TIDMTI1
RNS Number : 1615L
Trian Investors 1 Limited
04 September 2019
4 September 2019
TRIAN INVESTORS 1 LIMITED
(the "Company")
Interim Results
Interim Report and Unaudited Condensed Financial Statements for
the period from 1 January 2019 to 30 June 2019
The Company announces its results for the six month period ended
30 June 2019. Further information is available on the Company's
website www.trianinvestors1.com.
For further information, please contact:
Estera International Fund Managers (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Mariana Enevoldsen
Overview of the Company
Trian Investors 1 Limited (the "Company") is a
Guernsey-domiciled limited company incorporated on 24 August 2018.
The Ordinary Shares of the Company were admitted for trading on the
Specialist Fund Segment of the London Stock Exchange ("SFS") on 27
September 2018 ("Admission").
The investment objective of the Company, through its investment
in Trian Investors 1, L.P. (Incorporated) (the "Investment
Partnership"), is to generate significant capital appreciation
through the investment activity of Trian Investors Management, LLC
(the "Investment Manager") and its parent, Trian Fund Management,
L.P. (collectively, "Trian"). Trian's investment strategy is to act
as a highly engaged shareowner at the companies in which it
invests, combining concentrated public equity ownership with
operational expertise.
In accordance with its investment policy, the Company has made a
substantial minority investment through the Investment Partnership,
in the amount of approximately GBP250 million, in Ferguson plc
("Ferguson"), where Trian believes it has developed a compelling
set of operational and strategic initiatives that will help
generate significant shareholder value.
Chairman's Statement
For the period from 1 January 2019 to 30 June 2019
Dear Shareholder,
On behalf of the Board of Directors (the "Board"), I am pleased
to present to you the Interim Report of the Company covering the
period from 1 January 2019 to 30 June 2019.
On 13 June 2019, the Board announced that funds managed by
Trian, including the Investment Partnership through which the
Company invests, had acquired a 5.98% interest in the shares of
Ferguson, valued at approximately GBP736 million at that time. This
followed Trian's TR-1 notification to Ferguson disclosing that as
at 10 June 2019, funds managed by Trian had acquired in the
aggregate a 5.14% interest in the shares of Ferguson.
The Board had previously approved Trian's recommendation of a
potential investment in Ferguson, and as at 12 June 2019, the
Company had invested approximately GBP250 million in Ferguson at an
average cost basis of GBP52.85 per share. In addition, because
Ferguson receives the vast majority of its revenue in U.S. Dollars,
the Company through the Investment Partnership entered into a
currency hedge, in the form of an option to purchase Pounds
Sterling, to offset a portion of the Company's U.S. Dollar exposure
resulting from its investment in Ferguson, although there is no
assurance that this hedging transaction will be effective at
managing currency exposure.
Ferguson has approximately $22 billion in annual sales and
34,000 employees worldwide and is the largest distributor of
plumbing and heating products in North America. Trian has advised
the Board that it believes Ferguson is a compelling investment
opportunity due to its attractive business model and secular growth
opportunity and its industry's highly fragmented structure, and
that it believes Ferguson trades at a discount to comparable U.S.
peers.
Trian has kept the Board informed about its engagement with
Ferguson's management team and board of directors. At the time of
this writing, the Board has noted Ferguson's announcement on 3
September 2019 that the Group intends to demerge its UK operations,
subject to shareholder approval, and that Kevin Murphy, CEO of
Ferguson's US operations, will succeed John Martin as Group CEO as
at 19 November 2019. In addition, Ferguson announced that in light
of the fact that Ferguson will be wholly focused on North America
following the demerger, its board is considering the most
appropriate listing structure for the Group going forward. Trian
has advised the Board that it is pleased with these
developments.
As at 30 June 2019, the shares of Ferguson appreciated in value
since the Company made its investment, which has led to an increase
in the Company's net asset value. As at 30 June 2019, the Company's
net asset value was GBP278.4 million, or 102.89 pence per ordinary
share, based on a closing price of GBP56.00 per Ferguson ordinary
share as at 28 June 2019 (the last trading day preceding 30 June
2019).
The principal risks and uncertainties of the Company are
unchanged from 31 December 2018, and further details may be found
in the Report of the Directors within the Annual Report and Audited
Financial Statements of the Company for the period ended 31
December 2018. The Directors will continue to assess the principal
risks and uncertainties relating to the Company for the remaining
six months of the current fiscal year in light of the Ferguson
investment and associated currency hedge, but currently expects
them to remain substantially the same.
The Company intends to continue pursuing the strategy set out in
its prospectus. We are grateful for your continued support and will
keep you informed of the status of our investment in Ferguson as
appropriate.
Yours sincerely,
Chris Sherwell
Chairman
3 September 2019
Directors' Responsibility Statement
Responsibility Statement
The Directors are responsible for preparing the Interim Report
and Unaudited Condensed Interim Financial Statements in accordance
with applicable law and regulations. The Board confirms that to the
best of their knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
-- The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and their impact on the condensed
financial statements and description of principal risks and
uncertainties for the remaining six months of the year); and
-- The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties
transactions and changes therein); and
-- The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer as required by
DTR 4.2.10R.
The Board is responsible for keeping adequate accounting records
that are sufficient to show and explain the Company's transactions
and disclose with reasonable accuracy, at any time, the financial
position of the Company, and that enable them to ensure that the
financial statements comply with the Companies (Guernsey) Law, 2008
(as amended). The Board is also responsible for the maintenance and
integrity of the corporate and financial information included on
the Company's website (www.trianinvestors1.com). Legislation in
Guernsey governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
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 Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have undertaken a rigorous
review of the Company's ability to continue as a going concern
including reviewing the ongoing cash flows and the level of cash
balances as at the reporting date as well as taking forecasts of
future cash flows into consideration and are of the opinion that
the Company has adequate resources to continue its operational
activities for the foreseeable future.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the financial
statements of the Company on a going concern basis.
On behalf of the Board
Chris Sherwell
Chairman
3 September 2019
Independent Review Report
INDEPENT REVIEW REPORT TO TRIAN INVESTORS 1 LIMITED
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly Interim Report for the
six months ended 30 June 2019 which comprises the Unaudited
Condensed Statement of Comprehensive Income, the Unaudited
Condensed Statement of Financial Position, the Unaudited Condensed
Statement of Changes in Equity, the Unaudited Condensed Cash Flow
Statement and related notes 1 to 15. We have read the other
information contained in the half-yearly Interim Report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Company those matters we are required to state to it
in an independent review 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, for our review
work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly Interim Report is the responsibility of, and has
been approved by, the Directors. The Directors are responsible for
preparing the half-yearly Interim Report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Company are prepared in accordance with IFRS as adopted by the
European Union. The condensed set of financial statements included
in the half-yearly Interim Report has been prepared in accordance
with International Accounting Standard 34 "Interim Financial
Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
Interim Report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly Interim Report for the six months ended 30 June
2019 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
3 September 2019
Unaudited Condensed Statement of Financial Position
As at 30 June 2019
30 June 2019 31 December 2018
(unaudited) (audited)
Notes GBP'000 GBP'000
Non-current assets
Investment at fair
value through profit
or loss 4, 5 276,047 -
-------------- -----------------
Total non-current 276,047 -
assets
Current assets
Cash and cash equivalents 2,453 266,167
Receivables and prepayments 6 23 165
-------------- -----------------
Total current assets 2,476 266,332
Current liabilities
Trade and other payables 7 104 210
-------------- -----------------
Total liabilities 104 210
-------------- -----------------
Net current assets 2,372 266,122
-------------- -----------------
Net assets 278,419 266,122
============== =================
Equity
Share capital 8 265,876 265,876
Retained earnings 12,543 246
--------------
Total equity 278,419 266,122
==============
Number of shares
in issue at period
end 270,585,977 270,585,977
NAV per share (pence) 9 102.89 98.35
The Unaudited Condensed Interim Financial Statements were
approved by the Board and authorised for issue on 3 September
2019.
The notes form an integral part of these financial
statements.
Chris Sherwell Mark Thompson
Director Director
Unaudited Condensed Statement of Comprehensive Income
For the period from 1 January 2019 to 30 June 2019
24 August 2018
1 January 2019 to 31 December
to 30 June 2018
2019 (audited)
Notes (unaudited) GBP'000
GBP'000
Income
Unrealised gain on investment
at fair value through profit
or loss 4 12,047 -
12,047 -
Expenses
Administration fees 13 69 27
Directors' fees 12 70 50
Auditor fees 14 15 25
Trademark fees 13 35 19
Other operating expenses 103 68
----------------- -----------------
Total Expenses 292 189
Operating profit/(loss) for
the financial period 11,755 (189)
----------------- -----------------
Finance income and expense
Interest income 542 435
----------------- -----------------
Profit for the period 12,297 246
----------------- -----------------
Total comprehensive income
for the period 12,297 246
================= =================
Basic earnings per share
(pence) 10 4.54 0.09
All activities derive from continuing operations.
The notes form an integral part of these financial
statements.
Unaudited Condensed Statement of Changes in Equity
For the period from 1 January 2019 to 30 June 2019
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2019 265,876 246 266,122
Profit for the period - 12,297 12,297
Total comprehensive
income - 12,297 12,297
As at 30 June 2019 265,876 12,543 278,419
============== ========== ========
For the period from 24 August 2018 to 31 December 2018
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 24 August 2018 - - -
Profit for the period - 246 246
Total comprehensive
income - 246 246
Issue of share capital 8 270,586 - 270,586
Transaction costs on
issue of shares 8 (4,710) - (4,710)
As at 31 December 2018 265,876 246 266,122
============== ========== ========
The notes form an integral part of these financial
statements.
Unaudited Condensed Statement of Cash Flows
For the period from 1 January 2019 to 30 June 2019
1 January 24 August 2018
2019 to 30 to 31 December
June 2019 2018
(unaudited) (audited)
Notes GBP'000 GBP'000
Operating activities
Profit before tax 12,297 246
Adjustments to reconcile
profit before tax to net
cash flows:
Unrealised gain on investment
at fair value through profit
or loss (12,047)
Net finance income for the
period (542) -
Decrease/(Increase) in receivables
and prepayments 142 (435)
(165)
(Decrease)/Increase in trade
and other payables (106) 210
------------- ----------------
Net cash flows from operating
activities (256) (144)
Investing activities
Investment made (264,000) -
Finance income 542 435
------------- ----------------
Net cash flows from investing
activities (263,458) 435
Financing activities
Proceeds from issue of shares 8 - 270,586
Transaction costs on issue
of shares 8 - (4,710)
------------- ----------------
Net cash flows from financing
activities - 265,876
Net (decrease)/increase in
cash and cash equivalents (263,714) 266,167
Opening cash and cash equivalents 266,167 -
Closing cash and cash equivalents 2,453 266,167
============= ================
The notes form an integral part of these financial
statements.
Notes to the Unaudited Condensed Interim Financial
Statements
For the period from 1 January 2019 to 30 June 2019
1. Corporate information
Trian Investors 1 Limited (the "Company") is incorporated in and
controlled from Guernsey as a company limited by shares with
registered number 65419. The shares of the Company are admitted to
the Specialist Fund Segment of the London Stock Exchange (the
"SFS").
2. Accounting policies
The principal accounting policies applied in the preparation of
these Unaudited Condensed Interim Financial Statements are set out
below.
Basis of preparation
The annual financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), as
adopted by the European Union, applicable legal and regulatory
requirements of Guernsey Law and under the historical cost
convention as modified by the revaluation of certain financial
assets and liabilities. The accounting policies and valuation
principles adopted are consistent with those of the previous
financial period.
These condensed interim financial statements have been prepared
in accordance with IAS 34, Interim Financial Reporting. The same
accounting policies and methods of computation are followed in the
interim financial statements as compared with the annual financial
statements. These condensed interim financial statements do not
include all information and disclosures required in the annual
financial statements and should be read in conjunction with the
Company's annual financial statements as of 31 December 2018.
Going concern
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have undertaken a rigorous
review of the Company's ability to continue as a going concern
including reviewing the ongoing cash flows and the level of cash
balances as at the reporting date as well as taking forecasts of
future cash flows into consideration and are of the opinion that
the Company has adequate resources to continue its operational
activities for the foreseeable future.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the interim
financial statements of the Company on a going concern basis.
New and amended standards and interpretations applied
IFRS 16: Leases was applied in the current period but did not
have a material impact as the Company does not have any lease
contracts.
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in
issue are applicable to the Company but are not yet effective or
have not been adopted by the European Union and therefore, have not
been adopted by the Company:
- IFRS 17: Insurance Contracts (effective 1 January 2021)
The Company has considered the IFRS standards and
interpretations that have been issued, but are not yet effective.
None of these standards or interpretations are likely to have a
material effect on the Company, as the Company does not expect to
carry out any transactions that fall within their scope.
Accounting for subsidiaries
As explained in more detail below, the Company is an investment
entity and accordingly accounts for its investments in subsidiaries
as investments at fair value through profit and loss.
Segment reporting
The decision maker is the Board of the Directors of the Company
(the "Board"). The Board is of the opinion that the Company is
engaged in a single segment of business, being the investment
through the Investment Partnership in a target company ("Target
Company").
Revenue recognition
All income is accounted for on an accruals basis and recognised
in the Statement of Comprehensive Income.
Expenses
Expenses are accounted for on an accruals basis. Expenses borne
by subsidiaries are reflected in the Statement of Comprehensive
Income through the revaluation of the investments.
All costs associated with the issue of shares are netted off
against share capital in the Statement of Changes in Equity.
Dividends to shareholders
Dividends are accounted for in the period in which they are
declared and approved by the Board.
Financial instruments
The classification of financial assets at initial recognition
depends on the purpose for which each financial asset was acquired
and its characteristics.
The Company's only significant financial assets comprise cash
and cash equivalents and investments in subsidiaries held at fair
value through profit and loss.
Cash and cash equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents consist of cash in
hand, short-term deposits in banks and investments in money market
funds with an original maturity of three months or less.
Receivables and prepayments
Receivables are initially recognised at fair value. An allowance
for impairment is measured under the general approach under IFRS 9.
At initial recognition, an impairment allowance is required for
expected credit losses resulting from default events that are
possible within the next 12 months. In the event of a significant
increase in credit risk, an allowance is required for expected
credit losses resulting from all possible default events over the
expected life of the financial instrument.
Payables and accruals
Payables and accruals are recognised initially at fair value
plus transaction costs and are subsequently measured at amortised
cost using the effective interest rate method.
Investments at fair value through profit and loss
i. Classification
As explained in more detail below, the Company is an investment
entity and accordingly accounts for its investment in subsidiaries
as investments at fair value through profit and loss.
ii. Recognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
iii. Measurement
Investments treated as "investments at fair value through profit
or loss" will initially be recognised at fair value, being the fair
value of consideration given. Fair value is defined as the amount
for which an asset could be exchanged between knowledgeable willing
parties in an arm's length transaction.
Realised and unrealised gains or losses will be recognised in
the Statement of Comprehensive Income.
iv. Fair value estimation
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities.
- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
Functional currency
Items included in the financial statements are measured using
Pounds Sterling which is the currency of the primary economic
environment in which the Company operates.
At each statement of financial position date, monetary assets
and liabilities that are denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items
carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair
value was determined. Transactions denominated in foreign
currencies are translated into Pounds Sterling at the rate of
exchange presiding at the date of the transaction. Exchange
differences are recognised in the Statement of Comprehensive Income
in the period in which they arise.
Significant accounting judgements, estimates and assumptions
The preparation of the interim financial statements requires the
Directors to make estimates and assumptions that affect the amounts
reported for assets and liabilities as at the statement of
financial position date and the amounts reported for revenue and
expenses during the period. The nature of the estimation means that
actual outcomes could differ from those estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected. The
following critical judgements apply to the Company's
investment.
Critical judgements in applying the Company's accounting
policies - investment entity exception:
The Directors have considered whether the Company meets the
definition of an investment entity as stipulated in the provisions
of IFRS 10. Entities that meet the definition of an investment
entity within IFRS 10 are required to measure their subsidiaries,
other than those that provide investment services to the Company
and do not themselves meet the definition of an investment entity,
at fair value through profit or loss rather than consolidate
them.
When entities are formed in connection with each other, the
criteria for qualification as an investment entity is applied to
the structure as a whole rather than for the entity in
isolation.
The criteria that define an investment entity are, as
follows:
-- An entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
-- An entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
-- An entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company's purpose is to invest through Trian Investors 1,
L.P. (Incorporated) (the "Investment Partnership") in a Target
Company for capital appreciation and it will measure performance
(of the Target Company) on a fair value basis. The Company has made
an investment in a Target Company, Ferguson plc ("Ferguson"),
through its wholly owned subsidiary, Trian Investors 1 Midco
Limited ("Midco"), which in turn invested in the Investment
Partnership. The Board has assessed whether the Company has all the
elements of control as prescribed by IFRS 10 in relation to the
Company's investment in the Investment Partnership and has
concluded that the Company does have control of the Investment
Partnership. Midco and the Investment Partnership are therefore
both classified as subsidiaries of the Company. The Board has also
assessed that the Company meets the criteria of an investment
entity and therefore the subsidiaries are recorded at fair value
through profit and loss rather than consolidated. The Board's
determination that the Company is classified as an investment
entity involves a degree of judgement due to the complexity within
the wider structure of the Company, Midco and the Investment
Partnership.
3. Income tax
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
2008 and is charged an annual exemption fee of GBP1,200.
4. Investment at fair value through profit or loss
30 June 2019
GBP'000
Cost
Brought forward -
Investment during the period 264,000
Carried forward 264,000
-------------
Fair value adjustment through profit or loss
Brought forward -
Fair value movement during period 12,047
Carried forward 12,047
-------------
Fair value as at 30 June 2019 276,047
=============
As at 30 June 2019, the Company held 264,000,000 Ordinary Shares
in Midco which were subscribed for at 100 pence per share, and
Midco has contributed GBP264,000,000 to the Investment Partnership.
As at 30 June 2019, Midco holds 99.83% of the commitment in the
Investment Partnership.
Investments at fair value through profit or loss comprise
Midco's pro rata portion of the fair value of the Investment
Partnership's Ferguson investment, currency option, cash and
working capital balance, including the incentive allocation
("Incentive Allocation") allocable from the Investment Partnership
to Trian Investors 1 SLP, L.P. The Investment Partnership's
investment in Ferguson is currently treated as a "Stake Building
Investment". If the investment continues to be a "Stake Building
Investment" until realisation, the Incentive Allocation will be
equal to 20% of net returns on the investment, payable after the
Investment Partnership has distributed to its partners an amount
equal to the aggregate capital contributions made in respect of the
investment (excluding any capital contributions attributable to
management fees). The Investment Partnership's investment in
Ferguson, unless otherwise agreed with the Company, will cease to
be considered a "Stake Building Investment", and will instead be
considered an "Engaged Investment", if and when Trian Investors
Management, LLC (the "Investment Manager") obtains representation
on Ferguson's board of directors, through one or more partners of
Trian Fund Management, L.P. ("Trian Management"). If the investment
becomes an "Engaged Investment", the Incentive Allocation will be
equal to 10% to 25% of the Investment Partnership's net returns on
the investment (excluding any capital contributions attributable to
management fees), as set forth in greater detail in the Company's
Prospectus dated 21 September 2018 (the "Prospectus"). In addition,
the Investment Partnership has invested in a GBP125,000,000
currency call option to offset a portion of the Investment
Partnership's U.S. Dollar exposure arising from its investment in
Ferguson, which receives the vast majority of its revenues in U.S.
Dollars. The option offers protection against a weakening in the
U.S. Dollar against Pounds Sterling and matures in June 2020.
Summary financial information for Midco's pro rata share of the
Investment Partnership
30 Jun 2019
Net asset value GBP'000
Investment in Ferguson at cost 249,566
Unrealised gain on investment in Ferguson 14,893
-------------------
Total value of investment in Ferguson 264,459
-------------------
Foreign exchange option 3,008
Cash and cash equivalents 11,598
Other net liabilities (7)
Incentive Allocation payable (3,011)
-------------------
Total net asset value 276,047
===================
1 Jan - 30 Jun 2019
2019
Summary income statement GBP'000
2019 2019
Unrealised gain on investment in Ferguson 14,893
Unrealised gain on foreign exchange option 148
Interest income 145
Management fee expense (121)
Other operating expense (7)
Incentive Allocation payable (3,011)
Profit for the period 12,047
===================
5. Fair value
IFRS 13 'Fair Value Measurement' requires disclosure of fair
value measurement by level.
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of the three levels.
The only financial instruments carried at fair value are the
investments which are fair valued at each reporting date.
Midco's investment in the Investment Partnership has been
classified within Level 2 as the Investment Partnership primarily
invests in quoted securities which are classified within Level 1.
The amount of Midco's investment in the Investment Partnership
classified under Level 2 as at 30 June 2019 is GBP276,047,000. The
amount of Midco's pro rata portion of the Investment Partnership's
investments that is classified within Level 1, consisting of the
Investment Partnership's investment in Ferguson Ordinary Shares, is
GBP264,459,000, and the amount that is classified within Level 2,
consisting of the Investment Partnership's investment in a currency
option, is GBP3,008,000, in each case as at 30 June 2019.
Transfers during the period
A reconciliation of fair value measurements in Level 2 is set
out in the following table. Due to the nature of the investments,
they are always expected to be classified under Level 2.
30 Jun 2019 31 Dec 2018
GBP'000 GBP'000
Opening fair value at beginning of the period - -
Purchases at cost 264,000 -
Proceeds from disposal - -
Movement in fair value 12,047 -
Closing fair value at the end of the period 276,047 -
=========== ===========
Valuation techniques
The value of Midco's investment in the Investment Partnership is
based on the value of Midco's limited partner capital account
within the Investment Partnership. This is based on the components
within the Investment Partnership, principally the value of the
underlying investee company, the currency option and cash. Any
fluctuation in the value of the underlying investee company will
directly impact on the value of Midco's investment in the
Investment Partnership.
Valuations are determined in accordance with a pricing policy
agreed between the Directors and the Investment Manager from time
to time. Calculations will be made in accordance with IFRS
principles or as otherwise determined by the Board.
In accordance with the Investment Partnership Agreement dated as
of 21 September 2018 (the "Investment Partnership Agreement"), for
the purposes of calculating the net asset value of the Investment
Partnership, its assets will be valued on the following basis:
-- Securities which are listed or quoted on a securities
exchange will be valued by the Investment Manager at their last
sales price published by the principal securities exchange on which
they are traded on the date of determination (or, if the date of
determination is not a date upon which that securities exchange was
open for trading, on the last prior date on which that securities
exchange was so open not more than ten (10) days prior to the date
of determination).
-- If no sales of the relevant securities occurred on the
foregoing dates, the securities will be valued at the last "bid"
price for long positions and the last "ask" price for short
positions on the principal securities exchange on which they are
traded on the date of determination (or, if the date of
determination is not a date upon which that securities exchange was
open for trading, on the last prior date on which it was so open
not more than ten (10) days prior to the date of
determination).
-- Securities which are not listed or quoted on a securities
exchange will be valued by the Investment Manager, at their
representative "bid" quotations if held long by the Investment
Partnership and representative "ask" quotations if held short by
the Investment Partnership, unless the securities are included in
an organised over-the-counter trading system, in which case they
will be valued based upon their last sales prices as reported on
such trading system (if these prices are available) not more than
ten (10) days prior to the date of determination.
-- The fair market value of all other securities and assets for
which market quotations are not readily available will be
reasonably determined in good faith by Trian Investors 1 General
Partner, LLC (except in the case of the dissolution of the
Investment Partnership where the fair market value of such assets
will be determined by an independent financial expert). The
valuation of the currency option is performed by utilising an
external data source which uses proprietary software and valuation
models to perform the fair value calculation. The valuation model
used to value the foreign exchange option is the Black-Scholes
model.
The Company approves the valuations performed by the Investment
Manager and monitors the range of reasonably possible changes in
significant observable inputs on a regular basis.
6. Receivables and prepayments
30 Jun 2019 31 Dec 2018
GBP'000 GBP'000
Accrued interest receivable - 91
Other prepaid expenses 23 74
---------------
23 165
The carrying value of receivables and prepayments approximates
their fair value.
7. Trade and other payables
30 Jun 2019 31 Dec 2018
GBP'000 GBP'000
Administration fees 48 27
Audit fees 8 25
Non-audit fees 16 -
Transaction costs on issue of
shares - 84
Trademark fees 18 6
Other professional fees 14 68
------------ ------------
104 210
The carrying value of trade payables and other payables
approximates their fair value.
8. Share capital and capital management
Capital risk management
The Company's objective for capital risk management is to
safeguard the Company's ability to continue as a going concern and
to provide returns for shareholders. The Company considers its
capital to consist of the shares issued and retained earnings.
The Company does not currently have an active discount
management policy. The Board regularly reviews net asset value, as
calculated in accordance with IFRS, and share price performance in
the context of market conditions with input from the Investment
Manager and Numis Securities Limited and Jefferies International
Limited (collectively, the "Corporate Brokers"). The Company
expects that there will continue to be an ongoing dialogue between
the Corporate Brokers and the Board about investors' views on any
discount or premium and the need to introduce an active discount or
premium management policy.
The Company has the ability to hold its own shares in treasury,
and may use this ability for any future discount or premium
management policy. The Company's Articles of Incorporation and the
Companies Law do not limit the number of shares held in treasury,
provided that at least one share of any class is held by a person
or company other than the Company.
Ordinary shares of no par value
No.
Issued and fully paid:
As at 1 January 2019 270,585,977
As at 30 June 2019 270,585,977
------------
GBP'000
Issued and fully paid:
As at 1 January 2019 265,876
As at 30 June 2019 265,876
Ordinary shares of no par value
No.
Issued and fully paid:
Founder member share on 24 August 2018 1
Founder member share redeemed on 27 September
2018 (1)
Shares issued on 27 September 2018 270,585,977
------------
Shares as at 31 December 2018 270,585,977
------------
GBP'000
Issued and fully paid:
Founder member share on 24 August 2018 -
Founder member share redeemed on 27 September -
2018
Shares issued on 27 September 2018 270,586
Share issue costs (4,710)
------------
As at 31 December 2018 265,876
9. Net Asset Value per Share
30 Jun 2019 31 Dec 2018
IFRS Net Assets (GBP'000) 278,419 266,122
------------ ------------
Number of Ordinary Shares in issue 270,585,977 270,585,977
IFRS NAV per Share (pence) 102.89 98.35
The IFRS NAV per Share is arrived at by dividing the IFRS Net
Assets by the number of Ordinary Shares in issue.
10. Earnings per share
1 Jan 2019 24 Aug 2018
to 30 Jun to 31 Dec
2019 2018
Profit for the period (GBP'000) 12,297 246
Weighted average number
of Ordinary Shares in issue 270,585,977 270,585,977
Earnings per share (pence) 4.54 0.09
The comparative earnings per share is based on the profit of the
Company for the period and on the weighted average number of
Ordinary Shares for that period. The earnings per share disclosed
are not annualised.
There were no dilutive potential Ordinary Shares in issue as at
30 June 2019 or 31 December 2018.
11. Financial risk management
Financial risk management objectives
The Company's activities expose it to various types of financial
risk, principally market risk, liquidity risk and credit risk. The
Board has overall responsibility for the Company's risk management
and sets policies to manage those risks at an acceptable level.
Financial risk factors
The Company's investment objective is to realise capital growth
from its investment in the Target Company with the aim of
generating significant capital return for shareholders. At present
the Company's only significant financial assets are those held
through the Investment Partnership, via Midco, in Ferguson, the
currency option and cash and cash equivalents held at both
levels.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. The Company manages its credit risk by
scrutinising the financial standing of counterparties with which it
enters into transactions, using external credit ratings where
available. Credit risk is reviewed periodically to identify
balances that may have become impaired or uncollectable.
The Company is exposed to credit risk through its balances with
banks and its holdings of money market funds which are classified
as cash equivalents for the purposes of these financial statements.
The table below shows the Company's material cash balances and the
short-term issuer credit rating or money-market fund credit rating
as at the period end date:
Location Rating 30 Jun 31 Dec
2019 2018
GBP'000 GBP'000
Bank of New York Mellon UK AA- 2,382 100,051
JP Morgan UK AAA 23 54,818
Goldman Sachs UK AAA 25 54,818
BlackRock UK AAA 23 56,480
-------- --------
2,453 266,167
Liquidity risk
Liquidity risk is the risk that an entity will encounter
difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another
financial asset. The Company maintains a prudent approach to
liquidity management by maintaining sufficient cash reserves to
meet foreseeable working capital requirements.
As at 30 June 2019 and 31 December 2018, the Company had no
financial liabilities other than trade and other payables. The
Company had sufficient cash reserves to meet these obligations. The
following table details these obligations:
30 June 2019 On demand 0-4 months Total
GBP'000 GBP'000 GBP'000
Trade and other
payables - 104 104
- 104 104
------------------------------ ----------- --------
31 December 2018 On demand 0-4 months Total
GBP'000 GBP'000 GBP'000
Trade and other
payables - 210 210
- 210 210
------------------------------ ----------- --------
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate as a result of market
price changes. The Company is exposed to market price risk,
currency risk and interest rate risk.
Market price risk
Market price risk arises as a result of the Company's exposure
to the future values of the share price of Ferguson. It represents
the potential loss the Company may suffer through investing in
Ferguson. If the price of Ferguson moved by 10% the effect on the
net asset value of the Company would be an increase or decrease of
GBP26,446,000 (31 December 2018: GBP nil).
Currency Risk
At 30 June 2019, the Company had exposure to currency risk
through its investment through the Investment Partnership into
Ferguson, which receives the vast majority of its revenue in U.S.
Dollars. The Company through the Investment Partnership entered
into a currency hedge, in the form of an option to purchase
GBP125,000,000 for US$165,875,000, to offset a portion of the U.S.
Dollar exposure resulting from the Company's investment in
Ferguson, although there is no assurance that the hedging
transaction will be effective at managing currency exposure. The
option expires in June 2020.
Interest rate risk
The Company is subject to risks associated with changes in
interest earned on its cash and cash equivalents which it seeks to
mitigate by monitoring the placement of cash balances on an
on-going basis in order to maximise the interest rates
obtained.
As at 30 June 2019, the total interest sensitivity gap for
interest bearing items at Company level was a surplus of
GBP2,453,000 (31 December 2018: GBP266,167,000). The following
table summarises the Company's interest bearing assets:
30 June 2019 Interest bearing
On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- --------------- -----------
Financial Assets
Investment at
fair value through
profit or loss - - 276,047 276,047
Cash and cash
equivalents 2,453 - - 2,453
Receivables - - - -
Total Financial
Assets 2,453 - 276,047 278,500
--------------------- ---------- ----------- --------------- -----------
Liabilities
Trade and other
payables - - (104) (104)
--------------------- ---------- ----------- --------------- -----------
Total Liabilities - - (104) (104)
--------------------- ---------- ----------- --------------- -----------
31 December 2018 Interest bearing
On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- --------------- -----------
Financial Assets
Cash and cash
equivalents 266,167 - - 266,167
Receivables - - 91 91
Total Financial
Assets 266,167 - 91 266,258
------------------- ---------- ----------- --------------- -----------
Liabilities
Trade and other
payables - - (210) (210)
------------------- ---------- ----------- --------------- -----------
Total Liabilities - - (210) (210)
------------------- ---------- ----------- --------------- -----------
As at 30 June 2019, interest rates reported by the Bank of
England of 0.75 per cent would equate to net income of GBP18,000
(31 December 2018: GBP1,996,000) per annum if interest bearing
assets and liabilities remained constant. If interest rates were to
fluctuate by 0.25 per cent, this would have a positive or negative
effect of GBP6,000 (31 December 2018: GBP665,000) on the Company's
annual income.
As at 30 June 2019, the total interest sensitivity gap for
interest bearing items at the Investment Partnership level was a
surplus of GBP11,598,000 (31 December 2018: GBPnil). The following
table summarises the Investment Partnership's interest bearing
assets:
30 June 2019 Interest bearing
On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- --------------- -----------
Financial Assets
Investment in
Ferguson 264,459 264,459
Foreign exchange
option 3,008 3,008
Cash and cash
equivalents 11,598 11,598
Total Financial
Assets 11,598 - 267,467 279,065
---------------------- ---------- ----------- --------------- -----------
Liabilities
Trade and other
payables - - (7) (7)
Incentive Allocation
payable - - (3,011) (3,011)
---------------------- ---------- ----------- --------------- -----------
Total Liabilities - - (3,018) (3,018)
---------------------- ---------- ----------- --------------- -----------
As at 30 June 2019, interest rates reported by the Bank of
England of 0.75 per cent would equate to net income of GBP87,000
(31 December 2018: GBPnil) per annum if interest bearing assets and
liabilities remained constant. If interest rates were to fluctuate
by 0.25 per cent, this would have a positive or negative effect of
GBP29,000 (31 December 2018: GBPnil) on the Company's annual
income.
12. Related parties
Key management personnel
The Directors are considered to be the Key Management Personnel
of the Company. They are all non-executive and receive only an
annual fee denominated in Pounds Sterling.
The Chairman receives an annual fee of GBP55,000, the Chairman
of the Audit Committee receives GBP45,000, and the other
non-executive Director receives GBP40,000.
Directors' fees and expenses for the period to 30 June 2019
amounted to GBP70,000 (period to 31 December 2018: GBP50,000), of
which GBPnil was outstanding at the period end (period to 31
December 2018: GBPnil).
The Directors received no dividends on their shares during the
period to 30 June 2019 (period to 31 December 2018: GBPnil).
13. Significant Agreements
Trademark fees
Trian Management has granted to the Company, Midco and the
Investment Partnership a non-exclusive licence to use the name,
logo and graphic identity "Trian" in the UK and the Channel Islands
in the corporate name of these entities and in connection with the
conduct of their business affairs, and the Company is using the
name, logo and graphic identity "Trian" within the Interim Report
pursuant to such licence. Trian Management receives a fee of
GBP70,000 per annum for the use of the licensed name, logo and
graphic identity. For the six month period ended 30 June 2019 fees
of GBP35,000 were paid by the Company in relation to the licence
(period ending 31 December 2018: GBP19,000).
Administration Agreement
On 19 September 2018, the Company and Estera International Fund
Managers (Guernsey) Limited ("Estera") entered into an
administration agreement. Under the terms of the agreement the
Company (alongside the Investment Partnership) is charged a fixed
administration fee of GBP95,000 per annum from 27 September 2018
payable quarterly in arrears, compliance officer services of
GBP6,000 per annum, money laundering reporting officer services of
GBP3,000 per annum and data protection services of GBP2,000 per
annum. For the six month period ended 30 June 2019 aggregate fees
of GBP69,000 were paid to Estera (period ended 31 December 2018:
GBP27,000).
Management Agreement
On 19 September 2018, the Investment Partnership and the
Investment Manager entered into a management agreement. The
Investment Manager is entitled to management fees in consideration
of its work equal to one twelfth of 1 per cent of the adjusted net
asset value of the Investment Partnership, calculated as of the
last business day of the preceding month. The management fee is
payable in advance to the Investment Manager on the first business
day of each calendar month. For the six month period ended 30 June
2019 management fees of GBP121,000 were paid to the Investment
Manager (period ended 31 December 2018: GBPnil).
Investment Partnership Agreement
Under the terms of the Investment Partnership Agreement, Trian
Investors 1 SLP, L.P., the special limited partner of the
Investment Partnership, is entitled to receive an incentive
allocation based on the investment performance of the Investment
Partnership. The incentive allocation may be between 0 to 25 per
cent of the net returns of the Investment Partnership. The
calculation of the incentive allocation is described in more detail
in note 4 above and the Prospectus. As at 30 June 2019, there was
an incentive allocation accrual of GBP3,011,000 (period ended 31
December 2018: GBPnil).
14. Auditor remuneration
During the period, GBP16,000 was expensed to Deloitte LLP in
Guernsey in relation to interim review fees.
Auditor's remuneration was broken down as follows:
24 Aug 2018
1 Jan 2019 to 31 Dec
to 30 Jun 2018 GBP'000
2019
GBP'000
Audit fees (1) 25
Non-audit fees 16 124
15 149
All prior period non-audit fees paid to Deloitte LLP related to
costs associated with the issue of shares and were netted off
against share capital in the Statement of Changes in Equity.
15. Subsequent events
There were no events after the reporting date that require
disclosure in these interim financial statements.
General Information
Directors Registered Office
Chris Sherwell (Chairman) PO Box 286, Floor 2
Mark Thompson Trafalgar Court
Simon Holden St Peter Port
Guernsey, GY1 4LY
Website: www.trianinvestors1.com Investment Partnership
Trian Investors 1, L.P. (Incorporated)
PO Box 286, Floor 2
Trafalgar Court
St Peter Port
Managing General Partner Guernsey, GY1 4LY
Trian Investors 1 General Partner,
LLC Investment Manager
280 Park Avenue, 41st Floor Trian Investors Management,
New York, NY 10017 LLC
United States 280 Park Avenue, 41st Floor
New York, NY 10017
Corporate Brokers United States
Numis Securities Limited
The London Stock Exchange Building Corporate Brokers
10 Paternoster Square Jefferies International Limited
London EC4M 7LT Vintners Place
United Kingdom 68 Upper Thames Street
London EC4V 3BJ
Administrator and United Kingdom
Company Secretary
Estera International Fund Managers Solicitors to the Company
(Guernsey) Limited As to English law and US Securities
PO Box 286, Floor 2 law
Trafalgar Court Norton Rose Fulbright LLP
St Peter Port 3 More London Riverside
Guernsey, GY1 4LY London SE1 2AQ
United Kingdom
Advocates to the Company
As to Guernsey law Independent Auditor
Ogier (Guernsey) LLP Deloitte LLP
Redwood House Regency Court
St Julian's Avenue Glategny Esplanade
St Peter Port St Peter Port
Guernsey Guernsey, GY1 3HW
GY1 1WA
Custodian to the Investment
Registrar Partnership
Link Market Services (Guernsey) The Bank of New York Mellon
Limited - London Branch
Mont Crevelt House One Canada Square
Bulwer Avenue London E14 5AL
St Sampson United Kingdom
Guernsey, GY2 4LH
Identifiers
ISIN: GG00BF52MW15
SEDOL: BF52MW1
Ticker: TI1
LEI: 213800UQPHIQI5SPNG39
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
IR EZLBBKKFLBBL
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September 04, 2019 02:01 ET (06:01 GMT)
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