MENHADEN RESOURCE EFFICIENCY PLC
Menhaden Capital PLC
(the "Company")
Audited results for the period from incorporation on
30 September 2014 to 31 December 2015
The Annual Report will be posted to shareholders on 7 April 2016
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 is also 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.
Katherine Manson, Frostrow Capital LLP, Company Secretary - 0203 709 8734
31 March 2016
Strategic Report
Company Performance
As at
31 December
2015
Share price 77.0p
Net asset value per share 83.9p
Discount of share price to the net asset value per share 8.2%
Period from launch
on 31 July 2015 to
31 December 2015
Share price (total return) (23.0%)
Net asset value per share (total return)* (14.1%)
MSCI World Total Return Index (in Sterling)** 0.8%
Ongoing charge ratio (annualised) 2.1%
* (excluding IPO costs).
** Source - Morningstar.
Chairman's Statement
I am pleased to welcome shareholders and present our first annual report since
the launch of the Company and the listing of its shares on the London Stock
Exchange on 31 July 2015. Your Company raised £80 million at its launch and
details of the Company's share capital are set out later in this announcement.
This report covers the period from incorporation on 30 September 2014 to 31
December 2015.
Performance and Outlook
Against a background of volatility and risks in world markets, the Company's
net asset value ("NAV") per share decreased from 97.7p (post IPO expenses of
2.3p) to 83.9p, representing a decline of 14.1% for the five months from launch
to 31 December 2015. During the same period the MSCI World Total Return Index
(in Sterling) increased by 0.8% and the AIC Environmental Sector fell 6.2%. The
WilderHill New Energy Global Innovation Index rose 3.0% in Sterling, but
declined 17.8% in US Dollar terms. As at 31 December 2015, the discount of the
share price to the Company's NAV per share stood at 8.2%.
In their report our portfolio managers provide a description of how the funds
raised at launch have been invested so far and a comprehensive analysis of all
the factors contributing to the Company's performance during the period. The
decline in the market value of the Company's renewable energy investments has
been dramatic, in-line with the substantial sell off across the energy sector
during the period. In particular, the portfolio was hard hit by the investments
in Terraform Power, SunEdison and Abengoa.
Despite this disappointing start, your Board believes in the Company's
long-term investment strategy and the Menhaden Team. The Company was launched
with the aim of applying a patient yet opportunistic approach to a series of
global energy and resources-linked mega trends - the 'green industrial shift'.
Within this theme the portfolio managers are well placed, having unique access
to ideas, world-class partners and opportunities - such as the co-investment in
X-Elio (formerly Gestamp Solar) with KKR.
Revenue and Dividend
The Company complies with the United Kingdom's investment trust rules regarding
distributable income and the Company's dividend policy is that the Company will
pay a dividend as a minimum to maintain investment trust status. The Board has
not recommended a dividend for the period, but in line with the prospectus,
will target an annual dividend yield of 2% of the average NAV. It is
anticipated that this policy will be implemented for the year ending 31
December 2017, subject to performance and prevailing market conditions.
Governance
In addition to presenting our review of your Company's financial performance
and the corporate and investment strategies, this annual report sets out your
Company's governance structures and policies including its compliance with the
principles of the Association of Investment Companies ("AIC") Code of Corporate
Governance.
The Company will separately publish an impact report in relation to its listing
on the Social Stock Exchange. The impact report describes the Company's social
and environmental purpose, as well as measuring the impact it delivers, or
intends to deliver, in these areas. The report will be published at
www.menhaden.com.
Annual General Meeting
The Board is keen to welcome all shareholders to the Annual General Meeting,
which offers an opportunity to meet the Directors and also to hear the views of
our portfolio managers. The first Annual General Meeting of the Company will be
held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose
St, London EC2A 2EG on 23 May 2016 at 12 noon, and we hope as many shareholders
as possible will attend. 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 whose contact details are provided above.
The notice of Annual General Meeting and explanatory notes are set out at the
end of this announcement. The Directors consider that all the resolutions
detailed in the formal notice are in the best interests of the Company and the
shareholders taken as a whole and therefore unanimously recommend to
shareholders that they vote in favour of each resolution, as the Directors
intend to do in respect of their own holdings.
Sir Ian Cheshire
Chairman
31 March 2016
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 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 next section and in
their review below.
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 with
the prior approval of the Board, 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 the
Board and in accordance with the Company's investment policy, seek to hedge the
Company's exposure to non-Sterling assets.
No hedging has been undertaken in the period.
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. Further explanation is provided in the
Glossary.
The Board and Frostrow have set the maximum leverage limits of 200% on a gross
basis and 120% on a commitment basis.
The Company is not currently 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.
Investment Process and Themes
Investment Process
The day-to-day portfolio management services, for which the AIFM has overall
responsibility, are carried out by Ben Goldsmith and Alexander Vavalidis. They
identify and present investment opportunities to the Investment Committee, of
which they are members and which is chaired by Graham Thomas.
As part of their process for determining which investments to pursue, Mr
Goldsmith and Mr Vavalidis will assess whether each opportunity actively
addresses the challenges of resource efficiency, either for the benefit of its
business or its customers. Mr Goldsmith and Mr Vavalidis analyse the resource
efficiency attributes demonstrated by the potential investment opportunities
and assess whether those attributes are likely to contribute to cost savings
and margin enhancements for that business or its customers thereby making them
more attractive investments than they would otherwise have been. It may, for
example, be companies that use fossil fuels efficiently or alternative energy
sources intelligently.
This assessment is combined with other valuation and investment methodologies
to form a view on whether the asset provides an attractive medium to long-term
investment opportunity.
Investment Committee
The Investment Committee meets weekly in order to consider the investment
opportunities presented by Mr Goldsmith and Mr Vavalidis. All investment
decisions must be made by the unanimous consent of all members of the
Investment Committee unless one of the members has a potential conflict of
interest, in which case that member will excuse himself from that particular
decision.
When identifying suitable investment opportunities, the Investment Committee is
cognisant of the UK Stewardship Code and the UN Principles of Responsible
Investment.
Strategic Advisory Group
The Menhaden Team is supplemented by a Strategic Advisory Group, which assists
them in implementing the Company's investment objective and policy. The
Strategic Advisory Group does not have a formal mandate or responsibilities,
but meets with the Menhaden Team from time to time to discuss the macroeconomic
environment, factors affecting the broad investment theme of the Company,
market conditions and portfolio construction.
Investment Network
The Menhaden Team has access to a proprietary investment network, which
includes a group of investment managers of external funds in which the Company
may invest and, from time to time, external experts and advisers. The Menhaden
Team believe that this is of benefit to the investment process and helps to
source opportunities that they believe would not otherwise be available to the
Company.
Listed Equity Portfolio Management
The Investment Committee allocates a portion of the portfolio to be managed by
WHEB Asset Management LLP ("WHEB AM"). Further information on the contractual
arrangements are provided in the Business Review.
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 Transport sector-related companies 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
Portfolio
Investments held as at 31 December 2015
Fair % of
Investment Country/region Value investments
£'000
X-Elio* Spain*** 8,523 13.4
WHEB Ventures Private Equity Fund 2 LP UK*** 7,798 12.2
Osmosis MoRE World Resources Efficiency Fund Global 5,376 8.4
TerraForm Power USA 3,889 6.1
Roper Technologies USA 2,712 4.3
SunEdison USA 2,587 4.1
Acuity Brands USA 2,562 4.0
Canadian Solar Canada 2,527 3.9
Ecolab USA 2,364 3.7
AO Smith USA 2,263 3.5
Top 10 investments 40,601 63.6
Praxair USA 2,105 3.3
Rockwell Automation USA 2,102 3.3
TerraForm Global Emerging Markets 2,075 3.3
BorgWarner USA 1,965 3.1
Shimano Japan 1,947 3.1
Stericycle USA 1,912 3.0
Kingspan Group Ireland 1,893 3.0
Alpina Partners Fund LP** UK*** 1,852 2.9
Johnson Matthey UK 1,744 2.7
Nibe Industrier Sweden 1,692 2.7
Top 20 investments 59,888 94.0
Wabtec USA 1,421 2.2
China Longyuan Power Group China 1,276 2.0
Abengoa Senior Notes 8.5% 2016 Spain 674 1.1
Abengoa Senior Notes 8.875% 2017 Spain 450 0.7
Total investments 63,709 100.0
* Investment made through Helios Co-Invest L.P. X-Elio was formerly known as
Gestamp Solar.
** Formerly WHEB Ventures Private Equity Fund 3 LP
*** Unquoted
Investment Business Description Theme
X-Elio Developer and operator of solar energy products Clean energy production
WHEB Ventures Private Equity Fund 2 LP Growth capital fund managed by specialist green PE firm, Resource and energy
Alpina Partners efficiency
Osmosis MoRE World Resources Efficiency Fund Open-ended fund investing in resource efficient public Resource and energy
companies efficiency
TerraForm Power Operator of contracted renewable energy assets Clean energy production
Roper Technologies Manufactures and distributes industrial equipment Resource and energy
efficiency
SunEdison Developer of solar energy projects Clean energy production
Acuity Brands Provider of LED lighting, lighting controls and related Resource and energy
products and services efficiency
Canadian Solar Manufacturer and provider of solar energy solutions Clean energy production
Ecolab Provider of water, hygiene and energy technologies Water and waste
management
AO Smith Manufacturer of commercial and residential water heaters Resource and energy
efficiency
Praxair Provider of industrial gases Resource and energy
efficiency
Rockwell Automation Provider of integrated systems for process manufacturing Resource and energy
efficiency
TerraForm Global Operator of contracted renewable energy assets in emerging Clean energy production
markets
BorgWarner Supplier of motor vehicle parts and systems Sustainable transport
Shimano Manufacturer and distributor of cycling and fishing equipment Sustainable transport
and accessories
Stericycle Provides medical and pharmaceutical waste management Water and waste
management
Kingspan Group Provider of insulation and building envelope technologies Resource and energy
efficiency
Alpina Partners Fund LP Growth capital fund managed by specialist green PE firm, Resource and energy
Alpina Partners efficiency
Johnson Matthey Manufactures catalysts, pharmaceutical materials and Resource and energy
pollution control systems efficiency
Nibe Industrier Producer of heat pumps Resource and energy
efficiency
Wabtec Manufactures braking equipment and other transportation parts Sustainable transport
China Longyuan Power Group Manufacturer and producer of wind energy Clean energy production
Abengoa Senior Notes 8.5% 2016 Operator and developer of renewable energy assets Clean energy production
Abengoa Senior Notes 8.875% 2017 Operator and developer of renewable energy assets Clean energy production
Portfolio Review
Investment & Business Review
Menhaden Capital PLC launched in an initial public offering on the main market
of the London Stock Exchange (and in parallel on the Social Stock Exchange) on
31 July 2015. Our aim is to create an investment company that applies a patient
yet opportunistic investment approach to a series of global energy and
resources-linked megatrends - 'the green industrial shift'. We are building a
concentrated portfolio, with a long-term perspective, comprising both listed
and privately held investments.
Performance
For the five months under review, the Company's NAV per share decreased from
97.7p (post IPO expenses of 2.3p) to 83.9p. This represents a decline of 14.1%
for the period. Total net assets decreased by £11.1 million (after £1.8 million
in IPO expenses) to £67.1 million. The Company's share price traded at an 8.2%
discount to NAV as at 31 December 2015.
For the same period the Company's relative hurdle, the MSCI World Total Return
Index (in Sterling) returned 0.8%.
The contribution to the 14.1% NAV per share loss over the period is summarised
below:
31 December
2015
Asset Category % NAV Contribution
Quoted Equities 57.2% -0.4%
Private Investments 27.1% -3.6%
Yield Investments 10.6% -9.3%
Renewables Yield Investments 8.9% -4.1%
Absolute Return & Credit 1.7% -5.2%
Liquidity 5.1% -
Ongoing charges - -0.8%
Net Assets 100.0% -14.1%
Quoted Equity
The Quoted Equity portfolio's contribution to the decline was -0.4% for the
period.
As communicated in the Company's prospectus we initially allocated circa 50% of
the portfolio to Quoted Equities whilst we looked for private and yield
investment opportunities. Since year end, in light of heightened concerns over
global economic growth, the allocation to Quoted Equities has been reduced to
circa 40% of the portfolio.
Renewable Energy
National renewable energy plans almost everywhere are increasingly ambitious,
and governments are creating the regulatory and fiscal environment to ensure
that they are achieved. Furthermore, as the cost of equipment tumbles,
especially of solar photovoltaic panels, there is a fast-growing list of
situations and places in which renewables are becoming the cheapest options for
power generation. In our view the most interesting investment opportunities
currently are to be found downstream, amongst the beneficiaries of falling
prices, those deploying equipment in new projects, and in the operating assets
themselves. Investors have been badly burnt upstream, by investing in a string
of manufacturers unable to compete with vast government-backed competitors in
China, with immense economies of scale and more of an eye on volumes and job
creation than on margins. With the exception of Canadian Solar, a manufacturer
which is also a developer and operator of projects that are built using its
panels, we have focused the Company's investments downstream (China Longyuan
Power, Infigen Energy and SunEdison). We exited the position in Infigen Energy,
the Australian wind farm operator and developer, after its shares appreciated
quickly to the price target we set when entering the position.
The Company's position in SunEdison has performed poorly as the market has
seriously questioned the sustainability of that company's business model.
Though we are confident in SunEdison's long-term market opportunity (developing
solar and wind products for customers that ultimately purchase the power
through long-term contracts) and believe that the underlying assets and cash
flow capability of the business have significant value, the capital consumptive
nature of the business requires management to execute at a high level. We
believe that we overestimated management's capital allocation and execution
capabilities and the stewardship of investors' capital has been poor. The
passage of time and numerous developments over the last few months have made us
reconsider our conviction and we have transferred our exposure to the two
associated yield companies.
Resource and Energy Efficiency
The world is undergoing a rapid and large-scale transition to the much more
efficient use of energy and other resources. Some of the world's
longest-established, greatest companies now derive a significant and growing
proportion of their revenues from the technology and services that deliver
these efficiency gains. The Company's portfolio includes names that lead the
way in such markets as LED lighting (Acuity Brands) and building energy
efficiency (Kingspan, A O Smith and Nibe Industrier). We have also allocated to
the Osmosis MoRE efficiency fund, which provides exposure to companies which
are less resource-intensive per unit of revenue than their sector peers.
Sustainable Transport
Supported by demands for increased resource efficiency, rising regulatory
standards around automotive emissions, and growing levels of urbanisation and
congestion, the sustainable transport theme is well-positioned for long-term
growth. Key areas in the theme include emission reduction, fuel efficiency,
hybrid and electric vehicles, bus and rail. Within this theme we have invested
in Borg Warner, Johnson Matthey, Wabtec and Shimano.
Water and Waste Management
The natural resource with no substitute, water, is also increasingly under
pressure as population growth and urbanisation and industrialisation in
water-stressed regions adds to demand. Areas of focus for us include
environmental consulting, waste treatment and recycling, and pollution control
and monitoring. So far we have invested in two companies within this theme -
Stericycle and Ecolab.
Private Investments
The Private Investments portfolio contributed -3.6% to the loss.
At launch we acquired Limited Partner interests in the two private equity funds
managed by Alpina Partners (formerly WHEB Capital Partners). These funds invest
in private businesses across Europe which have proven technology (within our
theme of focus) and revenues of €10 million or more. This is an area of the
market that we are not set up to access directly ourselves, and which in any
case requires specific skills and a diversified portfolio of investments -
hence our allocation to a specialist private equity firm operating in this
area.
Since acquiring stakes in Alpina's two funds the underlying portfolios have
suffered from mark-to-market losses on the back of weaker comparable company
valuations and in certain instances operational setbacks. The team at Alpina
Partners are working towards profitable exits from the earlier of the two funds
during the course of 2016 which should, if successful, reverse the markdowns we
have experienced on this fund.
In December we completed our first direct private equity investment in a
high-quality private European solar development company, X-Elio (formerly
Gestamp Solar), alongside the infrastructure arm of global investment firm KKR.
X-Elio is an owner (~300MW of gross installed capacity - enough to power
300,000 homes), operator and developer of solar photovoltaic plants worldwide
with a highly experienced and entrepreneurial management team, an outstanding
track record at both constructing and developing its own assets, and an
attractive advanced development portfolio. KKR, your Company and other partners
have acquired an 80% controlling stake in X-Elio. It has a differentiated
business model where it also manages the engineering, procurement and
construction process of the projects it develops with an in-house team of
engineers, and achieves an attractive return on capital on its development
portfolio with marginal risk. We look forward to working with the company and
KKR in growing X-Elio to take advantage of this global opportunity.
Yield Investments
Renewables Yield Investments
The Renewables Yield Investment portfolio contributed -4.1% to the decline.
Our aim is to invest the larger part of the Company's yield allocation in
high-quality private, renewable energy assets. In the interim we made the
decision to open positions in SunEdison's two associated yield companies,
Terraform Power and Terraform Global, that buy (largely from SunEdison) and
operate solar and wind assets and pay out a substantial portion of the
underlying cash flow from the projects. Like the parent company, SunEdison,
both of the subsidiaries suffered substantial share price falls in the last
half of 2015. The market has heavily discounted the ability of these companies
to grow their distributions over time and is concerned that their embattled
parent, SunEdison, will use their balance sheets for its own gain. This has led
to Terraform Power trading at a price below replacement value and with a cash
yield in the double digits. These events have certainly not been good news for
the Company and we have adjusted our own expectations; however we believe that
the market has oversold these two yield companies and so we will continue to
hold the positions until such a point that our expectations are matched by the
market.
We continue to look for investment opportunities in renewable energy assets
with contracted cash flows that provide us with stable cash yields, whether
they be private or public companies.
Absolute Return & Credit
The Absolute Return & Credit portfolio contributed -5.2% to the total return.
In September we purchased the Company's position in certain of Abengoa's senior
bonds at an average price of 0.48 cents based on what we have subsequently
agreed was an overestimation of the company's net asset value, liquidity and
the likelihood of a financing event by the creditor banks. We bought this
position as our analysis led us to the conclusion that the Company's capital
was safe, and that the short maturity bonds offered a very attractive cash
yield to maturity. Abengoa has more than 70 years of experience in the
engineering, procurement and construction market and maintained a competitive
advantage in carrying out complex turn-key projects for solar-thermal plants,
solar-gas hybrid plants, conventional generation plants, biofuels plants and
water infrastructures as well as an extensive portfolio of proprietary
concession assets that generate revenues governed by long-term sales
agreements. Creditor banks committed to support a rights issue in October and
the market price of the debt jumped. At this point we should have maintained
our strict sell discipline and exited the position. However, after an
additional equity investor fell away, the banks withdrew. In November Abengoa
filed for creditor protection making a restructuring unavoidable. Since the
year end Abengoa has reached an in principle agreement with its bank creditors
and bondholders to refinance its debts and provide new loans. For the agreement
to go into effect, it must be approved by 75% of Abengoa's creditors as well as
its board of directors.
Conclusions
It is easiest to think about the Company's 2015 results in two parts: what
resulted from decisions we made and what resulted from the environment in which
we operated.
We have described the three largest detractors in Abengoa, SunEdison and
Terraform Power.
With respect to the broader investing environment, the public markets of 2015
were difficult to navigate. Opportunities for significant gains were largely
confined to a small number of companies. Most portfolios without those names
moved sideways, at best. Those with exposure to the energy sector, as the
Company's portfolio has, performed far worse. Performance in the energy sector
was driven by a dramatic decline in commodity prices.
We are disappointed with the performance to date, however, we believe that the
portfolio is well positioned and that the energy and resource efficiency and
clean energy sectors will continue to offer attractive investment
opportunities.
Ben Goldsmith
Menhaden Team
31 March 2016
Ben Goldsmith has been seconded to act for Frostrow Capital LLP from Menhaden
Capital Management LLP.
Business Review
The Directors present their Strategic Report for the Company for the period
from incorporation on 30 September 2014 to 31 December 2015. The Strategic
Report contains a review of the Company's business model and strategy, an
analysis of its performance during the period and its future developments, and
details of the principal risks and challenges it faces. Its purpose is to
inform the shareholders of the Company and help them to assess how the
Directors have performed their duty to promote the success of the Company.
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. It is also listed on the Social 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
announcement.
All Directors will seek election by shareholders at the Annual General Meeting
to be held on 23 May 2016.
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, together with the 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 the 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.
The Board considers how share price performance may be enhanced, including the
effectiveness of marketing and the possibility of share issuance and buybacks,
where appropriate.
The Company has not issued any shares since its launch on 31 July 2015, nor has
it bought back any shares.
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 23.5% 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 netted off within the investment
valuations and therefore form part of the investment return. Many of these
managers net these costs off within their valuations and it is not practical to
calculate an ongoing charge from the information they provide.
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.
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
Ben Goldsmith, Alexander Vavalidis and Graham Thomas (together, 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 monies 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 comprise the Investment Committee. The Investment Committee
has allocated a portion of the portfolio to be managed by WHEB Asset Management
LLP ("WHEB AM") under a portfolio management agreement. The portfolio
management activities delegated to WHEB AM (including investment and divestment
decisions in respect of its investment allocation) are closely reviewed and
monitored by the Investment Committee. The Investment Committee has the ability
to adjust any allocation to WHEB AM at its discretion. The fees payable to WHEB
AM are paid out of the portfolio management fee and the payment of such fees is
the sole responsibility of MCM.
Once MCM becomes authorised by the FCA to perform portfolio management
activities in its own capacity, 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 and views from them. The MEC reviewed the
appropriateness of the appointment of the AIFM and the Menhaden Team in
December 2015 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 confirm 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 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 the
Company is exposed to 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. It is
the Company's current policy not to hedge market risks, although as set out in
the Investment Objective and Policy section above, it can hedge against foreign
currency risks.
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 diversified away. 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
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 the Company is exposed to 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
below.
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 therefore
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 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, 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 environmental impact.
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 will produce an annual impact report setting out the social and
environmental purpose of the Company and the impact it has, or intends to
deliver. The report will be 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 above.
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 shareholder 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
31 March 2016
Governance
Board of Directors
The Board of Directors, all of whom are non-executive, supervise the management
of the Company and look after the interests of shareholders. The Board
considers that all Directors are independent and there are no relationships or
circumstances which are likely to affect or could appear to affect their
judgement.
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 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 Spencer House Ltd, Dunedin Enterprise Investment
Trust plc, Artemis Alpha Trust plc, and a non-executive director of The World
Trust Fund, Lowland Investment Company 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 25-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 (Acting Chairman), 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 is the founder and Executive Director of HowESG Ltd, a specialist
environmental, stewardship and governance consultancy business. His
non-executive roles include independent Chair of the F&C Responsible Investment
Advisory Council, independent Chair of the Boards of the Avon, Berkshire and
Wiltshire Pension Funds, Non-Executive Director of Response Global Media
Limited, Board member of Cowes Harbour Commission (a UK trust port), and a
Trustee member of the Board, plus Investment and Audit Committees of the NHS
'Above and Beyond' charity.
Between 2003 and 2013 Howard was the Head of the Environment Agency £2.3
billion pension fund and a member of its Pensions and Investment Committee.
Under his leadership the fund won over 30 awards in the UK, Europe and globally
for its financially and environmentally responsible investment, best practice
fund governance, public reporting and e-communications. Prior to this, Howard
held senior executive roles in the environment, water, leisure and e-publishing
sectors.
Meeting Attendance
The number of scheduled meetings of the Board and its committees held since the
Company's launch and each Directors' attendance, is shown below:
Management
Engagement
Type and number of meetings Board Audit Committee Committee
held in 2014/2015 (2) (1) (1)
Sir Ian Cheshire 2 N/A 1
Duncan Budge 1 0 1
Emma Howard Boyd 2 1 1
Howard Pearce 2 1 1
In addition to the above, a number of ad hoc special purpose Board and
committee meetings were held prior to the Company's launch in July 2015 for the
review and approval of documents relating to the IPO.
Directors' Interests
The Directors' beneficial interests together with those of their families, as
at the date of this report, are set out below.
Ordinary shares
of 1p each
Sir Ian Cheshire 45,000
Duncan Budge 10,000
Emma Howard Boyd 8,000
Howard Pearce 4,957
Total 67,957
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 period ended 31 December 2015.
The Corporate Governance Statement forms part of this Directors' Report.
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
Social Stock Exchange and the main market of the London Stock Exchange, which
are regulated markets 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
effective for all years commencing after 1 April 2012. 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 on the Income
Statement. No dividends were declared during the period.
Capital Structure
The Company's capital structure at the end of the period under review and to
the date of this report was comprised of 80,000,001 Ordinary Shares of 1p
nominal value each and 5,000,000 Redeemable Preference Shares of 1p nominal
value each.
The 5,000,000 Redeemable Preference Shares were issued, together with 1
Ordinary Share, on 30 September 2014, in order to satisfy certain statutory
capital requirements for the incorporation of a public limited company. The
Company's solicitors are progressing an application to cancel the Redeemable
Preference Shares.
80,000,000 Ordinary Shares were issued at the Company's launch on 31 July 2015.
No shares were repurchased during the period.
Substantial Interests in Share Capital
The Company was aware of the following substantial interests in the voting
rights of the Company as at 29 February 2016, the latest practicable date
before publication of the Annual Report.
29 February 2016 31 December 2015
Number % of Number % of
of issued of issued
Ordinary share Ordinary share
Shareholder Shares capital* Shares capital*
Cavenham Private Equity & 12,408,604 15.5 12,408,604 15.5
Directs
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
Aachen Meunchener Versicherung 4,000,000 5.0 4,000,000 5.0
Ravenscroft 3,366,100 4.2 3,366,100 4.2
Atzori Holdings 3,250,000 4.1 3,250,000 4.1
Santino Global Assets 3,000,000 3.8 3,000,000 3.8
UBS Wealth Management 2,922,451 3.7 2,922,451 3.7
Rathbones 2,853,000 3.6 2,834,800 3.6
*Does not include Redeemable Preference Shares, which have no voting rights.
As at 31 December 2015 and to the date of this report, the Company had
80,000,001 Ordinary Shares in issue.
Ordinary Shares
The voting rights of the Ordinary Shares on a poll are one vote for each share
held.
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 period under review and to the date of this report, the
Company had Shareholder authority to issue a further 120,000,000 Ordinary
Shares and to repurchase no more than 14.99% of its issued share capital per
annum. No Shares have been repurchased to the date of this report.
Redeemable Preference Shares
The Redeemable Preference Shares have no dividend, economic or voting rights
unless no other shares are in issue.
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.
Longer-Term Viability
In accordance with the UK Corporate Governance Code and the Listing Rules, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months required by the 'Going Concern' provision. In order to address
this new requirement, the Board must take into account the Company's current
position and the principal risks as set out above so that the Directors may
state that 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.
To provide this assessment the Board has considered the Company's financial
position and its ability to liquidate its portfolio and meet its expenses as
they fall due:
• the portfolio includes investments traded on major international stock
exchanges and there is a spread of investments by size of company. 68% of the
portfolio could be liquidated, in normal market conditions, within 7 trading
days;
• the expenses of the Company 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 redundancy or other employment related liabilities
or responsibilities.
The Board, as well as considering the principal risks and the financial
position of the Company as set out above, has also considered the following
assumptions in considering its longer-term viability:
• the Board and the Menhaden Team will continue to adopt a long-term view
when making investments;
• the Company invests principally in the securities of companies that
deliver or benefit from the efficient use of energy and resources, to which
investors will wish to continue to have exposure;
• there will continue to be demand for investment trusts;
• regulation will not increase to a level that makes the running of the
Company uneconomical; and
• the performance of the Company will be satisfactory and should
performance be less than the Board deem acceptable it has powers to take
appropriate action.
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.
Based on the results of this review, the Directors have a reasonable
expectation that the Company will be able to continue its operations and meet
its expenses and liabilities as they fall due over the next five 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.
However, the Company will produce an annual impact report for the Social Stock
Exchange and this will be 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 2015. It is intended that this policy
will continue for the year ending 31 December 2016 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
31 March 2016
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 judgments and estimates that are reasonable and prudent;
• followed applicable UK accounting standards; and
• prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for ensuring that the Directors' Report and other
information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
FCA.
The financial statements are published on the Company's website
www.menhaden.com and via Frostrow's website www.frostrow.com. The maintenance
and integrity of these websites, so far as it relates to the Company, is the
responsibility of Frostrow. The work carried out by the Auditors does not
involve consideration of the maintenance and integrity of these websites and,
accordingly, the Auditors accept no responsibility for any changes that have
occurred to the financial statements since they were initially presented on
these websites. Visitors to the websites need to be aware that legislation in
the United Kingdom governing the preparation and dissemination of the financial
statements may differ from legislation in their jurisdiction.
Responsibility Statement of the Directors in respect of the Annual Report
The Directors confirm to the best of their knowledge that:
• the financial statements within this Annual Report, prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the period ended
31 December 2015; 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
31 March 2016
Corporate Governance Statement
This corporate governance statement forms part of the Directors' Report.
The Board has considered the principles and recommendations of the AIC Code of
Corporate Governance (the "AIC Code") by reference to the AIC Corporate
Governance Guide for Investment Companies (the "AIC Guide"). The AIC Code, as
explained by the AIC Guide, addresses all the principles set out in the UK
Corporate Governance Code, as well as setting out additional principles and
recommendations on issues that are of specific relevance to investment
companies.
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.
The Company has complied with the recommendations of the AIC Code and the
relevant provisions of the UK Corporate Governance Code, except as follows:
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 with the
exception of the need for an internal audit function which is addressed later
in this section, the Company has not reported further in respect of these
provisions.
The Principles of the AIC Code
The AIC Code is made up of 21 principles split into three sections covering:
- The Board
- Board Meetings and relations with the AIFM
- Shareholder communications
The Board
AIC Code Principle Compliance Statement
1. The Chairman should be The Chairman, Sir Ian Cheshire, is independent of Frostrow
independent and Menhaden Capital Management LLP. There is a clear
division of responsibility between the Chairman, the
Directors, Frostrow and the Company's other third party
service providers. The Chairman is responsible for the
leadership of the Board and for ensuring its
effectiveness. There are no relationships that may create
a conflict of interest between the Chairman's interests
and those of shareholders.
2. A majority of the Board The Board consists of four non-executive Directors, each
should be independent of of whom is independent of Frostrow and Menhaden Capital
the AIFM and the portfolio Management LLP. No member of the Board is a director of
managers another investment company managed by Frostrow or the
Menhaden Team, nor has any Board member been an employee
of the Company, Frostrow or any of its service providers.
None of the Directors has any relationships or conflicts
which are likely to affect their independent judgement.
3. Directors should be All Directors will submit themselves for election by
submitted for re-election shareholders at the AGM to be held in May 2016.
at regular intervals. Thereafter, the Directors will submit themselves for
Nomination for re-election re-election every three years in accordance with the AIC
should not be assumed but Code.
be based on disclosed The individual performance of each Director standing for
procedures and continued re-election will be evaluated annually by the remaining
satisfactory performance members of the Board and, if considered appropriate, a
recommendation will be made that shareholders vote in
favour of their re-election at the Annual General Meeting.
4. The Board should have a The Board subscribes to the view expressed within the AIC
policy on tenure, which is Code that long-serving directors should be not be
disclosed in the annual prevented from forming part of an independent majority. It
report does not consider that a director's tenure necessarily
reduces his/her ability to act independently and,
following appropriate, formal performance evaluations,
believes that directors may be considered independent in
character and judgement. 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 has been imposed. In view of its non-executive
nature, the Board considers that it is not appropriate for
directors to be appointed for a specified term, although
new directors will be appointed with the expectation that
they will serve for a minimum period of three years
subject to shareholder approval.
The terms and conditions of the Directors' appointments
are set out in letters of engagement which are available
for inspection on request at Frostrow's offices, and at
the Annual General Meeting.
5. There should be full The Directors' biographical details, set out above,
disclosure of information demonstrate the wide range of skills and experience that
about the Board they bring to the Board.
Details of the Board's committees and their composition
are set out below. Due to the Board's size, the
nominations and remuneration functions are carried out by
the full Board under the chairmanship of the Chairman of
the Company.
6. The Board should aim to The Board will consider annually the skills possessed by
have a balance of skills, the Directors and identify any skill shortages to be
experience, length of filled by new directors.
service and knowledge of When considering new appointments, the Board will review
the company the skills of the Directors and seek to add persons with
complementary skills or who possess skills and experience
which fill any gaps in the Board's knowledge or experience
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 and
recognises the value of diversity in the composition of
the Board. When Board positions become available as a
result of retirement or resignation, the Company will
ensure that a diverse group of candidates is considered.
7. The Board should undertake During the course of 2016 the performance of the Board,
a formal and rigorous its committees and individual Directors (including each
annual evaluation of its Director's independence) will be evaluated through a
own performance and that formal assessment process led by the Chairman.
of its committees and The Board is satisfied that the structure, mix of skills
individual directors and operation of the Board continues to be effective and
relevant for the Company.
8. Director remuneration The Board will periodically review the fees paid to the
should reflect their Directors and compare these with the fees paid by the
duties, responsibilities Company's peer group and the investment trust industry
and the value of their generally, taking into account the level of commitment and
time spent responsibility of each Board member. Details on the
remuneration arrangements for the Directors of the Company
can be found in the Directors' Remuneration Policy and
Directors' Remuneration Report and in note 4 to the
financial statements.
As all the Directors are non-executive, the Board
considers that it is acceptable for the Chairman of the
Company to chair meetings when discussing Directors' fees.
The Chairman takes no part in discussions regarding his
own remuneration. The Board may periodically take advice
from external independent advisers on Directors'
remuneration.
9. The Independent Directors Subject to there being no conflict of interest, all
should take the lead in Directors are entitled to vote on candidates for the
the appointment of new appointment of new Directors and on the recommendation for
Directors and the process shareholders' approval for the Directors seeking
should be disclosed in the re-election at the Annual General Meeting.
annual report The Chairman will not chair the meeting when the Board is
dealing with the appointment of his successor.
Details of the Board's commitment to diversity are set out
in the Directors' Report.
10. Directors should be New appointees to the Board will be provided with a full
offered relevant training induction programme. The programme will cover the
and induction. Company's investment strategy, policies and practices. The
Directors are 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. It is the Chairman's responsibility to ensure
that the Directors have sufficient knowledge to fulfil
their role and Directors are encouraged to participate in
training courses where appropriate.
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 Board
procedures are followed and that the Company complies with
applicable rules and regulations.
There is an agreed procedure for Directors, in the
furtherance of their duties, to take independent
professional advice if necessary at the Company's expense.
11. The Chairman (and the All of the Directors were brought into the process of the
Board) should be brought launch of the Company at an early stage, having been
into the process of appointed 10 months prior to the IPO.
structuring a new launch
at an early stage
The Board and relations with the AIFM
12. Boards should operate in a The Board meets regularly throughout the year and
supportive, co-operative representatives of Frostrow and the Menhaden Team are in
and open environment attendance at each Board meeting. The Chairman encourages
open debate to foster a supportive and co-operative
approach for all participants.
13. The primary focus at The Board has agreed a schedule of matters specifically
regular board meetings reserved for decision by the Board. This includes
should be a review of establishing the investment objectives, strategy and
investment performance and benchmarks, the permitted types or categories of
associated matters, such investments, the markets in which transactions may be
as gearing, asset undertaken, the amount or proportion of the assets that
allocation, marketing/ may be invested in any category of investment or in any
investor relations, peer one investment, and the Company's share issuance and share
group information and buy back policies.
industry issues. The Board at its regular meetings, undertakes reviews 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 Audit Committee reviews the Company's risk matrix and
the Management Engagement Committee reviews the
performance and cost of the Company's third party service
providers.
14. Boards should give The Board is responsible for strategy and has established
sufficient attention to an annual programme of agenda items under which it reviews
overall strategy the objectives and strategy for the Company at each
meeting.
15. The Board should regularly The Management Engagement Committee meets at least once a
review both the year. It reviews annually the performance of Frostrow and
performance of, and the Menhaden Team and the Company's other principal
contractual arrangements service providers. The Committee considers the quality,
with, the investment cost and remuneration of the service provided by Frostrow
manager and the manager and the Menhaden Team against their contractual
(or executives of a self obligations and the Board receives regular reports on
managed company) compliance with the investment restrictions which it has
set.
The Audit Committee reviews the compliance and control
systems of Frostrow in operation as so far as they relate
to the affairs of the Company and the Board undertakes
periodic reviews of the arrangements with and the services
provided by the Custodian and the Depositary to ensure
that the safeguarding of the Company's assets and the
security of the shareholders' investment is being
maintained.
16. The Board should agree The AIFM Agreement sets out the limits of Frostrow's
policies with the authority, beyond which Board approval is required. The
investment manager and the Board has also agreed investment guidelines with Frostrow
manager covering key and the Menhaden Team, which are considered at each Board
operational issues. meeting.
Representatives of Frostrow and the Menhaden Team attend
each Board meeting to address questions on specific
matters and to seek approval for specific transactions
which they are required to refer to the Board.
The Board has delegated discretion to Frostrow and the
Menhaden Team to exercise voting powers on its behalf,
other than for contentious or sensitive matters which are
to be referred to the Board for consideration.
The Board has reviewed the AIFM and Menhaden Team's
Statement of Compliance with the UK Stewardship Code, and
their Proxy Voting Guidelines, which are available on
Frostrow's website www.frostrow.com.
17. Boards should monitor the The Board considers any imbalances in the supply of and
level of the share price the demand for the Company's shares in the market and will
discount or premium (if take appropriate action when considered necessary.
any) and, if desirable, The Board considers the discount or premium to net asset
take action to reduce it value of the Company's share price at each Board meeting.
At each meeting the Board reviews reports from Frostrow on
marketing and shareholder communication strategies. It
also considers their effectiveness as well as measures of
investor sentiment and any recommendations on share
buy-backs and issuance.
18. The Board should monitor The Management Engagement Committee reviews, at least
and evaluate other service annually, the performance of all the Company's third party
providers. service providers, including the level and structure of
fees payable and the length of the notice period, to
ensure that they remain competitive and in the best
interests of shareholders.
The Audit Committee reviews reports from the principal
service providers on compliance and the internal and
financial control systems in operation and relevant
independent audit reports thereon, as well as reviewing
service providers' anti-bribery and corruption policies to
address the provisions of the Bribery Act 2010.
Shareholder Communications
19. The Board should regularly A detailed analysis of the Company's shareholder register
monitor the shareholder is provided to the Directors at each Board meeting.
profile of the company and Representatives of Frostrow regularly meet with
put in place a system for institutional shareholders and private client asset
canvassing views and for managers to discuss strategy and to understand their
communicating the Board's issues and concerns and, if applicable, to discuss
views to shareholders. corporate governance issues. The results of such meetings
are reported at the following Board meeting.
Reports from the Company's broker are submitted to the
Board on investor sentiment and industry issues.
Shareholders wishing to communicate with the Chairman, or
any other member of the Board, may do so in writing to the
Company, for the attention of the Company Secretary at the
offices of Frostrow. All shareholders are encouraged to
attend the Annual General Meeting, where they will have
the opportunity to question the Chairman, the Board and
representatives of the Menhaden Team. The Menhaden Team
will make a presentation to shareholders covering the
investment performance and strategy of the Company at the
forthcoming Annual General Meeting. The Directors welcome
the views of all shareholders and place considerable
importance on communications with them.
20. The Board should normally All substantive communications regarding any major
take responsibility for, corporate issues are discussed by the Board taking into
and have a direct account representations from Frostrow, the Menhaden Team,
involvement in, the the Auditors, legal advisers and the Company's
content of communications stockbroker.
regarding major corporate
issues even if the manager
is asked to act as
spokesman
21. The Board should ensure The Company places great importance on communication with
that shareholders are shareholders and aims to provide them with a full
provided with sufficient understanding of the Company's investment objective,
information for them to policy and activities, its performance and the principal
understand the risk/reward investment risks by means of informative Annual and Half
balance to which they are Year Reports. This is supplemented by the monthly
exposed by holding the publication, through the London Stock Exchange, of the net
shares. asset value of the Company's shares and an accompanying
fact sheet.
The Annual Report provides information on investment
performance, investment portfolio risk and operational and
compliance issues. Further details on the risk/reward
balance are set out in the Strategic Report and in note 14
to the financial statements.
The Company's website, www.menhaden.com, is regularly
updated with the monthly factsheets and provides useful
information about the Company, including the Company
financial reports and announcements.
The Board and Committees
Responsibility for effective governance lies with the Board. The governance
framework of the Company reflects the fact that as an 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 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 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 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.
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.
Internal Audit
The Audit Committee carries out an annual review of the need for an internal
audit function. As the Company delegates to third parties its day to day
operations and has no employees, it has determined that there are no
requirements for an internal audit function.
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.
Relations with Shareholders
Details of the Company's activities undertaken to promote the Company and
manage relations with shareholders are set out in the Business Review.
The Board considers the shareholder register at each Board meeting and Frostrow
has regular contact with the Company's institutional shareholders. The Board
supports the principle that the Annual General Meeting be used to communicate
with private investors. It is the intention that the full Board will attend the
forthcoming AGM under the chairmanship of the Chairman of the Board. 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. Representatives of the Menhaden Team will attend the AGM and
give a presentation on investment matters to those present.
The Board receives marketing and public relations reports from Frostrow. The
Board reviews and considers the marketing plans on a regular basis.
The annual and half year financial reports and a monthly fact sheet are
available to all shareholders. The Board considers the format and content of
the annual and half-year financial reports so as to ensure they are useful to
all shareholders and others taking an interest in the Company. In accordance
with best practice, the annual report, including the notice of the annual
general meeting, is sent to shareholders at least 20 working days before the
meeting. Separate resolutions are proposed for substantive issues.
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 and WHEB Asset Management LLP (who manage the listed equity portfolio
under an investment manager agreement) 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 Company's voting record can be found in the Company's impact
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
31 March 2016
Audit Committee Report
The Audit Committee (the "Committee"), which is comprised of Howard Pearce
(Chairman of the Committee), Emma Howard Boyd and Duncan Budge, met once during
the period from incorporation on 30 September 2014 to 31 December 2015. In the
Company's first full year of operation in 2016 and ordinarily thereafter, the
Committee will meet three times a year.
The extensive experience and qualifications of the Audit Committee members is
set out in the Governance section above.
Responsibilities
The Company launched on 31 July 2015 and this is the first set of financial
statements to be presented to shareholders. Accordingly, the Audit Committee
had a reduced remit in this first five months of operation and the Committee's
main responsibilities during the period under review were:
1. 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 below.
2. 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 first 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.
In addition to the above responsibilities, the Committee's duties throughout
2016 are:
3. To review the Company's annual and half-year reports. In particular,
the Audit Committee has considered whether this annual report is fair, balanced
and understandable, allowing shareholders to easily assess the Company's
strategy, business model, financial position and performance. This review also
includes scrutiny of the valuation of investments, accounting policies and
other significant reporting matters.
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 at its March 2016 meeting that there is no requirement for
such a function. The Committee will consider the need for such a function on an
annual basis.
The Committee's terms of reference are available for review on the Company's
website at www.menhaden.com
Meetings and Business
The following matters were dealt with at the Committee's meetings:
October 2015
• Review of the Committee's terms of reference and non-audit services
policy
• Review of the Auditors' plan and terms of engagement for the 2015
audit
• Review of risks, internal controls and compliance
• Review of the minutes of the Investment Committee meetings
March 2016
• Review of the Committee's terms of reference
• Review of the Company's 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
• Review of the need for an internal audit function
Internal Controls and Risk Management
The Board is responsible for the risk assessment and 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 judgment 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.
Significant Reporting Matters
In March 2016, the Committee considered the significant issues in respect of
this Annual Report including the financial statements. The table below sets out
the key areas of risk identified and also explains how these were addressed in
respect of the year ended 31 December 2015.
Significant risk How the risk was addressed
Valuation, existence and The valuation of investments is undertaken in accordance
ownership of investments, with the accounting policies in note 1 to the financial
in particular unquoted statements below. Controls are in place to ensure that
investments valuations are appropriate and existence is verified through
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 2015 to ensure that they were carried out
in accordance with the accounting policy set out in note 1
(b) to the financial statements. Having reviewed the
valuations, the Committee confirmed that they were satisfied
that the investments had been valued correctly.
Risk of revenue 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.
In addition, the Committee considered the Company's compliance with sections
1158 and 1159 Corporation Tax Act 2010. HMRC have confirmed that the Company
meets the eligibility conditions as outlined in section 1158 and the Committee
monitors ongoing compliance with this eligibility criteria.
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 above.
External Auditors
In addition to the reviews undertaken at the Committee meetings, I met with
Grant Thornton UK LLP ("Grant Thornton") on 9 March 2016 to discuss the outcome
of the audit and this draft Annual Report. The Committee also met with Grant
Thornton without Frostrow or the Menhaden Team being present to discuss the
outcome of the audit on 24 March 2016.
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;
• the extent of any non-audit services provided; 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.
The Audit Committee will monitor the level of non-audit work carried out by the
Auditors, if any, and seek assurances from the Auditors that they maintain
suitable policies and processes ensuring independence, and will monitor
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 Auditors is permissible where no conflict of interest arises, where the
independence of the Auditors is not likely to be impinged by undertaking the
work and the quality and objectivity of both the non-audit work and audit work
will not be compromised.
Auditors' Reappointment
Grant Thornton UK LLP 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.
The Committee has conducted a review of the performance of the Auditors during
this first audit period and concluded that performance was satisfactory and
there are no grounds for change.
Howard Pearce
Chairman of the Audit Committee
31 March 2016
Directors' Remuneration Report
This report has been prepared in accordance with the Large and Medium-Sized
Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and in
accordance with the Listing Rules of the Financial Conduct Authority. 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 later in this announcement.
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 December 2015 and determined that it was appropriate to maintain them at
their current levels for 2016.
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 2015 (audited)
Date of
appointment Taxable
Director to the Board Fees Expenses*** Total
Sir Ian Cheshire 3 October 2014 21,000 - 21,000
Duncan Budge 3 October 2014 16,770 - 16,770
Emma Howard Boyd 3 October 2014 16,770 - 16,770
Howard Pearce 3 October 2014 16,770 2,382 19,152
Aditya Mittal* 3 October 2014 - - -
Alastair Smith** 30 September 2014 - - -
Grant Challis** 30 September 2014 - - -
TOTAL - 71,310 2,382 73,692
Alastair Smith and Grant Challis, from Frostrow Capital LLP, were appointed as
the initial directors on incorporation and resigned once the Board had been
formed. Aditya Mittal resigned prior to the launch of the Company.
* Resigned 1 July 2015
** Resigned 3 October 2014
*** 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, which are classed as taxable under HMRC guidance.
No payments have been made to any former directors. No loss of office payments
were made to any person who has previously served as a director of the Company
at any time during the period ended 31 December 2015. 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 anyone who was a director in the period.
Directors' Interests in the Company's Shares (audited)
Ordinary Shares
of 1p each
as at 31 Dec 2015
Sir Ian Cheshire 25,000
Duncan Bridge 10,000
Emma Howard Boyd 8,000
Howard Pearce 4,957
Total 47,957
Sir Ian Cheshire purchased a further 20,000 Ordinary Shares on 15 January 2016.
No further 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.
None of the Directors who resigned during the period have notified the Company
of any interests in the Company's Ordinary Shares.
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.
Annual Statement
On behalf of the Board I confirm that the Directors' Remuneration Report
summarises as appropriate for the period ended 31 December 2015;
a) the major decisions on Directors' remuneration;
b) any substantial changes relating to Directors; remuneration made
during the year; and
c) the context in which those changes occurred and decisions were
taken.
By order of the Board
Sir Ian Cheshire
Chairman
31 March 2016
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 forthcoming Annual General Meeting. 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 2015 and 2016 are shown in the
table below. The Company does not have any employees.
Directors' Fees Current and Projected
Total
Fees (£) Fees (£)*
2016 2015
Sir Ian Cheshire 50,000 21,000
Duncan Budge 40,000 16,770
Howard Pearce 40,000 16,770
Emma Howard Boyd 40,000 16,770
170,000 71,310
*The directors earned a pro rata fee in 2015 as fees were payable from the date
of the launch of the Company on 31 July 2015.
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 2015 and of its net loss for the period 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 auditors' 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 period ended 31 December
2015 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: £671,000, which represents 1% of the Company's
net assets; and
• Key audit risks were identified as existence and valuation of
unquoted and quoted investments.
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
Existence and valuation of unquoted investments
The Company holds a small number of significant holdings in unquoted
investments.
There is a risk that investments shown in the Statement of Financial Position
may not exist or may be incorrectly valued. We identified existence and
valuation of unquoted investments as significant risks that required special
audit attention.
How we responded to the risk
Our audit work included, but was not restricted to:
• understanding management's process to value unquoted investments;
• assessing the valuation process and the reliability of inputs; and
• obtaining a confirmation of the investments held by the Company at the
period end from the general partners of the unquoted investments.
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 risk matters in its report above where the Committee also describes
the action that it has taken to address these risks.
Audit risk
Existence and valuation of quoted investments
The Company is an investment trust and its primary activity is the holding of
investments.
The risks in relation to investments are the most significant risk the Company
is exposed to through its investing activities and quoted investments make up
the majority of the Company's assets. There is a risk that investments may not
exist or the valuation of investments may be misstated. We identified existence
and valuation of quoted investments as risks that required particular audit
attention.
How we responded to the risk
Our audit work included, but was not restricted to:
• understanding management's process to value quoted investments;
• obtaining a confirmation from the independent custodian of the
investments they were holding at the period-end;
• agreeing the valuation of 100% of the quoted investments to an
independent source of market prices; and
• in order to confirm investments are actively traded, obtaining recent
trading volumes of the listed investments held at the period-end.
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 as significant risks in its report above
where the Committee also describes the action that it has taken to address
these risks.
Audit risk
Completeness of investment income
We identified completeness of investment income as a risk that required
particular audit attention.
How we responded to the risk
Our audit work included, but was not restricted to:
• assessing whether the Company's accounting policies for revenue
recognition are in accordance with United Kingdom Generally Accepted Accounting
Practice
• obtaining an understanding of the Company's process for recognising
revenue in accordance with its stated accounting policy;
• testing whether a sample of income transactions had been recognised in
accordance with the policy; and
• for a sample of investments held in the period, obtaining the
ex-dividend dates and rates for dividends declared during the period 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 above, where the Committee also
describes 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 £671,000, which is 1% of 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.
We use a different level of materiality, performance materiality, to drive the
extent of our testing and this was set at 60% of financial statement
materiality. We also determine a lower level of specific materiality for
certain areas such as Directors' remuneration and related party transactions.
We determined the threshold at which we will communicate misstatements to the
Audit Committee to be £33,000. 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 the 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.
Our audit approach was based on a thorough understanding of the Company's
business and is risk-based. 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.
Accordingly, our audit work 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, design and operating
effectiveness of controls at the AIFM and Custodian; 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
the implementation of controls over individual systems.
Other reporting required by regulations
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion:
• the part of the Directors' Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Strategic Report and Directors' Report for
the financial period for which the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
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.
Under the Listing Rules, we are required to review:
• the Directors' statements in relation to going concern and longer-term
viability, set out in the Directors' Report; 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 or 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 set out
earlier in this announcement, 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.
Julian Bartlett
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
31 March 2016
Income Statement
For the period from incorporation on 30 September 2014 to 31 December 2015
2015
Revenue Capital Total
Notes £'000 £'000 £'000
Losses on investments at fair value through 7 - (10,753) (10,753)
profit and loss
Exchange losses on currency balances - (4) (4)
Income from investments 2 611 - 611
Impairment of interest 4 (206) - (206)
AIFM and Portfolio management fees 3 (87) (350) (437)
Other expenses 4 (221) (22) (243)
Net return/(loss) before finance charges and 97 (11,129) (11,032)
taxation
Finance costs - - -
Net return/(loss) before taxation 97 (11,129) (11,032)
Taxation on net return on ordinary activities 5 (24) - (24)
Net return/(loss) after taxation 73 (11,129) (11,056)
Return/(loss) per share 6 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 period from incorporation on 30 September 2014 to 31 December 2015
Ordinary Share
share premium Capital Revenue
capital account reserve reserve Total
£'000 £'000 £'000 £'000 £'000
Issue of shares following placing and 800 79,200 - - 80,000
offer for subscription
Expenses of placing and offer for - (1,829) - - (1,829)
subscription
Net (loss)/return from ordinary - - (11,129) 73 (11,056)
activities after 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
As at 31 December 2015
2015
Notes £000
Fixed assets
Investments at fair value through profit and loss 7 63,709
Current assets
Debtors 8 204
Cash 3,371
3,575
Current liabilities
Creditors: amounts falling due within one year 9 (169)
Net current assets 3,406
Total net assets 67,115
Capital and reserves
Ordinary share capital 10 800
Share premium account 77,371
Capital reserve 15 (11,129)
Revenue reserve 73
Total shareholders' funds 67,115
Net asset value per share 11 83.9p
The financial statements were approved by the Board of Directors and authorised
for issue on 31 March 2016 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
For the period from incorporation on 30 September 2014 to 31 December 2015
2015
Notes £'000
Net cash outflow from operating activities 12 (194)
Investing activities
Purchases of investments (76,636)
Sales of investments 2,174
Net cash outflow from investing activities (74,462)
Net cash outflow before financing activities (74,656)
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 3,375
2015
£'000
Cash and cash equivalents at the start of the -
period
Exchange movements (4)
Increase in cash and cash equivalents 3,375
Cash and cash equivalents at the end of the period 3,371
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the period from incorporation on 30 September 2014 to 31 December 2015
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, generally accepted accounting practice (UK GAAP), the Statement of
Recommended Practice 'Financial Statements of Investment Trust Companies and
Venture Capital Trusts' dated November 2014 (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. As this is the Company's first
period of account there are no comparatives.
In preparing these financial statements the Company has applied FRS 102 'The
Financial Reporting Standard applicable in the UK and Ireland'.
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.
In addition, for financial reporting purposes, 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 early 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)
below.
(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.
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.
• Limited partnership funds
Funds set up by a third party, where the Company does not hold a majority
share, are ordinarily valued using the third party manager's valuation after
adjustment for purchases and sales between the date of the valuation and the
measurement date.
• Unquoted Investments
The fair value of unquoted investments, other than limited partnership funds,
are either calculated using primary valuation techniques, such as revenue or
earning multiples, discounted cash flow analysis and recent transactions, in
accordance with the International Private Equity and Venture Capital
Association (IPEVCA) valuation guidelines, or at cost for recent transactions.
(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) Dividend Payments
Dividends paid by the Company on its shares are recognised in the financial
statements in the year in which they are paid and are shown in the Statement of
Changes in Equity.
2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
2015
£'000
Income from investments
UK listed dividends 8
Overseas dividends 342
Fixed interest income 261
611
Total income comprises:
Dividends 350
Interest 261
611
3. AIFM AND PORTFOLIO MANAGEMENT FEES
2015
Revenue Capital Total
£'000 £'000 £'000
AIFM fee 13 53 66
Portfolio management fee 74 297 371
87 350 437
4. OTHER EXPENSES
2015
Revenue Capital Total
£'000 £'000 £'000
Directors' remuneration 71 - 71
Employers NIC on directors' remuneration 4 - 4
Auditors' remuneration for the audit of the Company's 32 - 32
financial statements
Auditors' remuneration for non-audit services 3 - 3
Registrar fees 6 - 6
Broker fees 13 - 13
Legal and professional costs 4 22 26
Stock Exchange listing fees 8 - 8
Depositary fees 17 - 17
Marketing Costs 11 - 11
Other costs 52 - 52
Total expenses 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. 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.
5. TAXATION ON NET RETURN ON ORDINARY ACTIVITIES
(a) Analysis of charge in period
2015
Revenue Capital Total
£'000 £'000 £'000
Corporation tax at 20.4%
Overseas taxation 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 20.4%. The difference is explained below.
2015
Revenue Capital Total
£'000 £'000 £'000
Net return/(loss) before taxation 97 (11,129) (11,032)
Corporation tax at 20.4% 20 (2,270) (2,250)
Non-taxable losses on investments - 2,151 2,151
Overseas withholding taxation 24 - 24
Non taxable overseas dividends (68) - (68)
Non taxable UK dividends (2) - (2)
Excess management expenses 50 119 169
Total tax charge 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 £169,000 (20% tax rate)
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.
6. RETURN/(LOSS) PER SHARE
2015
£'000
The return per share is based on the following figures:
Revenue return 73
Capital loss (11,129)
(11,056)
Weighted average number of ordinary shares in issue during the period 80,000,001
from the IPO of the Company to 31 December 2015
Revenue return per ordinary share 0.1p
Capital loss per ordinary share (13.9)p
(13.8)p
The calculation of the total, revenue and capital returns per Ordinary Share is
carried out in accordance with IAS 33 Earnings per share.
The weighted average number of ordinary shares since incorporation was
26,666,667 and the return per share figures calculated using this would be:
revenue return per ordinary share 0.3p; capital loss per ordinary share (41.7)
p; and, total loss per ordinary share (41.4)p.
7. INVESTMENTS
Quoted Unquoted
Investments Investments Total
£'000 £'000 £'000
Movement in the period:
Purchases at cost 55,651 20,985 76,636
Sales - proceeds (2,174) - (2,174)
- losses on sales (524) - (524)
Net movement in investment holdings losses (7,417) (2,812) (10,229)
Valuation at 31 December 2015 45,536 18,173 63,709
Cost at 31 December 2015 52,953 20,985 73,938
Investment holding losses at 31 December 2015 (7,417) (2,812) (10,229)
Valuation at 31 December 2015 45,536 18,173 63,709
2015
£'000
Losses on investments
Losses based on historical cost - sales (524)
Movement in investment holding losses in the period (10,229)
Losses on investments (10,753)
Purchase transaction costs were £115,000. These comprise mainly commission and
stamp duty.
Sales transaction costs were £2,000. These comprise mainly commission.
8. DEBTORS
2015
£'000
VAT recoverable 154
Prepayments and accrued income 50
204
9. CREDITORS
2015
£'000
Amounts falling due within one year
Other creditors and accruals 169
10. SHARE CAPITAL
Total
Total Redeemable
Ordinary Preference
Shares Shares
in issue in issue
number 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 5,000,000
2015
£'000
Issued and fully paid:
Ordinary shares of 1p 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 2015.
The Redeemable Preference Shares carry no voting rights and carry no dividend
or economic entitlements. It is the intention of the Directors to cancel the
Redeemable Preference Shares.
11. NET ASSET VALUE PER SHARE
2015
Net asset value per share 83.9p
Net asset value per share
The net asset value per share is based on the assets attributable to equity
shareholders of £67,115,000 and on the number of Ordinary Shares in issue at
the year end of 80,000,001.
12. RECONCILIATION OF LOSSES BEFORE FINANCE COSTS AND TAXATION FROM
OPERATING ACTIVITIES
2015
£'000
Losses before finance costs and taxation (11,032)
Add: Losses made on investing activity 10,753
(279)
Increase in debtors (60)
Increase in creditors and accruals 169
Net taxation suffered on investment income (24)
Net cash outflow from operating activities (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 above. All material related party transactions
have been disclosed in note 3. Details of the remuneration of all Directors can
be found in note 4 above. Details of the Directors' interests in the capital of
the Company can be found in the Governance section.
Ben Goldsmith, a member of the Menhaden Team who is seconded to Frostrow
Capital LLP, holds a minority membership interest in WHEB LLP, the majority
member of WHEB Asset Management LLP, and in Alpina Partners LLP (formerly WHEB
Capital Partners LLP), the investment manager of the WHEB Ventures Private
Equity Fund 2 LP and the Alpina Partners Fund LP. He also has a carried
interest participation in each of these funds and may benefit from any further
contributions or commitments made by the Company to 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 secure 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 as set out earlier in this announcement, and monitors 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 £56,000; the capital return would have increased/
decreased by £15,760,000; and, the return on equity would have increased/
decreased by £15,704,000. The calculations are based on the portfolio as at the
respective Balance Sheet dates 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:
2015
Current Current
assets liabilities Investments
£'000 £'000 £'000
U.S. dollar 6 (2) 39,458
Euro - - 4,419
Other 8 - 4,915
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.
2015
USD EUR Other
£'000 £'000 £'000
Sterling depreciates 4,320 484 539
Sterling appreciates (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 2015, the Company held 1.8% of the portfolio in debt
instruments. The exposure is shown in the table below:
2015
Fixed Floating
rate rate
£'000 £'000
Quoted debt investments* - -
Cash - 3,371
3,371
*Debt investments held, comprising 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 2015 and the
net assets would increase/decrease by £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. The company's portfolio manager
is 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 carrying amounts of financial assets best represent the maximum credit risk
at the Balance Sheet date. The Company's quoted securities are held on its
behalf by J.P. Morgan Chase Bank N.A. acting as the Company's Custodian.
Credit risk exposure
2015
£'000
Quoted debt investments 1,124
Current assets:
Other receivables (amounts due from brokers, dividends and interest 50
receivable)
Cash 3,371
The quoted debt investments, comprising the Abengoa Senior Notes, are 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 in Note 1.
Level 1 Level 2 Level 3 Total
As of December 2015 £'000 £'000 £'000 £'000
Investments 45,536 - 18,173 63,709
Level 3 Investments comprise Helios Co-Invest L.P. (described as X-Elio in the
portfolio), WHEB Ventures Private Equity Fund 2 L.P. and Alpina Partners Fund
L.P. and the Company owns 8.0%, 9.7% and 10.2% of these entities respectively.
In addition, during the period the WHEB Ventures Private Equity Fund 2 L.P. was
written down by £2,460,000 and the Alpina Partners Fund L.P. was written down
by £577,000.
All level 3 investments were valued using non-observable market data and no
income was recognised on the level 3 investments.
(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
in accordance with the Company's share buyback policy;
- 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
Capital Reserves*
Investment
Holding
Other Losses Total
£'000 £'000 £'000
Net losses on investments (524) (10,229) (10,753)
Expenses charged to capital (372) - (372)
Exchange loss on currency balances (4) - (4)
At 31 December 2015 (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:
Notice of
Commitment drawdown
• WHEB Ventures PE Fund 2 LP £630,000 10 business days
• Alpina Partners Fund LP* €9,827,000 10 business days
• Helios Co-Invest LP** $562,300 3 business days
* Formerly WHEB Ventures PE Fund 3 LP
** Described as X-Elio in the portfolio listing.
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
Financial Calendar
31 December Financial Year End
March Final Results Announced
September Half Year End Results Announced
May Annual General Meeting
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 Monday, 23 May 2016 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.
Glossary
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transported 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 discounts/premiums.
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 Monday, 23 May 2016 from 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 audited financial statements and the
Directors' Report for the period ended 31 December 2015
2. To elect Sir Ian Cheshire as a Director of the Company
3. To elect Duncan Budge as a Director of the Company
4. To elect Emma Howard Boyd as a Director of the Company
5. To elect Howard Pearce as a Director of the Company
6. To 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
period ended 31 December 2015
8 To approve the Directors' Remuneration Policy
Special Business
To consider and, if thought fit, pass the following resolution as a special
resolution:
General Meetings
9. 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
31 March 2016
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 19 May 2016.
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 Tuesday, 22 September 2015 (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 30 March 2016 (being the last business day prior to the
publication of this notice) the Company's issued share capital (with voting
rights) consists of 80,000,001 ordinary shares, carrying one vote each.
Therefore, the total voting rights in the Company as at 30 March 2016 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 and Financial Statements
The Annual Report and Financial Statements for the period ended 31 December
2015 will be presented to the Annual General Meeting (AGM). These accounts
accompany this Notice of Meeting and shareholders will be given an opportunity
at the meeting to ask questions.
Resolutions 2 to 5 - Election of Directors
Resolutions 2 to 5 deal with the election of each Director. Biographies of each
of the Directors can be found on pages 20 and 21 of the annual report.
Resolution 6 - Appointment of Auditors and the determination of their
remuneration
Resolution 6 relates to the 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.
Resolutions 7 and 8 - 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 Directors' Remuneration Report is set out in full in the annual report on
pages 39 and 40 and the Remuneration Policy Report is set out on page 41.
Resolution 9
Special Resolution No. 9 seeks shareholder approval for the Company to hold
General Meetings (other than the AGM) on 14 clear days' notice.
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 67,957 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
March 31, 2016 at 03:44 pm
Share
Share
© PRNewswire - 2016
