TIDMSIGC
RNS Number : 4786X
Sherborne Investors (Guernsey)C Ltd
30 April 2019
SHERBORNE INVESTORS (GUERNSEY) C LIMITED
Annual Report and Audited Consolidated Financial Statements
For the year ended 31 December 2018
Company Summary
The Company Sherborne Investors (Guernsey) C Limited
(the "Company") is a Guernsey domiciled
limited company and its shares are admitted
to trading on the London Stock Exchange
Specialist Fund Segment ("SFS"). The Company
was incorporated on 25 May 2017. The Company
commenced dealings on the SFS on 12 July
2017.
Investment Objective To realise capital growth from investment
in a target company identified by the
Investment Manager, with the aim of generating
a significant capital return for Shareholders.
Investment Policy To invest, through its investment in SIGC,
LP (Incorporated) (the "Investment Partnership"),
in a company which is publicly quoted,
which it considers to be undervalued as
a result of operational deficiencies and
which it believes can be rectified by
the Investment Manager's active involvement,
thereby increasing the value of the investment.
The Company will only invest in one target
company at a time.
Investment Manager The General Partner and the Investment
Partnership have appointed Sherborne Investors
Management (Guernsey) LLC (the "Investment
Manager") to provide investment management
services to the Investment Partnership.
Chairman's Statement
Following the Board's approval of Barclays PLC ("Barclays") as
the New Selected Target Company, on 19 March 2018, Barclays
released to the market a notification of interest stating that
three funds (the "Funds"), of which SIGC, LP (Incorporated) is one,
had purchased 5.16% of the voting rights of Barclays. On 31 January
2019, an updated notification of interest was released stating that
the Funds increased their holdings to 5.51% of the voting rights of
Barclays.
During 2018 shares of major global banks experienced a decline
in value. Barclays' shares achieved a positive return for most of
the first half of 2018, but declined significantly after the
announcement of its first quarter results on 26 April 2018.
At 31 December 2018, the net asset value attributable to
shareholders of the Company was GBP468.7 million (2017: GBP695.9
million) or 66.96 pence per share (2017: 99.41 pence per share)
(see Note 11). The Company's net asset value was based on the
closing price of 150.52 pence as at 31 December 2018 for the shares
of Barclays. As at 25 April 2019, the Barclays share price has
increased to 160.40 pence and Sherborne Investors Management
(Guernsey) LLC (the "Investment Manager") has advised that the net
asset value attributable to shareholders of the Company is
approximately GBP502.3 million, or 71.76 pence per share.
Beginning with April and continuing for the duration of the
Barclays investment, we will be reporting month end net asset value
as soon as reasonably possible following month end.
Subsequent to the year-end, on 4 February 2019 the Funds
submitted a resolution to Barclays to elect Edward Bramson, a
partner in Sherborne Investors Management LP, to the board of
Barclays at its annual general meeting on 2 May 2019.
The Investment Manager has advised the Board that it believes
that addressing the issues it has discussed with Barclays' board
could increase the company's financial strength and its long-term
competitive position, leading to an increase in shareholder value
in line with the Investment Manager's customary return objectives.
The Investment Manager's present intention is to continue its
dialogue with Barclays for as long as it appears to be appropriate
to do so.
Pursuant to its existing authority, the Investment Manager may
purchase additional securities or sell, short or otherwise dispose
of all or a part of such shares held in Barclays at any time.
During the period the Company continued to pursue its investment
strategy through its shareholding in Barclays.
Details of Related Party Transactions are contained in Note 12
of the Notes to the Consolidated Financial Statements.
We are grateful for your continued support and will keep you
informed of the status of our investment as it develops.
Board of Directors
Talmai Morgan (Chairman)
Appointed to the Board 25 May 2017
Mr Morgan has served as a non-executive director on the board of
14 publicly listed investment companies (including 3 FTSE 250
companies) since 2005. He is currently Chairman of NB Private
Equity Partners Limited, Sherborne Investors (Guernsey) B Limited
and Sherborne Investors (Guernsey) C Limited. From 1999 to 2004, Mr
Morgan was Director of Fiduciary Services and Enforcement at the
Guernsey Financial Services Commission where he was responsible for
the design and implementation of Guernsey's law relating to the
regulation of fiduciaries, administration businesses and company
directors. He was also particularly involved in the activities of
the Financial Action Task Force and the Offshore Group of Banking
Supervisors. Prior to 1999, Mr Morgan held positions at Barings and
the Bank of Bermuda. He qualified as a barrister in 1976 and holds
an MA in Economics and Law from the University of Cambridge.
Trevor Ash (Director)
Appointed to the Board 25 May 2017
Mr Ash has been a non-executive director of a number of
investment entities since 1999, including funds managed by
Rothschild, Insight, Cazenove, Merrill Lynch and Thames River
Capital. He is also a non-executive director of Sherborne Investors
(Guernsey) B Limited. He was formerly Chairman of JPEL Private
Equity Limited. Prior to 1999, Mr Ash spent 27 years with the
Rothschild Group in various capacities, most recently as Managing
Director of Rothschild Asset Management (CI) Limited and as a
non-executive director of Rothschild Asset Management Limited in
London. Mr Ash is a fellow of the Chartered Institute for
Securities & Investment.
Christopher Legge (Audit Committee Chairman)
Appointed to the Board 25 May 2017
Mr Legge is a Chartered Accountant having started his career at
Pannell Kerr Forster (PKF), before moving to Ernst & Young in
1983, where he became a partner in 1986 and managing partner
Guernsey in 1998. Since leaving Ernst & Young in 2003 he has
taken on a number of non-executive directorships. He is currently
non-executive director of Third Point Offshore Investors Limited,
Ashmore Global Opportunities Limited, NB Distressed Debt Investment
Fund Limited, TwentyFour Select Monthly Income Fund Limited, John
Laing Environmental Assets Group Limited and Sherborne Investors
(Guernsey) B Limited. Mr Legge is an FCA and holds a BA (Hons) in
Economics from the University of Manchester.
Ian Brindle (Director)
Appointed to the Board 25 May 2017
Mr Brindle was the Senior Partner of Price Waterhouse from 1991
to 1998 and Chairman of PricewaterhouseCoopers until 2001. Mr
Brindle was a member of the Accounting Standards Board between 1992
and 2001 and Deputy Chairman of the Financial Reporting Review
Panel between 2001 and 2008. Mr Brindle has served as a
non-executive director on a number of Boards including Electra
Private Equity PLC, F&C Asset Management PLC, Spirent
Communications PLC, Elementis PLC and 4 Imprint Group PLC.
Directors' Strategic Report
The Directors present their annual report on the affairs of
Sherborne Investors (Guernsey) C Limited and its subsidiaries
(together, the "Group"), together with the audited consolidated
financial statements, for the year ended 31 December 2018.
Principal activities and investing policy
The Company is a Guernsey domiciled company incorporated on 25
May 2017 with limited liability. The Company's shares were admitted
to trading on the SFS on 12 July 2017.
The Company, via SIGC Midco Limited, is a limited partner in
SIGC, LP (Incorporated), a limited partnership registered in
Guernsey on 24 May 2017. The Company aims to provide investors with
capital growth through its investment in the Investment Partnership
to which it has committed GBP700,000,000.
The Company's investment policy, which it will effect indirectly
through its investment in the Investment Partnership, is to invest
in a company which is publicly quoted, and which the Investment
Manager considers to be undervalued as a result of operational
deficiencies and which it believes can be rectified by the
Investment Manager's active involvement, thereby increasing the
value of the investment (a "Turnaround"). Accordingly, the
investment will not be passive. The Company's investment may be
made on-market or off-market.
The Company may invest, through the Investment Partnership, in a
company operating in any economic sector but will only be invested
in one company at a time. Thus, it will not seek to reduce risk
through diversification. The choice of target company will be
subject to a vote in the affirmative of a majority in interest of
the limited partners of the Investment Partnership, in effect
giving the Board a veto on such decision since the Company owns,
and is currently expected to continue to own, more than 50% of the
interests in the Investment Partnership.
The investment in a target company is intended to be in shares,
but could also be in warrants, convertibles, derivatives and any
other equity, debt or other securities.
Depending on the size of the investment, all or part of the
Company's assets will be invested in the Selected Target Company
("STC") through the Investment Partnership, less the minimum
capital requirements. The investment objective and investment
policy of the Investment Partnership are the same as those of the
Company.
The holding period for investments is neither fixed nor
predictable, but the Company expects that a typical holding period
would be greater than one year. The average holding period of the
four completed UK Turnarounds in companies with which the
Investment Manager's key personnel have been involved is 28 months;
however, this should not be taken as being indicative of the
holding period to be adopted in effecting the Company's investment
policy.
The Investment Partnership may engage in hedging transactions to
protect the market value of its investment in any company in which
it is invested and may also engage in stock lending.
The Company and the Investment Partnership do not currently
intend to undertake borrowings, but are permitted to do so. Any
borrowings undertaken by the Company and the Investment Partnership
will not, in aggregate, be greater than 30% of the Company's Gross
Assets as measured at the time that such borrowings are
incurred.
In the event that the Board considers it appropriate to amend
materially the investment objective or policy of the Company,
Shareholder approval to any such amendment will be sought.
Risk Management
The Directors are responsible for supervising the overall
management of the Company, whilst the day-to-day management of the
Company's assets has been delegated to the Investment Manager.
Portfolio exposure has been limited by the guidelines which are
detailed within the Principal Activities and Investment Policy
section of the annual report. In its role as a third-party fund
administration services provider, Ipes (Guernsey) Limited (prior to
its change of name to Apex Fund and Corporate Services (Guernsey)
Limited) produced an annual AAF 01/06 Assurance Report on the
internal control procedures in place for the year ended 30
September 2018 and this is subject to review by the Audit Committee
and the Board.
The principal risks facing the Company relate to the Company's
investment activities and these risks include the following:
-- performance risk;
-- market risk;
-- relationship risk; and
-- operational risk
An explanation of these principal risks and how they are managed
is set out below.
The Board can confirm that the principal risks of the Company,
including those which would threaten its business model, future
performance, solvency or liquidity have been robustly assessed for
the year ended 31 December 2018.
-- Performance risk - The Board is responsible for approving the
Investment Manager's recommended investment in a STC and monitoring
the performance of the Investment Manager. An inappropriate
strategy or poor execution of strategy may lead to
underperformance. To manage that risk the Investment Manager will
typically have several potential target companies under review at
any one time in various stages of analysis. The Investment
Manager's recommendation of a STC includes an assessment of the
capital appreciation potential of the proposed investment, assuming
certain operating improvements and capital realignment are
successfully implemented. The Company intends that its holding in
the STC will be less than 30% of the outstanding shares, so that it
is not required to make a bid for the entire company. Accordingly,
the Company will not control the STC. The Investment Manager's
involvement in the turnaround of the STC requires the support of
other independent shareholders. The Board receives and reviews
regular reports of the Investment Partnership's ownership interest
in the STC and other information that impacts its turnaround
strategy.
-- Market risk - Market risk arises from uncertainty about the
future operating performance and market response to the Company's
investment in the STC. The Company's investment approach is to
invest in only one company at a time. Such investment concentration
may subject the Company to greater market fluctuation and loss than
might result from a diversified investment portfolio. The market's
valuation of the STC is also subject to fluctuations in overall
market prices as well as fluctuations in the industry sectors in
which the STC operates. The Investment Manager does not typically
hedge against overall market or sector fluctuations. The Company
also may use a limited amount of short-term leverage to acquire a
portion of its ownership interest in the STC which will amplify the
results of the STC. In addition to interest and dividend income
received from the STC, the source of debt repayment could come from
the proceeds realised from the sale of a portion of the STC. The
Group's market risk is managed by the Investment Manager in
accordance with policies and procedures in place as disclosed in
the Group's prospectus.
-- Relationship risk - Neither the Company nor the Investment
Partnership has a physical presence (employees and/or premises).
The Company and Investment Partnership are heavily dependent on the
Investment Manager for the selection of an appropriate STC and for
the day-to-day management and operation of the STC's business and
the execution of its Turnaround.
-- Operational risk - Operational risk is reviewed by the Board
at each Board meeting. The Board also monitors the Group's
investment performance and activities since the last Board meeting
to ensure that the Investment Manager adheres to the agreed
investment policy and approved investment guidelines. Further, at
each Board meeting, the Board receives reports from the Company
Secretary and Administrator in respect of compliance matters and
duties performed by it on behalf of the Company.
The uncertainty around Brexit spanned the whole of 2018, and
intensified in the second half of the year. The timing of the
withdrawal remains uncertain and its full impact may only be
realised in years to come, as the economy adjusts to the new
regime. A focus of the Board in 2018 was the continued oversight of
the Company's ability to respond to the political and economic
uncertainty following the UK's decision to leave the EU.
Other risks faced by the Company are described in detail within
the Company's Offering Document and can be obtained at
www.sherborneinvestorsguernseyc.com.
The Board have considered the Company's solvency and liquidity
risk and disclosure of this is made in Note 13 of the Consolidated
Financial Statements and in the Viability Statement below.
Viability Statement
In accordance with provision C.2.2 of the UK Corporate
Governance Code 2016, the Directors have assessed the viability of
the Company over the period ending 31 December 2021. The Directors
have determined that the three year period to 31 December 2021 is
the maximum period over which to provide its viability statement in
order to keep in line with its investment strategy. The holding
period for the investment in the STC is neither fixed nor
predictable, but the Company expects that a typical holding period
of 3-4 years would be sufficient to execute the Investment
Manager's turnaround strategy.
The Directors have identified the following factors as potential
contributors to ongoing viability:
-- The principal risks documented in the Directors' Strategic Report as set out above;
-- The liquidity of the Company's portfolio; and
-- The ongoing relevance of the Company's investment objective in the current environment.
The Company, through its investment in the Investment
Partnership, holds cash balances and liquid securities, directly
and indirectly of the STC. The cash balances held are sufficient to
meet expected costs.
Based on the foregoing, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its obligations as and when they fall due over the three
year period to 31 December 2021.
Subsequent events
Details of events that have occurred after the date of the
Consolidated Statement of Financial Position are provided in Note
15 to the Consolidated Financial Statements.
Dividend policy
The Company's dividend policy, subject to the discretion of the
Directors who reserve the right to retain amounts for minimum
capital requirements, is to pay dividends to Shareholders following
receipt of any distributions from the Investment Partnership,
subject always to compliance with the solvency test prescribed by
the Companies (Guernsey) Law, 2008, as amended (the "Companies
Law").
This will be dependent on the frequency with which the STC pays
dividends to its shareholders (of which the Investment Partnership
may be one) as well as the extent such dividends are first required
to be used to repay outstanding indebtedness and meet the minimum
working capital requirements.
Dividend
No dividends were declared or paid during the year (2017:
Nil).
Business review
A review of the Company's business during the year and an
indication of likely future developments are contained in the
Chairman's Statement.
Capital
Details of the Company's capital are provided in Note 10 to the
Consolidated Financial Statements. All shares carry equal voting
rights.
Substantial interests
As at 31 March 2019, the Company is aware of the following
material shareholdings:
Number of Ordinary % of issued
Shareholder Shares share capital
-------------------------------- ------------------- ---------------
Invesco Limited 155,000,000 22.1%
Columbia Threadneedle 129,298,511 18.5%
Aviva plc 99,824,647 14.3%
Fidelity International Limited 70,000,000 10.0%
Janus Henderson Group plc 51,000,000 7.3%
Jupiter Fund Management plc 25,000,000 3.6%
Sherborne Investors GP, LLC 25,000,000 3.6%
Schroders plc 23,660,000 3.4%
The Directors currently hold no shares in the Company.
Independent Auditor
A resolution to re-appoint the Auditors to the Company will be
proposed at the Annual General Meeting of the Company on 4 June
2019. Deloitte LLP have indicated their willingness to continue as
Auditors.
Directors' Remuneration Report
Remuneration Policy & Components
The Board endeavours to ensure the Remuneration Policy reflects
and supports the Company's strategic aims and objectives throughout
the period under review. It has been agreed that, due to the small
size and structure of the Company, a separate Remuneration
Committee would be inefficient; therefore, the Board is responsible
for discussions regarding remuneration. No external remuneration
consultants were appointed during the period under review.
As per the Company's Articles of Incorporation ("Articles"), all
Directors are entitled to such remuneration as is stated in the
Company's Prospectus or as the Company may by ordinary resolution
determine; the aggregate overall limit is currently set at
GBP250,000. Subject to this limit, it is the Company's policy to
determine the level of Directors' fees, having regard for the level
of fees payable to non-executive Directors in the industry
generally, the role that individual Directors fulfil in respect of
responsibilities related to the Board and Audit Committee and the
time dedicated by each Director to the Company's affairs. Base fees
are set out below.
Base Fees and Fees Received 2018 Actual Base fee
GBP GBP
------------------------------------------ ------------ ---------
Chairman (Mr Talmai Morgan) 50,000 50,000
Audit Committee Chairman (Mr Christopher
Legge) 40,000 40,000
Non-executive Director (Mr Trevor Ash) 35,000 35,000
Non-executive Director (Mr Ian Brindle) 35,000 35,000
------------------------------------------ ------------ ---------
Total 160,000 160,000
------------------------------------------ ------------ ---------
As outlined in the Articles, the Directors may also be paid for
all reasonable travelling, hotel and other out-of-pocket expenses
properly incurred in the attendance of Board or Committee meetings,
General meetings, or meetings with shareholders of the Company or
otherwise in the discharge of their duties; and all reasonable
expenses properly incurred by them seeking independent professional
advice on any matter that concerns them in the furtherance of their
duties as Directors of the Company, such expenses having been
immaterial during 2018.
No Director has any entitlement to pensions, paid bonuses or
performance fees, granted share options or has been invited to
participate in long-term incentive plans. No loans have been
extended to a Director by the Company and neither have any loans to
a Director been guaranteed by the Company.
None of the Directors have a service contract with the Company.
Each of the Directors has entered into a letter of appointment with
the Company, were subject to election at the first Annual General
Meeting ("AGM"), or as determined in line with the Company's
Articles, and re-election at subsequent AGMs in accordance with the
Company's Articles and all due regulations and provisions. The
Directors do not have any interests in contractual arrangements
with the Company or its investment during the year under review, or
subsequently. Each appointment can be terminated in accordance with
the Company's Articles and without compensation. No notice period
is stated in the Articles and is terminable at will of both
parties.
Directors' and Officers' liability insurance cover is maintained
by the Company but is not considered a benefit in kind nor does it
constitute part of the Directors' Remuneration. The Company's
Articles indemnify each Director, Secretary, agent and officer of
the Company, former or present, out of assets of the Company in
relation to charges, losses, liabilities, damages and expenses
incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in
circumstances of fraud, wilful misconduct or negligence.
Corporate Governance Report
As an unregulated Guernsey incorporated company quoted on the
SFS, the Company is not required to comply with the UK Corporate
Governance Code or the GFSC Finance Sector Code of Corporate
Governance. The Directors, however, place great importance on
ensuring that high standards of corporate governance are
maintained. Accordingly, the Directors will take appropriate
measures to ensure that the Company operates with due consideration
to any codes of corporate governance that the Board deems
appropriate and may choose to operate in accordance with the UK
Corporate Governance Code and/or the GFSC Finance Sector Code of
Corporate Governance, in each case having regard to the Company's
size and nature of business. The Board perceives that good
corporate governance practice is necessary for delivering
sustainable value, enhancing business integrity and maintaining
shareholder confidence in the Company. To further these aims, the
Board has decided to voluntarily comply with the UK Corporate
Governance Code dated April 2016 (the "Code"), which sets out
guidance in the form of principles and provisions for companies to
follow good corporate governance practice. Further information on
the Code can be obtained from www.frc.org.uk.
Except as disclosed within the report, the Board is of the view
that throughout the year ended 31 December 2018, the Company
complied with the recommendations of the Code and the provisions of
the Code. Key issues affecting the Company's corporate governance
responsibilities, how they are addressed by the Board and
application of the Code are presented below.
Section A: Leadership
The Chairman is responsible for the leadership of the Board and
ensuring its effectiveness on all aspects of its role.
Board Responsibilities
The Board ensures that the Company's contracts of engagement
with the Investment Manager, Administrator and other service
providers are operating satisfactorily so as to ensure the safe and
accurate management and administration of the Company's affairs and
business and that they are competitive and reasonable for
Shareholders. Terms of Reference that contain a formal schedule of
matters reserved for the Board of Directors and its duly authorised
Committee for decision has been approved and can be reviewed at the
Company's registered office.
Management of the Investment Partnership is the responsibility
of Sherborne Investors (Guernsey) GP, LLC (the "General Partner"),
which has delegated investment decisions and day-to-day management
of the Investment Partnership to the Investment Manager under the
terms of an Investment Management Agreement. Through its majority
interest in the Investment Partnership, the Company and therefore
the Board, has the ability to approve proposed investments and to
remove the General Partner. The performance of the Investment
Manager is subject to regular review by the Board.
Other matters for the Board include review of the Company's
overall strategy and business plans; approval of the Company's
half-yearly and annual financial statements; review and approval of
any alteration to the Group's accounting policies or practices and
valuation of investments; approval of any alteration to the
Company's capital structure; approval of dividend policy;
appointments to the Board and constitution of Board Committees; and
performance review of key service providers.
The Company holds appropriate Directors' and Officers' Liability
Insurance cover in respect of any legal action taken against the
Board.
Board Composition
The Board consists of four non-executive members. For further
information relating to the Board, please refer to the Board of
Directors section. Due to the size and structure of the Company,
the appointment of a senior independent director is not deemed
appropriate.
Board Committees
The Board has established an Audit Committee composed of
Christopher Legge, Trevor Ash and Ian Brindle, all of whom are
independent. The Chairman of the Board, having previously been a
member of the Audit Committee, is no longer a member of the Audit
Committee in anticipation of the updated requirements of the UK
Corporate Governance Code dated July 2018, which will apply to
accounting periods beginning on or after 1 January 2019. The
Committee, its membership and its terms of reference are kept under
regular review by the Board.
The Audit Committee meets at least twice a year and is
responsible for ensuring that the financial performance of the
Company is properly reported on and monitored, including reviews of
the half-yearly and annual financial statements, results
announcements, internal control systems and procedures and
accounting policies.
The Audit Committee considers the scope and effectiveness of the
Company's external audit. The Company's Auditor, Deloitte LLP, may
also provide additional non-audit services to the Company, which in
the Audit Committee's opinion, will not compromise the independence
of Deloitte LLP's audit team. Further information is provided in
the Report of the Audit Committee.
Board and Committee Meeting Attendance
The Board met four times during the year. Individual attendance
at Board and Audit Committee meetings is set out below.
Board Audit Committee
-------------------- ------ ----------------
Talmai Morgan 4 3
Trevor Ash 3 2
Christopher Legge 4 3
Ian Brindle 4 3
Total Meetings for
Year 4 3
-------------------- ------ ----------------
Division of Responsibilities
There are no executive Directors appointed to the Board. The
non-executive Directors responsibilities are clearly defined within
the Schedule of Matters reserved to the Board. All day to day
functions are outsourced to external service providers.
The Chairman
Appointed to the position of Chairman of the Board on 25 May
2017, Mr Morgan is responsible for leading the Board in all areas,
including determination of strategy, organising the Board's
business and ensuring the effectiveness of the Board and individual
Directors. He also endeavours to produce an open culture of debate
within the Board.
Role of the non-executive Directors
The Board is composed entirely of non-executive Directors, who
meet as required without the presence of the Investment Manager and
service providers to scrutinise the achievement of agreed goals and
objectives, and monitor performance. Through the Audit Committee,
they are able to ascertain the integrity of financial information
and confirm that all financial controls and risk management systems
are robust. In addition, a non-executive Director may provide a
written statement outlining any concerns to the Chairman upon
resignation. See the statements on Board and Committee
responsibilities for further information.
Section B: Effectiveness
The Board believes that its balance of skills, experience and
knowledge, provides for a sound base from which the interest of
investors will be served to a high standard.
Board Composition & Independence
For the purposes of assessing compliance with the Code, the
Board considers the Directors are independent of the Investment
Manager and free from any business or other relationship that could
materially interfere with the exercise of their independent
judgment.
Composition of the Board is explained in Section A of the
Corporate Governance Report.
Talmai Morgan, Trevor Ash and Christopher Legge are directors of
Sherborne Investors (Guernsey) B Limited, a company with similar
investment objectives and the same Investment Manager as the
Company. As Sherborne Investors (Guernsey) B Limited has a
different STC, it is the Board's view that this does not affect
their independence.
Board Appointments Process
Appointment Process
There is currently no Nominations Committee for the Company as
it is deemed that the size, composition and structure of the
Company would mean the process would be inefficient and
counter-productive.
The Board has chosen not to adopt a definitive policy with
quantitative targets for board diversity. The Board believes that
the current mix of skills, experience, knowledge and age of the
Directors is appropriate to the requirements of the Company. In
accordance with the Code, any Director who has served on the Board
for longer than nine years will be subject to rigorous review to
ensure the need for progressive refreshing of the Board is complied
with.
Commitment
Chairman's Commitment
Prior to the Chairman's appointment, discussions were undertaken
to ensure the Chairman was sufficiently aware of the time needed
for his role, and agreed to upon signature of his appointment
letter. Other significant commitments of the Chairman were
disclosed prior to appointment to the Board, and any changes
declared as and when they arise. These commitments, and their
subsequent impact, can be identified in his biography in the Board
of Directors section.
Non-executive Directors' Commitments
The terms and conditions of appointment for non-executive
Directors are outlined in their letters of appointment, and are
available for inspection by any person at the Company's registered
office during normal business hours and at the AGM for fifteen
minutes prior to and during the meeting. As with the Chairman,
significant appointments are declared prior to appointment, any
changes reported as and when appropriate.
Development
The Board believes that the Company's Directors should develop
their skills and knowledge through participation at relevant
courses. The Chairman is responsible for reviewing and discussing
the training and development of each Director according to
identified needs. Upon appointment, all Directors participate in
discussions with the Chairman and other Directors to understand the
responsibilities of the Directors, in addition to the Company's
business and procedures.
The Company also provides regular opportunities for the
Directors to obtain a thorough understanding of the Company's
business by regularly meeting members of the senior management team
from the Investment Manager and other service providers, both in
person and by phone.
Information and Support
Information Provided to the Board
Reports and papers, containing relevant, concise and clear
information, are provided to the Board and Committees in a timely
manner to enable review and consideration prior to both scheduled
and ad-hoc specific meetings. This ensures that Directors are
capable of contributing to, and validating, the development of
Company strategy and management. The regular reports also provide
information that enables scrutiny of the Company's Investment
Manager and other service providers' performance. When required,
the Board has sought further clarification of matters with the
Investment Manager and other service providers, both in terms of
further reports and via in-depth discussions, in order to make a
more informed decision for the Company.
Company Secretary
Under the direction of the Chairman, the Company Secretary
facilitates the flow of information between the Board, Committees,
Investment Manager and other service providers' through the
development of comprehensive meeting packs, agendas and other
media.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising on all governance matters through the
Chairman. The Articles and schedule of matters reserved for the
Board indicate the appointment and resignation of the Company
Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on
a regular basis.
Evaluation
Board and Director Evaluation
Using a pre-determined template based on the Code's provisions
as a basis for review, the Board undertakes an evaluation of its
performance and that of the Audit Committee. This was last
completed in January 2019. Additionally, an evaluation focusing on
individual commitment, performance and contribution of each
Director is conducted. The Chairman will meet with each Director to
fully understand their views of the Company's strengths and to
identify potential weaknesses. If appropriate, new members would be
proposed to resolve the perceived issues, or a resignation sought.
Due to the size and structure of the Board the evaluation of the
Chairman of the Board and Audit Committee is dealt with within the
Board and Audit evaluations.
Given the Company's size and the structure of the Board, no
external facilitator or independent third party is used in the
performance evaluation. New Directors would receive an induction
from the Investment Manager. All Directors receive other relevant
training as necessary.
Re-election and Board Tenure
The Board has considered the need for a policy regarding tenure
of office; however, the Board believes that any decisions regarding
tenure should consider the Company's investment objective and the
average length of seeking to achieve that, the need for continuity
and maintenance of knowledge and experience and to balance this
against the need to periodically refresh Board composition and have
a balance of skills, experience, age and length of service.
Each Director is required to be elected by shareholders at the
first AGM following his initial appointment to the Board. The Board
recommends the on-going re-election of each Director and supporting
biographies, including length of service, are disclosed in the
Board of Directors sections.
Section C: Accountability
The Directors' Responsibility Statement confirms that the
financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Group as a whole, whilst the Chairman's Statement includes a fair
view of the development and performance of the business and the
position of the Group.
Financial and Business Reporting
Financial and Business Information
An explanation of the Directors' roles and responsibilities in
preparing the Annual Report and Audited Consolidated Financial
Statements for the year ended 31 December 2018 is provided in the
Directors' Strategic Report and Statement of Directors'
Responsibilities.
Further information enabling shareholders to assess the
Company's performance, business model and strategy can be sourced
in the Chairman's Statement and the Directors' Strategic
Report.
In respect of the UK Criminal Finances Act 2017 which has
introduced a new corporate criminal offence ("CCO") of "failing to
take reasonable steps to prevent the facilitation of tax evasion",
the Board confirms it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
Going concern
The Consolidated Financial Statements have been prepared on the
going concern basis. The net current asset position at year end is
GBP28,436,322. The net current asset position as at 31 March 2019
is GBP30,157,534. Therefore, after making enquiries and based on
the sufficient cash reserves as at 31 December 2018, the Directors
are of the opinion that the Group has adequate resources to
continue its operational activities for the foreseeable future. The
Board is therefore of the opinion that the going concern basis
should be adopted in the preparation of the Consolidated Financial
Statements. Further detail can be found in the Viability
Statement.
Investment Manager
After careful consideration of the Investment Manager's
performance, primarily in terms of advice, managing the portfolio
and communicating effectively with shareholders, the Board agreed
that it would be in the best interests of the Company that the
Investment Manager continues on the current agreed contractual
terms.
The Investment Management Agreement will continue in force until
terminated: (i) upon the dissolution of the Investment Partnership;
(ii) by the Investment Manager, voluntarily, upon 180 days' prior
written notice to the Managing Partner and the Investment
Partnership; or (iii) automatically upon removal of the General
Partner.
Risk Management and Risk Control
The Board is required to annually review the effectiveness of
the Company's key internal controls such as financial, operational
and compliance controls and risk management. The Board has
documented the controls to be reviewed and will review their
effectiveness on an ongoing basis. The controls are designed to
ensure that the risk of failure to achieve business objectives is
managed rather than eliminated, and are intended to provide
reasonable, rather than absolute, assurance against material
misstatement or loss. Through regular meetings and meetings of the
Audit Committee, the Board seeks to maintain full and effective
control over all strategic, financial, regulatory and operational
issues.
The Board maintains an organisational and committee structure
with clearly defined lines of responsibility and delegation of
authorities. The Company's system of internal control includes
inter alia the overall control exercise, procedures for the
identification and evaluation of business risk, the control
procedures themselves and the review of these internal controls by
the Audit Committee on behalf of the Board. Each of these elements
that make up the Company's system of internal control is explained
in further detail as follows:
(i) Control environment
The Company is ultimately dependent upon the quality and
integrity of the staff and management of both its Investment
Manager, and Administration and Company Secretarial service
provider. In each case, qualified and able individuals have been
selected at all levels. The staffs of both the Investment Manager
and Administrator are aware of the internal controls relevant to
their activities and are also collectively accountable for the
operation of those controls. Appropriate segregation and delegation
of duties is in place. The Audit Committee undertakes a review of
the Company's financial controls on a regular basis.
In its role as a third-party fund administration services
provider, Ipes (Guernsey) Limited (prior to its change of name to
Apex Fund and Corporate Services (Guernsey) Limited) produced an
annual AAF 01/06 Assurance Report on the internal control
procedures in place for the year ended 30 September 2018 and this
is subject to review by the Audit Committee and the Board.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's
investment. This is managed by the Investment Manager, who
undertakes regular analysis and reporting of business risks in
relation to the STC, who then propose appropriate courses of action
to the Board for their review.
(iii) Key procedures
In addition to the above, the Board's key procedures involve a
comprehensive system for reporting financial results to the Board
regularly. A review of controls is conducted by the Audit Committee
annually, and a twice-yearly review of investment valuations by the
Board, including reports on the underlying investment
performance.
Due to the size and nature of the Company and the outsourcing of
key services to the Administrator and Investment Manager, the
Company does not have an internal audit function. It is the view of
the Board that the controls in relation to the operating,
accounting, compliance and IT risks performed robustly throughout
the year. In addition, all have been in full compliance with the
various policies and external regulations, including:
-- Investment policy, as outlined in the IPO documentation
-- Personal Account Dealing
-- Whistleblowing Policy
-- Anti-Bribery Policy
-- Applicable Financial Conduct Authority Regulations
-- Treatment and handling of confidential information
-- Conflicts of interest
-- Compliance policies
-- Market Abuse Regulation
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Board.
Each year a short questionnaire is circulated to all external
service providers requesting thorough details in regard to
controls, personnel and information technology, amongst others.
This is in order to provide additional detail when reviewing the
performance pursuant to their terms of engagement.
There were no protected disclosures made pursuant to the
whistleblowing policy of service providers in relation to the
Company, during the year ended 31 December 2018.
In summary, the Board considers that the Company's existing
internal controls, coupled with the analysis of risks inherent in
the business models of the Company and its subsidiaries, continue
to provide appropriate tools for the Company to monitor, evaluate
and mitigate its risks.
Audit Committee and Auditors
Audit Committee Responsibilities
The Audit Committee is intended to assist the Board in
discharging its responsibilities for the integrity of the Company's
financial statements, as well as aid the assessment of the
Company's internal control effectiveness and objectivity of
external auditors. Further information on the Committee's
responsibilities is given in the Report of the Audit Committee.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Manager, including their own internal
controls and procedures, provide sufficient assurance that a sound
system of risk management and internal control, which safeguards
shareholders' investment and the Group and Company's assets, is
maintained. An internal audit function specific to the Group is
therefore considered unnecessary, as explained above.
Section D: Remuneration
Level and Components of Remuneration
Directors are paid in accordance with agreed principles covering
various functions. Further information can be sourced in the
Directors' Remuneration Report.
Procedures
The Company has a formal remuneration policy, outlined in the
Directors' Remuneration Report.
Section E: Relations with Shareholders
Dialogue with Shareholders
The Directors place a great deal of importance on communication
with shareholders. The Investment Manager and Broker aim to meet
with large shareholders at least annually. The Board also receives
reports from the Brokers on shareholder issues. The Annual Report
and Audited Consolidated Financial Statements are widely
distributed to other parties who have an interest in the Company's
performance, and are available on the Company's website.
All Directors are available for discussions with the
shareholders, in particular the Chairman and the Audit Committee
Chairman, as and when required.
Alternative Investment Fund Management Directive ("AIFMD")
The AIFMD, which was introduced as from 22 July 2014, aims to
harmonise the regulation of Alternative Investment Fund Managers
("AIFMs") and imposes obligations on managers who manage or
distribute Alternative Investment Funds ("AIFs") in the EU or who
market shares in such funds to EU investors. After seeking
professional regulatory and legal advice, the Company was
established in Guernsey as a Non-EU AIF, appointing Sherborne
Investors Management (Guernsey) LLC to act as the Non-EU AIFM.
The marketing of shares in AIFs that are established outside the
EU (such as the Company) to investors in any EU member state is
prohibited unless certain conditions are met. Certain of these
conditions are outside the Company's control as they are dependent
on the regulators of the relevant third country (in this case
Guernsey) and the relevant EU member state entering into regulatory
co-operation agreements with one another.
Currently, the National Private Placement Regime ("NPPR")
provides a mechanism to market Non-EU AIFs that are not allowed to
be marketed under the AIFMD domestic marketing regimes. The Board
is utilising NPPR in order to market the Company, specifically in
the UK. The Board is working with the Company's advisers to ensure
the necessary conditions are met, and all required notices and
disclosures are made under NPPR.
Any regulatory changes arising from implementation of AIFMD (or
otherwise) that limit the Company's ability to market future issues
of its shares may materially adversely affect the Company's ability
to carry out its investment policy successfully and to achieve its
investment objective, which in turn may adversely affect the
Company's business, financial condition, results of operations, NAV
and/or the market price of the Ordinary Shares. The Board, in
conjunction with the Company's advisers, will continue to monitor
the development of AIFMD and its impact on the Company.
Foreign Account Tax Compliance Act ("FATCA") and The OECD Common
Reporting Standards ("CRS")
FATCA became effective on 1 January 2013 and is being
implemented internationally. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US Tax compliance with respect to those assets.
More than 90 jurisdictions, including 33 member countries of the
Organisation for Economic Co-operation and Development ("OECD") and
the G20 members, have committed to implement the Common Reporting
Standard for automatic exchange of tax information ("CRS").
Building on the model created by FATCA, the CRS creates a global
standard for the annual automatic exchange of financial account
information between the relevant tax authorities.
The Board in conjunction with the Company's service providers
and advisers have ensured the Company's compliance with FATCA and
CRS's requirements to the extent relevant to the Company.
Constructive Use of the AGM
The Notice of AGM is sent out at least 20 working days in
advance of the meeting. All shareholders will have the opportunity
to put questions to the Board or Manager, either formally at the
Company's AGM on 4 June 2019, informally following the meeting, or
in writing at any time during the year via the Company Secretary.
The Company Secretary is available to answer general shareholder
queries at any time throughout the year.
Report of the Audit Committee
The Board is supported by the Audit Committee, which is
comprised of three of the Directors, not including the Chairman of
the Board. The Chairman of the Board was previously a member of the
Audit Committee but stood down in anticipation of the 2018 updates
to the Code. The Board has considered the composition of the
Committee and is satisfied that there are sufficient recent
relevant skills and experience, in particular with the Chairman of
the Audit Committee, Christopher Legge, having a background as a
chartered accountant. The Board is also satisfied that the
Committee as a whole has competence relevant to the sector in which
the Company operates.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are
outlined in the Committee's Terms of Reference, available at the
registered office, including:
-- Monitoring the integrity of the financial statements of the
Company and any formal announcement relating to the Company's
financial performance, consideration of the viability statement and
reviewing significant financial reporting judgements contained
within said statements and announcements;
-- Reviewing the Company's internal financial controls, and the
Company's internal control and risk management systems;
-- Monitoring the need for an internal audit function annually;
-- Monitoring and reviewing the scope, independence, objectivity
and effectiveness of the external auditors, taking into
consideration relevant regulatory and professional
requirements;
-- Making recommendations to the Board in relation to the
appointment, re-appointment and removal of the external auditors
and approving their remuneration and terms of engagement, which in
turn can be placed to the shareholders for their approval at the
AGM;
-- Development and implementation of the Company's policy on the
provision of non-audit services by the external auditors, as
appropriate;
-- Reviewing the arrangements in place to enable Directors and
staff of service providers to, in confidence, raise concerns about
possible improprieties in matters of financial reporting or other
matters insofar as they may affect the Company;
-- Providing advice to the Board on whether the annual financial
statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the Company's performance, business model and strategy; and
-- Reporting to the Board on how the Committee discharged all
relevant responsibilities, undertaken by the Chairman at each Board
meeting.
Financial Reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, Investment
Manager and the Auditor the appropriateness of the Annual Report
and Audited Consolidated Financial Statements and Interim Condensed
Consolidated Financial Statements, concentrating on, amongst other
matters:
-- The quality and acceptability of accounting policies and practices;
-- The clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- Material areas in which significant judgements have been
applied or there has been discussion with the Auditor;
-- Whether the Annual Report and Audited Consolidated Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for the shareholders to
assess the Company's performance, business model and strategy;
and
-- Any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Audit Committee considers reports from
the Administrator and Investment Manager and also reports from the
Auditor on the outcomes of their half-year review and annual audit.
The Audit Committee supports the Auditor in displaying the
necessary professional scepticism their role requires.
The Committee met three times during the year under review;
individual attendance of Directors is outlined above. The main
matters discussed at those meetings were:
-- Review of auditor independence;
-- Review and approval of the annual audit plan of the external auditors;
-- Discussion and approval of the fee for the external audit;
-- Detailed review of the Half Year Report and Accounts and
Annual Report and Consolidated Financial Statements and
recommendation for approval by the Board;
-- Discussion of reports from the external auditors following
their interim review and annual audit;
-- Assessment of the effectiveness of the external audit process as described below;
-- Review of the Company's key risks and internal controls; and
-- Consideration of the 2016 UK Corporate Governance Code,
Guidance on Audit Committees and other regulatory guidelines, and
the subsequent impact upon the Company.
The Committee has also reviewed and considered the
whistleblowing policies in place for the Investment Manager and
Administrator, and is satisfied the relevant staff can raise
concerns in confidence about possible improprieties in matters of
financial reporting or other matters insofar as they may affect the
Company.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit
Committee appointed for the purpose, shall attend each AGM of the
Company, prepared to respond to any shareholder questions on the
Audit Committee's activities.
Internal Audit
The Audit Committee considers at least once a year whether or
not there is a need for an internal audit function. Currently, the
Audit committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Group and all outsourced functions are with parties /
administrators who have their own internal controls and procedures.
This is evidenced by the internal control reports provided by the
providers, which give sufficient assurance that a sound system of
internal control is maintained.
Significant Risks in Relation to the Financial Statements
Throughout the year, the Audit Committee identified a number of
significant issues and areas of key audit risks in respect of the
Annual Report and Audited Consolidated Financial Statements. The
Committee reviewed the external audit plan at an early stage and
concluded that the appropriate areas of audit risk relevant to the
Company had been identified and that suitable audit procedures had
been put in place to obtain reasonable assurance that the financial
statements as a whole would be free of material misstatements. The
below table sets out the key areas of risk identified and how the
Committee addressed the issues.
Significant Issue Actions to Address Issue
Valuation and ownership of investment The Audit Committee and Board
- focus upon one target company review detailed portfolio valuations
means that any errors in valuation, on a regular basis throughout
depending on their size, can the year under review, and receive
be highly material. A key risk confirmation from the Investment
is incorrect pricing used based Manager that the pricing basis
on requirement of IFRS taking is appropriate and in line with
into account the market for relevant accounting standards.
those shares.
--------------------------------------
Auditor Tenure and Objectivity
The Company's Auditor, Deloitte LLP, has been appointed to act
pursuant to an Engagement Letter signed on August 2018. The
Committee reviews the Auditor's performance on a regular basis with
a detailed formal review conducted on an annual basis to ensure the
Company receives an optimal service. The re-appointment of the
Company's Auditor will be subject to annual shareholder approval at
the AGM. The Auditor is required to rotate the audit partner
regularly every five years. There are no contractual obligations
restricting the choice of external auditor and the company will
consider putting the audit services contract out to tender at least
every ten years. In line with the FRC's suggestions on audit
tendering, this will be considered further when the audit partner
rotates, and therefore will be discussed before 2022.
Deloitte LLP will regularly update the Committee on the rotation
of audit partners, staff, level of fees in proportion to overall
fee income of the Company, details of any relationships between the
Auditor, the Company and any target company, and also provides
overall confirmation from the Auditor of their independence and
objectivity.
In addition to the audit related remuneration, GBP16,300
non-audit fees were paid to the Auditor in relation to the interim
review and GBP28,019 in tax compliance fees.
The Audit Committee undertook a formal review of the external
Auditor for the year ended 31 December 2018, with no issues
arising. As a result of their review, the Committee is satisfied
that Deloitte LLP is independent of the Company, the Investment
Manager and other service providers and recommends the continuing
appointment of the Auditor to the Board. There are currently no
plans for retendering the audit.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and
Audited Consolidated Financial Statements is a comprehensive
process requiring input from a number of different contributors. In
order to reach a conclusion on whether the Company's financial
statements are fair, balanced and understandable, the Board has
requested that the Committee advise on whether it considers that
the Annual Report and Financial Statements fulfils these
requirements. In outlining their advice, the Committee has
considered the following:
-- The comprehensive documentation that is in place outlining
the controls in place for the production of the Annual Report,
including the verification processes in place to confirm the
factual content;
-- The detailed reviews undertaken at various stages of the
production process by the Investment Manager, Administrator and the
Committee that are intended to ensure consistency and overall
balance; and
-- The controls enforced by the Investment Manager,
Administrator and other third party service providers to ensure
complete and accurate financial records and security of the
Company's assets.
As a result of the work performed during the year, the Audit
Committee has concluded it has acted in accordance with its terms
of reference and ensured the independence and objectivity of the
external Auditor. The Annual Report for the year ended 31 December
2018, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy, and has
reported on these findings to the Board. The Board's conclusions in
this respect are set out in the Statement of Directors'
Responsibilities.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the Consolidated Financial Statements for each financial year
which give a true and fair view, in accordance with applicable laws
and regulations, of the state of affairs of the Company and of the
profit and loss of the Company for that year.
The Companies (Guernsey) Law, 2008 requires the directors to
prepare financial statements for each financial year. The financial
statements have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European
Union. In preparing these financial statements, International
Accounting Standard 1 ("IAS1") requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance; and
-- make an assessment of the Group's ability to continue as a going concern.
The Directors confirm that they have complied with the above
requirements in preparing the Consolidated Financial Statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose with reasonable accuracy at any time the
financial position of the company and enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008.
They are also responsible for safeguarding the assets of the
company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities. The Directors are
responsible for the maintenance and integrity of the corporate and
financial information included on the Company's website.
Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
-- the Chairman's Statement, Directors' Strategic Report and
Corporate Governance Statement include a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
In accordance with section 249 of the Companies (Guernsey) Law,
2008, each of the Directors confirms that, to the best of their
knowledge:
-- There is no relevant audit information of which the Company's Auditors are unaware;
-- All Directors have taken the necessary steps that they ought
to have taken to make themselves aware of any relevant audit
information and to establish that the Auditor is aware of said
information.
Independent Auditor's Report to the Members of Sherborne
Investors (Guernsey) C Limited
Report on the audit of the financial statements
Opinion
=============================================================================
In our opinion the financial statements of Sherborne Investors
(Guernsey) C Limited (the 'parent company') and its subsidiaries
(the 'group'):
* give a true and fair view of the state of the group's
affairs as at 31 December 2018 and of the group's
loss for the year then ended;
* have been properly prepared in accordance with
International Financial Reporting Standards (IFRSs)
as adopted by the European Union; and
* have been prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
* the Consolidated Statement of Comprehensive Income;
* the Consolidated Statement of Financial Position
* the Consolidated Statement of Changes in Equity
* the Consolidated Statement of Cash Flows
* the related notes 1 to 15
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
Basis for opinion
===============================================================================
We conducted our audit in accordance with International Standards
on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor's responsibilities
for the audit of the financial statements section of our report.
We are independent of the group in accordance with the ethical
requirements that are relevant to our audit of the financial statements
in the UK, including the Financial Reporting Council's (the 'FRC's')
Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Summary of our audit approach
===========================================================================================
Key audit matters The key audit matter that we identified in the current
year was:
* Valuation and ownership of Investments at fair value
through profit or loss.
----------------------------- ============================================================
Materiality The materiality that we used for the group financial
statements in the current year was GBP4,688,000 which
was determined on the basis of 1% of net asset value
----------------------------- ============================================================
Scoping Audit work to respond to the risks of material misstatement
was performed directly by the group audit engagement
team.
----------------------------- ============================================================
Significant Our materiality benchmark was revised to 1% of net
changes in our asset value for the year ended 31 December 2018 from
approach 2% of net asset value used for the year-ended 31
December 2017, due to further industry benchmarking.
We also deem the prior year key audit matter in relation
to the basis of calculation of the incentive fee
to no longer be a key audit matter as no incentive
fee is due.
============================================================
Conclusions relating to going concern
===========================================================================================================================
Going concern We confirm that we have
We have reviewed the directors' statement nothing material to report,
in note 1 to the financial statements about add or draw attention
whether they considered it appropriate to to in respect of these
adopt the going concern basis of accounting matters.
in preparing them and their identification We confirm that we have
of any material uncertainties to the group's nothing material to report,
ability to continue to do so over a period add or draw attention
of at least twelve months from the date to in respect of these
of approval of the financial statements. matters.
Principal risks and viability statement
Based solely on reading the directors' statements
and considering whether they were consistent
with the knowledge we obtained in the course
of the audit, including the knowledge obtained
in the evaluation of the directors' assessment
of the group's ability to continue as a
going concern, we are required to state
whether we have anything material to add
or draw attention to in relation to:
-- the disclosures that describe the principal
risks and explain how they are being managed
or mitigated;
-- the directors' confirmation that they
have carried out a robust assessment of
the principal risks facing the group, including
those that would threaten its business model,
future performance, solvency or liquidity;
or
-- the directors' explanation as to how
they have assessed the prospects of the
group, over what period they have done so
and why they consider that period to be
appropriate, and their statement as to whether
they have a reasonable expectation that
the group will be able to continue in operation
and meet its liabilities as they fall due
over the period of their assessment, including
any related disclosures drawing attention
to any necessary qualifications or assumptions.
Key audit matters
======================================================================================================================
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement
team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
The prior year key audit matter "basis and calculation of the
incentive fee" is not deemed to be a key audit matter for the
year ended 31 December 2018 due to the performance of the group
being such that no incentive fee is due to the Special Limited
Partner of SIGC, LP (Incorporated).
Valuation and ownership of investments at fair value through profit
or loss
Key audit matter The investment balance at 31 December 2018 had a
description fair value of GBP440.4m (2017: GBP307.9m), representing
93% (2017: 44%) of the group's net asset value. This
is comprised of three investments in the form of
listed equity investment in the selected target company
("STC"), Barclays Plc ("Barclays"), and investment
in two Funds through which further investment in
Barclays is attained. Details of the investments
are disclosed in note 5, and the accounting policies
relating to them are disclosed in note 1 (d). This
is further discussed in the Report of the Audit Committee.
Investments are the most quantitatively significant
balance on the Consolidated Statement of Financial
Position and is an area of focus as they drive the
performance and net asset value of the group. Owing
to the fact that Key Performance Indicators and performance
based remuneration are based on the net asset value
of the group we have determined there to be the potential
for fraud through possible manipulation of the balance.
The risk of material misstatement exists that the
group's investment is not accurately valued based
on relevant information that is representative of
its value and that it may not be representative of
its value in accordance with IFRS 13 - Fair Value
Measurement ('IFRS 13').
There is also a risk of material misstatement that
the incorrect number of shares owned by the group
is recognised at year-end, resulting in a material
misstatement of the calculation of the fair value
of investments. This includes investment trades being
recorded in the incorrect period, resulting in an
incorrect number of shares being recognised in the
financial statements.
=================================== =================================================================================
How the scope In order to test the investments balance as at 31
of our audit December 2018 we performed the following procedures:
responded to * Assessed the design and implementation of controls
the key audit relating to the valuation of investments to determine
matter whether appropriate oversight had been exercised
within the valuation process. This included reviewing
the controls adopted by the group's administrator and
a review of the AAF 01/06 report to the group's
administrator;
* Assessed the valuation policy and methodology adopted
by management in order to assess compliance to IFRS
13 - Fair Value Measurement ("IFRS 13");
* Reconciled the investment holdings as at 31 December
2018 to an independently received confirmation from
the group's custodian and the signed and exectued
operating agreements of the Fund investments;
* We considered the liquidity of the investment in
Barclays in order to assess whether there is a
sufficiently active market to allow for use of an
unadjusted level 1 price;
* Obtained independent pricing information as at 31
December 2018, and audited financial statements of
the Funds in order to recalculate the fair value of
the group's investment;
* Held discussions with the auditors of the Fund
investments to understand the work undertaken in
respect of the underlying investments and
specifically that the valuation of the investments
held are consistent with IFRS 13; and
* Tested the initial cost and cut-off of investment
transactions by agreeing all investment transactions
to independent confirmations.
=================================== =================================================================================
Key observations Based on the work performed we conclude that the
valuation of the investments held at fair value through
profit or loss is appropriate.
=================================== =================================================================================
Our application of materiality
===============================================================================================================
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work
and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows: Group materiality GBP4,688,000 (2017: GBP13,919,000)
----------------------
Basis for determining 1% of the group net asset value (2017: 2% of the
materiality group net asset value)
---------------------- =========================================================
Rationale for In determining the materiality, we considered what
the benchmark the most important balances on which the users
applied of the financial statements would judge the performance
of the group. As the investment objective of the
group is to invest in a selected group identified
by the investment manager and realise a return
on the growth in fair value of the investment,
we consider the net asset value of the group to
be a key performance indicator for shareholders.
We have revised the percentage applied to this
benchmark from the prior year (from 2% to 1%) having
taken into account industry benchmarking.
=========================================================
To view the graph please see attached the PDF version of the Annual
Report.
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP232,000 (2017:
GBP695,950), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we identified
when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
===================================================================================
Our group audit was scoped by obtaining an understanding of the
group and its environment, including group-wide controls, and assessing
the risks of material misstatement at the group level.
Sherborne Investors (Guernsey) C Limited is a limited partner in
SIGC, LP ("the Investment Partnership"), together "the Group",
holding a 99.98% capital interest. The Investment Partnership holds
the underlying investment in the STC. Deloitte LLP have audited
both the Group and the Investment Partnership, to a component materiality
level of GBP4,633,000 and therefore the audit team have audited
the whole Group directly.
At the parent entity level we also tested the consolidation process
and carried out analytical procedures to confirm our conclusion
that there were no significant risks of material misstatement of
the aggregated financial information of the remaining components
not subject to audit or audit of specified account balances.
The administrator maintains the books and records of the entity.
Our audit therefore included obtaining an understanding of this
service organisation (including obtaining and reviewing their controls
assurance report) and its relationship with the entity.
Other information
===================================================================================
The directors are responsible for the other We have nothing to report
information. The other information comprises in respect of these matters.
the information included in the annual report,
other than the financial statements and
our auditor's report thereon.
Our opinion on the financial statements
does not cover the other information and
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read
the other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained in
the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether there is a
material misstatement in the financial statements
or a material misstatement of the other
information. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information,
we are required to report that fact.
Responsibilities of directors
=======================================================================================================
As explained more fully in the statement of director's responsibilities,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud
or error.
In preparing the financial statements, the directors are responsible
for assessing the group's ability to continue as a going concern,
disclosing as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors
either intend to liquidate the group or to cease operations, or
have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
=======================================================================================================
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic decisions
of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor's report.
Report on other legal and regulatory requirements
Matters on which we are required to report by exception
=================================================================================================
Adequacy of explanations received and accounting We have nothing to report
records in respect of these matters.
Under the Companies (Guernsey) Law, 2008
we are required to report to you if, in
our opinion:
* we have not received all the information and
explanations we require for our audit; or
* proper accounting records have not been kept by the
parent company; or
* the financial statements are not in agreement with
the accounting records.
Use of our report
============================================================================
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state
to the company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions
we have formed.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
1 January 2018 to 25 May 2017 to
31 December 2018 31 December 2017
Notes GBP GBP GBP GBP
------------------------------ ------ --------------- -------------------- ----------------- ------------
Income 1(e)
Unrealised gain/(loss)
on investments held at
fair value through profit 1(d),
or loss 5 (208,982,908) 675,470
Realised gain/(loss) on
investments 5 (13,818,011) 8,449,909
Dividend income 6 3,908,306 844,134
Bank interest income 309,399 299,378
------------------------------ ------ --------------- -------------------- ----------------- ------------
(218,583,214) 10,268,891
------------------------------ ------ --------------- -------------------- ----------------- ------------
Expenses 1(f)
Management fees 12 5,077,000 96,831
Trading and custodian fees 2,060,765 1,002,433
Professional fees 927,028 67,179
Administrative fees 210,878 158,548
Directors' fees 2 160,000 96,264
Other fees 188,363 124,466
(8,624,034) (1,545,721)
------------------------------ ------ --------------- -------------------- ----------------- ------------
Comprehensive income/(loss) (227,207,248) 8,723,170
------------------------------ ------ --------------- -------------------- ----------------- ------------
Comprehensive income/(loss)
attributable to:
Shareholders (227,151,537) 6,941,982
Non-controlling interest
(NCI) 1(b) (55,711) 1,781,188
------------------------------ ------ --------------- -------------------- ----------------- ------------
Weighted average number
of shares outstanding 4 700,000,000 700,000,000
Basic and diluted earnings
per share attributable
to shareholders (excluding
NCI) (32.45)p 0.99p
------------------------------ ------ --------------- -------------------- ----------------- ------------
All revenue and expenses are derived from continuing
operations.
Consolidated Statement of Financial Position
As at 31 December 2018
2018 2017
Notes GBP GBP GBP GBP
--------------------------- ------ ----------- -------------- ------------- ------------
Non-Current Assets
Financial assets at
fair value through
profit or loss 5 440,387,201 307,930,107
--------------------------- ------ ----------- -------------- ------------- ------------
440,387,201 307,930,107
--------------------------- ------ ----------- -------------- ------------- ------------
Current Assets
Cash and cash equivalents 8 28,521,320 412,598,019
Prepaid expenses 7 21,768 43,210
28,543,088 412,641,229
--------------------------- ------ ----------- -------------- ------------- ------------
Current Liabilities
Pending trades 5 - (24,426,639)
Trade and other payables 9 (106,766) (171,926)
(106,766) (24,598,565)
--------------------------- ------ ----------- -------------- ------------- ------------
Net Current Assets 28,436,322 388,042,664
--------------------------- ------ ----------- -------------- ------------- ------------
Net Assets 468,823,523 695,972,771
--------------------------- ------ ----------- -------------- ------------- ------------
Capital and Reserves
Called up share capital
and share premium 10 688,939,403 688,939,403
Retained reserves (220,209,555) 6,941,982
--------------------------- ------ ----------- -------------- ------------- ------------
Equity attributable
to the Company 468,729,848 695,881,385
--------------------------- ------ ----------- -------------- ------------- ------------
Non-controlling interest
(NCI) 1(b) 93,675 91,386
--------------------------- ------ ----------- -------------- ------------- ------------
Total Equity 468,823,523 695,972,771
--------------------------- ------ ----------- -------------- ------------- ------------
NAV Per Share (excluding
NCI) 11 66.96p 99.41p
--------------------------- ------ ----------- -------------- ------------- ------------
The Consolidated Financial Statements were approved by the Board
of Directors for issue on 29 April 2019.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Capital Non-
and Share Retained Controlling Total
Premium Reserves Interests Equity
Notes GBP GBP GBP GBP
-------------------------- ------ -------------- -------------- ------------- --------------
Balance at 1 January
2018 688,939,403 6,941,982 91,386 695,972,771
-------------------------- ------ -------------- -------------- ------------- --------------
Contributions - - 58,000 58,000
Total comprehensive loss - (227,162,902) (44,346) (227,207,248)
1(l),
Incentive allocation 12 - 11,365 (11,365) -
Balance at 31 December
2018 688,939,403 (220,209,555) 93,675 468,823,523
-------------------------- ------ -------------- -------------- ------------- --------------
Share Capital Non-
and Share Retained Controlling Total
Premium Reserves Interests Equity
Notes GBP GBP GBP GBP
---------------------------- ------ -------------- ------------ ------------- ------------
Balance at 25 May 2017 - - - -
---------------------------- ------ -------------- ------------ ------------- ------------
Proceeds of share issue 10 688,939,403 - - 688,939,403
Contributions - - 120,000 120,000
Total comprehensive income - 8,721,390 1,780 8,723,170
1(l),
Incentive allocation 12 - (1,779,408) 1,779,408 -
Distribution 14 - - (1,809,802) (1,809,802)
---------------------------- ------ -------------- ------------ ------------- ------------
Balance at 31 December
2017 688,939,403 6,941,982 91,386 695,972,771
---------------------------- ------ -------------- ------------ ------------- ------------
Consolidated Statement of Cash Flows
1 January 2018 25 May 2017
to 31 December to 31 December
For the year ended 31 December 2018 Notes 2018 2017
GBP GBP GBP
------------------------------------------------ ------ ---------------- ----------------
Net cash flows used in operating activities (6,487,294) (572,871)
------------------------------------------------ ------ ---------------- ----------------
Investing activities
Purchase of investments (953,804,267) (366,177,113)
Proceeds from disposal of investments 575,847,463 91,799,024
Bank interest income 309,399 299,378
Net cash flows used in investing activities (377,647,405) (274,078,711)
------------------------------------------------ ------ ---------------- ----------------
Financing activities
Issue of share premium 10 - 700,000,000
Cost of share issue 10 - (11,060,597)
Contributions from Non-controlling
interest 58,000 120,000
Distribution to Non-controlling interest - (1,809,802)
Net cash flows from financing activities 58,000 687,249,601
------------------------------------------------ ------ ---------------- ----------------
Net movement in cash and cash equivalents (384,076,699) 412,598,019
Opening cash and cash equivalents 412,598,019 -
------------------------------------------------ ------ ---------------- ----------------
Closing cash and cash equivalents 28,521,320 412,598,019
------------------------------------------------ ------ ---------------- ----------------
Net cash flows used in operating activities
------------------------------------------------ ------ ---------------- ----------------
Total consolidated comprehensive income/(loss) 47 (227,207,248) 8,723,170
Realised (gain)/loss on investments 13,818,011 (8,449,909)
Unrealised (gain)/loss on investments
held at fair value through profit
or loss 208,982,908 (675,470)
Scrip dividend 6 (1,727,848) -
Movement in prepaid expenses 7 21,442 (43,210)
Movement in trade and other payables 9 (65,160) 171,926
Bank interest income (309,399) (299,378)
Net cash flows used in operating activities (6,487,294) (572,871)
------------------------------------------------ ------ ---------------- ----------------
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
1. Summary of significant accounting policies
Reporting entity
Sherborne Investors (Guernsey) C Limited (the "Company") is a
closed-ended investment company with limited liability formed under
the Companies (Guernsey) Law, 2008. The Company was incorporated
and registered in Guernsey on 25 May 2017. The Company commenced
dealings on the London Stock Exchange's Specialist Fund Segment
("SFS") on 12 July 2017. The Company's registered office is 1 Royal
Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1
2HL. The "Group" is defined as the Company and its subsidiaries,
SIGC, LP (Incorporated) and SIGC Midco Limited.
Basis of preparation
The Consolidated Financial Statements of the Group have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the European Union, which comprise
standards and interpretations approved by the International
Accounting Standards Board (the "IASB") and International
Accounting Standards and Standing Interpretations Committee
interpretations approved by the International Accounting Standards
Committee (the "IASC") that remain in effect, together with
applicable legal and regulatory requirements of Guernsey law. The
Directors of the Company have taken the exemption in Section 244 of
the Companies (Guernsey) Law, 2008 (as amended) and have therefore
elected to only prepare Consolidated Financial Statements for the
year.
These Consolidated Financial Statements have been prepared on
the historical cost basis, as modified by the measurement at fair
value of investments.
Going concern
Under the UK Corporate Governance Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Company is a going concern.
The Board is of the opinion that the going concern basis should
be adopted in the preparation of the Consolidated Financial
Statements. Further detail can be found in the Viability
Statement.
The Directors have undertaken a rigorous review of the Group's
ability to continue as a going concern including reviewing the
ongoing cash flows and the level of cash balances as of the
reporting date as well as taking forecasts of future cash flows
into consideration and are of the opinion that the Group has
adequate resources to continue its operational activities for the
foreseeable future.
After making enquiries of the Investment Manager and the
Administrator, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly, they continue to adopt a
going concern basis in preparing these audited consolidated
financial statements. Please see the Corporate Governance
section.
Critical accounting judgments and key sources of estimation
uncertainty
The preparation of the Group's Consolidated Financial Statements
requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities and contingencies at
the date of the Group's Consolidated Financial Statements and
revenue and expenses during the reported year. Actual results could
differ from those estimated.
i) Source of estimation uncertainty: Investments at fair value
through profit or loss
The Group's investments are measured at fair value for financial
reporting purposes. Fair value of financial assets quoted on the
London Stock Exchange are based on the quoted closing price at 31
December 2018. The fair value of other financial assets are based
on the net asset value of the investment. The main contribution to
their net asset value is the quoted closing price on the London
Stock Exchange at 31 December 2018.
ii) Critical accounting judgement: Incentive allocation
As more fully described in Note 12, the Special Limited Partner
is entitled to receive an incentive allocation once aggregate
distributions to Partners of the Investment Partnership exceed a
certain level. The basis of the incentive calculation differs
depending on how the investment in the Selected Target Company
("STC") is ultimately characterised (i.e. as a Turnaround or Stake
Building Investment).
iii) Critical accounting judgement: Consolidation of
entities
The Group holds majority interest in other financial assets, as
described in Note 5, however does not have the ability to exercise
control over these assets. They are therefore not consolidated and
are held at fair value through profit or loss.
Adoption of new and revised standards
(i) New standards adopted as at 1 January 2018:
IFRS 9 'Financial Instruments' ("IFRS 9") replaces IAS 39
'Financial Instruments: Recognition and Measurement'. It makes
major changes to the previous guidance on the classification and
measurement of financial assets and introduces an 'expected credit
loss' model for the impairment of financial assets. Under IFRS 9,
the classification of assets is driven by the business model in
which the financial asset is managed and the contractual nature of
the cash flows arising from the investment. The Company invests in
financial assets with a view to profiting from their total return
in the form of interest and changes in fair value, and so these
investments are classified as fair value through profit or loss,
consistent with the prior period. The treatment of other assets and
liabilities also remains unchanged.
IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15")
replaces IAS 18 'Revenue' and several revenue-related
Interpretations. There are no changes to the recognition of income
by the Company as a result of the new Standard as the Company's
revenue generating activities are not within the scope of IFRS
15.
(ii) Amendments early adopted by the Company:
There were no standards, amendments and interpretations early
adopted by the Company.
(iii) Standards, amendments and interpretations in issue but not
yet effective:
New standards Effective date
------------------------------------------------------- -----------------
IFRS Leases 1 January
16 2019
IAS 19 Amendments: Plan Amendment, Curtailment 1 January
or Settlement 2019
IAS 28 Amendments: Long-term Interest in Associates 1 January
and Joint Ventures 2019
IFRS Amendments: Prepayment Features with Negative 1 January
9 Compensation 2019
IFRS Insurance contracts 1 January
17 2021
Unless stated otherwise, the Directors do not consider the
adoption of new and revised Accounting Standards and
Interpretations to have a material impact as the new standards or
amendments are not relevant to the operations of the Company.
a. Basis of consolidation
The Consolidated Financial Statements incorporate the financial
statements of the Company and two entities controlled by the
Company (its subsidiaries). Control is achieved where the Company
has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.
Investments where a majority interest is held but control is not
achieved are held at fair value through profit or loss.
Non-controlling interests in the net assets of the consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and the
non-controlling entities' share of changes in equity since the date
of the combination. Losses applicable to the non-controlling
entities in excess of their interest in the subsidiaries equity are
allocated against their interests to the extent that this would
create a negative balance.
Where necessary, adjustments are made to the financial
statements of the subsidiary to bring the accounting policies used
into line with those used by the Group.
All intra-group transactions, balances and expenses are
eliminated on consolidation.
The Company, via SIGC Midco Limited, a 100% owned subsidiary,
owns 99.98% of the capital interest in SIGC, LP (Incorporated).
Whilst the general partner of SIGC, LP (Incorporated), Sherborne
Investors (Guernsey) GP, LLC, a company registered in Delaware,
USA, is responsible for directing the day to day operations of
SIGC, LP (Incorporated), the Company, through its majority interest
in SIGC, LP (Incorporated), has the ability to approve the proposed
investment of SIGC, LP (Incorporated) and to remove the general
partner. Hence, the Company has consolidated SIGC, LP
(Incorporated) and SIGC Midco Limited in its financial
statements.
b. Non-controlling interest
The interest of non-controlling parties in the subsidiary is
measured at the minority's proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.
c. Functional currency
Items included in the Consolidated Financial Statements of the
Group are measured using the currency of the primary economic
environment in which the entity operates (the "functional
currency"). The Consolidated Financial Statements are presented in
Pound Sterling ("GBP"), which is the Group's functional and
presentational currency. Transactions in currencies other than GBP
are translated at the rate of exchange ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign
currencies at the date of the Consolidated Statement of Financial
Position are retranslated into GBP at the rate of exchange ruling
at that date. Exchange differences are reported in the Consolidated
Statement of Comprehensive Income.
Investments, including equity and loan investments in
associates, are designated as fair value through profit or loss in
accordance with IFRS 9, as the Company is an investment company
whose business is investing in financial assets with a view to
profiting from their total return in the form of interest and
changes in fair value. Under International Accounting Standard 28
'Investments in Associates' ("IAS 28"), the fund can hold its
investments at fair value through profit or loss rather than as an
associate as SIGC, LP (Incorporated) is a closed-ended fund.
Investments in voting shares, convertible bonds and derivative
contracts are initially recognised at cost. The investments in
voting shares, convertible bonds and derivative contracts are
subsequently re-measured at fair value, as determined by the
Directors. Unrealised gains or losses arising from the revaluation
of investments in voting shares, convertible bonds and derivative
contracts are taken directly to the Consolidated Statement of
Comprehensive Income.
The Group's investments are measured at fair value for financial
reporting purposes. Fair value of financial assets quoted on the
London Stock Exchange are based on the quoted closing price at 31
December 2018. The fair value of other financial assets are based
on the net asset value of the investment. The other investments
invest in financial assets quoted on the London Stock Exchange as
well as through derivative instruments and so the main contribution
to their net asset value is the quoted closing price at 31 December
2018.
In determining fair value in accordance with IFRS 13 'Fair Value
Measurement' ("IFRS 13"), investments measured and reported at fair
value are classified and disclosed in one of the following
categories within the fair value hierarchy:
Level I - An unadjusted quoted price for identical assets and
liabilities in an active market provides the most reliable evidence
of fair value and is used to measure fair value whenever available.
As required by IFRS 13, the Group will not adjust the quoted price
for these investments, even in situations where it holds a large
position and a sale could reasonably impact the quoted price.
Level II - Inputs are other than unadjusted quoted prices in
active markets, which are either directly or indirectly observable
as of the reporting date, and fair value is determined through the
use of models or other valuation methodologies.
Level III - Inputs are unobservable for the investment and
include situations where there is little, if any, market activity
for the investment. The inputs into the determination of fair value
require significant management judgement or estimation.
The Group's investments are summarised by Level in Note 5. On
disposal of shares or conversion of bonds, cost of investments are
allocated on a first in, first out basis.
e. Revenue recognition
Dividend income is recognised when the Group's right to receive
payment has been established. Tax suffered on dividend income for
which no relief is available is treated as an expense.
Interest receivable from short-term deposits and investment
income are recognised on an accruals basis. Where receipt of
investment income is not likely until the maturity or realisation
of an investment then the investment income is accounted for as an
increase in the fair value of the investment.
f. Expenses
All expenses are accounted for on an accruals basis. Expenses
are charged through the Consolidated Statement of Comprehensive
Income.
g. Prepaid expenses and trade receivables
Trade and other receivables are initially recognised at fair
value and subsequently where necessary remeasured at amortised cost
using the effective interest method. A provision for impairment of
trade receivables is established when there is objective evidence
the Group will not be able to collect all amounts due according to
the original terms of the receivables. The Group only holds trade
receivables with no financing component and which have maturities
of less than 12 months at amortised cost and has therefore applied
the simplified approach to expected credit loss.
h. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, call and
current balances with banks and similar institutions, which are
readily convertible to known amounts of cash and which are subject
to insignificant risk of changes in value. This definition is also
used for the Consolidated Statement of Cash Flows.
i. Trade and other payables
Trade and other payables are initially recognised at fair value
and subsequently, where necessary, re-measured at amortised cost
using the effective interest method.
j. Financial instruments
Financial assets and liabilities are recognised in the Group's
Consolidated Statement of Financial Position when the Group becomes
a party to the contractual provisions of the instrument.
k. Segmental reporting
As the Group invests in one investee company, there is no
segregation between industry, currency or geographical location. No
further disclosures have been made in conjunction with IFRS 8
'Operating Segments' as it is deemed not to be applicable.
l. Incentive allocation
The incentive allocation is accounted for on an accrual basis
and the calculation is disclosed in Note 12. The incentive
allocation is payable to the non-controlling interest and therefore
recognised in the Consolidated Statement of Changes in Equity
rather than recognised as an expense in the Consolidated Statement
of Comprehensive Income.
2. Comprehensive income/(loss)
The consolidated comprehensive income/(loss) has been arrived at
after charging:
1 January 2018 25 May 2017
to 31 December to 31 December
2018 2017
GBP GBP
----------------------------------------- ---------------- ----------------
Directors' fees 160,000 96,264
Auditor's remuneration - Audit 24,291 29,610
Auditor's remuneration - Interim review 16,300 -
In addition to the audit and half-yearly review related
remuneration above, a further GBP28,019 was paid to the Auditor for
Tax compliance services (2017: GBPNil).
3. Tax on ordinary activities
The Company has been granted exemption from income tax in
Guernsey under the Income Tax (Exempt Bodies) (Bailiwick of
Guernsey) Ordinance 1989, and is liable to pay an annual fee
(currently GBP1,200) under the provisions of the Ordinance. As such
it will not be liable to income tax in Guernsey other than on
Guernsey source income (excluding deposit interest on funds
deposited with a Guernsey bank). No withholding tax is applicable
to distributions to Shareholders by the Company.
The Investment Partnership will not itself be subject to
taxation in Guernsey. No withholding tax is applicable to
distributions to partners of the Investment Partnership.
Income which is wholly derived from the business operations
conducted on behalf of the Investment Partnership with, and
investments made in, persons or companies who are not resident in
Guernsey will not be regarded as Guernsey source income. Such
income will not therefore be liable to Guernsey tax in the hands of
non-Guernsey resident limited partners.
Dividend income is shown gross of any withholding tax.
4. Earnings per share
The calculation of basic and diluted earnings per share is based
on the return on ordinary activities less total comprehensive
income attributable to the non-controlling interest and on there
being 700,000,000 (2017: 700,000,000) weighted average number of
shares in issue during the year.
Weighted Average
Date Shares Days in issue Shares
1 January 2018 700,000,000 365 700,000,000
31 December
2018 700,000,000 700,000,000
5. Financial assets at fair value through profit or loss
2018 2017
GBP GBP
--------------------------------------- -------------- -------------
Opening fair value 307,930,107 -
Purchases of investments 965,538,700 390,603,752
Scrip dividend 1,727,848 -
Disposal of investments (612,008,535) (91,799,024)
Unrealised gain/(loss) on investments
held at fair value through profit or
loss (208,982,908) 675,470
Realised gain/(loss) on investments (13,818,011) 8,449,909
--------------------------------------- -------------- -------------
Closing fair value 440,387,201 307,930,107
--------------------------------------- -------------- -------------
At 31 December 2018, there were no investment purchases which
had not been settled (2017: GBP24,426,639). These are included in
the investment cost and pending trades.
The Board of Directors approved Barclays PLC ("Barclays"), a
London Stock Exchange listed bank holding company, as the new STC
and as at 31 December 2018, the Group held 87,218,309 Barclays
shares. The investment in Barclays is classified as meeting the
definition of Level I in the fair value hierarchy. As at 31
December 2017, the investments held related to Contract for
Differences in Barclays and were considered Level II
investments.
The Group also holds non-controlling interests in Whistle
Investors LLC and Whistle Investors II LLC (together the "Whistle
entities"). The Whistle entities were organised to invest in the
STC. Whistle Investors II LLC invests directly into Barclays.
Whistle Investors LLC's investment into Barclays includes
derivatives valued using unobservable inputs derived from the
underlying investment. The Level II and Level III investments
disclosed in the financial statements are solely comprised of the
Groups interest in Whistle Investors II LLC and Whistle Investors
LLC, respectively. The value of those investments equates to the
Group's maximum exposure to loss from the Whistle entities.
The following tables summarise by level within the fair value
hierarchy the Group's financial assets and liabilities at fair
value as follows:
Level I Level II Level III Total
31 December 2018 GBP GBP GBP GBP
-------------------------------- ------------ ----------- ------------ ------------
Financial assets at fair value
through profit and loss 131,280,999 86,288,245 222,817,957 440,387,201
Level I Level II Level III Total
31 December 2017 GBP GBP GBP GBP
-------------------------------- --------- ------------ ---------- ------------
Financial assets at fair value
through profit and loss - 307,930,107 - 307,930,107
A reconciliation of fair value measurements in Level III is set
out in the following table:
2018 2017
GBP GBP
----------------------- -------------- -----
Opening fair value - -
Purchases at cost 392,150,789 -
Proceeds from disposal (29,146,450) -
Movement in fair value (140,186,382) -
----------------------- -------------- -----
Closing fair value 222,817,957 -
----------------------- -------------- -----
The key unobservable inputs in the valuation of the Level 3
investment are the option and bond value. A reasonable change of
+/- 10% and 0.5% of the value of the options and bonds,
respectively, would result in the fair value of the investment
increasing/decreasing by approximately GBP5.6 million.
6. Dividend income
On 22 February 2018, Barclays declared a dividend of 2.0 pence
per share, paid on 5 April 2018 to shareholders of record on 2
March 2018. As a member of the Barclays PLC Scrip Dividend
Programme, the Group received 825,891 shares in lieu of cash, which
equates to GBP1,727,848.
On 2 August 2018, Barclays declared a dividend of 2.5 pence per
share, paid on 17 September 2018 to shareholders of record on 10
August 2018. The Group received a cash dividend of
GBP2,180,458.
7. Prepaid expenses
2018 2017
GBP GBP
------------------------ ------- -------
Other prepaid expenses 21,768 43,210
------------------------ ------- -------
Total 21,768 43,210
------------------------ ------- -------
8. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group and
short term deposits held with various banking institutions. The
carrying amount of these assets approximates their fair value.
9. Trade and other payables
2018 2017
GBP GBP
----------------------------- -------- --------
Professional fees payable 44,177 78,635
Administration fees payable 36,509 67,172
Audit fees payable 26,080 26,119
Total 106,766 171,926
----------------------------- -------- --------
10. Share capital and share premium
2018 2017
Consolidated Consolidated
--------------------------------- ------------- -------------
Authorised share capital No. No.
Ordinary Shares of no par value Unlimited Unlimited
--------------------------------- ------------- -------------
Issued and fully paid No. No.
Ordinary Shares of no par value 700,000,000 700,000,000
--------------------------------- ------------- -------------
2018 2017
Consolidated Consolidated
---------------------------------- ------------- -------------
Share premium account GBP GBP
Share premium account upon issue 700,000,000 700,000,000
Less: Cumulative costs of issue (11,060,597) (11,060,597)
Balance 688,939,403 688,939,403
---------------------------------- ------------- -------------
11. Net asset value per share attributable to the Company
Consolidated
Pence per
No. of Shares Share
------------------- -------------- -------------
31 December 2018
Ordinary Shares
Basic and diluted 700,000,000 66.96
31 December 2017
Ordinary Shares
Basic and diluted 700,000,000 99.41
12. Related party transactions
The Investment Partnership and its General Partner, Sherborne
Investors (Guernsey) GP, LLC, have engaged Sherborne Investors
Management (Guernsey) LLC to serve as Investment Manager which is
responsible for identifying the STC, subject to approval by the
Board of Directors of the Company, as well as day to day management
activities of the Investment Partnership. The Investment Manager is
entitled to receive from the Investment Partnership a monthly
management fee equal to one-twelfth of 1% of the net asset value of
the Investment Partnership, less cash and cash equivalents and
certain other adjustments. During the year, management fees of
GBP5,077,000 (31 December 2017: GBP96,831) were paid by the
Investment Partnership. No balance was outstanding at the year end
(31 December 2017: GBPNil).
The sole member of Sherborne Investors (Guernsey) GP, LLC is
Sherborne Investors LP, which also served as the Special Limited
Partner of the Investment Partnership through 26 December 2018.
Effective on 27 December 2018 the Special Limited Partner interest
was transferred from Sherborne Investors LP to Sherborne Investors
Limited, a wholly owned subsidiary of Sherborne Investors LP
(Sherborne Investors (Guernsey) GP, LLC and Sherborne Investors
Limited are the Non-controlling interests). The Special Limited
Partner is entitled to receive an incentive allocation once
aggregate distributions to Partners of the Investment Partnership,
of which one is the Company, exceed a certain level of capital
contributions to the Investment Partnership, excluding amounts
contributed attributable to management fees.
For Turnaround investments, the incentive allocation is computed
at 10% of the distributions to all Partners in excess of 110%,
increasing to 20% of the distributions to all Partners in excess of
150% and increasing to 25% of the distributions to all Partners in
excess of 200% of capital contributions, excluding amounts
contributed attributable to management fees. An investment is
considered a Turnaround investment when a member of the Managing
Partner is appointed chairman of, or accepts an executive role at,
the STC.
If, after acquiring a shareholding, the share price of the STC
rises to a level at which further investment and the effort of a
Turnaround is, in the Investment Manager's opinion, no longer
justified or otherwise no longer presents a viable Turnaround
opportunity, the Investment Partnership intends to sell (and
distribute the proceeds to the Company) or distribute in kind the
holding to the limited partners (in each case after deductions for
any costs and expenses and for the Investment Partnership's Minimum
Capital Requirements and subject to applicable law and regulation),
rather than seeking to join the Board of Directors or otherwise
engage with the STC (a "Stake Building Investment").
For Stake Building Investments, the incentive allocation is
computed at 20% of net returns on the investment of the Investment
Partnership, such amount to be payable after each partner in the
Investment Partnership has had distributed to it an amount equal to
its aggregate capital contribution to the Investment Partnership in
respect to the Stake Building Investment (excluding any capital
contributions attributable to management fees). The Special Limited
Partner may waive or defer all or any part of any incentive
allocation otherwise due.
At 31 December 2018, the incentive allocation has been computed
based on a Stake Building Investment basis and amounts to GBPNil
(31 December 2017: GBP11,365) in relation to the investment in
Barclays. In 2017, GBP1,768,043 was paid upon realisation of the
investment in the first selected target company.
Each of the Directors (other than the Chairman) receives a fee
payable by the Company currently at a rate of GBP35,000 per annum.
The Chairman of the Audit Committee receives GBP5,000 per annum in
addition to such fee. The Chairman receives a fee payable by the
Company currently at the rate of GBP50,000 per annum.
Individually and collectively, the Directors of the Company hold
no shares of the Company as at 31 December 2018.
Sherborne Investors GP, LLC has granted to the Company a
non-exclusive licence to use the name "Sherborne Investors" in the
UK and the Channel Islands in the corporate name of the Company and
in connection with the conduct of the Company's business affairs.
The Company may not sub-licence or assign its rights under the
Trademark Licence Agreement. Sherborne Investors GP, LLC receives a
fee of GBP70,000 per annum for the use of the licenced name.
13. Financial risk factors
The Group's investment objective is to realise capital growth
from investment in the STC, identified by the Investment Manager,
with the aim of generating significant capital return for
Shareholders. Consistent with that objective, the Group's financial
instruments mainly comprise an investment in a STC. In addition,
the Group holds cash and cash equivalents as well as having trade
and other receivables and trade and other payables that arise
directly from its operations.
Liquidity risk
The Group's cash and cash equivalents are placed in demand
deposits with a range of financial institutions. The listed
investment in the STC could be partially redeemed relatively
quickly (within 3 months) should the Group need to meet obligations
or ongoing expenses as and when they fall due.
The following table details the liquidity analysis for financial
liabilities at the date of the Consolidated Statement of Financial
Position:
Less than 1 1 - 2 years
As at 31 December 2018 month 1 - 12 months Total
GBP GBP GBP GBP
Trade and other payables (36,967) (69,799) - (106,766)
(36,967) (69,799) - (106,766)
-------------------------- ------------ -------------- ------------ ----------
Less than 1 1 - 2 years
As at 31 December 2017 month 1 - 12 months Total
GBP GBP GBP GBP
Trade and other payables (125,807) (46,119) - (171,926)
(125,807) (46,119) - (171,926)
-------------------------- ------------ -------------- ------------ ----------
Credit risk
The Company is exposed to credit risk in respect of its cash and
cash equivalents and derivative contracts, arising from possible
default of the relevant counterparty, with a maximum exposure equal
to the carrying value of those assets. The credit risk on liquid
funds is mitigated through the Group depositing cash and cash
equivalents across several banks. The credit risk associated with
derivative contracts is monitored by reviewing the credit rating
for the counterparty. The Group is exposed to credit risk in
respect of its trade receivables and other receivable balances with
a maximum exposure equal to the carrying value of those assets. UBS
Financial Services Inc. currently has a stand alone credit rating
of A- with Standard & Poor's (31 December 2017: A- with
Standard & Poor's).
Market price risk
Market price risk arises as a result of the Group's exposure to
the future values of the share price of the STC. It represents the
potential loss that the Group may suffer through investing in the
STC.
As at 31 December 2018, a 10% increase in the price of Barclays
would positively affect the Group's net assets, income and
consolidated comprehensive income for the year by approximately
GBP39 million (31 December 2017: approximately GBP31 million). A
10% decrease in the price of Barclays would negatively affect the
Group's net assets, income and consolidated comprehensive income
for the year by approximately GBP37 million (31 December 2017:
approximately GBP31 million).
Interest rate risk
The Group is subject to risks associated with changes in
interest rates in respect of interest earned on its cash and cash
equivalents. The Group seeks to mitigate this risk by monitoring
the placement of cash balances on an on-going basis in order to
maximise the interest rates obtained.
As at 31 December
2018 Interest bearing
--------------------------------------------- --------
1 month 3 months
Less than to to 1 - 2 Non- interest
1 month 3 months 1 year years bearing Total
GBP GBP GBP GBP GBP GBP
--------------------------- ---------------- ------------- ------------ -------- -------------- ------------
Assets
Cash and cash equivalents 28,521,320 - - - - 28,521,320
Investments held
at fair value through
profit or loss - - - - 440,387,201 440,387,201
Prepaid expenses - - - - 21,768 21,768
--------------------------- ---------------- ------------- ------------ -------- -------------- ------------
Total Assets 28,521,320 - - - 440,408,969 468,930,289
--------------------------- ---------------- ------------- ------------ -------- -------------- ------------
Liabilities
Other payables - - - - (106,766) (106,766)
Total Liabilities - - - - (106,766) (106,766)
--------------------------- ---------------- ------------- ------------ -------- -------------- ------------
As at 31 December
2017 Interest bearing
--------------------------------------------- --------
1 month 3 months
Less than to to 1 - 2 Non- interest
1 month 3 months 1 year years bearing Total
GBP GBP GBP GBP GBP GBP
--------------------------- ---------------- -------------- ----------- -------- -------------- ------------
Assets
Cash and cash equivalents 391,651,981 - - - 20,946,038 412,598,019
Investments held
at fair value through
profit or loss - - - - 307,930,107 307,930,107
Prepaid expenses - - - - 43,210 43,210
--------------------------- ---------------- -------------- ----------- -------- -------------- ------------
Total Assets 391,651,981 - - - 328,919,355 720,571,336
--------------------------- ---------------- -------------- ----------- -------- -------------- ------------
Liabilities
Other payables - - - - (171,926) (171,926)
Total Liabilities - - - - (171,926) (171,926)
--------------------------- ---------------- -------------- ----------- -------- -------------- ------------
As at 31 December 2018, the total interest sensitivity gap for
interest bearing items was a surplus of GBP28,521,320 (31 December
2017: GBP391,651,981).
As at 31 December 2018, interest rates reported by the Bank of
England were 0.75% (31 December 2017: 0.50%) which would equate to
net income of GBP213,910 (31 December 2017: GBP1,958,260) per annum
if interest bearing assets and liabilities remained constant. If
interest rates were to fluctuate by 25 basis points, this would
have a positive or negative effect of GBP71,303 (31 December 2017:
GBP979,130) on the Group's annual income.
Capital risk management
The capital structure of the Company consists of proceeds raised
from the issue of Ordinary Shares. As at 31 December 2018, the
Group is not subject to any external capital requirement.
The Directors believe that at the date of the Consolidated
Statement of Financial Position there were no other material risks
associated with the management of the Company's capital.
14. Distributions
No distributions were paid by the Group to Non-controlling
interests during the year (2017: GBP1,809,802).
15. Subsequent events
Since 31 December 2018, the share price of Barclays has
increased from 150.52 pence to 160.40 pence as at 25 April 2019. If
this share price was used to value the investment at 31 December
2018, it would have resulted in an increase in the closing fair
value from GBP440.4 million to GBP466.1 million. The Investment
Manager advises the Company that the current estimated net asset
value is approximately GBP502.3 million, or 71.76 pence per
share.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKCDQDBKBFQB
(END) Dow Jones Newswires
April 30, 2019 02:01 ET (06:01 GMT)
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