprised
solely of a derivative investment,
in the form of contracts for differences
('CFDs'), in Barclays Plc, the selected
target group ("STC"). Details of the
investments are disclosed in notes
5 and 15, and the accounting policies
relating to them are disclosed in
note 1 (d). This is further discussed
in the Report of the Audit Committee.
Investments is the most quantitatively
significant balance on the Consolidated
Statement of Financial Position and
is an area of focus as they drive
the performance and net asset value
of the Group. Owing to the fact that
Key Performance Indicators and performance
based remuneration are based on the
net asset value of the group we have
determined there to be the potential
for fraud through possible manipulation
of the balance.
The risk of material misstatement
exists that the Group's investment
is not accurately valued based on
relevant information that is representative
of its value and that it may not be
representative of its value in accordance
with IFRS 13 - Fair Value Measurement
('IFRS 13').
There is also a risk of material misstatement
that the incorrect number of shares
owned by the Group is recognised at
year-end, resulting in a material
misstatement of the calculation of
the fair value of investments. This
includes investment trades being recorded
in the incorrect period, resulting
in an incorrect number of shares being
recognised in the financial statements.
------------------------------------------------------------ ---------------------------------------------------------------------
How the In order to test the investments balance
scope of as at 31 December 2017 we performed
our audit the following procedures:
responded * Assessed the design and implementation of controls
to the key relating to the valuation of investments to determine
audit matter whether appropriate oversight had been exercised
within the valuation process. This included reviewing
the controls adopted by the Group's administrator and
a review of the AAF 01/06 report to the Group's
administrator;
* Assessed the valuation policy and methodology adopted
by management in order to assess compliance to IFRS
13 - Fair Value Measurement ("IFRS 13");
* Reconciled the investment holdings as at 31 December
2017 to an independently received confirmation from
the Group's custodian;
* Obtained independent pricing information as at 31
December 2017 in order to recalculate the fair value
of the Group's investment; and
* Tested the initial cost and cut-off of investment
transactions by agreeing all investment transactions
of CFDs to independent confirmations.
------------------------------------------------------------ ---------------------------------------------------------------------
Key observations Based on the work performed we conclude
the investment holding in the STC
is not materially misstated.
------------------------------------------------------------ ---------------------------------------------------------------------
Basis of calculation of the incentive fee
-----------------------------------------------------------------------------------------------------------------------------------
Key audit We note that an incentive fee is payable
matter description to SIGC LP's Special Limited Partner.
This is discussed in note 1 where
it is disclosed as a key source of
estimation uncertainty, and calculated
as GBP1.8m as shown in note 14.
There is a risk of material misstatement
that the basis of the fees calculated
above is incorrect, given the level
of judgement in determining this,
or that the calculation has not been
performed accurately.
For Turnaround Investments, the incentive
fee is equal to 10% of all distributions
above 110% of the partners' capital
contributions and 20% for all distributions
over 150% of partners' capital contributions
and 25% of all distributions over
200%, in each case before deducting
management fees.
Where an investment is considered
to be a "Stake Building" investment,
the incentive fee is calculated as
an amount equal to 20% of the net
returns on the investment of the Investment
Partnership in the Stake Building
investment.
While this fee is only payable once
distributions are made, this should
be accrued as it is incurred as there
is an obligation to pay the fee under
the Investment Partnership Agreement.
------------------------------------------------------------ ---------------------------------------------------------------------
How the In order to test the incentive allocation
scope of balance as at 31 December 2017 we
our audit performed the following procedures:
responded * Assess the design and implementation of controls in
to the key relation to the calculation of the incentive
audit matter allocation;
* Reviewed the details of the accounting policy
discussed in Notes 1 and 14 to determine whether the
basis of the calculation of the incentive allocation
was in accordance with the terms of the agreement;
* Recalculated the incentive allocation in order to
determine whether the inputs to the calculation were
appropriate based on the terms of the agreement; and
* Reviewed the notes to the financial statements to
determine whether the adequately explain the
rationale behind the basis applied in the calculation
and that the disclosures of the incentive allocation
are adequate.
------------------------------------------------------------ ---------------------------------------------------------------------
Key observations Based on the work performed we conclude
the "stake building" calculation basis
of the incentive allocation is appropriate
and the incentive allocation is not
materially misstated.
------------------------------------------------------------ ---------------------------------------------------------------------
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 both in planning the scope of our
audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined
materiality for the financial statements as a
whole as follows:
Group Materiality GBP13,919,000
------------------- ---------------------------------------------
Basis for 2% of net asset value
determining
materiality
------------------- ---------------------------------------------
Rationale In determining the materiality,
for the benchmark we considered what the most important
applied balances on which the users of the
financial statements would judge
the performance of the Group. As
the investment objective of the
Group is to invest in a selected
group identified by the investment
manager and realise a return on
the growth in fair value of the
investment, we consider the net
asset value of the Group to be a
key performance indicator for shareholders.
------------------- ---------------------------------------------
We agreed with the Audit Committee that we would
report to the Committee all audit differences
in excess of GBP695,950 for the group, as well
as differences below that threshold that, in
our view, warranted reporting on qualitative
grounds. We also report to the Audit Committee
on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding
of the Group and its environment, including
Group-wide controls, and assessing the risks
of material misstatement at the Group level.
Sherborne Investors (Guernsey) C Limited ("the
Group") is a limited partner in SIGC, LP ("the
Investment Partnership"), together "the Group",
holding a 99.98% capital interest. The Investment
Partnership holds the underlying investment
in the STC. Deloitte LLP have audited both the
Group and the Investment Partnership, to a component
materiality level of GBP8,002,000 and therefore
the audit team have audited the whole Group
directly.
At the parent entity level we also tested the
consolidation process and carried out analytical
procedures to confirm our conclusion that there
were no significant risks of material misstatement
of the aggregated financial information of the
remaining components not subject to audit or
audit of specified account balances.
The administrator maintains the books and records
of the entity. Our audit therefore included
obtaining an understanding of this service organisation
(including obtaining and reviewing their controls
assurance report) and its relationship with
the entity.
Other information
The directors are responsible We have nothing
for the other information. The to report in
other information comprises the respect of these
information included in the annual matters.
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 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.
In this context, matters that
we are specifically required to
report to you as uncorrected material
misstatements of the other information
include where we conclude that:
* 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
group's position and 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; 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 group'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.
Responsibilities of directors
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 group'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 group 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.
A further description of our responsibilities
for the audit of the financial statements is
located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's
report.
Use of our report
This report is made solely to the company's
members, as a body, in accordance with Section
262 of the Companies (Guernsey) Law, 2008. 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.
Report on other legal and regulatory requirements
Matters on which we are required to report by
exception
Adequacy of explanations received We have nothing
and accounting records to report in
Under the Companies (Guernsey) respect of these
Law, 2008 we are required to report matters.
to you if, in our opinion:
* we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept by the
parent company; or
* the financial statements are not in agreement with
the accounting records.
Consolidated Statement of Comprehensive Income
For the period from 25 May 2017 to 31
December 2017
2017
Notes GBP GBP
------------------------------ ---------------------- -------------------- ------------
Income 1(e)
Unrealised gain on
investments held at
fair value through 1(d),
profit or loss 5 675,470
Realised gain on investments 5 8,449,909
Dividend income 6 844,134
Bank interest income 299,378
------------------------------ ---------------------- -------------------- ------------
10,268,891
------------------------------ ---------------------- -------------------- ------------
Expenses 1(f)
Trading and custodian
fees (1,002,433)
Administrative fees (158,548)
Other fees (124,466)
Management fees 14 (96,831)
Directors' fees 2 (96,264)
Professional fees (67,179)
(1,545,721)
------------------------------ ---------------------- -------------------- ------------
Comprehensive income
for the period 8,723,170
------------------------------ ---------------------- -------------------- ------------
Income attributable
to:
Shareholders 6,941,982
Non-controlling interest 1(b),
(NCI) 14 1,781,188
------------------------------ ---------------------- -------------------- ------------
Weighted average number
of shares outstanding 4 700,000,000
Basic and diluted earnings
per share attributable
to shareholders (excluding
NCI) 4 0.99p ------------------------------ ---------------------- -------------------- ------------ All revenue and expenses are derived from continuing operations.
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
As at 31 December 2017
2017
Notes GBP GBP
---------------------- ------ ------------- --------------
Non-current Assets
Financial assets
at fair value
through profit
or loss 5 307,930,107
---------------------- ------ ------------- --------------
307,930,107
---------------------- ------ ------------- --------------
Current Assets
Prepaid expenses 7 43,210
Cash and cash
equivalents 8 412,598,019
---------------------- ------ ------------- --------------
412,641,229
---------------------- ------ ------------- --------------
Current Liabilities
Trade and other
payables 9 (171,926)
Pending trades 5 (24,426,639)
---------------------- ------ ------------- --------------
(24,598,565)
---------------------- ------ ------------- --------------
Net Current Assets 388,042,664
---------------------- ------ ------------- --------------
Net Assets 695,972,771
---------------------- ------ ------------- --------------
Capital and Reserves
Called up share
capital and share
premium 10 688,939,403
Retained reserves 6,941,982
---------------------- ------ ------------- --------------
Equity attributable
to the Company 695,881,385
---------------------- ------ ------------- --------------
Non-controlling 1(b),
interest (NCI) 14 91,386
---------------------- ------ ------------- --------------
Total Equity 695,972,771
---------------------- ------ ------------- --------------
NAV Per Share
(excluding NCI) 11 99.41p
---------------------- ------ ------------- --------------
The Consolidated Financial Statements were approved by the Board of Directors for issue on 17 April 2018.
Consolidated Statement of Changes in Equity
For the period from 25 May 2017 to 31 December 2017
Share
Capital Non-
and Share Retained Controlling Total
Premium Reserves Interests Equity
Notes GBP GBP GBP GBP
---------------------- ------ ------------ ------------ ------------- ------------
Balance at 25
May 2017 - - - -
---------------------- ------ ------------ ------------ ------------- ------------
Proceeds of Share
issue 10 688,939,403 - - 688,939,403
Contributions - - 120,000 120,000
Total comprehensive
income for the
period - 8,721,390 1,780 8,723,170
1(l),
Incentive allocation 14 - (1,779,408) 1,779,408 -
Distribution 12 - - (1,809,802) (1,809,802)
---------------------- ------ ------------ ------------ ------------- ------------
Balance at 31
December 2017 688,939,403 6,941,982 91,386 695,972,771
---------------------- ------ ------------ ------------ ------------- ------------
Consolidated Statement of Cash Flows
For the period from 25 May
2017 to 31 December 2017 Notes 2017
GBP
-------------------------------------- ------ --------------
Net cash flow used in operating
activities (572,871)
-------------------------------------- ------ --------------
Investing activities
Purchase of investments (366,177,113)
Bank interest income 299,378
Proceeds from disposal of
investments 91,799,024
Net cash flows used in investing
activities (274,651,582)
-------------------------------------- ------ --------------
Financing activities
Contributions from Non-Controlling
Interest 14 120,000
Distribution paid to Non-Controlling
Interest 14 (1,809,802)
Issue of share premium 10 700,000,000
Cost of share issue 10 (11,060,597)
Net cash flows from financing
activities 687,249,601
-------------------------------------- ------ --------------
Net movement in cash and
cash equivalents 412,598,019
Cash and cash equivalents -
at beginning of period
-------------------------------------- ------ --------------
Cash and cash equivalents
at period end 412,598,019
-------------------------------------- ------ --------------
Net cash flow used in operating
activities
-------------------------------------- ------ --------------
Total consolidated comprehensive
income for the period 8,723,170
Realised gain on investments
and derivative contracts (8,449,909)
Fair value movement on financial
assets (675,470)
Movement in prepaid expenses
and income receivable 7 (43,210)
Movement in trade and other 9,
payables 15 171,926
Bank interest income (299,378)
Net cash flow used in operating
activities (572,871)
-------------------------------------- ------ --------------
Notes to the Consolidated Financial Statements
For the period ended 31 December 2017
1. Summary of significant accounting policies
Reporting entity
Sherborne Investors (Guernsey) C Limited (the "Company") is a closed-ended investment company with limited liability formed under the Companies (Guernsey) Law, 2008. The Company was incorporated and registered in Guernsey on 25 May 2017. The Company commenced dealings on the London Stock Exchange's Specialist Fund Segment ("SFS") on 12 July 2017. The Company's registered office is 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1 2HL. The "Group" is defined as the Company and its subsidiaries, SIGC, LP (Incorporated) and SIGC Midco Limited.
Basis of preparation
The Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union, which comprise standards and interpretations approved by the International Accounting Standards Board (the "IASB") and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (the "IASC") that remain in effect, together with applicable legal and regulatory requirements of Guernsey law. The Directors of the Company have taken the exemption in Section 244 of the Companies (Guernsey) Law, 2008 (as amended) and have therefore elected to only prepare Consolidated Financial Statements for the period.
These Consolidated Financial Statements have been prepared on the historical cost basis, as modified by the measurement at fair value of investments and derivatives.
Going concern
Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.
The Board is of the opinion that the going concern basis should be adopted in the preparation of the Consolidated Financial Statements. Further detail can be found in the Viability Statement.
The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the ongoing cash flows and the level of cash balances as of the reporting date as well as taking forecasts of future cash flows into consideration and are of the opinion that the Group has adequate resources to continue its operational activities for the foreseeable future.
After making enquiries of the Investment Manager and the Administrator, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing these audited consolidated financial statements. Please see the Corporate Governance section.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of the Group's Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's Consolidated Financial Statements and revenue and expenses during the reported period. Actual results could differ from those estimated.
As more fully described in Note 14, the Special Limited Partner is entitled to receive an incentive allocation once aggregate distributions to Partners of the Investment Partnership exceed a certain level. The basis of the incentive calculation differs depending on how the investment in the Selected Target Company is ultimately characterised (i.e. as a Turnaround or Stake Building Investment). Otherwise there are no significant estimates utilised for the preparation of the Group's Consolidated Financial Statements as at 31 December 2017 due to the nature of the activities that have occurred in this period.
Adoption of new and revised standards
(i) Amendments early adopted by the Company:
There were no standards, amendments and interpretations early adopted by the Company.
(ii) Standards, amendments and interpretations in issue but not yet effective:
New standards Effective
date
---------------- ----------------------------------------------------
IFRS Financial Instruments - Classifications 1 January
9 and Measurement 2018
IFRS Revenue from Contracts with Customers 1 January
15 2018
IFRS Leases 1 January
16 2019
Revised and amended standards Effective
date
-------------------------------- ----------------------------------------------------
IFRS Mandatory Effective Date and Transition 1 January
7/9 Disclosure (amended) 2018
IFRS 9: Financial Instruments ('IFRS 9') with regards to recognition and measurement is the only standard effective for the Company as of 1 January 2018 which may have a significant impact on the financial instruments held by the Company. However, it is the opinion of the Directors that the treatment as at fair value through profit and loss will remain the applicable method of recognition and hence there is no expected impact on the NAV.
There is however expected to be additional disclosure included in future financial statements of the Company to comply with requirements of IFRS 9, which will likely include the judgements applied by management in the classification and subsequent recognition of the financial instruments held by the Company.
IFRS 15: Revenue from Contracts with Customers ('IFRS 15'). The Directors have assessed the requirements of IFRS 15 and have determined that there will be no material impact expected on the recognition and measurement of income in the financial statements as a result of the implementation of IFRS 15. This is because the Company has not been established to earn revenue as IFRS 15 applies to but rather to generate capital and other gains from the management and disposal of its investments into financial instruments.
a. Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the Company and two entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
Non-controlling interests in the net assets of the consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling entities' share of changes in equity since the date of the combination. Losses applicable to the non-controlling entities in excess of their interest in the subsidiaries equity are allocated against their interests to the extent that this would create a negative balance.
Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group.
All intra-group transactions, balances and expenses are eliminated on consolidation.
The Company, via SIGC Midco Limited, a 100% owned subsidiary, owns 99.98% of the capital interest in SIGC, LP (Incorporated). Whilst the general partner of SIGC, LP (Incorporated), Sherborne Investors (Guernsey) GP, LLC, a company registered in Delaware, USA, is responsible for directing the day to day operations of SIGC, LP (Incorporated), the Company, through its majority interest in SIGC, LP (Incorporated), has the ability to approve the proposed investment of SIGC, LP and to remove the general partner. Hence, the Company has consolidated SIGC, LP (Incorporated) and SIGC Midco Limited in its financial statements.
b. Non-controlling interest
The interest of non-controlling parties in the subsidiary is measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
c. Functional currency
Items included in the Consolidated Financial Statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Consolidated Financial Statements are presented in Pound Sterling ("GBP"), which is the Group's functional and presentational currency. Transactions in currencies other than GBP are translated at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the Consolidated Statement of Financial Position are retranslated into GBP at the rate of exchange ruling at that date. Exchange differences are reported in the Consolidated Statement of Comprehensive Income.
d. Financial assets at fair value through profit or loss
Investments, including equity and loan investments in associates, are designated at fair value through profit or loss in accordance with International Accounting Standard 39 "Financial Instruments: Recognition and Measurement" ("IAS 39"), as the Company is an investment company whose business is investing in financial assets with a view to profiting from their total return in the form of interest and changes in fair value.
Investments in voting shares, convertible bonds and derivative contracts are initially recognised at cost. The investments in voting shares and derivative contracts and convertibles are subsequently re-measured at fair value, as determined by the Directors. Unrealised gains or losses arising from the revaluation of investments in voting shares, derivative contracts and convertibles are taken directly to the Consolidated Statement of Comprehensive Income.
In determining fair value in accordance with IFRS 13 - Fair Value Measurement ("IFRS 13"), investments measured and reported at fair value are classified and disclosed in one of the following categories within the fair value hierarchy:
Level I - An unadjusted quoted price for identical assets and liabilities in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. As required by IFRS 13, the Group will not adjust the quoted price for these investments, even in situations where it holds a large position and a sale could reasonably impact the quoted price.
Level II - Inputs are other than unadjusted quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.
Level III - Inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgement or estimation.
The investments held by the Group at the period end are classified as meeting the definition of Level II. On disposal of shares or conversion of bonds, cost of investments are allocated on a FIFO basis.
e. Revenue recognition
Dividend income is recognised when the Group's right to receive payment has been established. Tax suffered on dividend income for which no relief is available is treated as an expense.
Interest receivable from short-term deposits and investment income are recognised on an accruals basis. Where receipt of investment income is not likely until the maturity or realisation of an investment then the investment income is accounted for as an increase in the fair value of the investment.
f. Expenses
Expenses are charged in the period to which they relate. Expenses incurred in the purchase of investments are charged to the Statement of Comprehensive Income in the period in which they occur.
g. Prepaid expenses and trade receivables
Trade and other receivables are initially recognised at fair value. A provision for impairment of trade receivables is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.
h. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, call and current balances with banks and similar institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. This definition is also used for the Consolidated Statement of Cash Flows.
i. Trade and other payables
Trade and other payables are initially recognised at fair value and subsequently, where necessary, re-measured at amortised cost using the effective interest method.
j. Financial instruments
Financial assets and liabilities are recognised in the Group's Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.
k. Segmental reporting
As the Group invests in one Investee Company, there is no segregation between industry, currency or geographical location. No further disclosures have been made in conjunction with IFRS 8 - Operating Segments ("IFRS 8") as it is deemed not to be applicable.
l. Incentive allocation
The incentive allocation is accounted for on an accrual basis and the calculation is disclosed in Note 14. It was calculated as GBP11,365 at 31 December 2017 in relation to the investment in Barclays. During the period GBP1,768,043 was paid upon realisation of the investment in the first selected target company. The incentive is payable to the Non-Controlling Interest and therefore recognised in the Consolidated Statement of Changes in Equity rather than recognised as an expense in the Consolidated Statement of Comprehensive Income.
2. Comprehensive income
The consolidated comprehensive income has been arrived at after charging:
2017
GBP
-------------------------------- -------
Directors' fees 96,264
Auditor's remuneration - Audit 29,610
In addition to the audit related remuneration above, GBP80,000 was paid to the Auditor in the current period in relation to reporting account services at IPO.
3. Tax on ordinary activities
The Company has been granted exemption from income tax in Guernsey under the Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance 1989, and is liable to pay an annual fee (currently GBP1,200) under the provisions of the Ordinance. As such it will not be liable to income tax in Guernsey other than on Guernsey source income (excluding deposit interest on funds deposited with a Guernsey bank). No withholding tax is applicable to distributions to Shareholders by the Company.
The Investment Partnership will not itself be subject to taxation in Guernsey. No withholding tax is applicable to distributions to partners of the Investment Partnership.
Income which is wholly derived from the business operations conducted on behalf of the Investment Partnership with, and investments made in, persons or companies who are not resident in Guernsey will not be regarded as Guernsey source income. Such income will not therefore be liable to Guernsey tax in the hands of non-Guernsey resident limited partners.
Dividend income is shown gross of any withholding tax.
4. Earnings per share
The calculation of basic and diluted earnings per share is based on the return on ordinary activities less total comprehensive income attributable to the Non-Controlling Interest and on there being 700,000,000 weighted average number of shares in issue during the period.
Days in Weighted Average
Date Shares issue Shares
12 July 2017 700,000,000 173 700,000,000
31 December
2017 700,000,000 700,000,000
5. Financial assets at fair value through profit or loss
2017
GBP
--------------------------------------------- -------------
Opening fair value at the
beginning of the period -
Purchases at cost 390,603,752
Proceeds from disposal (91,799,024)
Movement in fair value 675,470
Realised gain on investments and derivative
contracts 8,449,909
---------------------------------------------- -------------
Closing fair value at the
end of the period 307,930,107
---------------------------------------------- -------------
At 31 December 2017, there were GBP24,426,639 of investment purchases which had not settled. These are included in the investment cost and pending trades.
The investments held at period end relate to Contracts For Differences in the Selected Target Company, Barclays and are considered level II investments.
6. Dividend Income
2017
GBP
----------------- --------
Dividend income 844,134
Total 844,134
------------------ --------
A dividend of GBP844,134 was received from Investments at fair value through profit or loss in September 2017.
7. Prepaid Expenses
2017
GBP
------------------------ -------
Other prepaid expenses 43,210
------------------------- -------
Total 43,210
------------------------- -------
8. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group and short term deposits held with various banking institutions. The carrying amount of these assets approximates their fair value.
9. Trade and other payables
2017
GBP
----------------------------- --------
Professional fees payable 78,635
Administration fees payable 67,172
Audit fees payable 26,119
Total 171,926
------------------------------ --------
10. Share capital and share premium
2017
Consolidated
--------------------------- -------------
Authorised share capital No.
Ordinary Shares of no par
value Unlimited
--------------------------- -------------
Issued and fully paid No.
Ordinary Shares of no par
value 700,000,000
---------------------------- -------------
2017
Consolidated
---------------------------- -------------
Share premium account GBP
Share premium account upon
issue 700,000,000
Less: Cumulative costs
of issue (11,060,597)
Balance at the end of the
period 688,939,403
----------------------------- -------------
During the period 700,000,000 shares were issued for a total cash consideration of GBP700,000,000.
11. Net asset value per share attributable to the Company
No. of Shares Consolidated
Pence per
Share
------------------- -------------- -------------
31 December 2017
Ordinary Shares
Basic and diluted 700,000,000 99.41
12. Dividends
No Dividends were paid by the Company during the period. The Group paid distributions of GBP1,809,802 to Non-controlling interests during the period.
13. Subsequent Events
As reported on 19 March 2018, as at 16 March 2018, GBP580 million of the Company's capital has been invested in Barclays shares and derivatives.
Since 31 December 2017, the share price of Barclays has increased from 203.10 pence to 213.80 pence as at 16 April 2018. If this share price was used to value the Barclays shares at 31 December 2017, it would have resulted in an increase in the closing fair value from GBP307,930,107 to GBP324,152,914.
14. Related party transactions
The Investment Partnership and its General Partner, Sherborne Investors (Guernsey) GP, LLC, have engaged Sherborne Investors Management (Guernsey) LLC to serve as Investment Manager which is responsible for identifying the Selected Target Company, subject to approval by the Board of Directors of the Company, as well as day to day management activities of the Investment Partnership. The Investment Manager is entitled to receive from the Investment Partnership a monthly management fee equal to one-twelfth of 1% of the net asset value of the Investment Partnership, less cash and cash equivalents and certain other adjustments. During the period, management fees of GBP96,831 were paid by the Investment Partnership. No balance was outstanding at the period end.
The sole member of Sherborne Investors (Guernsey) GP, LLC is Sherborne Investors LP (the non-controlling interest), which also serves as the Special Limited Partner of the Investment Partnership. The Special Limited Partner is entitled to receive an incentive allocation once aggregate distributions to Partners of the Investment Partnership, of which one is the Company, exceed a certain level of capital contributions to the Investment Partnership, excluding amounts contributed attributable to management fees.
For Turnaround investments, the incentive allocation is computed at 10% of the distributions to all Partners in excess of 110%, increasing to 20% of the distributions to all Partners in excess of 150% and increasing to 25% of the distributions to all Partners in excess of 200% of capital contributions, excluding amounts contributed attributable to management fees. An investment is considered a Turnaround investment when a member of the Managing Partner is appointed chairman of, or accepts an executive role at, the Selected Target Company.
If, after acquiring a shareholding, the share price of the Selected Target Company rises to a level at which further investment and the effort of a Turnaround is, in the Investment Manager's opinion, no longer justified or otherwise no longer presents a viable Turnaround opportunity, the Investment Partnership intends to sell (and distribute the proceeds to the Company) or distribute in kind the holding to the limited partners (in each case after deductions for any costs and expenses and for the Investment Partnership's Minimum Capital Requirements and subject to applicable law and regulation), rather than seeking to join the Board of Directors or otherwise engage with the Selected Target Company (a "Stake Building Investment").
For Stake Building Investments, the incentive allocation is computed at 20% of net returns on the investment of the Investment Partnership, such amount to be payable after each partner in the Investment Partnership has had distributed to it an amount equal to its aggregate capital contribution to the Investment Partnership in respect to the Stake Building Investment (excluding any capital contributions attributable to Management Fees). The Special Limited Partner may waive or defer all or any part of any incentive allocation otherwise due.
At 31 December 2017, the incentive allocation has been computed based on a Stake Building Investment basis and amounts to GBP11,365 at 31 December 2017 in relation to the investment in Barclays. During the period GBP1,768,043 was paid upon realisation of the investment in the first selected target company.
Each of the Directors (other than the Chairman) receives a fee payable by the Company currently at a rate of GBP35,000 per annum. The Chairman of the Audit Committee receives GBP5,000 per annum in addition to such fee. The Chairman receives a fee payable by the Company currently at the rate of GBP50,000 per annum.
Individually and collectively, the Directors of the Company hold no shares of the Company as at 31 December 2017.
Sherborne Investors GP, LLC has granted to the Company a non-exclusive licence to use the name "Sherborne Investors" in the UK and the Channel Islands in the corporate name of the Company and in connection with the conduct of the Company's business affairs. The Company may not sub-licence or assign its rights under the Trademark Licence Agreement. Sherborne Investors GP, LLC receives a fee of GBP70,000 per annum for the use of the licenced name.
15. Financial risk factors
The Group's investment objective is to realise capital growth from investment in the Selected Target Company, identified by the Investment Manager with the aim of generating significant capital return for Shareholders. Consistent with that objective, the Group's financial instruments mainly comprise an investment in a Selected Target Company. In addition, the Group holds cash and cash equivalents as well as having trade and other receivables and trade and other payables that arise directly from its operations.
Liquidity risk
The Group's cash and cash equivalents are placed in demand deposits and short-term money market instruments with a range of financial institutions. The listed investment in the Selected Target Company could be partially redeemed relatively quickly (within 3 months) should the Group need to meet obligations or ongoing expenses as and when they fall due.
The following table details the liquidity analysis for financial liabilities at the date of the Consolidated Statement of Financial Position:
As at 31 December Less than 1 - 12 1 - 2
2017 1 month months years Total
GBP GBP GBP GBP
Trade and other payables (125,807) (46,119) - (171,926)
(125,807) (46,119) - (171,926)
-------------------------- ---------- --------- -------- ----------
Credit risk
The Company is exposed to credit risk in respect of its cash and cash equivalents and derivative contracts, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets. The credit risk on liquid funds is mitigated through the Group depositing cash and cash equivalents across several banks. The credit risk associated with derivative contracts is monitored by reviewing the credit rating for counterparty. The Group is exposed to credit risk in respect of its trade receivables and other receivable balances with a maximum exposure equal to the carrying value of those assets.
Market price risk
Market price risk arises as a result of the Group's exposure to the future values of the share price of the Selected Target Company. It represents the potential loss that the Group may suffer through investing in the Selected Target Company.
As at 31 December 2017 a +/-10% change in the price of Barclays would positively or negatively affect the Group's net assets, income and consolidated comprehensive income for the period, by GBP30,793,011.
Interest rate risk
The Group is subject to risks associated with changes in interest rates in respect of interest earned on its cash and cash equivalents and interest paid on its loan payable. The Group seeks to mitigate this risk by monitoring the placement of cash balances on an on-going basis in order to maximize the interest rates obtained.
As at 31
December
2017 Interest bearing
--------------------------------------------- ----------
1 month 3 months
Less than to to 1 - Non- interest
1 month 3 months 1 year 2 years bearing Total
GBP GBP GBP GBP GBP GBP
------------------- ---------------- -------------- ----------- ---------- -------------- ------------
Assets
Cash and
cash equivalents 391,651,981 - - - 20,946,038 412,598,019
Investments
held at fair
value through
profit or
loss - - - - 307,930,107 307,930,107
Prepaid expenses - - - - 43,210 43,210
------------------- ---------------- -------------- ----------- ---------- -------------- ------------
Total Assets 391,651,981 - - - 328,919,355 720,571,336
------------------- ---------------- -------------- ----------- ---------- -------------- ------------
Liabilities
Other payables - - - - (171,926) (171,926)
Total Liabilities - - - - (171,926) (171,926)
------------------- ---------------- -------------- ----------- ---------- -------------- ------------
Interest rate risk
As at 31 December 2017, the total interest sensitivity gap for interest bearing items was a surplus of GBP391,651,981.
As at 31 December 2017, interest rates reported by the Bank of England were 0.5% which would equate to net income of GBP1,958,260 per annum if interest bearing assets and liabilities remained constant. If interest rates were to fluctuate by 0.25%, this would have a positive or negative effect of GBP979,130 on the Group's annual income.
Capital risk management
The capital structure of the Company consists of proceeds raised from the issue of Ordinary Shares. As at 31 December 2017, the Group is not subject to any external capital requirement.
The Directors believe that at the date of the Consolidated Statement of Financial Position there were no other material risks associated with the management of the Company's capital.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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