MENHADEN RESOURCE EFFICIENCY PLC
Menhaden Capital PLC
(the "Company")
LEI: 2138004NTCUZTHFWXS17
Audited results for the year ended 31 December 2016
The Annual Report will be posted to shareholders on 12 April 2017
Copies may be obtained from the Company Secretary: Frostrow Capital LLP at 25
Southampton Buildings, London WC2A 1AL.
A copy of the Annual Report will be submitted to the National Storage Mechanism
and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm
The Annual Report will also be available on the Company's website
www.menhaden.com where up to date information on the Company, including monthly
NAVs, share prices and fact sheets, can also be found.
Frostrow Capital LLP, Company Secretary - 0203 709 8734
5 April 2017
Strategic Report
Company Performance
NAV per share1 85.4p
Share price1 66.4p
Share price discount to NAV per share1 22.2%
NAV per share (total return)2 1.8%
Share price (total return)2 (13.8)%
Total ongoing charges2 2.1%
The MSCI World Total Return Index (in sterling) returned 28.2% (2015: +0.8%).
1 As at 31 December 2016.
2 For the year ended 31 December 2016.
Investment Themes
Theme Description
Clean energy production Companies producing power from clean sources such as solar
or wind
Resource and energy Companies focused on improving energy efficiency (e.g. in
efficiency buildings or manufacturing processes) or creating
emissions reduction products or services
Sustainable transport Companies in the transport sector focused on helping to
reduce harmful air emissions/distance travelled
Water and waste management Companies with products or services that enable reductions
in usage/volumes and/or smarter ways to manage water and
waste
Chairman's Statement
I present our second annual report since the launch of the Company in July
2015. This report covers the year ended 31 December 2016, the Company's first
full year of operation.
Performance
The Company's net asset value ("NAV") per share total return for the year was
+1.8% (2015: -14.1%) and the share price total return was -13.8% (2015:
-23.0%). As at 31 December 2016, the discount of the share price to the NAV per
share stood at 22.2% (2015: 8.2%).
While the Company does not have a formal benchmark and our portfolio managers
do not invest by reference to an index, during the year the MSCI World Total
Return Index (in sterling) increased by 28.2% (2015: +0.8%). By way of
additional comparison, the WilderHill New Energy Global Innovation Index (in
sterling) rose by 11.5% and the AIC Environmental Sector* rose by 21%.
Our portfolio managers, the Menhaden Team, provide a full description of the
development and performance of the portfolio over the first full year of your
Company's operation in the Portfolio Review.
The overall performance of the portfolio since launch has been disappointing in
both absolute terms and by reference to stock market returns observed
elsewhere, as indicated above. This is of particular concern to the Board and
we are keeping the future development of the portfolio under close review.
Despite setbacks since launch, the Directors are encouraged that the Menhaden
Team have made progress in re-positioning the portfolio which is expected to
form the basis for future positive investment returns.
Management and Governance Developments
In October the Menhaden Team took over management of the Company's public
equity portfolio from WHEB Asset Management LLP ("WHEB"). This was a strategic
decision as the Menhaden Team increases its management capacity and moves away
from its reliance on third party managers, as described in the Portfolio
Review. The Board is grateful to WHEB for their services and notes their
positive performance during the period of their engagement.
Post year end the Menhaden team has sold half the Company's interest in Alpina
Partners Fund LP ("Alpina") at a 47% liquidity discount to the net asset value
of that fund. This sale again reflects the decision to move away from third
party managers. As a consequence, the full holding in Alpina has been revalued
as at 31 December 2016 in line with the expected sale price, in accordance with
accounting policies. Further detail is set out in the Portfolio Review later in
this report.
In February 2017, the Board announced that the Company would be cancelling its
secondary listing on the Social Stock Exchange segment of the NEX Exchange to
reduce costs as part of the Board's long-term goal of reducing ongoing charges.
The Company will retain its primary listing on the premium segment of the
London Stock Exchange's Official List.
Your Board wishes to reiterate the commitment made in the announcement to
strengthening the Company's impact reporting. We will continue to report
annually on the Company's social and environmental purpose and on the impact it
has, or intends to, deliver. All the Company's reports can be accessed on the
Company's website www.menhaden.com.
Share Price Discount
The Board remains conscious of the level of the share price discount to NAV per
share. The Board has considered the effectiveness of share buybacks but has
decided that it is not appropriate to reduce the size of the Company at this
early stage of its development. Instead, and in addition to monitoring the
Menhaden Team's performance, the Board and the AIFM will focus on the
effectiveness of marketing and distribution, keeping the situation under close
review.
Dividend
The Board has not recommended a final dividend for the year. The Board is
cognisant of the undertaking in the Company's prospectus to target a dividend
yield of 2% per annum of the average NAV, with a target implementation date of
31 December 2017. Given the performance of the portfolio since the launch of
the Company, the attainment of this by the target implementation date now looks
uncertain. The Board will continue to keep the dividend target under close
review and will advise shareholders accordingly.
Outlook
A great deal of uncertainty still prevails following the EU referendum in the
UK and, more recently, the US presidential election. These events are unlikely
to affect the Company's business model but they may of course affect the
performance of the underlying investee companies.
The Menhaden Team will continue to focus on selecting stocks whose strong
prospects will be crucial in the long term. The Board will continue to keep the
development of the portfolio and the Menhaden Team's investment strategy under
close review.
Annual General Meeting
The Company's second Annual General Meeting ("AGM") will be held at the offices
of Herbert Smith Freehills, Exchange House, Primrose Street, London EC4A 2EG on
Wednesday, 17 May 2017 at 12 noon.
The AGM provides shareholders with an opportunity to meet the Directors and to
receive a presentation from our portfolio managers and we hope as many
shareholders as possible will attend. I look forward to meeting you at that
time, together with my Board colleagues. Any shareholders who are unable to
attend or who wish to discuss any matters with the Board are invited to contact
me through the Company Secretary.
Sir Ian Cheshire
Chairman
5 April 2017
Investment Objective and Policy
Investment Objective
The Company's investment objective is to generate long-term shareholder
returns, predominantly in the form of capital growth, by investing in
businesses and opportunities, delivering or benefitting from the efficient use
of energy and resources irrespective of their size, location or stage of
development.
Whilst the Company pursues an active, non-benchmarked total return strategy,
the Company is cognisant of the positioning of its portfolio against the MSCI
World Total Return Index (in Sterling). Accordingly, the Board and the AIFM
will take notice of the returns of that index with a view to outperforming it
over the long term.
Investment Strategy
The implementation of the Company's investment objective has been delegated to
Frostrow Capital LLP ("Frostrow" or the "AIFM") by the Board. Ben Goldsmith,
Alexander Vavalidis, Luciano Suana and Graham Thomas (together, the "Menhaden
Team"), who have been seconded to Frostrow, carry out the portfolio management
activities under Frostrow's supervision.
Details of the Menhaden Team's approach are set out in the Investment Process
section and in their Portfolio Review.
While the Board's strategy is to allow flexibility in managing the investments,
in order to manage investment risk it has imposed various investment, gearing
and derivative guidelines and limits, within which Frostrow and the Menhaden
Team are required to manage the investments, as set out below.
Any material changes to the investment objective or policy require approval
from shareholders.
Investment Policy
The Company's investment objective is pursued through constructing a
conviction-driven portfolio consisting primarily of direct listed and unlisted
holdings across asset classes and geographies.
Asset Allocation
The Company invests, either directly or through external funds, in a portfolio
that is comprised of three main allocations:
• listed equity;
• yield assets; and
• special situations.
The flexibility to invest across asset classes affords the Company two main
benefits:
• it enables construction of a portfolio based on an assessment of
market cycles; and
• it enables investment in all opportunities which benefit from the
investment theme.
It is expected that the portfolio will comprise approximately 20 to 25
positions. Typically, the portfolio will not comprise fewer than 20 positions
or more than 50 positions. For these purposes an investment in an external fund
is treated as one position.
Geographic Focus
The portfolio is predominantly focused on investments in developed markets,
though if opportunities that present an attractive risk and reward profile are
available in emerging markets then these may also be pursued.
While many of the companies forming the portfolio are headquartered in the UK,
USA or Europe, it should be noted that many of those companies are global in
nature, so their reporting currency may not reflect their actual geographic or
currency exposures.
Investment Restrictions
Subject at all times to any applicable investment restrictions contained in the
Listing Rules from time to time, the Menhaden Team will not make an investment
if it would cause the Company to breach any of the following limits at the
point of investment:
• no more than 20% of the Company's gross assets may be invested,
directly or indirectly through external funds, in the securities of any single
entity; and
• no more than 20% of the Company's gross assets may be invested in a
single external fund.
Hedging
The Company may enter into any hedging or other derivative arrangements which
the Menhaden Team may from time to time consider appropriate for the purposes
of efficient portfolio management, and the Company may for these purposes
leverage through the use of options, futures, options on futures, swaps and
other synthetic or derivative financial instruments.
The Menhaden Team does not expect to engage in currency hedging on a regular
basis. However, given that a proportion of the Company's assets are denominated
in currencies other than sterling, the Company is subject to foreign exchange
risks which could adversely affect the net asset value. Accordingly, the
Menhaden Team may, within such parameters as are approved by the AIFM and in
accordance with the Company's investment policy, seek to hedge the Company's
exposure to non-sterling assets.
No hedging was undertaken in the year.
Cash Management
There is no restriction on the amount of cash or cash equivalent instruments
that the Company may hold and there may be times when it is appropriate for the
Company to have a significant cash position instead of being fully or near
fully invested.
Borrowing Limits
The Company may incur indebtedness for working capital and investment purposes,
up to a maximum of 20% of the net asset value at the time of incurrence. The
decision on whether to incur indebtedness may be taken by the Menhaden Team
within such parameters as are approved by the AIFM and the Board from time to
time. There will be no limitations on indebtedness being incurred at the level
of the Company's underlying investments (and measures of indebtedness for these
purposes accordingly exclude debt in place at the underlying investment level).
In addition, under the AIFMD rules, the Company is required to set maximum
leverage limits. Leverage is defined under the AIFMD as any method by which the
total exposure of an AIF is increased.
The Board and Frostrow have set the maximum leverage limits of 200% on a gross
basis and 120% on a commitment basis. Further explanation is provided in the
Glossary.
At the date of this report, the Company was not geared.
Other Investment Restrictions
The Company will at all times invest and manage its assets with the objective
of spreading risk and in accordance with its published investment policy.
The Listing Rules currently restrict the Company from investing more than 10%
of its total assets in other listed closed-ended investment funds, save that
this restriction does not apply to investments in closed-ended investment funds
which themselves have published investment policies to invest no more than 15%
of their total assets in other listed closed-ended investment funds. The
Company will comply with this investment restriction (or any variant thereof)
for so long as such restriction remains applicable.
In the event of any material breach of the investment restrictions applicable
to the Company, shareholders will be informed of the actions to be taken by the
AIFM through an announcement to the Stock Exchange.
At the date of this report, the Company was not invested in any closed-ended
investment funds.
Portfolio
Investments held as at 31 December 2016
Fair % of
Investment Country/region Value Net Assets
£'000
X-Elio1 Spain* 10,167 14.9
Terraform Power United States 5,414 7.9
Airbus France 3,762 5.5
Volkswagen Germany 3,372 4.9
WCP Growth Fund LP2 UK* 2,968 4.4
Safran France 2,898 4.3
Alpina Partners Fund LP UK* 2,806 4.1
Atlantica Yield United States 2,415 3.6
Terraform Global Emerging Markets 2,404 3.5
Air Products & Chemicals United States 2,280 3.3
Top 10 investments 38,486 56.4
Stericycle United States 2,273 3.3
Brookfield Renewable Energy Canada 2,032 3.0
Firstgroup UK 1,707 2.5
Wabtec United States 1,359 2.0
Roper Technologies United States 1,266 1.9
Acuity Brands United States 1,088 1.6
Rockwell Automation United States 1,021 1.5
Borgwarner United States 983 1.4
Shimano Japan 914 1.3
Johnson Matthey UK 810 1.2
Top 20 investments 51,939 76.1
Atlantica Yield - Bonds United States 165 0.3
Abengoa Senior Notes 8.875% 2017 Spain 164 0.2
Abengoa Senior Notes 8.5% 2016 Spain 150 0.2
Versum Materials United States 129 0.2
Total investments 52,547 77.0
Net Current Assets 15,736 23.0
Total Net Assets 68,283 100.0
1 Investment made through Helios Co-Invest L.P. X-Elio was formerly known as
Gestamp Solar.
2 Formerly WHEB Ventures Private Equity Fund 2 LP
* Unquoted
Investment Business Description Theme
X-Elio1 Develops and operates solar energy projects Clean energy
production
Terraform Power Operates contracted renewable energy assets Clean energy
production
Airbus Designs and manufactures aircraft Sustainable
Transport
Volkswagen Designs and manufactures passenger cars and Sustainable
light commercial vehicles Transport
WCP Growth Fund LP2 Growth capital fund managed by specialist Resource and
environmental PE firm, Alpina Partners energy
efficiency
Safran Supplies systems and equipment for aerospace, Sustainable
defence and security Transport
Alpina Partners Fund LP Growth capital fund managed by specialist Resource and
environmental PE firm, Alpina Partners energy
efficiency
Atlantica Yield Owns and manages contracted renewable energy Resource and
assets energy
efficiency
Terraform Global Operates contracted renewable energy assets in Resource and
emerging markets energy
efficiency
Air Products & Sells gases and chemicals for industrial uses Resource and
Chemicals energy
efficiency
Stericycle Provides medical and pharmaceutical waste Water and
management waste
management
Brookfield Renewable Open-ended fund investing in hydroelectric and Clean energy
Energy wind facilities production
Firstgroup Operates transport services in the UK, Ireland, Sustainable
Canada and the United States Transport
Wabtec Manufactures braking equipment and other Sustainable
transportation parts Transport
Roper Technologies Manufactures and distributes industrial Resource and
equipment energy
efficiency
Acuity Brands Provides LED lighting, lighting controls and Resource and
related products and services energy
efficiency
Rockwell Automation Provides integrated systems for process Resource and
manufacturing energy
efficiency
Borgwarner Supplies motor vehicle parts and systems Sustainable
Transport
Shimano Manufactures and distributes cycling and fishing Sustainable
equipment and accessories Transport
Johnson Matthey Manufactures catalysts, pharmaceutical materials Resource and
and pollution control systems energy
efficiency
Atlantica Yield Owns and manages contracted renewable energy Clean energy
assets production
Abengoa Operates and develops renewable energy assets Clean energy
production
Versum Materials Develops and supplies speciality electronic Resource and
materials energy
efficiency
Portfolio Review
Performance
For the year under review, Menhaden's NAV per share increased by 1.8% to 85.4p.
Total net assets increased by £1.2 million to £68.3 million during the year.
The contribution to the increase over the year is summarised below:
Asset Category 2016 Contribution
NAV % %
Public Equities 35.0 3.8
Private Investments 23.3 -2.0
Yield Investments 18.7 2.1
Renewable Yield 18.2 3.0
Absolute Return & Credit 0.5 -0.9
Liquidity 23.0 -
Gross Return 3.9
Expenses - -2.1
Net Assets 100 1.8
We feel it is also worth noting that after a disappointing first seven months
following the Company's August 2015 IPO, the NAV per share increased by 12.1%
from the low-point in May 2016 to the year-end, helped by the weakness in
sterling.
It is important to note that we employ a bottom-up, value-oriented approach to
look for investments and our commentary is written to reflect this. We also
highlight, within this annual report and our impact report, the theme within
resource efficiency to which each investment relates.
Strategy
During the year, we took steps to refine the way we manage the portfolio. We
are focusing on identifying investments - publicly traded and private - with
low downside risk, backed by identifiable assets and cash flows, at attractive
valuations. In addition, we have sought to reduce our reliance on third party
managers, where we are able to access and execute investment opportunities
in-house. We will continue to use third party managers to access investment
opportunities that we are not able to access cost-effectively and execute
ourselves, but we will be rigorous in our selection of those managers based on
track record. Lastly, we strengthened the team by adding Luciano Suana, who has
made a significant contribution to our structure, processes and performance.
Public Equities
Portfolio Update
During 2016, we made important changes across all aspects of the public equity
portfolio, including asset allocation as well as stock and management
selection.
We started 2016 with an over allocation to public equities (57% of the
portfolio) and by year end reduced the allocation to 35%, through a mixture of
exiting and resizing positions. As well as using the proceeds generated to
initiate some new public equity positions, we deployed capital to other areas
of the portfolio and increased the amount of cash held on the balance sheet for
new investments.
In October, we decided to move the management of our public equities portfolio
fully in-house. As such we terminated the segregated mandate with WHEB Asset
Management who managed part of our public portfolio. We took this step in an
effort to build a portfolio with a greater orientation to value. We are
grateful to the WHEB team for their contribution over the last year, and retain
a high regard for their professionalism and knowledge of sustainable
investment.
New Investments
During the year we initiated five new public equity positions. The most notable
of these are our four largest: Airbus, Safran, Volkswagen and Air Products &
Chemicals. We outlined our theses behind Airbus, Safran and Volkswagen in the
Company's half year report. Since initiation these positions have performed
well, contributing 2.8% to the Company's NAV return. In particular, the share
prices of Airbus and Volkswagen ended the year on a high note.
Volkswagen, one of the world's largest vehicle manufacturers, has the potential
to reduce costs and improve margins and profitability. We believe that the
company's management team is now incentivised to step up to this challenge.
More significantly for us, the new management team has announced ambitious
plans to become the world's leading electric vehicles manufacturer. We
therefore believe that Volkswagen represents an enticing recovery play and an
attractively valued opportunity to gain exposure to the coming electric
transportation growth wave. Volkswagen reported strong third quarter operating
profits considering the ongoing turnaround and volumes hit by the diesel
scandal. We remain optimistic over Volkswagen's prospects and ability to
develop into the leading global manufacturer of electric and energy efficient
vehicles.
Airbus, on the other hand, reported a relatively weak third quarter but still
maintained profit and cash flow guidance for the full year. We believe Airbus
represents an opportunity to invest in a global duopoly with very high barriers
to entry in a growing industry - passenger volumes increase at 5% per year.
Importantly, the Airbus A320neo delivers a 15% fuel burn saving compared to
current single aisle aircraft operations, with targets to achieve a 20%
reduction in fuel burn and CO2 emissions by 2020. With improving governance,
the depreciation of the euro and a 10 year backlog, we think Airbus' prospects
remain strong.
In the second half of 2016 we initiated two positions, Air Products & Chemicals
and FirstGroup. Air Products is a high quality, simple, free cash flow
generative business that produces attractive returns due to local incumbency
advantages. The gases sold by Air Products are used largely to make
manufacturing processes more efficient, and in reducing harmful emissions from
industrial processes and downstream products. Air Products' fiscal year fourth
quarter marked the ninth straight quarter of double digit EPS growth since new
management joined the company. As of December, the stock price trades at 13.8x
free cash flow (after maintenance capex), a price we believe is a discount to
the company's intrinsic value.
FirstGroup is a UK-listed, mass transport company with 60% of earnings flowing
from North America. Mass transportation reduces travel by private vehicles and,
in doing so, vehicle miles of travel and the accompanying emissions. The global
financial crisis and a largely debt financed acquisition forced the company
into a rights issue and a capital intensive operational turnaround in 2013.
Since then little evidence of the operational improvement has been visible due
to muted end market demand. Nevertheless, with the programme coming to an end
we expect free cash flow will significantly improve in the next few years
leading to a revaluation of the stock.
Post Year-End Investments
Early in 2017 we added two positions to the portfolio. The first, Red
Electrica, is the monopoly owner of the Spanish transmission grid. Red
Electrica develops the necessary infrastructure to facilitate the integration
of renewable energy and implements demand-side management initiatives aimed at
achieving greater electricity system efficiency. The Company possesses an
irreplaceable and essential asset base and a highly visible business model. We
like Red Electrica's relative dividend yield spread, their ability to
outperform their conservative targets and believe that they have the potential
to increase leverage.
We also added a small position in Grivalia, one of the largest real estate
companies in Greece. Grivalia differentiates itself from local competition with
a focus on the energy efficiency of their buildings and a value orientation. At
the time of writing Grivalia own the only Leadership in Energy and
Environmental Design (LEED) Platinum and Gold standard buildings in Greece. The
company possesses a portfolio conservatively valued with very limited debt and
simple, clean accounts. We expect they will make money through compression of
rental yields, an uplift from retail assets and an upgrade of the portfolio.
Though the political situation in Greece remains unstable the portfolio
possesses an attractive yield and capital valuation with both property values
and rental incomes down by ~50% from the peak. Moreover, management have shown
tremendous discipline in deploying capital.
Exited Positions
Two of the principal detractors to performance for the year have been in the
solar power sector (described in the half year report). We sold our stakes in
both SunEdison and Canadian Solar early in the year. Together these positions
detracted 4.1% from the Company's performance.
We also sold out of nine additional positions, partly as a result of bringing
the management of the listed portfolio in-house. While these exited stocks had
contributed 3.4% to the portfolio, we felt that there were more attractive
opportunities elsewhere.
Private Investments
Portfolio Update
In December 2015, we invested in a high-quality private European solar
development company, X-Elio, alongside global investment firm KKR. X-Elio is an
owner, operator and developer of solar photovoltaic plants worldwide with a
highly experienced management team. Since acquisition the company has performed
ahead of budget on a number of operating metrics, completed two projects with
82 MW total capacity (in Chile and Japan) and embarked on four new assets in
Japan with 120 MW total capacity. Development activities continue at a steady
pace and the portfolio has the potential to reach 1,000 MW by 2019. The
investment has contributed 2.4% to the Company's return due to sterling
weakening.
Our position in the WCP Growth Fund, managed by Alpina Partners, was our worst
performing position in 2016, detracting 3.6% from the NAV performance. Since
inception the position has been marked down by £4.9 million due to the
performance of the underlying portfolio. The fund currently stands at 0.79x of
the total value to paid-in capital. The fund had a successful exit from VIA
Optronics in the third quarter, which resulted in a distribution of £2.4m to
Menhaden. We remain disappointed in the performance of the position.
Importantly, we are learning from this experience and are reassessing the use
of outside managers.
Our Alpina Partners Fund stake detracted 2% from the Company's return. Two of
the four investments made in this fund to date have been marked down to close
to zero, and the NAV of the fund is very concentrated in one investment.
Despite our historic concerns around the manager, we are more comfortable on
the valuation of the existing portfolio in Alpina Partners Fund than we have
been in the past. However, our outstanding commitment of £7.9m concerned us,
and as a result of these two facts, we have taken the decision to sell half of
our stake, with the aim of reducing this commitment to a level with which we
are more comfortable. As is typical in the secondary market for private equity
fund stakes where there is a significant undrawn commitment, this has been
subject to a significant discount to current NAV, which in this case is
exacerbated by the limited track record of, and changes to, the Alpina team.
The discount results in a 2.0p reduction in NAV, which is a significant cost,
but we believe it is mitigated by the c. 0.2p per year of NAV we were paying on
the undrawn commitment, and the ability to control the future deployment of our
own capital.
Post Year-End Investments
We completed our second direct private equity investment of £3.5 million in
January 2017, in one of the largest independent smart meter providers in the
UK, alongside KKR. Calvin Capital's business model is to purchase smart meters
on behalf of energy suppliers, fund and pay for their installation and manage
the billing process throughout their expected operating life of over 20 years.
Given Calvin's market leading position, the company is well placed to capture
the further rollout of smart meters in the UK over the next five years.
Calvin's portfolio of meters offers strong downside protection and cash yield.
The business is highly cash generative with an EBITDA margin of over 90% and
good cash conversion. We believe we are in good hands with our partners, KKR,
and are excited by Calvin's prospects.
Yield Investments
Portfolio Update
Our position in Terraform Power was up 26% (contributing 1.6% to the NAV) over
the year as management got to grips with the company after the bankruptcy of
its parent, SunEdison and Brookfield Renewable Energy emerged as a significant
shareholder. We like the high-quality portfolio of solar and wind power plants
located in North America and the contracted cash flows that go with them. From
this point we look forward to the company resolving its future either by
replacing SunEdison as sponsor or through a full sale of the business. Either
way we believe that there is still upside from this point.
We retain a small stake (0.4% of NAV) in Abengoa's senior bonds. In November
the majority of creditors approved a restructuring agreement put forward by the
company. In the plan creditors agreed to inject new capital and will swap their
existing bonds for a stake in the new equity of the business and new debt
instruments.
New Investments
Atlantica Yield, the former yield company of Abengoa, owns and operates
renewable energy, conventional power and electric transmission lines globally.
All of these assets have contracted revenues with low risk off-takers and long
duration contracts (weighted average life of 21 years). The balance sheet
problems of Atlantica's former sponsor provided us with an opportunity to
acquire shares in the yield company at an expected IRR over 10% over the next
20 years. Progress with existing creditors to obtain waivers required as a
result of the Abengoa restructuring has been excellent and operating assets
have shown consistent cash generation this year. Our position in the shares and
debt of Atlantica has contributed 0.8% to the portfolio over 2016.
Brookfield Renewable Energy owns 10,700 MW of installed, mainly hydroelectric,
capacity globally. Hydro is the highest value renewable asset class with the
longest life, lowest cost and is completely carbon free. Brookfield offers
robust, stable cash flows (partly due to storage and pooling capabilities) and
management possesses a value investor mentality which we believe will allow
them to grow capacity accretively over the next three years.
Conclusion
We remain dissatisfied with our performance since launch. However, we believe
we have reacted sensibly and proactively to the lessons our initial poor
performance taught us. We adopted a disciplined approach, strengthened our
investment team, rebalanced our portfolio and enhanced our investment process.
The result is that from a low-point in May 2016, our NAV increased by 12.1% to
the year-end. We believe our well-balanced and positioned portfolio, and
rigorous investment processes and structure, make us well placed to take
advantage of the opportunities that our investment thesis presents.
Menhaden Team
5 April 2017
The members of the Menhaden Team have been seconded to act for Frostrow Capital
LLP from Menhaden Capital Management LLP
Business Review
The Strategic Report has been prepared solely to provide information to
shareholders to assess how the Directors have performed their duty to promote
the success of the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are
premium listed on the Official List and traded on the main market of the London
Stock Exchange.
The Company is an Alternative Investment Fund ("AIF") under the European
Union's Alternative Investment Fund Managers Directive ("AIFMD") and has
appointed Frostrow Capital LLP as its Alternative Investment Fund Manager
("AIFM").
As an externally managed investment trust, all of the Company's day to day
management and administrative functions are outsourced to service providers. As
a result, the Company has no executive directors, employees or internal
operations.
The Board
Details of the Board of Directors of the Company are set out later in this
report.
All Directors will seek re-election by shareholders at the Annual General
Meeting to be held on 17 May 2017.
Board Focus and Responsibilities
With the day-to-day management of the Company outsourced to service providers,
the Board's primary focus at each Board meeting is reviewing the investment
performance and associated matters such as future outlook and strategy,
gearing, asset allocation, investor relations, marketing and industry issues.
In line with its primary focus, the Board retains responsibility for all the
key elements of the Company's strategy and business model, including:
• continuous review of the investment objective and policy,
incorporating the investment guidelines and limits;
• review of the maximum levels of gearing and leverage the Company may
employ;
• review of performance against the Company's KPIs and peer group;
• review of the performance and continuing appointment of service
providers; and
• maintenance of an effective system of oversight, risk management and
corporate governance.
The investment objective and policy, including the related limits and
guidelines, are set out above, along with the details of the leverage and
gearing levels allowed.
Details of the principal KPIs and further information on the principal service
providers, their performance and continuing appointment, along with details of
the principal risks, and how they are managed, follow within this Business
Review.
The Corporate Governance Statement includes a statement of compliance with
corporate governance codes and best practice. The Audit Committee Report
contains an outline of the internal control and risk management framework
within which the Board operates.
Key Performance Indicators ("KPIs")
The Board monitors the following KPIs, details of which can be found above:
• Net asset value ("NAV") per share total return
• Share price total return
• Discount/premium of share price to NAV per share
• Ongoing charges ratio
• Performance against the MSCI World Total Return Index (in sterling)
and the Company's peer group;
NAV per share total return
The Directors regard the Company's NAV per share total return as being the
overall measure of value delivered to shareholders over the long-term. This
reflects both the net asset value growth of the Company and any dividends paid
to shareholders.
Share price total return
The Directors regard the Company's share price total return to be a key
indicator of performance and monitor this closely.
Share price discount/premium to NAV per share
The share price discount/premium to NAV per share is considered a key indicator
of performance as it impacts the share price total return and can provide an
indication of how investors view the Company's performance and its investment
objective.
Ongoing charges ratio
The Board is conscious of expenses and aims to ensure there is a balance
between good quality services and costs.
The ongoing charge ratio reflects the costs incurred directly by the Company
calculated in accordance with the AIC guidance on ongoing charges. In addition,
the Company has invested 8.4% (2015: 23.6%) of its portfolio in investments
managed by external fund managers. The fees charged by such managers are
incurred indirectly by the Company as they are paid by the underlying fund and
are not separately disclosed.
MSCI World Total Return Index
Whilst the Company pursues an active, non-benchmarked total return strategy,
the Board considers the NAV per share total return performance against the MSCI
World Total Return Index measured on a net total return, sterling-adjusted
basis.
The Board also monitors the Company's NAV return against its peer group and
other relevant indices such as the Widerhill New Energy Global Innovation Index
(in sterling) and the AIC Environmental Sector. Details are given in the
Chairman's Statement.
A full description of performance during the period under review and the
portfolio is contained in the Portfolio Review.
Principal Service Providers
The principal service providers to the Company are Frostrow Capital LLP
("Frostrow" or the "AIFM"), the members of Menhaden Capital Management LLP who
have been seconded to Frostrow to carry out portfolio management
responsibilities, and J.P. Morgan Europe Limited (the "Depositary"). Details of
their key responsibilities and their contractual arrangements with the Company
follow.
AIFM
The Board has appointed Frostrow as the designated AIFM for the Company on the
terms and subject to the conditions of the alternative investment fund
management agreement between the Company and Frostrow (the "AIFM Agreement").
The AIFM Agreement assigns to Frostrow overall responsibility to manage the
Company, subject to the supervision, review and control of the Board, and
ensures that the relationship between the Company and Frostrow is compliant
with the requirements of the AIFMD. Frostrow, under the terms of the AIFM
Agreement provides, inter alia, the following services:
• portfolio management services;
• risk management services;
• marketing and shareholder services;
• administrative and secretarial services;
• advice and guidance in respect of corporate governance requirements;
• maintenance of the Company's accounting records;
• preparation and dispatch of the annual and half yearly reports and
monthly factsheets; and
• ensuring compliance with applicable tax, legal and regulatory
requirements.
The notice period on the AIFM Agreement with Frostrow, following an initial two
year period, is six months and termination can be initiated by either party.
AIFM Fee
Under the terms of the AIFM Agreement Frostrow receives a periodic fee equal to
0.225% per annum of the Company's net assets up to £150 million, 0.220% per
annum of the net assets in excess of £150 million and up to £500 million, and
0.175% per annum of the net assets in excess of £500 million.
Menhaden Team
The Menhaden Team have been seconded to Frostrow from Menhaden Capital
Management LLP ("MCM") for the purpose of performing the following portfolio
management responsibilities:
• seeking out and evaluating investment opportunities;
• recommending the manner by which cash should be invested, divested,
retained or realised;
• advising on how rights conferred by the investments should be
exercised;
• analysing the performance of investments made; and
• advising the Company in relation to trends, market movements and other
matters which may affect the investment objective and policy of the Company.
The Menhaden Team have applied to the FCA for MCM to become authorised to
perform portfolio management activities in its own right. Once MCM becomes
authorised by the FCA, it is expected that the secondment of the Menhaden Team
to Frostrow will end and Frostrow will delegate the Company's day-to-day
portfolio management activities to MCM by way of a portfolio management
agreement.
Portfolio Management Fee
Frostrow has assigned to MCM the right to receive the portfolio management fee,
which is a periodic fee equal to 1.25% of the Company's net assets up to £
150 million and 1.00% of the Company's net assets in excess of £150 million.
Performance Fee
Dependent on the level of the long-term performance of the Company, the AIFM is
entitled to a performance fee. Frostrow has assigned to MCM the right to
receive the performance fee.
In respect of a given three year performance period, a performance fee may be
payable equal to 10% of the amount, if any, by which the Company's adjusted NAV
at the end of that performance period exceeds the higher of (a) a compounding
hurdle on the gross proceeds of the IPO of 5% per annum; and (b) a high
watermark*. The performance fee is subject to a cap in each performance period
of an amount equal to the aggregate of 1.5% of the weighted average NAV in each
year (or part year, as applicable) of that performance period.
Depositary
The Company has appointed J.P.Morgan Europe Limited as its Depositary in
accordance with the AIFMD on the terms and subject to the conditions of the
agreement between the Company, Frostrow and the Depositary (the "Depositary
Agreement"). The Depositary provides the following services, inter alia, under
its agreement with the Company:
• safekeeping and custody of the Company's custodial investments and
cash;
• processing of transactions; and
• foreign exchange services.
The Depositary must take reasonable care to ensure that the Company is managed
in accordance with the Financial Conduct Authority's Investment Funds
Sourcebook, the AIFMD and the Company's Articles of Association.
Under the terms of the Depositary Agreement, the Depositary is entitled to
receive an annual fee of the higher of £40,000 or 0.175% of the net assets of
the Company up to £150 million, 0.15% of the net assets in excess of £150
million and up to £300 million, 0.1% of the net assets in excess of £300
million and up to £500 million and 0.05% of the net assets in excess of £500
million. In addition, the Depositary is entitled to a variable custody fee
which depends on the type and location of the custodial assets of the Company.
The Depositary has delegated the custody and safekeeping of the Company's
assets to JPMorgan Chase Bank N.A., London branch (the "Custodian").
The notice period on the Depositary Agreement, following an initial one year
period, is 90 days if terminated by the Company and 120 days if terminated by
the Depositary.
Evaluation of the AIFM and the Menhaden Team
The performance of the AIFM and the Menhaden Team is reviewed continuously by
the Board and the Company's Management Engagement Committee (the "MEC") with a
formal evaluation process being undertaken each year. As part of this process,
the Board monitors the services provided by the AIFM and the Menhaden Team and
receives regular reports from them. The MEC reviewed the appropriateness of the
appointment of the AIFM and the Menhaden Team in November 2016 with a
recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and the Menhaden
Team, under the terms described above, is in the interests of shareholders as a
whole. In coming to this decision, the MEC and the Board took into
consideration, inter alia, the following:
• the quality of the service provided and the quality and depth of
experience of the company management, company secretarial, administrative and
marketing team that the AIFM allocates to the management of the Company; and
• the quality of service provided by the Menhaden Team to the management
of the portfolio; and the level of performance in the portfolio in absolute
terms and by reference to the MSCI World Total Return Index.
Principal Risks and Uncertainties
In fulfilling its oversight and risk management responsibilities the Board
maintains a framework of key risks which affect the Company and the related
internal controls designed to enable the Directors to manage/mitigate these
risks as appropriate. The Directors have carried out a robust assessment of the
principal risks facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity.
The principal risks can be categorised under the following broad headings:
• investment risks;
• financial risks;
• operational risks (including accounting, cyber security, compliance
and regulatory risks); and
• shareholder relations and share price performance risk.
Further information on the internal controls and the risk management framework
can be found below. The following sections detail the risks the Board considers
to be the most significant to the Company under these headings.
Investment Risks
The Board recognises that investment risk is the most significant risk to which
the Company is exposed through investing in quoted and unquoted securities,
both in the UK and overseas, as a result of which it has exposure to the risk
of changes in asset prices and foreign exchange rates. Investment risk is
comprised of two main aspects: market risk and concentration risk.
Market risk is the risk that the value of investments will change due to the
overall performance of financial markets or macro-economic factors. It cannot
be eliminated through diversification, though it can be hedged against. The
Company's policy on hedging is set out in the Investment Policy.
Concentration risk is the risk that the value of an investment or a small
number of similar investments changes due to factors specific to them or the
sector in which they operate. This type of risk can be reduced by
diversification of the portfolio. The Board have set diversification
requirements, relating to both individual investments and asset allocation,
within which the investment portfolio is managed, but investors should be aware
that the Company expects to invest in a relatively concentrated portfolio of
securities. The Company is therefore exposed to the potentially higher
volatility arising from a concentrated portfolio and risks specific to the
sectors in which it invests, such as global energy and commodity prices or
withdrawal of government subsidies for renewable energy.
To manage investment risks the Board has appointed the AIFM and the Menhaden
Team to manage the Company within the remit of the investment objective and
policy. Compliance with the investment objective and policy is monitored daily
by the AIFM and reported to the Board on a monthly basis.
Regular reports are received from the AIFM and the Menhaden Team on stock
selection and asset allocation, and they report at each Board meeting on the
portfolio and performance of the Company, including the rationale for stock
selection decisions, the make-up of the portfolio, potential new holdings and
the investment strategy.
Financial Risks
In addition to market and foreign currency risks, discussed above, the Company
is exposed to credit risk arising from the use of counterparties. If a
counterparty were to fail, the Company could be adversely affected through
either delay in settlement or loss of assets.
The most significant counterparty to which the Company is exposed is J.P.
Morgan Europe Limited, the Depositary, which is responsible for the safekeeping
of the Company's custodial assets.
Credit risk is managed by the Board through:
• reviewing the arrangements with, and services provided by, the
Depositary to ensure that the security of the Company's custodial assets is
being maintained;
• reviewing Frostrow's approved list of counterparties, the Company's
use of those counterparties and the Menhaden Team's process for monitoring and
adding to the approved counterparty list; and
• monitoring of counterparties, including reviewing their internal
control reports and credit ratings, as appropriate.
Further information on the use of financial instruments and their risks,
including credit risk, can be found in note 14 to the financial statements.
Details of the work undertaken in regard to verifying ownership and the
valuation of unquoted (non-custodial) assets is set out in the Audit Committee
Report.
Operational Risk
The Company is an externally managed investment trust and as such has no
employees or systems of its own. The Company is therefore dependent on its
service providers, particularly the AIFM and the Menhaden Team. It is exposed
to the risk associated with: the departure of a key member of the AIFM or
Menhaden Team, for whom there could be no guarantee of a suitable replacement
being found; and, a disruption to, or a failure of, its service providers'
systems, which could lead to a failure to comply with applicable law and
regulations resulting in reputational damage and/or financial loss to the
Company.
To manage these risks the Board:
• monitors on a regular basis the performance of the AIFM and the
Menhaden Team, including developments within their teams;
• receives a monthly compliance report from Frostrow, which includes,
inter alia, details of compliance with applicable laws and regulations;
• reviews internal control reports and key policies, including measures
taken to combat cyber security issues and the disaster recovery procedures of
its service providers;
• maintains a risk matrix with details of risks to which the Company is
exposed, the controls relied on to manage those risks and the frequency of the
controls operation; and
• receives updates on pending changes to the regulatory and legal
environment and progress towards the Company's compliance with such changes.
Shareholder Relations and Share Price Performance Risk
The Company is also exposed to the risk, particularly if the investment
strategy and approach are unsuccessful, that the Company may underperform
resulting in the Company becoming unattractive to investors and a widening of
the share price discount to NAV per share.
In managing this risk the Board:
• reviews the Company's investment objective in relation to the market,
economic conditions and the operation of the Company's peers;
• discusses at each Board meeting the Company's future development and
strategy;
• reviews an analysis of the shareholder register and reports from the
Company's corporate stockbroker at each Board meeting; and
• actively seeks to promote the Company to current and potential
investors.
Company promotional activities have been delegated to Frostrow, who report to
the Board at each Board meeting on these activities.
Company Promotion
The aim of the Company's promotional activities is to encourage demand for the
Company's shares. The Company has appointed Frostrow to provide marketing
services in the belief that a well-marketed company is more likely to grow over
time, is more likely to have a diverse and stable shareholder register and be
more likely to trade at a superior rating to its peers.
Frostrow looks to promote the Company in the following ways:
Engaging regularly with institutional investors, discretionary wealth managers
and a range of execution only platforms:
Frostrow regularly meets with institutional investors, discretionary wealth
managers and execution-only platform providers;
Making Company information more accessible:
Frostrow works to raise the profile of the Company by targeting key groups
within the investment community, holding annual investment seminars, overseeing
PR output and managing the Company's website and wider digital offering,
including webcasts and social media. Frostrow also manages the investor
database and produces all key corporate documents, distributes monthly
factsheets, annual reports and updates from the Menhaden Team on portfolio and
market developments; and
Monitoring market activity, acting as a link between the Company, shareholders
and other stakeholders:
Frostrow maintains regular contact with sector broker analysts and other
research and data providers, and provides the Board with up-to-date and
accurate information on the latest shareholder and market developments.
Board Diversity
The Board strongly supports the principle of boardroom diversity, of which
gender is one important aspect, and the recommendations of Lord Davies' review.
The Board's aim is to have a broad range of approaches, backgrounds, skills and
experience represented on the Board and to make appointments on merit against
objective criteria, including diversity. The Board currently comprises one
woman and three men, meeting Lord Davies' original recommendation.
Social, Human Rights and Environmental Matters
The Company is an externally-managed investment trust within the AIC
Environmental Sector and invests in companies and markets which deliver or
benefit from the more efficient use of energy or resources. It does not have
any employees or premises, nor does it undertake any manufacturing or other
operations. All its functions are outsourced to third party service providers
and therefore the Company does not have any employee or direct human rights
issues, nor does it have any direct, material environmental impact.
As an investment company, the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the Company
falls outside the scope of the Modern Slavery Act 2015. The Company's suppliers
are typically professional advisers and the Company's supply chains are
considered to be low risk in this regard.
The Board believes that the integration of financially material environmental,
social and governance ("ESG") issues into investment decision-making can reduce
risk and enhance returns. In addition, the on-going engagement and dialogue
with investee companies, including through proxy voting, are key parts of an
asset stewardship role. Accordingly, the Directors require the Menhaden Team
to use their best endeavours to ensure the Company's investments adhere to best
practice in the management of ESG issues, and encourage them to have due regard
to the UN Global Compact and UN Principles of Responsible Investment. The AIFM
and Menhaden Team's statement of compliance with the Financial Reporting
Council UK Stewardship Code and proxy voting policy are available at
www.frostrow.com. The Board has reviewed this statement and policy, as well as
the proxy voting decisions made on the Company's behalf.
The Company produces an annual impact report setting out the environmental
purpose of the Company and the impact it has, or intends to deliver. The report
is published on www.menhaden.com.
Performance and Future Developments
An outline of performance, investment activity and strategy, and market
background during the year, as well as the future outlook, is provided in the
Chairman's Statement and the Portfolio Review.
The Menhaden Team believes that companies that supply products and services
that help to conserve scarce resources, reduce negative environmental impacts
and improve resource efficiency are likely to enjoy faster growing end markets.
The Directors continue to believe that the environmental sector together with
the Menhaden Team's investment strategy should provide good returns for the
long-term investor.
It is expected that the Company's strategy will remain unchanged in the coming
year.
A continuation vote will be put to shareholders at the AGM to be held in 2020
and every five years thereafter.
This Strategic Report has been signed for and on behalf of the Board.
Sir Ian Cheshire
Chairman
5 April 2017
Governance
Board of Directors
Sir Ian Cheshire (Chairman)
Sir Ian Cheshire was the Group Chief Executive of Kingfisher plc from January
2008 until February 2015. Prior to that he was Chief Executive of B&Q Plc from
June 2005. Before joining Kingfisher in 1998 he worked for a number of retail
businesses including Sears plc where he was Group Commercial Director.
Sir Ian is Chairman of Debenhams plc, Senior Independent Director of Whitbread
plc and Government lead non-executive Director. He is a non-executive director
of Barclays PLC and Barclays Bank PLC and is the Chairman designate of Barclays
UK, the ring-fenced retail bank. He is also President of the Business
Disability Forum President's Group and Chairman of the Advisory Board of the
Cambridge Institute for Sustainability Leadership.
In addition, Sir Ian chaired the Ecosystem Markets Task Force, an independent
business-led initiative aimed at helping UK business to find new opportunities
to drive green economic growth and profit from valuing and protecting nature.
Sir Ian was knighted in the 2014 New Year Honours for services to Business,
Sustainability and the Environment.
Duncan Budge
Duncan Budge is Chairman of Dunedin Enterprise Investment Trust plc, Artemis
Alpha Trust plc, and a non-executive director of Lazard World Trust Fund
(SICAF), Lowland Investment Company plc, Biopharma Credit plc and Asset Value
Investors Ltd.
He was previously a director of J. Rothschild Capital Management from 1988 to
2012 and a director and chief operating officer of RIT Capital Partners plc
from 1995 to 2011. Between 1979 and 1985 he was with Lazard Brothers & Co. Ltd.
Emma Howard Boyd
Emma Howard Boyd has spent her 26-year career working in financial services,
initially in corporate finance, and then in fund management, specialising in
sustainable investment and corporate governance.
As Director of Stewardship at Jupiter Asset Management, Emma was integral to
the development of their reputation in the corporate governance and
sustainability fields. This work included research and analysis on companies'
environmental, social and governance performance, engaging with companies at
board level and public policy engagement.
Emma currently serves on various boards and advisory committees including the
Environment Agency (Chair), Future Cities Catapult (Vice Chair), Share Action
(Chair of Trustees), the Aldersgate Group, the 30% Club Steering Committee, the
Executive Board of The Prince's Accounting for Sustainability Project and the
Carbon Trust Advisory Panel. She is an ex officio Defra board member.
Howard Pearce
Howard Pearce has spent all his career in the environment and investment
sectors. He is the founder of HowESG Limited, a specialist asset stewardship,
environmental sustainability and governance advisory business. His
non-executive roles include Independent Chair of the Bank of Montreal Global
Asset Management Responsible Investment Advisory Council; Independent Chair of
the boards of the Avon and Wiltshire Pension Funds, Independent Non-Executive
Director of Response Global Media Limited; and Board member, Audit Committee
Chair and Remuneration Committee member of Cowes Harbour Commission. Previously
he was Trustee, Audit Committee Chair and Member of the Investment Committee of
Above and Beyond, an NHS charity. Prior to that he was Head of Pension Fund
Management and a member of the Pensions and Investment Committees of the
award-winning Environment Agency pension fund.
Meeting Attendance
The number of scheduled meetings of the Board and its committees held during
the year and each Director's attendance, is shown below:
Type and number of meetings held in 2016 Board Audit Management
(4) Committee Engagement
(3) Committee
(1)
Sir Ian Cheshire 4 N/A 1
Duncan Budge 4 3 1
Emma Howard Boyd 4 3 1
Howard Pearce 4 3 1
In addition to the above, a number of ad hoc Board and committee meetings were
held to consider matters such as the approval of regulatory announcements.
Directors' Interests
The Directors' beneficial interests in the Company's shares, together with
those of their families, are set out below.
Ordinary Shares of 1p each
31 December 31 December
2016 2015
Sir Ian Cheshire 115,000 25,000
Duncan Budge 10,000 10,000
Emma Howard Boyd 18,000 8,000
Howard Pearce 8,000 4,957
Total 151,000 47,957
No changes have been notified to the date of this report.
Directors' Report
The Directors present their annual report on the affairs of the Company
together with the audited financial statements and the Independent Auditors'
Report for the year ended 31 December 2016. Disclosures relating to
performance, future developments and risk management can be found within the
Strategic Report.
Business and Status of the Company
The Company is registered as a public limited company in England and Wales
(registered number 09242421) and is an investment company within the terms of
Section 833 of the Companies Act 2006 (the "Act"). Its shares are traded on the
main market of the London Stock Exchange, which is a regulated market as
defined in Section 1173 of the Act.
The Company has received approval from HM Revenue & Customs as an authorised
investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010.
This approval is subject to there being no subsequent enquiry under corporation
tax self-assessment. In the opinion of the Directors, the Company continues to
direct its affairs so as to qualify for such approval.
Continuation of the Company
In accordance with the Company's Articles of Association, shareholders will
have an opportunity to vote on the continuation of the Company at the 2020
Annual General Meeting and every five years thereafter.
Results and Dividends
The results attributable to shareholders for the period are shown in the
financial statements. No dividends were declared during the year and the
Directors have not recommended a final dividend for the year. Information on
the Company's dividend policy is detailed in the Chairman's Statement.
Alternative Performance Measures
The Financial Statements set out the required statutory reporting measures of
the Company's financial performance. In addition, the Board assesses the
Company's performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised at the start
of this announcement and explained in greater detail in the Strategic Report,
under the heading 'Key Performance Indicators'.
Definitions of the terms used and the basis of calculation adopted are set out
in the Glossary.
Substantial Interests in Share Capital
The Company was aware of the following substantial interests in the voting
rights of the Company as at 28 February 2017, the latest practicable date
before publication of the Annual Report.
28 February 2017 31 December 2016
Shareholder Number % of Number % of
of issued of issued
Ordinary share Ordinary share
Shares capital Shares capital
Cavenham Private Equity & Directs 12,500,000 15.6 12,408,604 15.5
Generali Versicherung 6,000,000 7.5 6,000,000 7.5
Kendall Family Investments 5,000,000 6.3 5,000,000 6.3
UBS Wealth Management 4,397,451 5.5 2,922,451 3.7
Ravenscroft 4,078,100 5.1 3,366,100 4.2
Aachen Meunchener Versicherung 4,000,000 5.0 4,000,000 5.0
Santino Global Assets 3,000,000 3.8 3,000,000 3.8
Rathbones 2,844,320 3.6 2,834,800 3.6
As at 31 December 2016 and to the date of this report, the Company had
80,000,001 Ordinary Shares in issue.
Capital Structure
The Company's capital structure at the end of the year under review and to the
date of this report was comprised of 80,000,001 Ordinary Shares of 1p nominal
value each.
The voting rights of the Ordinary Shares on a poll are one vote for each share
held.
No shares were issued or repurchased during the year.
There are no:
• restrictions on transfer of, or in respect of the voting or dividend
rights of, the Company's Ordinary Shares;
• agreements, known to the Company, between holders of securities
regarding the transfer of Ordinary Shares; or
• special rights with regard to control of the Company attaching to the
Ordinary Shares.
At the end of the year under review and to the date of this report, the
Directors had Shareholder authority to issue a further 919,999,999 Ordinary
Shares and to repurchase no more than 14.99% of the Company's issued share
capital per annum. These authorities will expire on 1 July 2020 unless
previously revoked, varied or renewed by the Company in a general meeting.
No Shares were issued during the year and no Shares have been repurchased to
the date of this report.
Going Concern
The content of the investment portfolio, trading activity, the Company's cash
balances and revenue forecasts, and the trends and factors likely to affect the
Company's performance are reviewed and discussed at each Board meeting. The
Directors, having made relevant enquiries, are satisfied that it is appropriate
to continue to adopt the going concern basis in preparing the financial
statements as a significant proportion of the Company's holdings are readily
realisable and, accordingly, the Company has adequate financial resources to
continue in operation for at least the next 12 months.
Viability Statement
The Directors have carefully assessed the Company's current position and
prospects as described in the Chairman's Statement and the Portfolio Review, as
well as the Principal Risks and Uncertainties outlined in the Strategic Report
and have formed a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the next
five financial years.
The particular factors the Directors have considered in assessing the prospects
of the Company, its ability to liquidate its portfolio, and in selecting a
suitable period in making this assessment are as follows:
• the Board and the Menhaden Team will continue to adopt a long-term
view when making investments. When making a new investment the anticipated
holding period can be five years or more.
• the portfolio includes investments traded on major international stock
exchanges and there is a spread of investments by size of company. It is
estimated that 60% of the portfolio could be liquidated, in normal market
conditions, within seven trading days;
• the Company's expenses are predictable and modest in comparison with
the assets and there are no capital commitments foreseen which would alter that
position; and
• the Company has no employees, only non-executive Directors, and
consequently does not have employment related liabilities or responsibilities.
The Company is intended to operate over the long-term, however due to the
limitations and uncertainties inherent in predicting market conditions the
Directors have determined that five years is the longest period for which it is
reasonable to make this assessment.
In carrying out their assessment, the Directors made the following assumptions:
• investors will wish to continue to have exposure to the type of
companies that the Company invests in, namely those companies that deliver or
benefit from the efficient use of energy and resources;
• shareholders will vote in support of the continuation of the Company
in 2020;
• the performance of the Company will be satisfactory; and
• the threats to the Company's solvency or liquidity incorporated in the
Principal Risks will be managed or mitigated as outlined in the Strategic
Report.
Based on the results of this review, the Directors have formed a reasonable
expectation that the Company will be able to continue in operation and meet its
liabilities as they fall due over the next five financial years.
Beneficial Owners of Shares - Information Rights
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar or to the Company directly.
Greenhouse Gas Emissions
As the Board has engaged external firms to undertake the investment management,
corporate secretarial and custodial activities of the Company, the Company has
no greenhouse gas emissions to report from its operations, nor does it have
responsibility for any other emissions-producing sources under the Companies
Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
The Company produces an annual impact report which is published on
www.menhaden.com. The impact report will provide further detail on the
environmental purpose and impact of the Company.
Directors' & Officers' Liability Insurance Cover
Directors' and officers' liability insurance cover was maintained by the
Company during the year ended 31 December 2016. It is intended that this policy
will continue for the year ending 31 December 2017 and subsequent years.
Directors' Indemnities
During the year under review and to the date of this report, indemnities were
in force between the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted by law, in
respect of certain liabilities incurred as a result of carrying out his or her
role as a Director of the Company. The Directors are also indemnified against
the costs of defending any criminal or civil proceedings or any claim by the
Company or a regulator as they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs to the Company. The
indemnities are qualifying third party indemnity provisions for the purposes of
the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
Other Statutory Information
The following information is disclosed in accordance with the Companies Act
2006:
• the rules on the appointment and replacement of directors are set out
in the Company's articles of association (the "Articles"). Any change to the
Articles would be governed by the Companies Act 2006.
• subject to the provisions of the Companies Act 2006, to the Articles,
and to any directions given by special resolution, the business of the Company
shall be managed by the Directors who may exercise all the powers of the
Company. The powers shall not be limited by any special powers given to the
Directors by the Articles and a meeting of the Directors at which a quorum is
present may exercise all the powers exercisable by the Directors. The
Directors' powers to issue and buy back shares, in force at the end of the
year, are set out above.
• there are no agreements:
(i) to which the Company is a party that might affect its control
following a takeover bid; and/or
(ii) between the Company and its directors concerning compensation for
loss of office.
Listing Rule 9.8.4
Listing Rule 9.8.4 requires the Company to include certain information in a
single identifiable section of the Annual Report or a cross reference table
indicating where the information is set out. The Directors confirm that there
are no disclosures to be made in this regard.
Political Donations
The Company has not and does not intend to make any political donations.
Whistleblowing Policy
As the Company has neither executive directors nor employees, a formal
whistleblowing policy has not been adopted. However, the Board has agreed a
procedure by means of which any directors or employees of external service
providers can bring to the attention of the Chairman matters of concern to
them.
Disclosure of Information to Auditors
The Directors at the time of approving the Directors' Report are listed above.
Each Director in office at the date of this report confirms that:
• to the best of each Director's knowledge and belief, there is no
information relevant to the preparation of their report of which the Company's
Auditors are unaware; and
• each Director has taken all the steps a director might reasonably be
expected to have taken to be aware of relevant audit information and to
establish that the Company's Auditors are aware of that information.
This information is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 April 2017
Statement of Directors' Responsibilities
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. The Directors are responsible for preparing
the financial statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors have:
• selected suitable accounting policies and applied them consistently;
• made judgements and estimates that are reasonable and prudent;
• followed applicable UK accounting standards; and
• prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Directors' Report and other
information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
FCA.
The financial statements are published on the Company's website
www.menhaden.com and via Frostrow's website www.frostrow.com. The maintenance
and integrity of these websites, so far as it relates to the Company, is the
responsibility of Frostrow. The work carried out by the Auditors does not
involve consideration of the maintenance and integrity of these websites and,
accordingly, the Auditors accept no responsibility for any changes that have
occurred to the financial statements since they were initially presented on
these websites. Visitors to the websites need to be aware that legislation in
the United Kingdom governing the preparation and dissemination of the financial
statements may differ from legislation in their jurisdiction.
Responsibility Statement of the Directors in respect of the Annual Report
The Directors, whose details can be found above, confirm to the best of their
knowledge that:
• the financial statements within this Annual Report, prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the year ended
31 December 2016; and
• the Chairman's Statement, Strategic Report and the Directors' Report
include a fair review of the information required by 4.1.8R to 4.1.11R of the
FCA's Disclosure and Transparency Rules.
The Directors consider that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary to assess
the Company's position, performance, business model and strategy.
On behalf of the Board
Sir Ian Cheshire
Chairman
5 April 2017
Corporate Governance Statement
The Board has considered the principles and recommendations of the Code of
Corporate Governance published by the Association of Investment Companies in
July 2016 (the "AIC Code") by reference to the AIC Corporate Governance Guide
for Investment Companies (the "AIC Guide"). The AIC Code, as explained by the
AIC Guide, addresses all the applicable principles set out in the UK Corporate
Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to the Company.
Copies of the AIC Code, the AIC Guide and the UK Corporate Governance Code can
be found on the respective organisations' websites: www.theaic.co.uk and
www.frc.org.uk.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Corporate Governance Code) will provide better information to shareholders.
Statement of Compliance
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as set out
below:
The UK Corporate Governance Code includes certain provisions relating to:
• the role of the chief executive;
• executive directors' remuneration; and
• the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in the UK Corporate
Governance Code, the Board considers these provisions are not relevant to the
position of the Company as it is an externally managed investment company. In
particular, all of the Company's day-to-day management and administrative
functions are outsourced to third parties. As a result, the Company has no
executive directors, employees or internal operations. Therefore the Company
has not reported further in respect of these provisions.
The Board and Committees
Responsibility for effective governance lies with the Board. The governance
framework of the Company reflects the fact that as an externally managed
investment company, it has no employees and outsources portfolio management,
risk management, company management, company secretarial, administrative and
marketing services to Frostrow.
The Board
Chairman - Sir Ian Cheshire
Three additional non-executive Directors, all considered independent.
Key roles and responsibilities:
- to provide leadership and set strategy, values and standards within a
framework of prudent effective controls which enable risk to be assessed and
managed;
- to ensure that a robust corporate governance framework is implemented;
and
- to challenge constructively and scrutinise performance of all
outsourced activities.
Management Engagement Committee
Chairman - Sir Ian Cheshire
All Directors
Key roles and responsibilities:
- to review regularly the contracts, the performance and the
remuneration of the Company's principal service providers.
Audit Committee
Chairman - Howard Pearce
Duncan Budge, Emma Howard Boyd
Key roles and responsibilities:
- to review the Company's financial reports;
- to oversee the risk and control environment and financial reporting;
and
- to review the performance of the Company's external Auditors.
Copies of the full terms of reference, which clearly define the
responsibilities of each committee can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting, and can be
found on the Company's website at www.menhaden.com.
The Directors have decided that, given the size of the Board, it is unnecessary
to form separate remuneration and nomination committees; the duties that would
fall to those committees are carried out by the Board as a whole.
Anti-Bribery and Corruption Policy
The Board has adopted a zero tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits any Director or associated
persons when acting on behalf of the Company from accepting, soliciting,
paying, offering or promising to pay or authorise any payment, public or
private, in the United Kingdom or abroad to secure any improper benefit from
themselves or for the Company.
The Board applies the same standards to its service providers in their
activities for the Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at www.menhaden.com. The policy is reviewed regularly by the Audit
Committee.
Board of Directors
Directors' Independence
The Board consists of four non-executive Directors, each of whom is independent
of Frostrow and Menhaden Capital Management LLP ("MCM"). No member of the Board
has been an employee of the Company, Frostrow, MCM or any of its service
providers. Accordingly, the Board considers that all the Directors are
independent and there are no relationships or circumstances which are likely to
affect or could appear to affect their judgement.
Board Evaluation
During the course of 2016 the performance of the Board, its committees and
individual Directors (including each Director's independence) was evaluated
through a formal assessment process led by the Chairman.
The Chairman is satisfied that the structure and operation of the Board
continues to be effective and relevant and that there is a satisfactory mix of
skills, experience, length of service and knowledge of the Company.
All Directors will submit themselves for annual re-election by shareholders.
Following the evaluation process, the Board recommends that shareholders vote
in favour of their re-election at the Annual General Meeting.
Policy on Director Tenure
The Board subscribes to the view expressed within the AIC Code that
long-serving directors should not be prevented from forming part of an
independent majority. It does not consider that a directors' tenure necessarily
reduces his ability to act independently. The Board's policy on tenure is that
continuity and experience are considered to add significantly to the strength
of the Board and, as such, no limit on the overall length of service of any of
the Directors, including the Chairman, has been imposed. In view of its
non-executive nature, the Board considers that it is not appropriate for the
Directors to be appointed for a specified term, although new Directors will be
appointed with the expectation that they will serve for a minimum of three
years subject to shareholder approval.
Appointments to the Board
The rules governing the appointment and replacement of directors are set out in
the Company's Articles of Association. Where the Board appoints a new director
during the year, that director will stand for election by shareholders at the
next annual general meeting. When considering new appointments, the Board will
seek to add persons with complementary skills or skills and experience which
fill any gaps in the Board's knowledge and who can devote sufficient time to
the Company to carry out their duties effectively. The Company is committed to
ensuring that any vacancies arising are filled by the most qualified
candidates. The Board recognises the value of diversity in the composition of
the Board and accordingly, the Board will ensure that a diverse group of
candidates is considered should any vacancies arise.
Subject to there being no conflict of interest, all Directors are entitled to
vote on candidates for the appointment of new Directors and on the
recommendation for shareholders' approval for the Directors seeking re-election
at the Annual General Meeting. The Chairman will not chair the meeting when the
Board is dealing with the appointment of his successor.
Induction/Development
New appointees to the Board will be provided with a full induction programme.
The programme will cover the Company's investment strategy, policies and
practices. New directors will also be given key information on the Company's
regulatory and statutory requirements as they arise including information on
the role of the Board, matters reserved for its decision, the terms of
reference for the Board committees, the Company's corporate governance
practices and procedures and the latest financial information. Directors are
encouraged to participate in training courses where appropriate.
Conflicts of Interest
In line with the Companies Act 2006, the Board has the power to authorise any
potential conflicts of interest that may arise and impose such limits or
conditions as it thinks fit. A register of interests and potential conflicts is
maintained and is reviewed at every Board meeting to ensure all details are
kept up to date. It was resolved at each Board meeting during the period under
review that there were no direct or indirect interests of a Director that
conflicted with the interests of the Company. Appropriate authorisation will be
sought prior to the appointment of any new director or if any new conflicts or
potential conflicts arise.
Exercise of Voting Powers
The Board has delegated authority to Frostrow (as AIFM) to vote the shares
owned by the Company that are held on its behalf by its Custodian. The Menhaden
Team have responsibility for carrying out the voting on Frostrow's behalf.
The Board has instructed that the Menhaden Team submit votes for such shares
wherever possible and practicable. The Menhaden Team may refer to the Board on
any matters of a contentious nature.
Further details of the Company's voting record can be found in the Company's
impact report and on the Company's website www.menhaden.com.
Independent Professional Advice
The Board has formalised arrangements under which the Directors, in the
furtherance of their duties, may seek independent professional advice at the
Company's expense.
The Company has also arranged Directors' and Officers' Liability Insurance
which provides cover for legal expenses under certain circumstances. This was
in force for the entire period under review and up to the date of this report.
Company Secretary
The Directors have access to the advice and services of a Company Secretary
through its appointed representative which is responsible to the Board for
ensuring that the Board procedures are followed and that the Company complies
with applicable rules and regulations. The Company Secretary is also
responsible for ensuring good information flows between all parties.
Board Meetings and Relations with the Investment Manager
The Board is responsible for strategy and reviews the continued appropriateness
of the Company's investment objective, strategy and investment restrictions at
each meeting. The Board meets regularly throughout the year and representatives
from Frostrow and MCM are in attendance at each Board meeting to address
questions on specific matters and to seek approval for specific transactions
which the AIFM is required to refer to the Board. The Chairman encourages open
debate to foster a supportive and co-operative approach for all participants.
The primary focus at regular Board meetings is the review of key investment and
financial data, revenue and expenses projections, analyses of asset allocation,
transactions and performance comparisons, share price and net asset value
performance, marketing and shareholder communication strategies, the risks
associated with pursuing the investment strategy, peer group information and
industry issues.
The Board reviews the discount or premium to net asset value per share of the
Company's share price at each Board meeting and considers the effectiveness of
the Company's marketing and communication strategies, as well as any
recommendations on share buybacks and issuance.
The Board has reviewed the AIFM and Menhaden Team's Statement of Compliance
with the UK Stewardship Code, and their Proxy Voting Policy, which are
available on Frostrow's website www.frostrow.com.
Shareholder Communications
Shareholder Relations
Representatives of Frostrow and MCM regularly meet with institutional
shareholders and private client asset managers to discuss strategy, to
understand their issues and concerns and, if applicable, to discuss corporate
governance issues. The results of such meetings are reported at the following
Board meeting.
An analysis of the shareholder register of the Company is provided to the
Directors at each Board meeting. The Board receives marketing reports from
Frostrow. The Board reviews and considers the marketing plans on a regular
basis. Reports from the Company's broker are submitted to the Board on investor
sentiment and industry issues.
Shareholder Communications
The Company aims to provide shareholders with a full understanding of the
Company's investment objective, policy and activities, its performance and the
principal investment risks by means of informative annual and half yearly
reports. This is supplemented by the monthly publication through the London
Stock Exchange, of the net asset value of the Company's shares.
The Company's website (www.menhaden.com) is regularly updated with monthly fact
sheets and provides useful information about the Company, including the
Company's financial reports and announcements.
All substantive communications regarding any major corporate issues are
discussed by the Board taking into account representations from Frostrow, MCM,
the Auditor, legal advisers and the Corporate Stockbroker.
The Board supports the principle that the AGM be used to communicate with all
investors. It is the intention that the full Board will attend the AGM under
the chairmanship of the Chairman of the Board. All shareholders are encouraged
to attend the AGM, where they are given the opportunity to question the
Chairman, the Board and representatives of Frostrow and the Menhaden Team. The
Menhaden Team will make a presentation to shareholders covering the investment
performance and strategy of the Company at the forthcoming AGM. Details of
proxy votes received in respect of each resolution will be made available to
shareholders at the meeting and will also be published on the Company's
website, www.menhaden.com.
The Directors welcome the views of all shareholders and place considerable
importance on communications with them. Shareholders wishing to communicate
with the Chairman, or any other member of the Board, may do so by writing to
the Company Secretary at the offices of Frostrow.
Significant Holdings and Voting Rights
Details of the substantial interests in the Company's Shares, the voting rights
of the shares and the Directors' authorities to issue and repurchase the
Company's shares, are set out in the Directors' Report.
Nominee Share Code
Where the Company's shares are held via a nominee company name, the Company
undertakes:
• to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
• to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meeting.
By order of the Board
Frostrow Capital LLP
Company Secretary
5 April 2017
Audit Committee Report
Statement from the Chairman
I am pleased to present the Audit Committee report for the year ended 31
December 2016. The Committee met three times during the year under review.
The role of the Committee is to ensure that shareholder interests are properly
protected in relation to the application of financial reporting and internal
control principles and to assess the effectiveness of the audit. The
Committee's role and responsibilities are set out in full in its terms of
reference which are available on request from the Company Secretary and can be
seen on the Company's website (www.menhaden.com). A summary of the Committee's
main responsibilities and how it has fulfilled them is set out below.
Composition
The Audit Committee comprises Howard Pearce (Chairman of the Committee), Duncan
Budge and Emma Howard Boyd whose biographies are set out above. The Committee
considers that each member has recent and relevant experience in accounting,
auditing or financial reporting and that the Committee as a whole has
experience relevant to the investment trust industry.
Responsibilities
The Committee's main responsibilities during the year under review were:
1. To review the Company's annual and half-year reports. In particular,
the Audit Committee has considered whether the annual report was fair, balanced
and understandable, allowing shareholders to easily assess the Company's
strategy, business model, financial position and performance. This review also
included scrutiny of the valuation of investments, accounting policies and
other significant reporting matters.
2. To review the risk management and internal control processes of the
Company and its key service providers. Further details are provided in the
Internal Controls and Risk Management section.
3. To recommend the appointment of the external Auditors, agreeing the
scope of their work and their remuneration, and reviewing their independence.
During the year the nature and scope of the second audit together with the
audit plan were considered by the Committee. The Committee concluded that the
appropriate areas of audit risk relevant to the Company had been identified and
that there were suitable audit procedures in place to obtain reasonable
assurance that the financial statements as a whole would be free of material
misstatements.
4. To consider any non-audit work to be carried out by the Auditors. The
Audit Committee will consider the extent and nature of non-audit work performed
by the Auditors and seek assurance that such work does not impinge on their
independence and is a cost effective way to operate.
5. To consider the need for an internal audit function. Since the Company
delegates its day to day operations to third parties and has no employees, the
Committee determined that there is no requirement for such a function. The
Committee considers the need for such a function on an annual basis.
Meetings and Business
The following matters were dealt with at the Committee's meetings:
March 2016
• Review of the Committee's terms of reference;
• Review of the Company's annual results;
• Approval of the Annual Report and financial statements;
• Review of risk management, internal controls and compliance;
• Review of the outcome and effectiveness of the audit and any matters
arising; and
• Review of the need for an internal audit function.
September 2016
• Review of the Company's non-audit services policy;
• Review of the Company's half yearly results;
• Approval of the Half Yearly Report and financial statements; and
• Review of risk management, internal controls and compliance.
November 2016
• Review of the Auditors' plan and terms of engagement for the 2017
audit; and
• Review of risks, internal controls and compliance.
Internal Controls and Risk Management
The Board has overall responsibility for risk management and for the review of
the internal controls of the Company, undertaken in the context of its
investment objective.
The review covers the key business, operational, compliance and financial risks
facing the Company. In arriving at its judgement of what risks the Company
faces, the Board has considered the Company's operations in light of the
following factors:
• the nature of the Company, with all management functions outsourced to
third party service providers;
• the nature and extent of risks which it regards as acceptable for the
Company to bear within its overall investment objective;
• the threat of such risks becoming a reality; and
• the Company's ability to reduce the incidence and impact of risk on
its performance.
Against this background, a risk matrix has been developed which covers all key
risks that the Company faces, the likelihood of their occurrence and their
potential impact, how these risks are monitored and mitigating controls in
place. The Board has delegated to the Audit Committee the responsibility for
the review and maintenance of the risk matrix and it reviews, in detail, the
risk matrix each time it meets, bearing in mind any changes to the Company, its
environment or service providers since the last review. Any significant changes
to the risk matrix are discussed with the whole Board.
During the year, the Committee considered whether the UK's exit from the
European Union ("Brexit") posed a unique risk to the Company. The Committee
believes that Brexit is unlikely to affect the Company's business model or how
the Company's shares are sold but will continue to monitor regulatory and
tax-related developments.
The Committee reviews internal controls reports from its principal service
provide on an annual basis. The Committee is satisfied that appropriate systems
have been in place for the year under review and up to the date of approval of
this report.
Significant Reporting Matters
The Committee considered the significant issues in respect of the Annual Report
including the financial statements. The table below sets out the key areas of
risk identified and also explains how these were addressed.
Significant risk How the risk was addressed
Valuation, existence The valuation of investments is undertaken in accordance with
and ownership of the accounting policies in note 1 to the financial
investments, in statements. Controls are in place to ensure that valuations
particular unquoted are appropriate and existence is verified through
investments reconciliations with the Depositary. The Committee discussed
with Frostrow and the Menhaden Team the process by which the
unquoted investments are valued, and ownership documented,
including the reconciliation process with the Depositary.
They also reviewed the valuation of the unquoted investments
as at 31 December 2016 to ensure that they were carried out
in accordance with the accounting policy set out in note 1
(b). Having reviewed the valuations, the Committee confirmed
that they were satisfied that the investments had been valued
correctly.
Risk of revenue being The Committee took steps to gain an understanding of the
misstated due to the processes in place to record investment income and
improper recognition of transactions. In addition, the Committee reviewed the
revenue. treatment of fixed income returns on debt securities.
Financial Statements
The Board has asked the Committee to confirm that in its opinion the Board can
make the required statement that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy. The Committee has given this confirmation on the basis of its review
of the whole document, underpinned by involvement in the planning for its
preparation and review of the processes to assure the accuracy of factual
content.
The Committee is satisfied that it is appropriate for the Board to prepare the
financial statements on the going concern basis.
The Audit Committee also reviewed the financial position and principal risks of
the Company in connection with the Board's statement on the longer-term
viability of the Company, which is set out in the Directors' Report.
External Auditors
In addition to the reviews undertaken at the Committee meetings, I met with
Grant Thornton UK LLP ("Grant Thornton") on 2 March 2017 to discuss the outcome
of the audit and the draft Annual Report. I also met with Grant Thornton
without Frostrow or the Menhaden Team being present to discuss the outcome of
the audit on 20 March 2017.
In order to fulfil the Committee's responsibility regarding the independence of
the Auditors, we reviewed:
• the senior audit personnel in the audit plan for the year;
• the Auditors' arrangements concerning any conflicts of interest; and
• the statement by the Auditors that they remain independent within the
meaning of the regulations and their professional standards.
In order to consider the effectiveness of the audit process, we reviewed:
• the Auditors' fulfilment of the agreed audit plan;
• the report arising from the audit itself; and
• feedback from Frostrow.
The Committee is satisfied with the Auditors' independence and the
effectiveness of the audit process, together with the degree of diligence and
professional scepticism brought to bear.
Non-Audit Services
The Auditor did not carry out any non-audit work during the year. The Audit
Committee monitors the level of non-audit work carried out by the Auditor, if
any, and seeks assurances from the Auditor that they maintain suitable policies
and procedures ensuring independence, and monitors compliance with the relevant
regulatory requirements on an annual basis.
The Company operates on the basis whereby the provision of non-audit services
by the Auditor is only permissible where no conflicts of interest arise, the
service is not expressly prohibited by audit legislation, where the
independence of the Auditor is not likely to be impinged by undertaking the
work and the quality and the objectivity of both the non-audit work and audit
work will not be compromised. In particular, non-audit services may be provided
by the Auditor if they are inconsequential or would have no direct effect on
the Company's financial statements and the audit firm would not place
significant reliance on the work for the purposes of the statutory audit.
Auditors' Reappointment
Grant Thornton have been the appointed external Auditors since the Company
launched in 2015. Grant Thornton carried out the audit for the period ending
31 December 2015 and the year ended 31 December 2016 and were considered
independent by the Board.
As a public company listed on the London Stock Exchange, the Company is subject
to the mandatory auditor rotation requirements of the European Union. The
Company will put the external audit out to tender at least every 10 years and
change auditor at least every 20 years. The Committee will, however, continue
to consider annually the need to go to tender for audit quality or independence
reasons.
The Committee conducted a review of the performance of the Auditors during the
audit period and concluded that performance was satisfactory and there are no
grounds for change.
Grant Thornton have indicated their willingness to continue to act as Auditors
to the Company for the forthcoming year and a resolution for their re?
appointment will be proposed at the Annual General Meeting.
Howard Pearce
Chairman of the Audit Committee
5 April 2017
Directors' Remuneration Report
Statement from the Chairman
I am pleased to present the Directors' Remuneration Report to Shareholders. An
ordinary resolution for the approval of this report will be put to shareholders
at the Company's forthcoming Annual General Meeting. The law requires the
Company's Auditors to audit certain disclosures provided in this report. Where
disclosures have been audited, they are indicated as such and the Auditors'
opinion is included in their report to shareholders.
The Board considers the framework for the remuneration of the Directors on an
annual basis. It reviews the ongoing appropriateness of the Company's
remuneration policy and the individual remuneration of the Directors by
reference to the activities and particular complexities of the Company and in
comparison with other companies of a similar structure and size. This is
in-line with the AIC Code.
The Board as a whole considered the level of Directors' fees at their meeting
in November 2016 and determined that it was appropriate to maintain them at
their current levels for 2017.
The Directors are remunerated exclusively by fixed fees in cash and do not
receive bonus payments or pension contributions from the Company, hold options
to acquire shares in the Company, or other benefits.
All Directors are entitled to the reimbursement of reasonable out of pocket
expenses incurred by them in order to perform their duties as directors of the
Company.
No advice from remuneration consultants was received during the period under
review.
As noted in the Strategic Report, all of the Directors are non-executive and
therefore there is no Chief Executive Officer. The Company does not have
employees. Therefore there is no CEO or employee information to disclose.
Single total figure of remuneration 2016 (audited)
Director Date of Fees 2016 Total Fees2 2015 Total
appointment Taxable Taxable
to the Board expenses1 expenses1
Sir Ian Cheshire 3 October 2014 50,000 - 50,000 21,000 - 21,000
Duncan Budge 3 October 2014 40,000 - 40,000 16,770 - 16,770
Emma Howard Boyd 3 October 2014 40,000 - 40,000 16,770 - 16,770
Howard Pearce 3 October 2014 40,000 3,744 43,744 16,770 2,382 19,152
TOTAL 170,000 3,744 173,744 71,310 2,382 73,692
1 Under revised HMRC guidance, travel expenses and other out of pocket
expenses are considered taxable benefits for UK-based directors. The expenses
in this column comprise out of pocket travel and training expenses together
with the associated tax liability incurred by the Directors in the performance
of their duties.
2 A pro rata fee was payable in 2015 as the Company was launched on
31 July 2015.
No payments have been made to any former directors. It is the Company's policy
not to pay compensation upon leaving office for whatever reason. None of the
fees referred to in the above table were paid to any third party in respect of
the services provided by any of the Directors.
Directors' Interests in the Company's Shares (audited)
Ordinary Ordinary
Shares Shares
of 1p each of 1p each
as at as at
31 Dec 2016 31 Dec 2015
Sir Ian Cheshire 115,000 25,000
Duncan Bridge 10,000 10,000
Emma Howard Boyd 18,000 8,000
Howard Pearce 8,000 4,957
Total 151,000 47,957
No changes have been notified to the date of this report.
The Company does not have share options or a share scheme, and does not operate
a pension scheme. None of the Directors are required to own shares in the
Company.
Performance
The graph below shows the total shareholder return of the Company since its
launch on 31 July 2015 against the total return of the MSCI World Total Return
Index.
This report is required to include a table showing actual expenditure by the
Company on remuneration and distributions to shareholders for the current and
prior year. However, as the Company launched on 31 July 2015 and the Directors
have not yet declared or recommended payment of a dividend, and as the Company
has not repurchased any of its shares, this information has not been included.
Statement of Voting at the AGM
At the Annual General Meeting held in May 2016 the results in respect of the
resolution to approve the Directors' Remuneration Report were as follows:
Votes cast Votes cast Votes
for against withheld
33,122,809 0 0*
100% 0%
*Votes withheld are not votes by law and are therefore not counted in the
calculation of votes for or against a resolution.
The results in respect of the resolution to approve the Directors' Remuneration
Policy were as follows:
Votes cast Votes cast Votes
for against withheld
33,122,809 0 0*
100% 0%
*Votes withheld are not votes by law and are therefore not counted in the
calculation of votes for or against a resolution.
By order of the Board
Sir Ian Cheshire
Chairman
5 April 2017
Directors' Remuneration Policy
The Company's remuneration policy is that the remuneration of each Director
should be commensurate with the duties, responsibilities and time commitment of
each respective role and consistent with the requirement to attract and retain
directors of appropriate quality and experience. The remuneration should also
be comparable to that of investment trusts of similar size and structure.
Directors are remunerated in the form of fixed fees payable monthly in arrears.
There are no long or short-term incentive schemes, share option schemes or
pension arrangements and the fees are not specifically related to the
Directors' performance, either individually or collectively.
The Directors' remuneration is determined within the limits set out in the
Company's Articles of Association. The present limit is £500,000 in aggregate
per annum.
It is the Board's intention that the remuneration policy will be considered by
shareholders at the annual general meeting at least once every three years. If,
however, the remuneration policy is varied, shareholder approval will be sought
at the AGM following such variation. The Board will formally review the
remuneration policy at least once a year to ensure that it remains appropriate.
An ordinary resolution for the approval of this policy will be considered by
shareholders at the Annual General Meeting to be held in 2019. It is intended
that this policy will remain in place for the following financial year and
subsequent financial periods.
No communications have been received from shareholders regarding Directors'
remuneration. The Board will consider any comments received from shareholders
on the remuneration policy.
This policy, together with the Directors' letters of appointment, may be
inspected at the Company's registered office.
The current and projected Directors' fees for 2016 and 2017 are shown in the
table below. The Company does not have any employees.
Directors' Fees Current and Projected
Fees (£) Total
2017 Fees (£)
2016
Sir Ian Cheshire 50,000 50,000
Duncan Budge 40,000 40,000
Howard Pearce 40,000 40,000
Emma Howard Boyd 40,000 40,000
170,000 170,000
Any new director appointed to the Board will, under current remuneration
levels, receive a fee of £25,000 per annum. Directors who serve on the Audit
Committee receive an additional fee of £15,000 per annum. The Chairman receives
an additional fee of £25,000 per annum.
All Directors are non-executive, appointed under the terms of letters of
appointment and none has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first
annual general meeting after their appointment and to re-election every three
years thereafter. The terms also provide that a Director may be removed without
notice and that compensation will not be due on leaving office.
Independent Auditors' report to the members of Menhaden Capital PLC
Our opinion on the financial statements is unmodified
In our opinion the financial statements:
• give a true and fair view of the state of the Company's affairs as at
31 December 2016 and of its profit for the year then ended;
• have been properly prepared in accordance with applicable law and
United Kingdom Accounting Standards (United Kingdom Generally Accepted
Accounting Practice), including FRS 102 'The Financial Reporting Standard
applicable in the UK and Republic of Ireland'; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
Who we are reporting to
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
What we have audited
Menhaden Capital PLC's financial statements for the year ended 31 December 2016
comprise the income statement, the statement of changes in equity, the
statement of financial position, the statement of cash flows and the related
notes.
The financial reporting framework that has been applied in their preparation is
United Kingdom Generally Accepted Accounting Practice including FRS 102 'The
Financial Reporting Standard applicable in the UK and Republic of Ireland'.
Overview of our audit approach
• Overall materiality: £700,000, which represents approximately 1% of
the Company's net assets; and
• Key audit risks were identified as existence and valuation of unquoted
investments and quoted investments, and completeness of investment income.
Our assessment of risk
In arriving at our opinions set out in this report, we highlight the following
risks that, in our judgement, had the greatest effect on our audit:
Audit risk How we responded to the risk
Existence and valuation of unquoted Unquoted investments
investments and quoted investments
Our audit work included, but was not
The Company's investment objective is to restricted to:
generate long-term shareholder returns,
mainly in the form of capital growth. • assessing whether the Company's
accounting policy for unquoted investments
This objective is pursued through a is in accordance with United Kingdom
portfolio comprising of quoted and unquoted Generally Accepted Accounting Practice and
holdings. the AIC SORP and testing whether the
Company has accounted for unquoted
As at the year end, the Company holds a investments in accordance with the policy;
small number of significant holdings in
unquoted investments and a number of quoted • obtaining and reviewing the
investments. investment valuation policies of the
private equity funds which the Company has
Different valuation approaches apply to invested in and assessing whether the
different investments. As a result there is valuations were performed in accordance
a risk that the investment valuation with the International Private Equity and
recorded in the statement of financial Venture Capital Valuation guidelines;
position may be incorrectly valued.There is
also a risk that investments shown in the • obtaining an understanding of the
statement of financial position may not investment valuation process for the
exist. Accordingly, we have identified private equity funds through review of the
existence and valuation of unquoted fund's latest available audited financial
investments and quoted investments as risks statements, review of the fund's latest
that required special and particular audit quarterly reports and discussion with the
attention. fund's management; and
• obtaining a direct confirmation of
the investments held by the Company at the
year-end from the respective fund
administrators.
Audit risk How we responded to the risk
Quoted investments
Our audit work included, but was not
restricted to:
• assessing whether the Company's
accounting policy for quoted investments
is in accordance with United Kingdom
Generally Accepted Accounting Practice and
the AIC SORP and testing whether the
Company has accounted for such investments
in accordance with the policy;
• comparing the investments holdings to
the confirmation from the Company's
custodian; and
• comparing the valuation to an
independent source of market prices.
The Company's accounting policy on
investments held at fair value through
profit or loss is shown in Note 1(b) and
its disclosures about investment movements
are included in Note 7. The Audit
Committee identified valuation, existence
and ownership of investments, in
particular unquoted investments, as
significant risks in its report where the
Committee also described the action that
it has taken to address these risks.
Completeness of investment income
The Company aims to provide long-term Our audit work included, but was not
shareholder returns by investing in restricted to:
businesses and opportunities delivering or
benefiting from the efficient use of • assessing whether the Company's
energy and resources. Income from accounting policy for revenue recognition
investments is a significant, material is in accordance with United Kingdom
item in the income statement. We therefore Generally Accepted Accounting Practice and
identified completeness of investment the AIC SORP;
income as a risk that required particular
audit attention. • obtaining an understanding of the
Company's process for recognising revenue
in accordance with its stated accounting
policy;
• testing a sample of income
transactions to assess if these were
recognised in accordance with the policy;
and
• for a sample of investments held
during the year, obtaining the ex-dividend
dates and rates for dividends declared
during the year from an independent source
and agreeing the expected dividend
entitlements to those recognised in the
general ledger.
The Company's accounting policy on
investment income is shown in Note 1(c)
and the components of that income are
included in Note 2. The Audit Committee
identified the risk of revenue being
misstated due to improper recognition of
revenue as a significant risk in its
report where the Committee also described
the action that it has taken to address
this risk.
Our application of materiality and an overview of the scope of our audit
Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality in
determining the nature, timing and extent of our work and in evaluating the
results of that work.
We determined materiality for the audit of the financial statements as a whole
to be £700,000, which is approximately 1% of the Company's net assets. This
benchmark is considered the most appropriate because net assets, which are
primarily composed of the Company's investment portfolio, are considered to be
the key driver of the Company's total return performance. No revision to the
materiality determined above was necessary as we judged that it remained
appropriate in the context of the Company's actual financial results for the
year ended 31 December 2016.
Materiality for the current year is higher than the level that we determined
for the period ended 31 December 2015 to reflect the increase in the value of
net assets.
We use a different level of materiality, performance materiality, to drive the
extent of our testing and this was set at 75% of financial statement
materiality. We also determine a lower level of specific materiality for
certain areas such as investment income, Alternative Investment Fund Manager
(AIFM) and portfolio management fee, directors' remuneration and related party
transactions.
We determined the threshold at which we will communicate misstatements to the
audit committee to be £35,000. In addition we will communicate misstatements
below that threshold that, in our view, warrant reporting on qualitative
grounds.
Overview of the scope of our audit
A description of the generic scope of an audit of financial statements is
provided on the Financial Reporting Council's website at www.frc.org.uk/
auditscopeukprivate.
We conducted our audit in accordance with International Standards on Auditing
(ISAs) (UK and Ireland). Our responsibilities under those standards are further
described in the 'Responsibilities for the financial statements and the audit'
section of our report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
We are independent of the Company in accordance with the Auditing Practices
Board's Ethical Standards for Auditors, and we have fulfilled our other ethical
responsibilities in accordance with those Ethical Standards.
The day-to-day management of the Company's investment portfolio, the custody of
its investments and the maintenance of the Company's accounting records are
outsourced to third-party service providers. Our audit approach was based on a
thorough understanding of the Company's business and is risk based, and in
particular included:
• obtaining an understanding of, and evaluating relevant internal
controls at both the Company and third party service providers by obtaining and
evaluating internal controls reports on the description and design of controls
at the AIFM and other third party service providers; and
• undertaking substantive testing on significant transactions, balances
and disclosures, the extent of which was based on various factors such as our
overall assessment of the control environment, our evaluation of the design and
implementation of controls over individual systems.
Other reporting required by regulations
Our opinions on other matters prescribed by the Companies Act 2006 are
unmodified
In our opinion, the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the Strategic Report and the Directors'
Report for the financial year for which the financial statements are prepared
is consistent with the financial statements;
• the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements;
* the information about internal control and risk management systems in
relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the
Disclosure Rules and Transparency Rules sourcebook made by the Financial
Conduct Authority (the FCA Rules), is consistent with the financial
statements and has been prepared in accordance with applicable legal
requirements; and
* information about the Company's corporate governance code and practices and
about its administrative, management and supervisory bodies and their
committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Company and its
environment obtained in the course of the audit, we have not identified
material misstatements in:
• the Strategic Report or the Directors' Report; or
• the information about internal control and risk management systems in
relation to financial reporting processes and about share capital structures,
given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.
Matters on which we are required to report by exception
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
• adequate accounting records have not been kept, or returns adequate
for our audit have not been received from branches not visited by us; or
• the financial statements and the part of the Directors' Remuneration
Report to be audited are not in agreement with the accounting records and
returns; or
• certain disclosures of directors' remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit; or
* a corporate governance statement has not been prepared by the Company.
Under the Listing Rules, we are required to review:
• the Directors' statements in relation to going concern and longer-term
viability; and
• the part of the Corporate Governance Statement relating to the
Company's compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Under the ISAs (UK and Ireland), we are required to report to you if, in our
opinion, information in the annual report is:
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Company acquired in the course of performing our
audit; or
• otherwise misleading.
In particular, we are required to report to you if:
• we have identified any inconsistencies between our knowledge acquired
during the audit and the Directors' statement that they consider the annual
report is fair, balanced and understandable; or
• the annual report does not appropriately disclose those matters that
were communicated to the Audit Committee which we consider should have been
disclosed.
We have nothing to report in respect of the above.
We also confirm that we do not have anything material to add or to draw
attention to in relation to:
• the Directors' confirmation in the annual report that they have
carried out a robust assessment of the principal risks facing the Company
including those that would threaten its business model, future performance,
solvency or liquidity;
• the disclosures in the annual report that describe those risks and
explain how they are being managed or mitigated;
• the Directors' statement in the financial statements about whether
they have considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material
uncertainties to the Company's ability to continue to do so over a period of at
least twelve months from the date of approval of the financial statements; and
• the Directors' explanation in the annual report as to how they have
assessed the prospects of the Company, over what period they have done so and
why they consider that period to be appropriate, and their statement as to
whether they have a reasonable expectation that the Company will be able to
continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any
necessary qualifications or assumptions.
Responsibilities for the financial statements and the audit
What the Directors are responsible for:
As explained more fully in the Statement of Directors' Responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view.
What we are responsible for:
Our responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and ISAs (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's Ethical
Standards for Auditors.
Marcus Swales
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
5 April 2017
Income Statement
For the year ended For the period ended
31 December 2016 31 December 2015
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on 7 - 2,075 2,075 - (10,757) (10,757)
investments at fair
value through profit
and loss
Income from investments 2 532 - 532 611 - 611
Impairment of interest 4 - - - (206) - (206)
AIFM and Portfolio 3 (191) (777) (968) (87) (350) (437)
management fees
Other expenses 4 (428) - (428) (221) (22) (243)
Net (loss)/return (87) 1,298 1,211 97 (11,129) (11,032)
before taxation
Taxation on net return 5 (43) - (43) (24) - (24)
Net (loss)/return after (130) 1,298 1,168 73 (11,129) (11,056)
taxation
(Loss)/return per share 6 (0.1)p 1.6p 1.5p 0.1p (13.9)p (13.8)p
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 31 December 2016
Ordinary Share Special Capital Revenue Total
share premium reserve reserve reserve £'000
capital account £'000 £'000 £'000
£'000 £'000
At 31 December 2015 800 77,371 - (11,129) 73 67,115
Cancellation of Share - (77,371) 77,371 - - -
premium account
Net return/(loss) after - - - 1,298 (130) 1,168
taxation
At 31 December 2016 800 - 77,371 (9,831) (57) 68,283
For the period ended 31 December 2015
Ordinary Share Special Capital Revenue Total
share premium reserve reserve reserve £'000
capital account £'000 £'000 £'000
£'000 £'000
Issue of shares following 800 79,200 - - - 80,000
placing and offer for
subscription
Expenses of placing and - (1,829) - - - (1,829)
offer for subscription
Net (loss)/return after - - - (11,129) 73 (11,056)
taxation
At 31 December 2015 800 77,371 - (11,129) 73 67,115
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
Notes As at As at
31 December 31 December
2016 2015
£000 £000
Fixed assets
Investments at fair value through profit and 7 52,547 63,709
loss
Current assets
Debtors 8 65 204
Cash 15,872 3,371
15,937 3,575
Current liabilities
Creditors: amounts falling due within one year 9 (201) (169)
Net current assets 15,736 3,406
Total net assets 68,283 67,115
Capital and reserves
Ordinary share capital 10 800 800
Share premium account - 77,371
Special reserve 77,371 -
Capital reserve 15 (9,831) (11,129)
Revenue reserve (57) 73
Total shareholders' funds 68,283 67,115
Net asset value per share 11 85.4p 83.9p
The financial statements were approved by the Board of Directors and authorised
for issue on 5 April 2017 and were signed on its behalf by:
Sir Ian Cheshire
Chairman
The accompanying notes are an integral part of these financial statements.
Menhaden Capital PLC - Company Registration Number 09242421 (Registered in
England and Wales)
Statement of Cash Flows
Notes For the For the
year ended period ended
31 December 31 December
2016 2015
£000 £000
Net cash outflow from operating activities 12 (739) (194)
Investing activities
Purchases of investments (23,438) (76,636)
Sales of investments 36,678 2,170
Net cash outflow from investing activities 13,240 (74,466)
Net cash outflow before financing activities 12,501 (74,660)
Financing activities
Issue of shares following placing and offer for 10 - 80,000
subscription
Expenses of placing and offer for subscription - (1,969)
Net cash inflow from financing activities - 78,031
Increase in cash and cash equivalents 12,501 3,371
Cash and cash equivalents at beginning of 3,371 -
period
Cash and cash equivalents at end of period 15,872 3,371
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2016
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently
throughout the period in the preparation of these financial statements, are set
out below:
(a) Basis of Preparation
The financial statements have been prepared in accordance with United Kingdom
company law, FRS 102 'The Financial Reporting Standard applicable in the UK and
Ireland', the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in November 2014
and updated in January 2017 (the 'SORP'), the historical cost convention, as
modified by the valuation of investments at fair value through profit or loss
and on a going concern basis.
The Company's financial statements are presented in sterling, being the
functional and presentational currency of the Company. All values are rounded
to the nearest thousand pounds (£'000) except where otherwise indicated.
Fair value measurements are categorised into a fair value hierarchy based on
the degree to which the inputs to the fair value measurements are observable
and the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
• Level 1 - Quoted prices in active markets;
• Level 2 - Inputs other than quoted prices included within Level 1 that
are observable (ie developed using market data), either directly or indirectly.
• Level 3 - Inputs are unobservable (ie for which market data is
unavailable)
In preparing these financial statements the Company has adopted 'Amendments to
FRS102: Fair value hierarchy disclosures (March 2016)' published by the FRC.
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in
accordance with the SORP, supplementary information which analyses the Income
Statement between items of a revenue and capital nature has been presented
alongside the Income Statement. The net revenue return is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Sections 1158 and 1159 of the Corporation Tax
Act 2010.
Statement of estimation uncertainty
Estimates and judgements used in preparing the financial information are
continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable. The
resulting estimates will, by definition, seldom equal the related actual
results.
The key estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities relate to
the valuation of unquoted investments. These are valued by the AIFM in
accordance with the policy set out below. Judgement is required in order to
determine the appropriate valuation methodology under this standard and
subsequently in determining the inputs into the valuation model used. These
judgements include making assessments of the future earnings or revenue
potential of portfolio companies, appropriate earnings/revenue multiples or
discount rate to apply, and adjustments to comparable multiples. Further
details on the valuation of unquoted investments are included in note 1(b).
(b) Investments Held at Fair Value Through Profit or Loss
All investments are measured on initial recognition and at subsequent reporting
dates at fair value in accordance with FRS 102 Section 11: Basic Financial
Instruments and Section 12: Other Financial Instruments Issues.
Purchases and sales of quoted investments are recognised on the trade date
where a contract exists whose terms require delivery within a time frame
determined by the relevant market. Purchases and sales of unlisted investments
are recognised when the contract for acquisition or sale becomes unconditional.
Changes in the fair value of investments and gains and losses on disposal are
recognised in the Income Statement as 'gains or losses on investments'. Also
included within this caption are transaction costs in relation to the purchase
or sale of investments, including the difference between the purchase price of
an investment and its price at the time of purchase. The fair value of the
different types of investment held by the Company is determined as follows:
• Quoted Investments
Fair value is deemed to be bid, or last trade, price depending on the
convention of the exchange on which it is quoted.
• Unquoted Investments
Unquoted investments are fair valued using recognised valuation methodologies
in accordance with the International Private Equity and Venture Capital
Association valuation guidelines (IPEVCA Guidelines).
The fair value of unquoted investments, other than limited partnership funds,
are calculated using primary valuation techniques, such as revenue or earning
multiples, discounted cash flow analysis and recent transactions, in accordance
with the IPEVCA Guidelines.
Where an investment has been made recently the Company may use cost as the best
indicator of fair value. In such a case changes or events subsequent to the
relevant transaction date would be assessed to ascertain if they imply a change
in the investment's fair value.
The Company invests in a number of limited partnerships set up by third parties
to invest in a wider range of investments, or to participate in a larger
investment opportunity, than would be feasible for an individual investor and
to share the costs and benefits of such investment.
For these investments and in line with the IPEVCA Guidelines, the fair value
estimate is based on the attributable proportion of the reported net asset
value of the limited partnership derived from the fair value of underlying
investments. Valuation reports, provided by the general partner of the limited
partnerships, are used to calculate fair value where there is evidence that the
valuation is derived using fair value principles that are consistent with the
Company's accounting policies and valuation methods. Such valuation reports may
be adjusted to take account of changes or events to the reporting date, or
other facts and circumstances which might impact the underlying value.
If a decision to sell a limited partnership interest or portion thereof has
been made then the fair value would be the expected sales price where this is
known or can be reliably estimated.
Where a portion of a limited partnership interest has been sold the level of
any discount, implicit in the sale price, will be reviewed at each measurement
date for that limited partnership interest taking account of the performance of
the limited partnership, as well as any other factors relevant to the value of
the limited partnership interest.
(c) Investment Income
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company's right
to receive payment is established. UK dividends are shown net of tax credits
and foreign dividends are grossed up at the appropriate rate of withholding
tax.
Fixed returns on non-equity shares and debt securities are recognised on a time
apportionment basis so as to reflect the effective yield when it is probable
that economic benefit will flow to the Company. Where income accruals
previously recognised, but not received, are no longer considered to be
reasonably expected to be received, due to doubt over their receipt, then these
amounts are reversed through expenses.
Income distributions from limited partnership funds are recognised when the
right to the distribution is established.
(d) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
• expenses which are incidental to the acquisition or disposal of an
investment, are charged to the capital column of the Income Statement; and
• expenses are charged to the capital column of the Income Statement
where a connection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the portfolio management and
AIFM fees have been charged to the Income Statement in line with the Board's
expected long-term split of returns, in the form of capital gains and income,
from the Company's portfolio. As a result 20% of the portfolio management and
AIFM fees are charged to the revenue column of the Income Statement and 80% are
charged to the capital column of the Income Statement.
Any performance fee accrued or paid is charged in full to the capital column of
the Income Statement.
(e) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue using the marginal basis. Deferred taxation is provided on all
timing differences that have originated but not been reversed by the Statement
of Financial Position date other than those differences regarded as permanent.
This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the reversal of timing differences can be deducted. Any liability to deferred
tax is provided for at the rate of tax enacted or substantially enacted.
(f) Foreign Currency
Transactions recorded in overseas currencies during the year are translated
into sterling at the exchange rate ruling on the date of the transaction.
Monetary assets and liabilities denominated in overseas currencies are
translated into sterling at the exchange rates ruling at the date of the
balance sheet. Non-monetary items that are measured at historical cost are
translated using the historical exchange rate at the date of the transaction.
Any gains or losses on the translation of foreign currency balances, whether
realised or unrealised, are taken to the capital or the revenue column of the
Income Statement, depending on whether the gain or loss is of a capital or
revenue nature.
(g) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant risk of
changes in value.
(h) Capital Reserves
The following are transferred to this reserve: gains and losses on the
realisation of investments; changes in the fair values of investments; and,
expenses, together with the related taxation effect, charged to capital in
accordance with the Expenses Policy.
Any gains in the fair value of investments that are not readily convertible to
cash are treated as unrealised gains in the capital reserve.
(i) Cost of share issues
Costs of share issuance have been offset against the proceeds of the relevant
share issue and dealt with in the share premium account.
(j) Special Reserve
During 2016, in order to enable the Company to make share repurchases out of
distributable reserves and to increase the distributable reserves available to
facilitate the payment of future dividends, following the approval of the
Court, the share premium account was cancelled and the balance of the account
was transferred to the Special Reserve.
2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
2016 2015
£'000 £'000
Income from investments
UK listed dividends 96 8
Overseas dividends 426 342
Fixed interest income 10 261
532 611
Total income comprises:
Dividends 522 350
Interest 10 261
532 611
3. AIFM AND PORTFOLIO MANAGEMENT FEES
Revenue Capital 2016 Revenue Capital 2015
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
AIFM fee 27 110 137 13 53 66
Portfolio management 164 667 831 74 297 371
fee
191 777 968 87 350 437
4. OTHER EXPENSES
Revenue Capital 2016 Revenue Capital 2015
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
Directors' remuneration 170 - 170 71 - 71
Employers NIC on 18 - 18 4 - 4
directors' remuneration
Auditors' remuneration 32 - 32 32 - 32
for the audit of the
Company's financial
statements
Auditors' remuneration - - - 3 - 3
for non-audit services
Registrar fees 13 - 13 6 - 6
Broker fees 30 - 30 13 - 13
Legal and professional 57 - 57 4 22 26
costs
Stock Exchange listing 18 - 18 8 - 8
fees
Depositary fees 44 - 44 17 - 17
Marketing Costs 13 - 13 11 - 11
Other costs 33 - 33 52 - 52
Total expenses 428 - 428 221 22 243
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
In addition to the above, the Auditors' received remuneration of £50,000 for
reporting accountant work undertaken on the prospectus of the Company during
the period ended 31 December 2015. This amount is included within the share
premium account as an expense of the placing and offer for subscription.
As the Abengoa Senior Notes are in default, an impairment provision of £206,000
was made against accrued interest on these investments in 2015.
5. TAXATION ON NET RETURN
(a) Analysis of charge in period
Revenue Capital 2016 Revenue Capital 2015
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
Corporation tax
Overseas taxation 43 - 43 24 - 24
(b) Factors affecting current tax charge for the year
Approved investment trusts are exempt from tax on capital gains made within the
Company.
The tax charged for the period is lower than the standard rate of corporation
tax in the UK for a large company of 20.0%. The difference is explained below.
Revenue Capital 2016 Revenue Capital 2015
£'000 £'000 Total £'000 £'000 Total
£'000 £'000
Net (loss)/return (87) 1,298 1,211 97 (11,129) (11,032)
before taxation
Corporation tax at (17) 260 243 20 (2,270) (2,250)
20.0% (2015: 20.4%)
Non-taxable (gains)/ - (415) (415) - 2,151 2,151
losses on investments
Overseas withholding 43 - 43 24 - 24
taxation
Non taxable overseas (83) - (83) (68) - (68)
dividends
Non taxable UK (19) - (19) (2) - (2)
dividends
Excess management 119 155 274 50 119 169
expenses
Total tax charge 43 - 43 24 - 24
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current period. The
Company has not provided for deferred tax on capital profits and losses arising
on the revaluation or disposal of investments, as it is exempt from tax on
these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of £333,000 (17% tax rate)
(2015: 20%) (2015: £169,000) as a result of excess management expenses and loan
expenses. It is not anticipated that these excess expenses will be utilised in
the foreseeable future. The reduction in the standard rate of corporation tax
was substantially enacted on 13 September 2016 and will be effective on 1 April
2020.
6. RETURN/(LOSS) PER SHARE
2016 2015
£'000 £'000
The return per share is based on the following
figures:
Revenue (loss)/return (130) 73
Capital return/(loss) 1,298 (11,129)
1,168 (11,056)
Weighted average number of shares in issue during 80,000,001 80,000,001
the period
Revenue (loss)/return per share (0.1)p 0.1p
Capital return/(loss) per share 1.6p (13.9)p
1.5p (13.8)p
The calculation of the total, revenue and capital returns/(losses) per Ordinary
Share is carried out in accordance with IAS 33 Earnings per share.
7. INVESTMENTS
Quoted 2016 Total Quoted 2015 Total
Investments Unquoted £'000 Investments Unquoted £'000
£'000 Investments £'000 Investments
£'000 £'000
Opening balance
Cost at 1 January 52,953 20,985 73,938 - - -
Investment holding (7,417) (2,812) (10,229) - - -
losses at 1 January
Valuation at 1 January 45,536 18,173 63,709 - - -
Movement in the
period:
Purchases at cost 21,738 1,700 23,438 55,651 20,985 76,636
Sales - proceeds (34,110) (2,568) (36,678) (2,170) - (2,170)
-(losses)/gains on (1,951) 269 (1,682) (528) - (528)
sales
Net movement in 5,393 (1,633) 3,760 (7,417) (2,812) (10,229)
investment holdings
losses
Valuation at 31 36,606 15,941 52,547 45,536 18,173 63,709
December
Closing balance
Cost at 31 December 38,630 20,386 59,016 52,953 20,985 73,938
Investment holding (2,024) (4,445) (6,469) (7,417) (2,812) (10,229)
losses at 31 December
Valuation at 31 36,606 15,941 52,547 45,536 18,173 63,709
December
2016 2015
£'000 £'000
Effective interest rate amortisation (3) -
Losses based on historical cost - sales (1,682) (528)
Movement in investment holding losses in the period 3,760 (10,229)
Gains/(losses) on investments 2,075 (10,757)
Purchase transaction costs were £9,000 (2015: £115,000). These comprise mainly
commission and stamp duty.
Sales transaction costs were £48,000 (2015: £2,000). These comprise mainly
commission.
8. DEBTORS
2016 2015
£'000 £'000
VAT recoverable - 154
Withholding tax recoverable 6 -
Prepayments and accrued income 59 50
65 204
9. CREDITORS
2016 2015
£'000 £'000
Amounts falling due within one year
Other creditors and accruals 201 169
10. SHARE CAPITAL
Total Total
Ordinary Redeemable
Shares Preference
in issue Shares
number in issue
number
Issue of shares on incorporation 1 5,000,000
Issue of shares arising from the IPO of the Company 80,000,000 -
At 31 December 2015 80,000,001 -
Cancellation of Redeemable Preference Shares - (5,000,000)
At 31 December 2016 80,000,001 -
2016 2015
£'000 £'000
Issued and fully paid:
Ordinary shares of 1p 800 800
In 2015 80,000,000 Ordinary Shares were issued raising gross proceeds of £
80,000,000. The costs of issue totalled £1,829,000. No Ordinary Shares were
held in treasury at 31 December 2016. In 2016 no shares were issued.
The Redeemable Preference Shares, which carried no voting rights and carried no
dividend or economic entitlements, were cancelled with effect from 8 June 2016
as confirmed by an Order of the High Court of Justice.
11. NET ASSET VALUE PER SHARE
2016 2015
Net asset value per share 85.4p 83.9p
Net asset value per share
The net asset value per share is based on the assets attributable to equity
shareholders of £68,283,000 (2015: £67,115,000) and on the number of Ordinary
Shares in issue at the year end of 80,000,001.
12. RECONCILIATION OF GAINS/(LOSSES) BEFORE TAXATION FROM OPERATING
ACTIVITIES
2016 2015
£'000 £'000
Gains/(losses) before taxation 1,211 (11,032)
Add: (Gains)/losses made on investments (2,075) 10,753
(864) (279)
Decrease/(increase) in debtors 145 (60)
Increase in creditors and accruals 32 169
Effective interest rate amortisation (3) -
Net taxation suffered on investment income (49) (24)
Net cash outflow from operating activities (739) (194)
13. RELATED PARTIES
The following are considered to be related parties:
• Frostrow Capital LLP
• The Directors of the Company
Details of the relationship between the Company and the Company's AIFM are
disclosed in the Strategic Report. Details of fees paid to Frostrow by the
Company can be found in note 3. All material related party transactions have
been disclosed in note 3. Details of the remuneration of all Directors can be
found in note 4. Details of the Directors' interests in the capital of the
Company can be found in the Directors' Remuneration Report.
Ben Goldsmith, a member of the Menhaden Team who is seconded to Frostrow
Capital LLP, holds a minority membership interest in Alpina Partners LLP
(formerly WHEB Capital Partners LLP), the investment manager of the WCP Growth
Fund LP and the Alpina Partners Fund LP. He also has a small carried interest
participation in each of these funds.
14. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company's financial instruments comprise securities and other investments,
cash balances and certain debtors and creditors that arise directly from its
operations.
As an investment trust, the Company invests in equities and other investments
for the long term so as to achieve its investment objective. In pursuing its
investment objective, the Company is exposed to a variety of risks that could
result in a reduction in the Company's net assets.
The main risks that the Company faces arising from its use of financial
instruments are:
(i) market risk (including foreign currency risk, interest rate risk and
other price risk)
(ii) liquidity risk
(iii) credit risk
These risks, with the exception of liquidity risk, and the Directors' approach
to the management of them, are set out in the Strategic Report. The AIFM, in
close co?operation with the Board and the Menhaden Team, co-ordinates the
Company's risk management.
(i) Other price risk
In pursuance of the Company's Investment Objective the Company's portfolio is
exposed to the risk of fluctuations in market prices and foreign exchange
rates.
The Board manage these risks through the use of investment limits and
guidelines, and monitor the risks through monthly compliance reports from
Frostrow, with reports from Frostrow and the Menhaden Team also presented at
each Board meeting. In addition, Frostrow monitor the exposure of the Company
and compliance with the investment limits and guidelines on a daily basis.
Other price risk sensitivity
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Balance Sheet had been 25% higher or lower
while all other variables had remained constant: the revenue return would have
decreased/increased by £39,000 (2015: £56,000); the capital return would have
increased/decreased by £12,982,000 (2015: £15,760,000); and, the return on
equity would have increased/decreased by £12,943,000 (2015: £15,704,000). The
calculations are based on the portfolio as at the respective dates of the
Statement of Financial Position and are not representative of the year as a
whole.
(ii) Foreign currency risk
A significant proportion of the Company's portfolio positions are denominated
in currencies other than sterling (the Company's functional currency, and the
currency in which it reports its results). As a result, movements in exchange
rates can significantly affect the sterling value of those items.
Foreign currency risk is managed and maintained in conjunction with other price
risk as described above.
Foreign currency exposure
The fair values of the Company's monetary assets and liabilities that are
denominated in foreign currencies are shown below:
Current 2016 Investments Current 2015 Investments
assets Current £'000 assets Current £'000
£'000 liabilities £'000 liabilities
£'000 £'000
U.S. dollar 15 - 33,160 6 (2) 39,458
Euro 4 - 12,987 - - 4,419
Other 3 - 914 8 - 4,915
22 - 47,061 14 (2) 48,792
Foreign currency sensitivity
The following table details the sensitivity of the Company's net return for the
year and shareholders' funds to a 10% increase and decrease in sterling against
the relevant currency.
These percentages have been determined based on market volatility in exchange
rates over the period since launch. The sensitivity analysis is based on the
Company's significant foreign currency exposures at each Balance Sheet date.
USD 2016 Other USD 2015 Other
£'000 EUR £'000 £'000 EUR £'000
£'000 £'000
Sterling depreciates 3,635 1,427 100 4,320 484 539
Sterling appreciates (2,974) (1,163) (82) (3,535) (396) (441)
(iii) Interest rate risk
Interest rate changes may affect:
- the level of income receivable from floating and fixed rate securities
and cash at bank and on deposit;
- the fair value of investments in fixed interest securities.
Interest rate exposure
The exposure of financial assets and liabilities to fixed and floating interest
rates, is shown below.
At 31 December 2016, the Company held 0.9% (2015: 1.8%) of the portfolio in
debt instruments. The exposure is shown in the table below:
2016 2015
Fixed Floating Fixed Floating
rate rate rate rate
£'000 £'000 £'000 £'000
Quoted debt investments 165 - - -
*
Cash - 15,872 - 3,371
165 15,872 3,371
*The two Abengoa Senior Notes as shown in the portfolio, are currently in
default and are therefore not directly impacted by movements in the interest
rate.
Interest rate sensitivity
If interest rates had been 1% higher or lower and all other variables were held
constant, the Company's net return for the year ended 31 December 2016 and the
net assets would increase/decrease by £157,000 (2015: £34,000).
(iv) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
The main liquidity requirements the Company may face are its commitments to the
investments in limited partnership funds, as set out in note 16. These
commitments can be drawn down on 3 or 10 days' notice, although it is
considered unlikely that they would all be drawn at once. Frostrow and the
Menhaden team are in regular contact with the managers of the limited
partnership funds, as a part of which they would be made aware, and plan
accordingly, of any material drawdowns under those commitments.
The Company's assets comprise quoted securities (equity shares, fixed income
and fund investments), cash, and unquoted limited partnership funds and
investments. Whilst the unquoted investments are illiquid, short-term
flexibility is achieved through the quoted securities, which are liquid, and
cash which is available on demand.
The liquidity of the quoted securities is monitored on a monthly basis to
ensure that there is sufficient liquidity to meet the company's liabilities and
any forthcoming drawdowns.
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a financial loss. The quoted
debt investments are managed as part of an investment portfolio, and their
credit risk is considered in the context of their overall investment risk.
The two Abengoa Senior Notes shown in the portfolio are currently in default.
Credit risk exposure
2016 2015
£'000 £'000
Quoted debt investments 479 1,124
Current assets:
Other receivables (amounts due from brokers, 67 50
dividends and interest receivable)
Cash 15,681 3,371
Included in quoted debt investments are the two Abengoa Senior Notes, as shown
in the portfolio, which are currently in default.
(vi) Hierarchy of investments
The Company's investments are valued within a fair value hierarchy that
reflects the significance of the inputs used in making the fair value
measurements as described in the accounting policies.
As of 31 December 2016 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments 36,292 314 15,941 52,547
Level 2 investments comprise the Abengoa Senior Notes
As of 31 December 2015 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments 45,536 - 18,173 63,709
All level 3 investments were valued using non-observable market data and no
income was recognised on the level 3 investments. Level 3 investments comprise
Helios Co-Invest L.P. (Helios) (described as X-Elio in the portfolio), WCP
Growth Fund L.P. (WCP Fund) and Alpina Partners Fund L.P. (Alpina Fund) and the
Company owns 6.0% (2015: 9.1%), 10.3% (2015: 10.3%) and 9.4% (2015: 9.7%) of
these entities respectively. The cost of these investments was $12,562,000
(2015: $12,562,000), £8,303,000 (2015: £10,258,000) and €5,335,000 (2015: €
3,455,000).
During 2016 the WCP Fund was written down by £2,390,000 (2015: £2,460,000) and
the Alpina Fund was written down by £528,000 (2015: £577,000). In addition, the
WCP Fund made net distributions of £2,495,000 during the year. The value of
Helios increased by £1,889,000 due to the depreciation of sterling during the
year.
Since the year end the Company has agreed a sale for half the Alpina Fund
interest and, in accordance with the accounting policy set out above, the
expected sales price has been used to value the holding at £2,805,000 as at 31
December 2016. The Company's pro rata share of the 31 December 2016 net asset
valuation provided by the general partner of the Alpina Fund is £5,202,000 and
if this valuation had been used to value the interest being retained by the
Company, the impact would be an increase of £1,186,000 in net assets and the
return for the year (or 1.5p per share).
Further details on the Alpina Fund are set out in the Chairman's Statement and
the Portfolio Review. Helios and WCP Fund were valued using the latest net
asset valuations provided by their general partners.
(vii) Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to a maximum of 20% of the Company's net
assets. Currently the Company does not have any gearing and there are no
facilities in place.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as disclosed on the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Menhaden Team, monitors and
reviews the broad structure of the Company's capital on an ongoing basis. This
includes a review of:
- the planned level of gearing, which takes into account the Menhaden
Team's view of the market;
- the need to buy back equity shares, either for cancellation or to hold
in treasury, in light of any share price discount to net asset value per share;
- the need for new issues of equity shares; and,
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
15. CAPITAL RESERVE
2016 2015
Capital Reserves Capital Reserves
Other Investment Total Other Investment Total
£'000 Holding £'000 £'000 Holding £'000
Losses Losses
£'000 £'000
At 1 January (900) (10,229) (11,129) - - -
Net gains/(losses) on (1,685) 3,760 2,075 (528) (10,229) (10,753)
investments
Expenses charged to (777) - (777) (372) - (372)
capital
At 31 December (3,362) (6,469) (9,831) (900) (10,229) (11,129)
Sums within the Total Capital Reserve less unrealised gains (those on
investments not readily convertible to cash) are available for distribution. In
addition the Revenue Reserve is available for distribution.
16. FINANCIAL COMMITMENT
The Company has made commitments to provide additional funds to the following
investments:
Commitment Notice of
drawdown
• WCP Growth Fund LP* £381,000 10 business days
• Alpina Partners Fund LP^ €3,971,000 10 business days
• X-Elio $562,000 3 business days
* Formerly WHEB Ventures PE Fund 2 LP
^ Following the sale of 50% of the interest in the Alpha Partners Fund the
commitment shown is the post sole commitment i.e. 50% of the commitment as at
31 December 2016.
17. THE COMPANY
The Company is a public limited company (PLC) incorporated in England and
Wales, with registered office at One Wood Street, London, EC2V 7WS. The
Company's principal place of business is 25 Southampton Buildings, London, WC2A
1AL.
Further Information
Shareholder Information
Financial Calendar
31 December Financial Year End
March/April Final Results Announced
May Annual General Meeting
September Half Year End Results Announced
Annual General Meeting
The Annual General Meeting of Menhaden Capital PLC will be held at the offices
of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A
2EG on Wednesday, 17 May 2017 at 12 noon.
Share Prices
The Company's Ordinary Shares are listed on the London Stock Exchange under
'Investment Companies'. The price is given daily in the Financial Times and
other newspapers.
Change of Address
Communications with shareholders are mailed to the address held on the share
register. In the event of a change of address or other amendment this should be
notified to the Company's Registrars, Capita Asset Services, under the
signature of the registered holder.
Net Asset Value
The net asset value of the Company's shares can be obtained on the Company's
website at www.menhaden.com and is published monthly via the London Stock
Exchange.
AIFMD Disclosures
The Company's AIFM, Frostrow Capital LLP and the Company are required to make
certain disclosures available to investors in accordance with the Alternative
Investment Fund Managers Directive ("AIFMD").
Those disclosures that are required to be made pre-investment are included
within an Investor Disclosure Document which can be found on the Company's
website www.menhaden.com.
The periodic disclosures to investors are made below:
• Information on the investment strategy, sector investment focus and
principal stock exposures are included in the Strategic Report.
• None of the Company's assets are subject to special arrangements
arising from their illiquid nature.
• There are no new arrangements for managing the liquidity of the
Company or any material changes to the liquidity management systems and
procedures employed by Frostrow.
• The Strategic Report and note 14 to the Financial Statements set out
the risk profile and risk management systems in place. There have been no
changes to the risk management systems in place during the year under review
and no breaches of the risk limits set, with no breach expected.
• The maximum level of leverage has not changed in the period under
review: the maximum permitted levels are 200% on a gross basis and 120% on a
commitment basis (see Glossary for further details). No leverage was employed
by the Company as at 31 December 2016 and 31 December 2015.
• No right of re-use of collateral or any guarantee granted under the
leveraging arrangement has arisen during the period.
• Following completion of an assessment of the application of the
proportionality principle to the FCA's AIFM Remuneration Code, the AIFM has
disapplied the pay-out process rules with respect to it and any of its
delegates. This is because the AIFM considers that it carries out non-complex
activities and is operating on a small scale.
Note: These disclosures are unaudited by the Company's statutory auditor.
Glossary
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
Compounding Hurdle
Prior to the payment of a performance fee, in addition to the Company's NAV
being above the high watermark, the return on the gross proceeds from the IPO
of the Company's has to exceed an annualised return of 5%.
Discount or Premium
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Gearing
In simple terms gearing is borrowing. An investment trust can borrow money to
invest in additional investments for its portfolio. The effect of the borrowing
on the shareholders' assets is called 'gearing'. If the Company's assets grow
shareholders' assets grow proportionately more because the debt remains the
same. But if the value of the Company's assets falls, the situation is
reversed. Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gearing represents borrowings at par less cash and cash equivalents expressed
as a percentage of shareholders' funds.
Potential gearing is the company's borrowings expressed as a percentage of
shareholders' funds.
High Watermark
The high watermark is the highest net asset value that the Company has reached.
Its initial level was set at 100p on the launch of the Company.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive,
leverage is any method which increases the Company's exposure, including the
borrowing of cash and the use of derivatives. It is expressed as a ratio
between the Company's exposure and its net asset value and can be calculated on
a gross and a commitment method. Under the gross method, exposure represents
the sum of the Company's positions after the deduction of sterling cash
balances, without taking into account any hedging and netting arrangements.
Under the commitment method, exposure is calculated without the deduction of
sterling cash balances and after certain hedging and netting positions are
offset against each other.
NAV per Share (pence)
The value of the Company's assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV is also described
as 'shareholders' funds' per share. The NAV is often expressed in pence per
share after being divided by the number of shares which have been issued. The
NAV per share is unlikely to be the same as the share price which is the price
at which the Company's shares can be bought or sold by an investor. The share
price is determined by the relationship between the demand and supply of the
shares.
NAV Total Return
The theoretical total return on shareholders' funds per share, including the
assumed £100 original investment at the beginning of the period specified,
reflecting the change in NAV assuming that dividends paid to shareholders were
reinvested at NAV at the time the shares were quoted ex-dividend. A way of
measuring investment management performance of investment trusts which is not
affected by movements in the Share price discount/premium.
Off-taker
An offtake agreement is an agreement between a producer of a resource and a
buyer of a resource (an 'off-taker') to purchase or sell portions of the
producer's future production. An offtake agreement is normally negotiated prior
to the construction of a facility, in order to secure a market for the future
output of the facility.
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised ongoing
charges, excluding finance costs, taxation, performance fees and exceptional
items, and expressing them as a percentage of the average daily net asset value
of the Company over the year.
Share Price Total Return
Return to the investor on mid-market prices assuming that all dividends paid
were reinvested.
Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of Menhaden Capital PLC
will be held at the offices of Herbert Smith Freehills LLP, Exchange House,
Primrose Street, London EC2A 2EG on Wednesday, 17 May 2017 at 12 noon for the
following purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and accept the Annual Report for the year ended 31 December
2016
2. To re-elect Sir Ian Cheshire as a Director of the Company
3. To re-elect Duncan Budge as a Director of the Company
4. To re-elect Emma Howard Boyd as a Director of the Company
5. To re-elect Howard Pearce as a Director of the Company
6. To re-appoint Grant Thornton UK LLP as the Company's Auditors and to
authorise the Audit Committee to determine their remuneration
7. To receive and approve the Directors' Remuneration Report for the year
ended 31 December 2016
Special Business
To consider and, if thought fit, pass the following resolution as a special
resolution:
General Meetings
8. THAT the Directors be authorised to call general meetings (other than
the Annual General Meeting of the Company) on not less that 14 clear days'
notice, such authority to expire on the conclusion of the next Annual General
Meeting of the Company or if earlier, on the expiry 15 months from the date of
the passing of the resolution.
By order of the
Board
Registered Office:
One Wood
Street
London EC2V 7WS
Frostrow Capital LLP
Company Secretary
5 April 2017
Notes
1. Members are entitled to appoint a proxy to exercise all or any of
their rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company. A proxy form which may be used to make such appointment and give
proxy instructions accompanies this notice.
2. A vote withheld is not a vote in law, which means that the vote will
not be counted in the calculation of votes for or against the resolutions. If
no voting indication is given, a proxy may vote or abstain from voting at his/
her discretion. A proxy may vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the meeting.
3. To be valid any proxy form or other instrument appointing a proxy must
be completed and signed and received by post or (during normal business hours
only) by hand at Capita Asset Services, PXS1, 34 Beckenham Road, Beckenham,
Kent BR3 4ZF no later than 12 noon on 15 May 2017.
4. In the case of a member which is a company, the instrument appointing
a proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power of
attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any
CREST Proxy Instruction (as described below) will not prevent a shareholder
attending the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated
Person") may, under an agreement between him/her and the shareholder by whom he
/she was nominated, have a right to be appointed (or have someone else
appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the
appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated
Persons. The rights described in these paragraphs can only be exercised by
shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations
2001, only shareholders registered on the register of members of the Company
(the "Register of Members") at 5.30 p.m. on Monday, 15 May 2017 (or, in the
event of any adjournment, on the date which is two days before the time of the
adjourned meeting) will be entitled to attend and vote or be represented at the
meeting in respect of shares registered in their name at that time. Changes to
the Register of Members after that time will be disregarded in determining the
rights of any person to attend and vote at the meeting.
9. As at 4 April 2017 (being the last business day prior to the
publication of this notice) the Company's issued share capital consists of
80,000,001 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 4 April 2017 are 80,000,001.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting. For this purpose, the time of receipt will
be taken to be the time (as determined by the timestamp applied to the message
by the CREST Application Host) from which the issuer's agent is able to
retrieve the message by enquiry to CREST in the manner prescribed by CREST.
After this time any change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the most senior
holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Register of Members in respect of the
joint holding (the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a new
proxy appointment using the methods set out above. Note that the cut-off time
for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the relevant
cut-off time will be disregarded.
16. Members who have appointed a proxy using the hard-copy proxy form and
who wish to change the instructions using another hard-copy form, should
contact Capita Asset Services on 0871 664 0300 (calls cost 12p per minute plus
network extras). Lines are open 8.30 a.m. to 5.30 p.m. Monday to Friday.
17. If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies
will take precedence.
18. In order to revoke a proxy instruction, members will need to inform the
Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Capita Asset Services, PXS1, 34
Beckenham Road, Beckenham, Kent BR3 4ZF.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified copy
of such power of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments then, subject to
paragraph 4, the proxy appointment will remain valid.
Explanatory Notes to the Resolutions
Resolution 1 - To receive the Annual Report
The Annual Report for the year ended 31 December 2016 will be presented to the
Annual General Meeting (AGM). These financial statements accompany this Notice
of Meeting and shareholders will be given an opportunity at the meeting to ask
questions.
Resolutions 2 to 5 - Re-election of Directors
Resolutions 2 to 5 deal with the re-election of each Director. Biographies of
each of the Directors can be found above.
Resolution 6 - Re-appointment of Auditors and the determination of their
remuneration
Resolution 6 relates to the re-appointment of Grant Thornton UK LLP as the
Company's independent Auditors to hold office until the next AGM of the Company
and also authorises the Audit Committee to set their remuneration. Following
the implementation of the Competition and Markets Authority order on Statutory
Audit Services, only the Audit Committee may negotiate and agree the terms of
the Auditors' service agreement.
Resolution 7 - Directors' Remuneration
It is mandatory for all listed companies to put their report on Directors'
remuneration to a shareholder vote every year and their report on the
Directors' remuneration policy to a shareholder vote every three years. The
remuneration policy will next be put to shareholders at the AGM in 2019.
The Directors' Remuneration Report and the Directors' Remuneration Policy is
set out in full in the Annual Report.
Resolution 8 - General Meetings
Special Resolution No. 8 seeks shareholder approval for the Company to hold
General Meetings (other than the AGM) on 14 clear days' notice.
The Company will only use this shorter notice period where it is merited by the
purpose of the meeting and will endeavour to give at least 14 working days'
notice if possible, in line with the recommendations of the UK Corporate
Governance Code.
Recommendation
The Board considers that the resolutions relating to the above items are in the
best interests of shareholders as a whole. Accordingly, the Board unanimously
recommends to the shareholders that they vote in favour of the above
resolutions to be proposed at the forthcoming AGM as the Directors intend to do
in respect of their own beneficial holdings totalling 151,000 shares.
Disclaimer: Neither the contents of the Company's website nor the contents of
any website accessible from hyperlinks on the Company's website (or any other
website) is incorporated into or forms part of this announcement.
END
Menhaden Capital : Final Results
April 05, 2017 at 08:15 pm IST
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