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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Sherborne Investors (guernsey) B Limited | LSE:SIGB | London | Ordinary Share | GG00B883XC99 | A 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% | 0.2525 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSIGB
RNS Number : 4781X
Sherborne Investors (Guernsey)B Ltd
30 April 2019
SHERBORNE INVESTORS (GUERNSEY) B LIMITED
Annual Report and Audited Consolidated Financial Statements
For the year ended 31 December 2018
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Company Summary
The Company Sherborne Investors (Guernsey) B 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 8 November 2012. The Company commenced
dealings on the SFS on 7 May 2013.
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 SIGB,
LP (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 (the "Investment Manager")
to provide investment management services
to the Investment Partnership.
Chairman's Statement
During the period the Company continued to pursue its investment strategy through its shareholding in Electra Private Equity PLC ("Electra").
At 31 December 2018, the net asset value attributable to shareholders of the Company was GBP35.8 million (2017: GBP82.4 million) or 11.40 pence per share (2017: 26.20 pence per share) (see Note 12). The Company's net asset value was based on the closing price of 402.00 pence as at 31 December 2018 for the shares of Electra. As at the year-end SIGB, LP held approximately 29.90% of Electra through ordinary shares. The ownership level remains the same as at the date of this letter.
Subsequent to the year end, on 27 February 2019 Electra announced a special dividend of 54 pence per share which was paid by Electra on 12 April 2019 to shareholders of record on 15 March 2019. Following the announcement of Electra's dividend, the Company declared a dividend of 1.5 pence per share which was paid by the Company on 26 April 2019 to shareholders of record on 29 March 2019.
Electra has realised a significant number of its investments since 2015 and has distributed substantially all of the proceeds to shareholders, resulting in cumulative dividends being paid of GBP2.0 billion. This cumulative figure includes a total of GBP149 million paid through two dividends in June and December 2018 and GBP21 million paid in April 2019. Following receipt of the distributions from Electra, the Company paid two dividends to its shareholders in 2018 totaling 10.55 pence per share and one dividend in 2019 of 1.5 pence per share. These dividends returned GBP33.2 million to shareholders during 2018 and GBP4.7 million to shareholders in 2019, representing a return of 49% of the Company's market capitalisation at the beginning of 2018.
I am very pleased to report that since inception of the Company, distributions to shareholders have totalled GBP540.3 million, representing a return of 176% (1.76x) compared to the capital raised of GBP307.6 million.
On 4 October 2018 Electra announced the results of the third and final stage of its strategic review ("Phase 3") which commenced in May 2018. The principal results of Phase 3 were to sell a portion of Electra's remaining portfolio and to distribute the proceeds to shareholders upon closing, and to put Electra into a managed wind-down to allow maximisation of value for its remaining portfolio companies over time. Electra would also no longer undertake new portfolio company investments and any proceeds from realisations would be returned to shareholders.
Details of Related Party Transactions are contained in Note 14 of the Notes to the Consolidated Financial Statements.
We are grateful for your continued support and will keep you informed of the status of our investment as it develops.
Board of Directors
Talmai Morgan (Chairman)
Appointed to the Board 8 November 2012
Mr Morgan has served as a non-executive director on the board of 14 publicly listed investment companies (including 3 FTSE 250 companies) since 2005. He is currently Chairman of NB Private Equity Partners Limited, Sherborne Investors (Guernsey) B Limited and Sherborne Investors (Guernsey) C Limited. From 1999 to 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 the activities 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. He qualified as a barrister in 1976 and holds an MA in Economics and Law from the University of Cambridge.
Trevor Ash (Director)
Appointed to the Board 8 November 2012
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) C 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 (Audit Committee Chairman)
Appointed to the Board 10 May 2013
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) C Limited. Mr Legge is an FCA and holds a BA (Hons) in Economics from the University of Manchester.
Directors' Strategic Report
The Directors present their annual report on the affairs of Sherborne Investors (Guernsey) B limited and its subsidiary (together, the "Group"), together with the audited consolidated financial statements, for the year ended 31 December 2018.
Principal activities and investing policy
The Company is a Guernsey domiciled company incorporated on 8 November 2012 with limited liability. The Company's shares were admitted to trading on the SFS on 7 May 2013.
The Company is a limited partner in the Investment Partnership, a limited partnership registered in Guernsey on 6 November 2012. The Company aims to provide investors with capital growth through its investment in the Investment Partnership, to which it originally committed GBP200 million and subsequently increased its commitment by GBP100 million following a placing on 26 February 2015.
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% 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 ("STC") 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.
In December 2013, the Company's Board of Directors approved a stake building investment in Electra Private Equity PLC ("Electra") as proposed by SIGB, LP's Investment Manager. The Investment Manager continues to believe that implementation of an operational and strategic review of Electra will identify opportunities to enhance the value of the Company's shares. Accordingly, the Company continues to maintain its investment strategy with respect to Electra.
The Group intends that the holding in the STC shall not reach such a level as to require the Group to make a bid for the entire company and, therefore, the Group will not have control over the STC.
At 29 April 2019, SIGB, LP held approximately 29.90% of Electra's outstanding shares.
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, Ipes (Guernsey) Limited (prior to its change of name to Apex Fund and Corporate Services (Guernsey) Limited) produced an annual AAF 01/06 Assurance Report on the internal control procedures in place for the year ended 30 September 2018 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 year ended 31 December 2018.
-- 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. 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 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. As the nominated appointees now serve on the Board of Directors of the STC, there is a risk that the nominated appointees may not be re-elected. Operational risk is reviewed by the Board at each Board meeting.
The uncertainty around Brexit spanned the whole of 2018 and intensified in the second half of the year. The timing of the withdrawal remains uncertain and its full impact may only be realised in years to come, as the economy adjusts to the new regime. A focus of the Board in 2018 was the continued oversight of the Company's ability to respond to the political and economic uncertainty following the UK's decision to leave the EU.
Other risks faced by the Company are described in detail within the Company's Offering Document and can be obtained at www.sherborneinvestorsguernseyb.com
The Board have considered the Company's solvency and liquidity risk and full 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 2021. The Directors have determined that the three year period to 31 December 2021 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;
-- The ongoing relevance of the Company's investment objective in the current environment; and
-- The execution of Electra's strategic review as set out in the Chairman's Statement.
The Company, through its investment in the Investment Partnership is fully invested in listed equity securities of the STC or cash.
The STC established an annual recurring dividend of GBP10 million funded from cash flows generated from portfolio companies. The STC also paid a one-time special dividend of GBP21 million after the year end. Projected dividends to be received by the Investment Partnership would be more than adequate to cover all operating costs of the Company for the three-year period ended 31 December 2021. Were the STC to significantly reduce the annual dividend (by as much as nearly 40%), the Company's pro rata share would still be sufficient to cover such costs. At the date of this report there are no borrowings outstanding.
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 2021.
Subsequent events
Details of events that have occurred after the date of the Consolidated Statement of Financial Position are provided in Note 16 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 SIGB, LP may be one) as well as the extent such dividends are first required to be used to repay outstanding indebtedness and meet the minimum working capital requirements.
Dividend
-- On 4 June 2018, a dividend of 0.7 pence per share was declared by the Company and was paid on 13 July 2018 to shareholders of record on 15 June 2018 which equated to GBP2,201,831.
-- On 5 November 2018, a dividend of 9.85 pence per share was declared by the Company and was paid on 27 December 2018 to shareholders of record on 30 November 2018 which equated to GBP30,982,905.
Total dividends during the year were therefore GBP33,184,736 or 30.30% of 31 December 2017 NAV.
Business review
A review of the Company's business during the year 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 11 to the Consolidated Financial Statements. All shares carry equal voting rights.
Substantial interests
As at 31 March 2019, the Company is aware of the following material shareholdings:
Number of Ordinary % of issued
Shareholder Shares share capital
------------------------------- ------------------- ---------------
Aviva plc 60,044,268 19.1%
Sherborne Investors GP, LLC 59,882,984 19.0%
Ameriprise Financial, Inc. 55,556,335 17.7%
FIL Limited 31,395,187 10.0%
Weiss Asset Management 19,376,438 6.2%
Insight Investment Management 17,810,772 5.7%
Soros Fund Management 15,864,736 5.0%
The Directors currently hold no shares in the Company.
Independent Auditor
A resolution to re-appoint the Auditors to the Company will be proposed at the Annual General Meeting, of the Company on 4 June 2019. 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 Incorporation ("Articles"), 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 2018 Annual Base fee GBP
GBP
------------------------------------------ ------------ -------------
Chairman (Mr Talmai Morgan) 50,000 50,000
Audit Committee Chairman (Mr Christopher
Legge) 40,000 40,000
Non-executive Director (Mr Trevor
Ash) 35,000 35,000
------------------------------------------ ------------ -------------
Total 125,000 125,000
------------------------------------------ ------------ -------------
As outlined in the Articles, 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 2018.
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 were subject to election at the first Annual General Meeting ("AGM"), or as determined in line with the Company's Articles, and re-election at subsequent AGMs 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 year 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 year ended 31 December 2018, 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 three non-executive members. For further information relating to the Board, please refer to the Board of Directors section. 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 Christopher Legge and Trevor Ash, both of whom are independent. The Chairman of the Board, having previously been a member of the Audit Committee, is no longer a member of the Audit Committee in anticipation of the updated requirements of the UK Corporate Governance Code dated July 2018, which will apply to accounting periods beginning on or after 1 January 2019. 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 half-yearly and annual financial statements, 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 four times during the year. Individual attendance at Board and Audit Committee meetings is set out below.
Board Audit Committee
-------------------- ------ ----------------
Talmai Morgan 4 3
Trevor Ash 3 2
Christopher Legge 4 3
Total Meetings for
Year 4 3
-------------------- ------ ----------------
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 7 May 2013, Mr 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) C Limited, a company with similar investment objectives and the same Investment Manager as the Company. As Sherborne Investors (Guernsey) C 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 nine 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 believes 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 undertakes an evaluation of its performance and that of the Audit Committee. This was last completed in January 2019. Additionally, an evaluation focusing on individual commitment, performance and contribution of each Director is 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 AGM 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 in the Board of Directors section.
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 Audited Consolidated Financial Statements for the year ended 31 December 2018 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 year end is GBP1,574,573. The net current asset position as at 31 March 2019 is GBP2,798,417. Therefore, after making enquiries and based on the sufficient cash reserves as at 31 December 2018, 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 the Investment Manager's 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 the Investment Manager continues 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. The Board has documented the controls to be reviewed and will review their effectiveness on an ongoing basis. 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, and Administration and Company Secretarial service provider. In each case, qualified and able individuals have been selected at all levels. The staffs 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, Ipes (Guernsey) Limited (prior to its change of name to Apex Fund and Corporate Services (Guernsey) Limited) produced an annual AAF 01/06 Assurance Report on the internal control procedures in place for the year ended 30 September 2018 and this 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 STC, 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 year. 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 is circulated to all external service providers requesting thorough details in regard 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.
There were no protected disclosures made pursuant to the whistleblowing policy of service providers in relation to the Company, during the year ended 31 December 2018.
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.
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 Audited Consolidated 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.
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 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 AGM on 4 June 2019, 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 is comprised of two of the Directors, not including the Chairman of the Board. The Chairman of the Board was previously a member of the Audit Committee but stood down in anticipation of the 2018 updates to the Code. 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, Christopher 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 AGM;
-- 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 Manager 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 Manager and also reports from the Auditor on the outcomes of their half-year review and annual audit. The Audit Committee supports the Auditor in displaying the necessary professional scepticism their role requires.
The Committee met three times during the year under review; individual attendance of Directors is outlined above. The main matters discussed at those meetings 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;
-- Detailed review of the Half Year Report and Accounts and Annual Report and Consolidated Financial Statements and recommendation for approval by the Board;
-- Discussion of reports from the external auditors following their interim review and annual audit;
-- Assessment of the effectiveness of the external audit process as described below; -- 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 AGM 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 year, the Audit Committee identified a number of significant issues and areas of key audit risks in respect of the Annual Report and Audited Consolidated 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 Issue Actions to Address Issue
Valuation and ownership of investment The Audit Committee and Board
- focus upon one target company review detailed portfolio valuations
means that any errors in valuation, on a regular basis throughout
depending on their size, can the year under review and receive
be highly material. A key risk confirmation from the Investment
is incorrect pricing used based Manager that the pricing basis
on requirement of IFRS taking is appropriate and in line with
into account the market for those relevant accounting standards.
shares.
--------------------------------------
Auditor Tenure and Objectivity
The Company's Auditor, Deloitte LLP, has acted in this capacity since the Company's inaugural meeting on 9 November 2012. The Committee reviews the auditor's performance on a regular basis to ensure the Company receives an optimal service. Subject to annual appointment by shareholder approval at the AGM, the appointment of the auditor is formally reviewed by the Committee on an annual basis. The Auditor is required to rotate the Audit partner regularly every five years, and the current partner has been in place since 2014. 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, and therefore will be discussed during 2019.
Deloitte LLP regularly updates 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, GBP14,600 non-audit fees were paid to the Auditor in relation to the interim review and GBP19,873 in tax compliance fees.
The Audit Committee undertook a formal review of the external auditor for the year ended 31 December 2018, 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 Audited Consolidated 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 year, 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 year ended 31 December 2018 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 Consolidated Financial Statements for each financial year 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 year.
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 Group;
-- 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 Group, together with a description of the principal risks and uncertainties that they face; and
-- the annual report and consolidated 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 Auditor is aware of said information.
Independent Auditor's Report to the Members of Sherborne Investors (Guernsey) B Limited
Report on the audit of the financial statements
Opinion
In our opinion the financial statements of Sherborne Investors
(Guernsey) B Limited (the 'parent company') and its subsidiaries
(the 'group'):
* give a true and fair view of the state of the group's
affairs as at 31 December 2018 and of the group's
loss for the year 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 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 16
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 Council's
(the 'FRC's') Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Summary of our audit approach
================================================================================
Key audit matters The key audit matter that we identified in the
current year was:
* Valuation and ownership of Investments at fair value
through profit or loss.
------------------ ============================================================
Materiality The materiality that we used for the group financial
statements in the current year was GBP475,000
(2017: GBP2,190,000) which was determined on
the basis of 1% (2017: 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.
------------------ ============================================================
Significant Our materiality benchmark was revised to 1%
changes in our of net asset value for the year ended 31 December
approach 2018 from 2% of net asset value used for the
year-ended 31 December 2017, due to further
industry benchmarking.
============================================================
Conclusions relating to going concern, principal risks and
viability statement
Going concern We confirm that we
We have reviewed the directors' statement have nothing material
in note 1 to the financial statements about to report, add or
whether they considered it appropriate to draw attention to
adopt the going concern basis of accounting in respect of these
in preparing them and their identification matters.
of any material uncertainties to the group's We confirm that we
ability to continue to do so over a period have nothing material
of at least twelve months from the date to report, add or
of approval of the financial statements. draw attention to
Principal risks and viability statement in respect of these
Based solely on reading the directors' statements matters.
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.
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 matter The investment balance at 31 December 2018 had
description a fair value of GBP46m (2017: GBP107m), representing
97% (2017: 98%) of the group's net asset value.
This is comprised of listed equity investment
in the selected target company ("STC"), Electra
Private Equity Plc ("Electra"), which saw its
share price fall principally as a result of dividend
payments to shareholders in the year. Details
of the investment are disclosed in note 5, and
the accounting policies relating to them are
disclosed in note 1 (d). This is further discussed
in the Report of the Audit Committee.
The investment is the most quantitatively significant
balance on the Consolidated Statement of Financial
Position and is an area of focus as it drives
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.
================= ==================================================================
How the scope In order to test the investments balance as at
of our audit 31 December 2018 we performed the following procedures:
responded to * Assessed the design and implementation of controls
the key audit relating to the valuation and ownership of
matter investments to determine 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");
* We considered the liquidity of the investment in
Electra in order to assess whether there is a
sufficiently active market to allow for use of an
unadjusted level 1 price;
* Reconciled the investment holdings as at 31 December
2018 to an independently received confirmation from
the group's custodian; and
* Obtained independent pricing information as at 31
December 2018, in order to recalculate the fair value
of the group's investment.
================= ==================================================================
Key observations Based on the work performed we conclude that
the valuation of the investments held at fair
value through profit or loss is appropriate.
================= ==================================================================
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 GBP475,000 (2017: GBP2,190,000)
----------------------
Basis for determining 1% of the group net asset value (2017: 2% of
materiality the group net asset value)
---------------------- ===================================================
Rationale for In determining the materiality, we considered
the benchmark what the most important balances on which the
applied 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 have revised
the percentage applied to this benchmark from
the prior year (from 2% to 1%) having taken
into account industry benchmarking.
===================================================
To view the graph please see attached the PDF version of the
Annual Report
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP23,000 (2017:
GBP109,500) 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) B Limited is a limited partner
in SIGB, LP ("the Investment Partnership"), together "the Group",
holding a 95.55% 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 GBP470,000 and therefore the
audit team have audited the whole Group directly.
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 for the other We have nothing to
information. The other information comprises report in respect
the information included in the annual report, of these matters.
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 directors' responsibilities
statement, 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.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
======================================================================================
Adequacy of explanations received and accounting We have nothing to
records report in respect
Under the Companies (Guernsey) Law, 2008 of these matters.
we are required to report 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.
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.
Consolidated Statement of Comprehensive Income
For the year ended 31 December
2018
1 January 2018 1 January 2017
to 31 December to 31 December
2018 2017
Notes GBP GBP GBP GBP
--------------------------------- -------- ---------- ------------- ---------- --------------
Income 1(e)
Unrealised loss on investments
held at fair value through
profit or loss 1(d),5 (61,064,869) (439,102,721)
Dividend income 6 44,639,735 507,501,018
Bank interest income 11,458 18,152
--------------------------------- -------- ---------- ------------- ---------- --------------
(16,413,676) 68,416,449
--------------------------------- -------- ---------- ------------- ---------- --------------
Expenses 1(f)
Management fees 14 1,011,237 3,679,993
Administrative fees 208,573 268,000
Other fees 152,011 138,926
Directors' fees 2 125,000 121,250
Professional fees 116,364 229,841
Trading and custodian fees - 2,861
Finance costs 1(g),10 - 278,221
(1,613,185) (4,719,092)
--------------------------------- -------- ---------- ------------- ---------- --------------
Comprehensive income/(loss)
for the year (18,026,861) 63,697,357
--------------------------------- -------- ---------- ------------- ---------- --------------
Comprehensive income/(loss)
for the year attributable
to:
Shareholders (13,378,569) 46,263,064
Non-controlling interest (NCI) 1(b) (4,648,292) 17,434,293
--------------------------------- -------- ---------- ------------- ---------- --------------
Weighted average number of
shares outstanding 4 314,547,259 314,547,259
--------------------------------- -------- ---------- ------------- ---------- -------------- Basic and diluted earnings per share attributable to shareholders (excluding NCI) (4.25p) 14.71p --------------------------------- -------- ---------- ------------- ---------- --------------
All revenue and expenses are derived from continuing operations.
Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017
Notes GBP GBP GBP GBP
---------------------------- ------ ---------- -------------- ---------- --------------
Non-Current Assets
Financial assets at
fair value through profit
or loss 5 46,013,266 107,078,135
---------------------------- ------ ---------- -------------- ---------- --------------
46,013,266 107,078,135
---------------------------- ------ ---------- -------------- ---------- --------------
Current Assets
Prepaid expenses 7 21,540 28,391
Cash and cash equivalents 8 1,643,156 2,531,740
1,664,696 2,560,131
---------------------------- ------ ---------- -------------- ---------- --------------
Current Liabilities
Trade and other payables 9 (90,123) (126,638)
(90,123) (126,638)
---------------------------- ------ ---------- -------------- ---------- --------------
Net Current Assets 1,574,573 2,433,493
---------------------------- ------ ---------- -------------- ---------- --------------
Net Assets 47,587,839 109,511,628
---------------------------- ------ ---------- -------------- ---------- --------------
Capital and Reserves
Called up share capital
and share premium 11 302,696,145 302,696,145
Retained reserves (266,850,453) (220,287,148)
---------------------------- ------ ---------- -------------- ---------- --------------
Equity attributable
to the Company 35,845,692 82,408,997
---------------------------- ------ ---------- -------------- ---------- --------------
Non-controlling interest
(NCI) 1(b) 11,742,147 27,102,631
---------------------------- ------ ---------- -------------- ---------- --------------
Total Equity 47,587,839 109,511,628
---------------------------- ------ ---------- -------------- ---------- --------------
NAV Per Share (excluding
NCI) 12 11.40p 26.20p
---------------------------- ------ ---------- -------------- ---------- --------------
The Consolidated Financial Statements were approved by the Board of Directors for issue on 29 April 2019.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Capital Non-
and Share Retained Controlling Total
Premium Reserves Interests Equity
Notes GBP GBP GBP GBP
--------------------------- ------ -------------- -------------- ------------- -------------
Balance at 1 January 2018 302,696,145 (220,287,148) 27,102,631 109,511,628
--------------------------- ------ -------------- -------------- ------------- -------------
Total comprehensive loss - (17,242,317) (784,544) (18,026,861)
1(m),
Incentive allocation 14 - 3,863,748 (3,863,748) -
Dividends paid 13 - (33,184,736) - (33,184,736)
Distribution 13 - - (10,712,192) (10,712,192)
--------------------------- ------ -------------- -------------- ------------- -------------
Balance at 31 December
2018 302,696,145 (266,850,453) 11,742,147 47,587,839
--------------------------- ------ -------------- -------------- ------------- -------------
Share Capital Non-
and Share Retained Controlling Total
Premium Reserves Interests Equity
Notes GBP GBP GBP GBP
---------------------------- -------- -------------- -------------- ------------- --------------
Balance at 1 January 2017 302,696,145 184,825,104 55,345,948 542,867,197
---------------------------- -------- -------------- -------------- ------------- --------------
Total comprehensive income - 60,841,975 2,855,382 63,697,357
Incentive allocation 1(m),14 - (14,578,911) 14,578,911 -
Dividends paid 13 - (451,375,316) - (451,375,316)
Distribution 13 - - (45,677,610) (45,677,610)
Balance at 31 December
2017 302,696,145 (220,287,148) 27,102,631 109,511,628
---------------------------- -------- -------------- -------------- ------------- --------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
1 January 2018 1 January 2017
to 31 December to 31 December
Notes 2018 2017
GBP GBP GBP
------------------------------------------------ ------ ---------------- ----------------
Net cash flows from operating activities 42,996,886 515,349,246
------------------------------------------------ ------ ---------------- ----------------
Investing activities
Purchase of investments 5 - (356,728)
Bank interest income 11,458 18,152
Net cash flows from/(used in) investing
activities 11,458 (338,576)
------------------------------------------------ ------ ---------------- ----------------
Financing activities
Dividends paid 13 (33,184,736) (451,375,316)
Distribution paid to Non-Controlling
Interest 13 (10,712,192) (45,677,610)
Loan repayments 10 - (20,000,000)
Finance costs - (278,221)
Net cash flows used in financing activities (43,896,928) (517,331,147)
------------------------------------------------ ------ ---------------- ----------------
Net movement in cash and cash equivalents (888,584) (2,320,477)
Cash and cash equivalents at beginning
of year 2,531,740 4,852,217
------------------------------------------------ ------ ---------------- ----------------
Cash and cash equivalents at year
end 1,643,156 2,531,740
------------------------------------------------ ------ ---------------- ----------------
Net cash flows from operating activities
------------------------------------------------ ------ ---------------- ----------------
Total consolidated comprehensive income/(loss)
for the year (18,026,861) 63,697,357
Unrealised loss on investments held
at fair value through profit or loss 61,064,869 439,102,721
Movement in prepaid expenses 7 6,851 12,567,838
Movement in trade and other payables 9 (36,515) (278,739)
Bank interest income (11,458) (18,152)
Finance costs - 278,221
------------------------------------------------ ------ ---------------- ----------------
Net cash flows from operating activities 42,996,886 515,349,246
------------------------------------------------ ------ ---------------- ----------------
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
1. Summary of significant accounting policies
Reporting entity
Sherborne Investors (Guernsey) B Limited (the "Company") is a closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008 (as amended). The Company was incorporated and registered in Guernsey on 8 November 2012. The Company commenced dealings on the London Stock Exchange's AIM market on 29 November 2012 and moved from AIM to the London Stock Exchange's Specialist Fund Segment ("SFS") on 7 May 2013. 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 subsidiary, SIGB, LP (the "Investment Partnership" or "SIGB, LP").
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 year.
These Consolidated Financial Statements have been prepared on the historical cost basis, as modified by the measurement at fair value of investments.
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 Group'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 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 year. Actual results could differ from those estimated.
There are no significant estimates utilised for the preparation of the Group's Consolidated Financial Statements as at 31 December 2018 due to the nature of the activities that have occurred in the year, together with the sole investment held by the Group being quoted on the London Stock Exchange. Fair value of financial assets held through profit or loss is therefore based on the quoted closing bid price at 31 December 2018.
Adoption of new and revised standards
(i) New standards adopted as at 1 January 2018:
IFRS 9 'Financial Instruments' ("IFRS 9") replaces IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for the impairment of financial assets. Under IFRS 9, the classification of assets is driven by the business model in which the financial asset is managed and the contractual nature of the cash flows arising from the investment. The Company invests in financial assets with a view to profiting from their total return in the form of interest and changes in fair value, and so these investments are classified as fair value through profit or loss, consistent with the prior period. The treatment of other assets and liabilities also remains unchanged.
IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15") replaces IAS 18 'Revenue' and several revenue-related Interpretations. There are no changes to the recognition of income by the Company as a result of the new Standard as the Company's revenue generating activities are not within the scope of IFRS 15.
(ii) Amendments early adopted by the Company:
There were no standards, amendments and interpretations early adopted by the Company.
(iii) Standards, amendments and interpretations in issue but not yet effective:
New standards Effective date
---------------- ------------------------------------------------------------
IFRS Leases 1 January
16 Amendments: Plan Amendment, Curtailment 2019
IAS 19 or Settlement 1 January
IAS 28 Amendments: Long-term Interest in Associates 2019
IFRS and Joint Ventures 1 January
9 Amendments: Prepayment Features with Negative 2019
Compensation 1 January
2019
IFRS Insurance contracts 1 January
17 2021
Unless stated otherwise, the Directors do not consider the adoption of new and revised Accounting Standards and Interpretations to have a material impact as the new standards or amendments are not relevant to the operations of the Company.
a. Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of the Company and an entity controlled by the Company (its subsidiary). 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 subsidiary 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 subsidiary's 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 owns 95.55% (2017: 95.55%) of the capital interest in SIGB, LP. Whilst the general partner of SIGB, LP, Sherborne Investors (Guernsey) GP, LLC, a company registered in Delaware, USA, is responsible for directing the day to day operations of SIGB, LP, the Company, through its majority interest in SIGB, LP, has the ability to approve the proposed investment of SIGB, LP and to remove the general partner. Hence, the Company has consolidated SIGB, LP 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 as fair value through profit or loss in accordance with IFRS 9, 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. Despite the large holding, under International Accounting Standard 28 'Investments in Associates' ("IAS 28"), the fund can hold the investment in Electra Private Equity plc ("Electra") shares at fair value through profit or loss rather than as an associate as SIGB, LP is a closed-ended fund.
Investments in voting shares, convertible bonds and derivative contracts are initially recognised at cost. The investments in voting shares, convertible bonds and derivative contracts 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, convertible bonds and derivative contracts 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 year end are classified as meeting the definition of Level I (2017: Level I). On disposal of shares or conversion of bonds, cost of investments are allocated on a first in, first out 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
All expenses are accounted for on an accruals basis. Expenses are charged through the Consolidated Statement of Comprehensive Income.
g. Finance cost
Finance costs include interest on bank loan and amortised transaction costs. Finance cost is recognised using the effective interest method.
h. Prepaid expenses and trade receivables
Trade and other receivables are initially recognised at fair value and subsequently where necessary remeasured at amortised cost using the effective interest method. 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. The Group only holds trade receivables with no financing component and which have maturities of less than 12 months at amortised cost and has therefore applied the simplified approach to expected credit loss.
i. 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.
j. 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.
k. 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.
l. 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' as it is deemed not to be applicable.
m. Incentive allocation
The incentive allocation is accounted for on an accrual basis and the calculation is disclosed in Note 15. The incentive allocation 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/(loss)
The consolidated comprehensive income/(loss) has been arrived at after charging:
1 January 2018 1 January 2017
to 31 December to 31 December
2018 2017
GBP GBP
----------------------------------------- ---------------- ----------------
Directors' fees 125,000 121,250
Auditor's remuneration - Audit 33,255 29,610
Auditor's remuneration - Interim Review 14,600 14,600
----------------------------------------- ---------------- ----------------
During 2018, in addition to the audit and half-yearly review related remuneration above, a further GBP19,873 was paid to the Auditor for Tax compliance services (2017: GBP27,000).
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 314,547,259 (2017: 314,547,259) weighted average number of shares in issue during the year.
Weighted Average
Date Shares Days in issue Shares
1 January 2018 314,547,259 314,547,259
31 December
2018 314,547,259 365 314,547,259
5. Financial assets at fair value through profit or loss
2018 2017
GBP GBP
------------------------------------ ------------- --------------
Opening fair value 107,078,135 545,824,128
Purchases of investments - 356,728
Unrealised loss on investments
held at fair value through profit
or loss (61,064,869) (439,102,721)
------------------------------------ ------------- --------------
Closing fair value 46,013,266 107,078,135
------------------------------------ ------------- --------------
Percentage holding of Electra 29.90% 29.90%
The Board of Directors approved an investment in Electra which was proposed by SIGB, LP's Investment Manager, Sherborne Investors Management (Guernsey) LLC, in December 2013. Electra is a London Stock Exchange listed investment trust focused on private equity investments.
As at 31 December 2018, the Group held 11,446,086 shares of Electra (31 December 2017: 11,446,086). In accordance with the Company's investment policy, the Investment Manager does not intend to effect a purchase of shares such that it would be required to make a mandatory bid for the entire share capital of Electra.
6. Dividend Income
2018 2017
GBP GBP
----------------- ----------- ------------
Dividend income 44,639,735 507,501,018
Total 44,639,735 507,501,018
----------------- ----------- ------------
On 23 May 2018, Electra declared a Special dividend of 25 pence per share, paid on 28 June 2018 to shareholders of record on 8 June 2018 which equated to GBP2,861,522.
On 30 October 2018, Electra declared a second Special dividend of 365 pence per share, paid on 14 December 2018 to shareholders of record on 16 November 2018 which equated to GBP41,778,213.
7. Prepaid expenses
2018 2017
GBP GBP
-------------------------------- ------- -------
Prepaid directors and officers
insurance 17,096 17,349
Other prepaid expenses 4,444 11,042
-------------------------------- ------- -------
Total 21,540 28,391
-------------------------------- ------- -------
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
2018 2017
GBP GBP
--------------------------- ------- --------
Professional fees payable 28,919 42,890
Other payables 61,204 83,748
--------------------------- ------- --------
Total 90,123 126,638
--------------------------- ------- --------
10. Loan payable
2018 2017
GBP GBP
------------------------------------------------ ------ -------------
Balance at 1 January - 20,000,000
Repayment - (20,000,000)
Amortisation of transaction costs - -
------------------------------------------------ ------ -------------
Total - -
------------------------------------------------ ------ -------------
During 2017, the loan was repaid and the facility was cancelled.
11. Share capital and share premium
2018 2017
Consolidated Consolidated
--------------------------------- ------------- -------------
Authorised share capital No. No.
Ordinary Shares of no par value Unlimited Unlimited
--------------------------------- ------------- -------------
Issued and fully paid No. No.
Ordinary Shares of no par value 314,547,259 314,547,259
--------------------------------- ------------- -------------
2018 2017
Consolidated Consolidated
---------------------------------- ------------- -------------
Share premium account GBP GBP
Share premium account upon issue 302,696,145 302,696,145
Balance at the end of the year 302,696,145 302,696,145
---------------------------------- ------------- -------------
12. Net asset value per share attributable to the Company
No. of Shares Consolidated
pence per
Share
------------------- -------------- -------------
31 December 2018
Ordinary Shares
Basic and diluted 314,547,259 11.40
31 December 2017
Ordinary Shares
Basic and diluted 314,547,259 26.20
13. Dividends and distributions
On 4 June 2018, a dividend of 0.7 pence per share was declared by the Company and was paid on 13 July 2018 to shareholders of record on 15 June 2018 which equated to GBP2,201,831.
On 5 November 2018, a dividend of 9.85 pence per share was declared by the Company and was paid on 27 December 2018 to shareholders of record on 30 November 2018 which equated to GBP30,982,905.
Total dividends during the year were therefore GBP33,184,736 or 30.30% of 31 December 2017 NAV.
Total distributions paid by the Group to non-controlling interests during the year were GBP10,712,192 (2017: GBP45,677,610).
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 who is responsible for identifying the STC, 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 year, management fees of GBP1,011,237 (2017: GBP3,679,993) had been paid by the Partnership. No balance was outstanding at the year end (2017: nil).
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.
Sherborne Strategic Fund D, LLC ("SSFD"), an affiliate of the General Partner to the Investment Partnership, subscribed as a limited partner for GBP15 million of SIGB, LP on 20 May 2015, thereby acquiring a 4.43% capital interest. The interest was acquired at the net asset value ("NAV") of SIGB, LP on 20 May 2015. Management and incentive fees have been accrued based on the capital interest of the new limited partner since the date of its admission. 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.
If, after acquiring a shareholding, the share price of the STC 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 STC (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 2018, the incentive allocation has been computed based on a Turnaround investment basis and amounts to GBP10,063,723 (2017: GBP23,213,316) of which GBP416,732 (2017: GBP966,541) relates to SSFD. The amount paid in the year was GBP9,141,226 (2017: GBP24,297,226) of which GBP405,189 (2017: GBP659,979) relates to SSFD.
Incentive Allocation movement SIGB Ltd SSFD Total
GBP GBP GBP
Movement for the year (3,863,748) (144,620) (4,008,368)
Sherborne Investors LP and SSFD also earned their share of the Total Comprehensive Loss for the year of GBP784,544 (2017: Total Comprehensive Income of GBP2,855,382).
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 2018.
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 GBP20,000 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 with a range of financial institutions. The listed investment in Electra 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:
Less than 1 1 - 2 years
As at 31 December 2018 Consolidated month 1 - 12 months Total
GBP GBP GBP GBP
Trade and other payables (36,724) (53,399) - (90,123)
(36,724) (53,399) - (90,123)
--------------------------------------- ------------ -------------- -------------- ----------
Less than 1
As at 31 December 2017 Consolidated month 1 - 12 months 1 - 2 years Total
GBP GBP GBP GBP
--------------------------------------- ------------ -------------- -------------- ----------
Trade and other payables (126,638) - - (126,638)
(126,638) - - (126,638)
--------------------------------------- ------------ -------------- -------------- ----------
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. UBS Financial Services Inc. currently has a stand alone credit rating of A- with Standard & Poor's (2017: UBS Financial Services Inc. A- with Standard & Poor's).
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 STC. It represents the potential loss that the Group may suffer through investing in the STC.
As at 31 December 2018 a +/-20% change in the price of Electra would positively or negatively affect the Group's net assets, income and consolidated comprehensive income for the year, by GBP9,202,653 (2017: GBP21,415,627).
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. The Group seeks to mitigate this risk by monitoring the placement of cash balances on an on-going basis in order to maximise the interest rates obtained.
As at 31 December
2018 Interest bearing
-------------------------------------------------
1 month 3 months
Less than to to 1 - 2 years Non- interest
1 month 3 months 1 year bearing Total
GBP GBP GBP GBP GBP GBP
------------------- ---------- ---------- --------- -------------- -------------- -----------
Assets
Cash and cash
equivalents 1,643,156 - - - - 1,643,156
Investments
held at fair
value through
profit or loss - - - - 46,013,266 46,013,266
Prepaid expenses - - - - 21,540 21,540
------------------- ---------- ---------- --------- -------------- -------------- -----------
Total Assets 1,643,156 - - - 46,034,806 47,677,962
------------------- ---------- ---------- --------- -------------- -------------- -----------
Liabilities
Other payables - - - - (90,123) (90,123)
Total Liabilities - - - - (90,123) (90,123)
------------------- ---------- ---------- --------- -------------- -------------- -----------
As at 31 December
2017 Interest bearing
-------------------------------------------------
1 month 3 months
Less than to to 1 - 2 years Non- interest
1 month 3 months 1 year bearing Total
GBP GBP GBP GBP GBP GBP
------------------- ---------- ---------- --------- -------------- -------------- ------------
Assets
Cash and cash
equivalents 2,531,740 - - - - 2,531,740
Investments
held at fair
value through
profit or loss - - - - 107,078,135 107,078,135
Prepaid expenses - - - - 28,391 28,391
------------------- ---------- ---------- --------- -------------- -------------- ------------
Total Assets 2,531,740 - - - 107,106,526 109,638,266
------------------- ---------- ---------- --------- -------------- -------------- ------------
Liabilities
Other payables - - - - (126,638) (126,638)
Total Liabilities - - - - (126,638) (126,638)
------------------- ---------- ---------- --------- -------------- -------------- ------------
As at 31 December 2018, the total interest sensitivity gap for interest bearing items was a surplus of GBP1,643,156 (2017: GBP2,531,740).
As at 31 December 2018, interest rates reported by the Bank of England were 0.75% (2017: 0.50%) which would equate to net income of GBP12,323 (2017: GBP12,659) per annum if interest bearing assets and liabilities remained constant. If interest rates were to fluctuate by 25 basis points, this would have a positive or negative effect of GBP4,108 (2017: GBP6,330) 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 2018, 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.
16. Subsequent events
Since 31 December 2018, the share price of Electra has decreased from 402.0 pence to 354.5 pence as at 25 April 2019. If this share price was used to value the Electra shares at 31 December 2018, it would have resulted in a decrease in the closing fair value from GBP46,013,266 to GBP40,576,375.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR CKCDQDBKBNQB
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April 30, 2019 02:01 ET (06:01 GMT)
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