Gabelli Merger Plus+ Gabelli Merger -GMPP - Final Results for the full year to 30 June 2022
26/10/2022 07:00
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RNS Number : 0966E Gabelli Merger Plus+ Trust PLC 26 October 2022
26 October 2022
GABELLI MERGER PLUS+ TRUST PLC - FINAL RESULTS
GABELLI MERGER PLUS(+) TRUST PLC
Financial Results for the year ended 30 June 2022
FINANCIAL HIGHLIGHTS
As at
As at
Performance
30 June 22 30 June 21
Net asset value per share (cum income) $9.35 $9.94
Net asset value per share (ex income) $9.78 $10.27
Dividends per share paid during the year(1) $0.48 $0.48
Share price $9.00 $7.40
Discount to Net Asset Value(2,3) (3.74)% (25.63%)
Year Year ended 30 June 2021
Total returns ended 30
June 2022
Net asset value per share(4) (1.34)% 12.12%
U.S. 3-month Treasury Bill 1.69% 0.09%
Share price(5) 29.06% 5.46%
Year ended Year ended
Income 30 June 2022 30 June 2021
Revenue return per share ($0.09) ($0.14)
Year ended Year ended 30June 2022
Ongoing charges(6) 30 June 2021
Annualised ongoing charges 1.67% 1.66%
Source: Portfolio Manager (Gabelli Funds, LLC), verified by the Administrator
(State Street Bank and Trust Company).
1 The dividends paid during the year ended 30 June 2022 include the fourth
quarter dividend for the year ended 30 June 2021.
2 Figures are inclusive of income and dividends paid, in line with the
Association of Investment Companies (the "AIC") guidance.
3 These key performance indicators are alternative performance measures.
4 Net Asset Value per ordinary share, total return represents the theoretical
return on NAV per ordinary share, assuming that dividends paid to shareholders
were reinvested at the NAV per ordinary share at the close of business on the
day shares were quoted ex dividend.
5 Share Price Total Return represents the theoretical return to a shareholder,
on a closing market price basis, assuming that all dividends received were
reinvested, without transaction costs, into the ordinary shares of the Company
at the close of business on the day the shares were quoted ex dividend.
6 Ongoing Charges are operating expenses incurred in the running of the Company, whether charged to revenue or capital, but excluding financing costs. These are expressed as a percentage of the average net asset value during the period and this is calculated in accordance with guidance issued by the Association of Investment Companies.
CHAIRMAN'S STATEMENT
We share this Annual Report to Shareholders, encompassing the period from July
2021 through June 2022, and note certain developments post financial year end.
This period marks the fifth year of operations for the Gabelli Merger Plus+
Trust Plc (the "Company") activating the Loyalty Programme tender offer and
additional voting shares for qualifying shareholders. Gabelli Merger Plus+
Trust Plc operates globally in the highly specialised investment discipline of
event driven merger arbitrage. The objectives are to compound and preserve
wealth over time, while remaining non-correlated to the broad equity and fixed
income markets. The investment programme is global, encompassing a broad
spectrum of special situations and event driven opportunities, with an
emphasis on announced merger transactions. The portfolio is a highly liquid,
non-market correlated alternative to traditional equity and fixed income
securities.
The Company's primary objective is to seek to generate total return,
consisting of capital appreciation and current income. The Company will seek a
secondary objective of the protection of capital, uncorrelated to equity and
fixed income markets. The Fund utilizes the Gabelli Private Market Value (PMV)
with a Catalyst(TM) investment methodology, and has built a diversified
portfolio using catalyst event merger arbitrage strategies to create an
optimal risk/reward profile. The investment programme is global, encompassing
a broad spectrum of special situations and event driven opportunities, with an
emphasis on announced merger transactions. The portfolio is a highly liquid,
non-market correlated alternative to traditional equity and fixed income
securities. Merger returns are derived through the narrowing of deal spreads
from time of announcement until their expected closure. The spread is a
function of three primary elements: the risk free rate, the risk premium
associated with the transaction fundamentals, and the time value of money. The
dynamic interplay across these components is evaluated within every investment
by the Manager. Position sizing will vary according to a probabilistic
assessment of the risk. The inherent risk in all merger investing is a broken
deal rather than the standard deviation or price variance of the market price
movements over the deal timeline. Gabelli Funds LLC, the Portfolio Manager,
employs an active approach to analysing the fundamentals of a merger
investment and has a long history of implementing such a programme. At its
core, this differentiated investment approach utilises the Gabelli analytical
methodology to manage risk amongst other inputs and factors. The full details
of this investment programme were set out in the offering Prospectus and are
found on the Company's web site, www.Gabelli. com/MergerPlus.
The Board is always receptive to feedback and is available should you have any
questions or comments via the Portfolio Manager's Investor Relations group
directly. We thank you, our shareholders, for your confidence in entrusting a
portion of your assets to our team.
The Investment Environment
Uncertainty surrounding the current state of the global macroeconomic
environment, taxed supply chains and an ongoing war in Eastern Europe plagued
the pace of deal making in the first half of 2022, which showed a 21% decrease
in deals versus last year's levels in the second quarter alone. Deal making in
the technology sector slowed 19% year- over-year, but remained the most
active, followed by industrials and financials.
Despite COVID-19 cases trending significantly below peak, certain hot spots
remain, particularly in China. This adds an element of uncertainty to capital
allocation decisions evidenced in a further 17% decline in cross border
activity when compared to last year.
Nevertheless, the number of deals greater than $10 billion increased 11%
year-over-year, and several well-known targets entered into merger agreements.
Microsoft began the year announcing its $69 billion acquisition of game
developer Activision Blizzard.
In May, software company VMware Inc agreed to be acquired by Broadcom Inc in a
cash and stock transaction valued at $61 billion. There was also Elon Musk's
well- publicised bid to take Twitter private for $44 billion, the outcome of
which remains uncertain.
The broad market still sits over 20% above the level where it ended in 2019,
an 8% CAGR over a very fraught time. We as a society may have moved past
COVID, but its aftereffects are still felt. Political, corporate and
individual actors still need to sort through a variety of issues. Economic and
market conditions may worsen before they improve, and there may be volatility
in currency markets as Central Banks adjust interest rate policies, but the
risks are more balanced today than they have been in some time.
Principal Developments on Investments During the Year
Throughout periods of the first half, we saw significant widening of deal
spreads, some of which were tied to specific deal risks, including worries
that buyers would walk away from transactions, leaving target companies
vulnerable to market conditions. This led to relatively broad based selling
across announced deals, with more pain felt in technology, given the sector's
steep selloff this year following lofty valuations.
Spreads have since rebounded following the successful completion of several
deals, as well as updates provided by buyers to reassure the market that they
remain committed to closing their transactions. While the pace of acquisition
announcements by strategic acquirers slowed, private equity backed deals
remained plentiful. A total of $553 billion worth of deals were announced in
the half, accounting for a quarter of all M&A activity. While some private
equity sponsors have hit roadblocks attempting to secure financing, strategic
buyers balance sheets remain strong with regards to cash levels and financial
buyers' are coming off very robust years of capital raising.
We expect transaction activity to strengthen as companies gain more certainty
in the face of current global concerns. As market valuations continue to
reset, the strong US Dollar is enticing for corporate deal making, positioning
American companies well in the competition for assets on a global basis. The
Gabelli method is well organised to invest during such a period. Gabelli
managers are fundamental and bottom up. Their analysts follow sectors
globally, and seek to understand everything available relating to a business,
and are agnostic of indices and market capitalisations. Their work emphasizes
balance sheet and cash flows. Ultimately, they seek to identify businesses
that are trading in the market at discounts to their estimates of the value an
informed industrial acquirer would pay for the company in its entirety, thus
establishing the Private Market Value ("PMV"). The Gabelli team also need
event catalysts to invest, thus providing the potential for returns
independent of the broad markets. Volatility has historically presented
excellent opportunities to acquire a business through the fractional interest
represented in its traded shares and we believe the PMV with a Catalyst method
will fare well in the period ahead.
Performance
The Company's net asset value (NAV) plus dividends paid delivered a total
return to shareholders during the year under review of -1.11% in U.S. dollars.
This performance compared to the equivalent 13-week U.S. Treasury Bill which
yielded 1.69% as of 30 June 2022, and also relative to the IQ Merger Arbitrage
ETF, S&P Merger Arbitrage Index, and Credit Suisse Merger Arbitrage Liquid
Index, which returned -7.44%, -1.59%, and -0.88%, respectively. The share
price total return with dividends reinvested was 29.06%, with the discount
narrowing during the year. The performance for shareholders at IPO through the
tender period of 22 September 2022, was 19.08% with dividends reinvested,
versus a return of 18.97% for the Credit Suisse Merger Arbitrage Liquid Index.
Dividend
The Company's portfolio is largely focused on the Catalyst events of announced
takeovers, where the terms are known and transparent to the market. Such
investments generally have estimated return profiles in periods of less than
nine months. The company will pursue other Catalyst Event opportunities as
they surface, and will also invest occasionally in other forms of relative
value arbitrage, such as such as share class arbitrage and holdco arbitrage.
Holding periods average approximately 120 days. In arbitrage, the culmination
of a position is effectively a return of cash as the position is closed. In
order to allow the Shareholders to realise a predictable, but not assured,
level of cash flow and some liquidity periodically on their investment, the
Company has adopted a "managed dividend policy". This policy seeks to pay
Shareholders a quarterly dividend in relation to the Net Asset Value of the
Company at the time, which may be changed at any time by the Board. Between
inception and 30 June 2022, the Company returned $2.27 per share to
shareholders, consistent with its dividend policy. Dividends are paid only
when declared by the Board subject to the Board's assessment of the Company's
financial position and only if the Company has sufficient income and
distributable reserves to make the dividend payment, and the level of dividend
may vary over presented excellent opportunities to acquire a business through
the fractional interest represented in its traded shares and we believe the
PMV with a Catalyst method will fare well in the period ahead of time. As
such, the portfolio's managed distribution of capital through the payment of
quarterly dividends is under review as we enter the new Fiscal Year.
Tender Offer and Close Company Status
This report also addresses the period through October 2022 as a subsequent
event to the fiscal year ending 30 June 2022. The Company commenced the Fifth
Anniversary Tender Offer for Qualifying Registered Shares via two tranches
beginning in September 2022 and ending February 2023. Shareholders whose
shares are registered in the Loyalty Programme for five years are eligible to
participate in the Company's tender offer. As of 7 October 2022 the Company
successfully completed the tender for 3,005,957 shares at NAV less expenses.
The Tranche Two tender offer will commence in January 2023, with an estimated
maximum of approximately 343,000 Qualifying Shares Tender results present two
significant developments for shareholder consideration: first, the overall
portfolio assets under management are now USD 68 million versus USD 97
million; second, the post tender shareholder composition requires the Company
to operate as a Close Company. The Board of Directors acknowledges the broad
shareholder participation in the tender, and notes that the largest
shareholder, Associated Capital Group, elected not to tender and has expressed
its view that the Company should continue. Associated Capital Group, legal and
beneficial owner of 6,216,256 shares at the time of this writing, has
confirmed via a letter of Deed, which contains enforceable irrevocable
undertakings, that it will both vote in favour of continuation of the company
and not participate in the tender offer. As a result, the Company will
operate as a Close investment company, and therefore will be subject to UK
corporate taxes, and thus no longer avail itself to investment trust status.
The Board of Directors will assess shareholder considerations and undertake
the analysis of options for the continuing Company, including operational and
structural alternatives oriented towards expense and tax savings, as it
progresses. Finally, in accordance with the charter, remaining registered
loyalty Programme Five-year shareholders are eligible to receive an additional
vote per individual share held. The Loyalty Programme has been implemented in
accordance with the offering prospectus.
Final Thoughts
With heartfelt sadness we write this letter after the passing of Her Majesty
Queen Elizabeth II, whose steadfast leadership will be missed. Today's post
World War II order is facing intense challenges, yet this Company has
performed consistently and non-correlated to the broader indices since
inception. It has endured COVID-19, the onset of inflation and higher interest
rates, and a fragile regulatory environment lead by the geo-political
wrangling between the US and China. The list continues, as will the Gabelli
Merger Plus+ Trust Plc in the United Kingdom.
Marc Gabelli
Chairman
INVESTMENT OBJECTIVE AND POLICY
Investment objective
The Company's primary investment objective is to seek to generate total
return, consisting of capital appreciation and current income. The Company
will seek a secondary objective of the protection of capital, uncorrelated to
equity and fixed income markets.
Investment policy
The Company will seek to meet its investment objective by utilising the
Gabelli Private Market Value (PMV) with a CatalystTM, investment methodology,
maintaining a diversified portfolio of event merger arbitrage strategies to
seek to create an optimal risk/ reward profile for the portfolio.
"Event Driven Merger Arbitrage" is a highly specialised active investment
approach designed principally to profit from the differences between the
public market price and the price achieved through corporate catalyst events.
Catalysts are utilised to earn returns independent of the broad markets'
direction. This includes corporate events such as announced mergers,
acquisitions, takeovers, tender offers, leveraged buyouts, restructurings,
demergers and other types of reorganisations and corporate actions ("deals").
The Company will invest globally although it is expected to have an emphasis
on securities traded in the United States, predominantly equity securities
issued by companies of any market capitalisation. The Company is permitted to
use a variety of investment strategies and instruments, including but not
limited to: convertible and non-convertible debt securities; asset-backed and
mortgage-backed securities; fixed interest securities, preferred stock,
non-convertible preferred stock, depositary receipts; shares or units of UCIs
or UCITS; rights qualifying as transferable securities; when issued, delayed
delivery transferable securities; forward contracts; swaps; recently issued
transferable securities; repurchase agreements, money market instruments and
warrants.
The Company may invest part of its net assets in cash and cash equivalents,
money market instruments, bonds, commercial paper or other debt obligations
with banks or other counterparties having at least a single A (or equivalent)
credit rating from an internationally recognised rating agency or government
and other public securities, if the Portfolio Manager believes that it would
be in the best interests of the Company and its Shareholders. This may be the
case, for example, if the Portfolio Manager believes that adverse market
conditions justify a temporary defensive position. Any cash or surplus assets
may also be temporarily invested in such instruments pending investment in
accordance with the Company's investment policy.
The Company may take both long and short positions in equity and debt
securities. For shorting purposes, the Company may use indices, individual
stocks, or fixed income securities.
The Company may utilise financial derivative instruments to create both long
and synthetic covered short positions with the aim of maximising positive
returns. The Company may use strategies and techniques consisting of options,
futures contracts, and currency transactions and may enter into total rate of
return, credit default, or other types of swaps and related derivatives for
various purposes, including to gain economic exposure to an asset or group of
assets that may be difficult or impractical to acquire.
The Company may also use derivatives for efficient portfolio management
purposes including, without limitation, hedging and risk management and
leverage.
The Company has broad and flexible investment authority and, accordingly, it
may at any time have investments in other related or unrelated areas.
Strategies and financial instruments utilised by the Company may include: (i)
purchasing or writing options (listed or unlisted) of any and all types
including options on equity securities, stock market and commodity indices,
debt securities, futures contracts, future contracts on commodities and
currencies; (ii) trading in commodity futures contracts, commodity option
contracts and other commodity interests including physical commodities; (iii)
borrowing money from brokerage firms and banks on a demand basis to buy and
sell short investments in excess of capital; and (iv) entering into swap
agreements (of any and all types including commodity swaps, interest rate
swaps and currency swaps), forward contracts, currencies, foreign exchange
contracts, warrants, credit default swaps, synthetic derivatives (for example,
CDX), collateralised debt obligations tranches, and other structured or
synthetic debt obligations, partnership interests or interests in other
investment companies and any other financial instruments of any and all types
which exist now or are hereafter created.
There has been no change to the investment policy since the launch of the
Company on 19 July 2017. No material change will be made without shareholder
approval.
PORTFOLIO MANAGER'S REVIEW
Methodology and Market Opportunity Gabelli Funds would like to thank our
investors for allocating a portion of their assets to the Gabelli Merger Plus+
Trust ("GMP"). We appreciate the confidence and trust you have placed in our
organization through your investment in GMP. Our investment objective is to
compound and preserve wealth over time while remaining non-correlated to the
broad markets. As a firm, we have invested in mergers since 1977 and created
the Gabelli group's first dedicated, announced merger fund more than thirty
years ago. We remain vigilant in the application of our investment philosophy
and in our search for opportunities. In this context, let us outline our
investment methodology and the investment environment through 30 June 2022.
We remain vigilant in the application of our investment philosophy and in our
search for opportunities. In this context, let us outline our investment
methodology and the investment environment through 30 June 2022. Merger
arbitrage is a highly specialised investment approach designed principally to
profit from corporate events, including the successful completion of proposed
mergers, acquisitions, takeovers, tender offers, leveraged buyouts,
restructurings, demergers, and other types of corporate reorganizations and
actions. As arbitrageurs, we seek to earn the differential, or "spread,"
between the market price of our investments and the value ultimately realized
through deal consummation.
We are especially enthusiastic about the opportunities to grow client wealth
in the decades to come, and we highlight below several factors that should
help drive results. These include:
• Increased market volatility, which enhances our ability to
establish positions for the prospect of improved returns;
• A robust market for corporate deal making as conditions continue
to provide an accommodative market for mergers and acquisitions.
• A rising interest rate environment, providing attractive merger
spread opportunities;
• The Fund's experienced investment team, which pursues
opportunities globally through the disciplined application of Gabelli's
investment methodology;
Global Deal Activity(1)
Global deal merger and acquisition activity ("M&A") totalled $2.2 trillion
during the first half of 2022, a year- over-year decrease of 21%; however, the
deal flow remained notably consistent, capped off with $1 trillion in deals in
the second quarter. This marked the eighth consecutive quarter to pass $1
trillion. There were twenty-six deals completed with values greater than $10
billion, accounting for $609 billion in aggregate, up 11% year over year.
Deals with values between $1-$5 billion accounted for $562 billion during the
year, a decrease of 35% compared to the first half of 2021.
Cross border M&A activity totalled $687 billion for the calendar year,
marking a decrease of 17% year-over-year. The value of private equity-backed
buyouts remained robust at $553 billion in the first half, an all-time high.
This accounted for nearly 26% of total M&A activity.
The slowdown of deal activity, compared to the record-breaking levels of 2021,
was driven mainly by U.S. based targets, which saw $958 billion in deal
activity, a decrease of 28% year-over-year. European M&A tallied $527
billion of transactions over the same period, a decrease of only 4%.
The Technology sector was the biggest contributor to merger activity during
the first half, totalling $531 billion. This accounted for 25% of total
announced deal volume, a record. Financials and Industrials sectors were also
large contributors, each accounting for 12% of M&A activity.
1 Thomson Reuters M&A Review - First Half of 2022
PORTFOLIO IN REVIEW
The first half of 2022 was the worst for markets since 1970 with the S&P
500 shedding nearly 21%. Similar to 1970, the main cause of the market turmoil
was inflation. Economists often define inflation as too many dollars chasing
too few goods. Both those conditions have been eminently true of late. Years
of easy monetary policy formed the underbrush while $5 trillion in rescue
stimulus, $5 trillion in Quantitative Easing, supply chain snafus, and pent-up
demand triggered by COVID provided the spark for an explosion in prices. The
war in Ukraine, which has perhaps permanently altered global food and energy
flows, accelerated the fire. Unfortunately, most central banks, including the
Fed, entered this year behind the curve. In order to restore credibility and
avoid the fate of 1970s Chair Arthur Burns, Jerome Powell has had to act
aggressively with increases of 150 basis points over the last six months. The
Fed can neither pump more oil nor harvest more wheat, but it can act on the
demand side of the equation.
Against this backdrop of rising rates, macroeconomic concerns, and regulatory
uncertainty, deal making slowed to $2.2 trillion in the first half of the
year. While this was down 21% compared to the same period last year, 2021 was
a record year and a likely outlier for M&A activity. The first two
quarters of 2022 each saw deal volume above $1 trillion, the 7th and 8th
consecutive quarters to reach that level. We expect we will continue to see a
robust deal environment, as a reset in valuations should provide opportunities
for both strategic and private equity buyers.
As we have noted in the past, the merger arbitrage strategy is a beneficiary
of rising rates, as the risk free rate is one of the components of a deal
spread. As rates rise, nominal spreads should widen, all things being equal.
Fixed income markets are currently anticipating an additional 200 basis points
of rate hikes this year, which would bring the Fed Funds rate to 3.5%.
Currently, the spreads in the portfolio are as wide as we have seen since the
beginning of the COVID pandemic. Aggressive antitrust policy rhetoric has
increased volatility in deal spreads, which provides us an opportunity.
Mispriced risk allows us to add to our highest conviction positions at lower
prices, generating more attractive returns as deals progress towards closing.
We continue to find attractive investment opportunities in newly announced and
pipeline deals. We remain focused on investing in highly strategic,
well-financed deals with an added focus on near- term catalysts, and are
upbeat about our prospect to continue to generate absolute returns.
Notable contributors to performance include:
· Arena Pharmaceuticals, Inc. (ARNA- NASDAQ), a biotechnology
company that develops therapeutics for autoimmune diseases, was acquired by
Pfizer in March after the companies received U.S. antitrust approval. In
February, Pfizer withdrew and refiled its application for antitrust approval
in the hopes of avoiding a second request that would have extended the
timeline for approval. The companies had already received antitrust approvals
in Germany and Austria, and Arena shareholders voted to approve the
transaction in February. Under the terms of the agreement, Arena shareholders
received $100.00 cash per share, or about $6 billion.
· Meggitt plc (MGGT LN-London), an engineering firm that
designs and manufactures components for the aerospace, defence and energy
industries, agreed to be acquired by Parker-Hannifin for £8.00 cash per
share, or about £7 billion. Meggitt has made considerable progress securing
various approvals needed to consummate the transaction and awaits only UK
government approval. The deal was completed on 13 September 2022.
· Sanderson Farms, Inc. (SAFM- NASDAQ), a producer and
processor of fresh and frozen chicken products, agreed to be acquired by a
consortium led by Cargill for $203 cash per share, or about $5 billion. As the
deal awaits its final regulatory approval from the U.S. Department of Justice,
the stock has traded favourably on Sanderson's fundamentals. The company's
results have greatly benefited from poultry pricing and the consensus is that
the stock would trade significantly higher in the event the deal cannot be
completed.
· Swedish Match (SWMA SS- Stockholm), a manufacturer of
smokeless tobacco products, including the market-leading product ZYN, agreed
to be acquired by Philip Morris International for SEK106.00 cash per share, or
about $16 billion. In June, the companies received antitrust approval in the
U.S. The spread then tightened further upon reports that Elliott was building
a stake in Swedish Match to oppose the sale at current terms.
· Xilinx, Inc. (XLNX-NASDAQ), a designer of advanced
programmable semiconductors used in automotive, aerospace, and consumer
applications, was acquired by Advanced Micro Devices. The companies received
approval from Chinese antitrust regulator SAMR in January, but were required
to re-file their application in the U.S., given it had been more than one year
since receiving U.S. antitrust approval, which was granted on 9 February,
2022. The deal subsequently closed on 14 February, 2022. Under the terms of
the agreement, Xilinx shareholders received 1.7234 shares of AMD common stock
per share of Xilinx, which valued the company at $48 billion.
Notable detractors from performance include:
· Avast plc (AVST LN-London), a provider of cyber security
software, agreed to be acquired by NortonLifeLock for $7.61 cash and 0.0302
shares of NLOK, valuing the transaction at $8 billion. While the deal secured
all global regulatory approvals outside of the UK, in March the UK antitrust
regulator referred the deal to a stage two review, and the stock sold off due
to the uncertainty. In the end, the transaction secured approval from the
Competition and Markets Authority, with a completion date of 12 September
2022.
· Twitter Inc. (TWTR US), a provider of online social
networking services, Twitter agreed to be acquired by Elon Musk for $54.20
cash, or $44 billion. In July, Elon Musk unilaterally terminated the merger
agreement with Twitter, citing material breach of the access to information
and financing cooperation covenants in the context of spam accounts. Twitter
sued Musk in Delaware Chancery court for Specific Performance, essentially
asking the court to compel Musk to close the deal on terms. Musk's attempt to
terminate the transaction caused some disruption at the company. This, coupled
with a deteriorating environment for digital- advertising spending, negatively
impacted Twitter's stock price. On 4 October 2022, Musk again reversed course
and stated that he would move ahead with the acquisition at the original price
of $54.20. At the time of writing, the outcome of this deal is still
uncertain.
SELECT PORTFOLIO HOLDINGS AS OF 30 JUNE 2022
· Activision Blizzard, Inc. (ATVI- NASDAQ) agreed to be acquired by
Microsoft Corp. (MSFT-NASDAQ). Activision Blizzard develops and publishes
interactive entertainment content and services. Under the terms of the
agreement, Activision shareholders will receive $95.00 cash per share, valuing
the transaction at approximately $74 billion. The transaction is subject to
shareholder as well as regulatory approvals, and is expected to close in late
2022 or 2023.
· Avast plc (AVST LN-London) agreed to be acquired by NortonLifeLock,
Inc. (NLOK-NASDAQ). Avast provides digital security and privacy
products. Under the terms of the agreement, Avast shareholders will receive
$7.61 cash and 0.0302 shares of NortonLifeLock common stock per share, valuing
the transaction at approximately £6 billion. The transaction was subject to
shareholder as well as regulatory approvals, and closed in mid-September 2022.
· Coherent, Inc. (COHR-NASDAQ) agreed to be acquired by II-VI, Inc.
(IIVI-NASDAQ). Coherent provides lasers, laser-based technologies, and
laser-based system solutions. Under the terms of the agreement, Coherent
shareholders received $220.00 cash and 0.91 shares of II-VI common stock per
share, valuing the transaction at approximately $7 billion. The transaction
was subject to approval by shareholders of both companies, as well as
regulatory approvals, and closed in July 2022.
· First Horizon Corp. (FHN-NYSE) agreed to be acquired by The
Toronto- Dominion Bank (TD CN-Toronto). First Horizon operates as the bank
holding company for First Horizon Bank, which provides various financial
services. Under the terms of the agreement, First Horizon shareholders will
receive $25.00 cash per share, valuing the transaction at approximately $13
billion. The transaction is subject to shareholder, as well as regulatory
approvals, and is expected to close in late 2022 or early 2023.
· Mandiant, Inc. (MNDT-NASDAQ) agreed to be acquired by Alphabet,
Inc. (GOOGL-NASDAQ). Mandiant provides cyber defence solutions. Under the
terms of the agreement, Mandiant shareholders will receive $23.00 cash per
share, valuing the transaction at approximately $5 billion. The transaction is
subject to shareholder as well as regulatory approvals, and is expected to
close in the second half of 2022.
· Meggitt plc (MGGT LN-London) agreed to be acquired by
Parker-Hannifin Corp. (PH-NYSE). Meggitt designs and manufactures components
and sub-systems in the UK, rest of Europe, the U.S., and internationally.
Under the terms of the agreement, Meggitt shareholders will receive £8.00
cash per share, valuing the transaction at approximately £7 billion. The
transaction is subject to shareholder as well as regulatory approvals, and is
expected to close in the third quarter of 2022.
· Rogers Corp. (ROG-NYSE) agreed to be acquired by DuPont de Nemours,
Inc. (DD-NYSE). Rogers designs, develops, manufactures, and sells engineered
materials and components worldwide. Under the terms of the agreement, Rogers
shareholders will receive $277.00 cash per share, valuing the transaction at
approximately $5 billion. The transaction is subject to shareholder as well as
regulatory approvals, and is expected to close in the second half of 2022.
· Shaw Communications, Inc. (SJR/B CN-Toronto) agreed to be acquired
by Rogers Communications, Inc. (RCI/B CN-Toronto). Shaw Communications
operates as a connectivity company in North America in the Wireline and
Wireless segments of the market. Under the terms of the agreement, Shaw
shareholders will receive C$40.50 cash per share, valuing the transaction at
approximately C$26 billion. The transaction is subject shareholder as well as
regulatory approvals, and is expected to close in the second half of 2022.
· Swedish Match AB (SWMA SS- Stockholm) agreed to be acquired by
Philip Morris International, Inc. (PM-NYSE). Swedish Match develops,
manufactures, markets, and sells snus and other smokeless tobacco products,
nicotine pouches, and other tobacco products in Scandinavia, the U.S., and
internationally. Under the terms of the agreement, Swedish Match shareholders
will receive SEK 106.00 cash per share, valuing the transaction at
approximately $16 billion. The transaction is subject to the tender of at
least 90% of shares outstanding, as well as regulatory approvals, and is
expected to close in the fourth quarter of 2022.
· Tower Semiconductor Ltd. (TSEM- NASDAQ) agreed to be acquired by
Intel Corp. (INTC-NASDAQ). Tower Semiconductor operates foundries, proving
manufacturing of integrated circuits (ICs) worldwide. Under the terms of
the agreement, Tower shareholders will receive $53.00 cash per share, valuing
the transaction at approximately $5 billion. The transaction is subject to
shareholder as well as regulatory approvals, and is expected to close by the
first quarter of 2023.
· Vifor Pharma AG (VIFN SW- Switzerland) agreed to be acquired by CSL
Ltd. (CSL AU- Sydney). Vifor Pharma develops and manufactures pharmaceutical
products in Switzerland, rest of Europe, the U.S., and internationally. Under
the terms of the agreement, Vifor shareholders will receive $179.25 cash per
share, valuing the transaction at approximately $12 billion. The transaction
is subject to the tender of at least a majority of shares outstanding, as well
as regulatory approvals, and closed in August.
SELECT CLOSED DEALS AS OF 30 JUNE 2022
· Arena Pharmaceuticals, Inc. was acquired by Pfizer Inc. in March
2022. Arena Pharmaceuticals focuses on developing novel medicines in the areas
of gastroenterology, dermatology, and cardiology. On 13 December, 2021, Pfizer
announced it would acquire Arena for $100.00 cash per share, valuing the
transaction at approximately $6 billion.
· Cerner Corp. was acquired by Oracle Corp. in June 2022. Cerner
provides health care information technology solutions and tech-enabled
services in the U.S. and internationally. On 20 December, 2021, Oracle
announced it would acquire Cerner for $95.00 cash per share, valuing the
transaction at approximately $30 billion.
· Crown Resorts Ltd. was acquired by Blackstone, Inc. in June 2022.
Crown Resorts operates in the entertainment industry primarily in Australia.
On 13 February, 2022, Blackstone announced it would acquire Crown for A$13.10
cash per share, valuing the transaction at approximately A$9 billion.
· CyrusOne, Inc. was acquired by KKR & Co., Inc. and Global
Infrastructure Partners in March 2022. CyrusOne is a premier global REIT
specializing in design, construction, and operation of more than 50 high-
performance data centres worldwide. On 15 November, 2021, KKR announced it
would acquire CyrusOne for $90.50 cash per share, valuing the transaction at
approximately $15 billion.
· Ferro Corp. was acquired by Prince International, a portfolio company
of American Securities LLC, in April 2022. Ferro produces and markets
specialty materials in the U.S., Europe, the Middle East, Africa, the Asia
Pacific, and Latin America. On 11 May, 2021, Prince announced it would acquire
Ferro for $22.00 cash per share, valuing the transaction at approximately $2
billion.
· IHS Markit Ltd. was acquired by S&P Global, Inc. in February
2022. IHS Markit provides critical information, analytics, and solutions for
various industries and markets worldwide. On 30 November, 2020, S&P
announced it would acquire IHS for 0.2838 shares of S&P common stock per
share, valuing the transaction at approximately $44 billion.
· Intersect ENT, Inc. was acquired by Medtronic plc in May 2022.
Intersect ENT operates as an ear, nose, and throat medical technology company
in the U.S. On 6 August, 2021, Medtronic announced it would acquire Intersect
for $28.25 cash per share, valuing the transaction at approximately $1
billion.
· Mimecast Ltd. was acquired by Permira in May 2022. Mimecast provides
cloud security and risk management services for corporate information and
email. On 7 December, 2021, Permira announced it would acquire Mimecast for
$80.00 cash per share, valuing the transaction at approximately $6 billion.
· Nuance Communications, Inc. was acquired by Microsoft Corp. in March
2022. Nuance Communications provides conversational and cognitive artificial
intelligence innovations. On 12 April, 2021, Microsoft announced it would
acquire Nuance for $56.00 cash per share, valuing the transaction at
approximately $17 billion.
· Veoneer, Inc. was acquired by QUALCOMM, Inc. in April 2022. Veoneer
designs, develops, and manufactures automotive safety electronics primarily in
North America, Europe, and Asia. On 4 October, 2021, QUALCOMM announced it
would acquire Veoneer for $37.00 cash per share, valuing the transaction at
approximately $4 billion.
· Xilinx, Inc. was acquired by Advanced Micro Devices, Inc. in February
2022. Xilinx designs and develops programmable devices and associated
technologies worldwide. On 27 October, 2020, Advanced Micro Devices announced
it would acquire Xilinx for 1.7234 shares of Advanced Micro common stock per
share, valuing the transaction at approximately $34 billion.
· Z Energy Ltd. was acquired by Ampol Ltd. in May 2022. Z Energy sells
transport fuel in New Zealand. On 12 October, 2021, Ampol announced it would
acquire Z Energy for NZ$3.78 cash per share, valuing the transaction at
approximately NZ$3 billion.
PORTFOLIO SUMMARY
Largest Portfolio Security holdings (excluding cash and cash
equivalents)
As at 30 June 2022
Security(1)
Offsetting short position(2)
% of total portfolio(3) (gross) Offsetting market % of total portfolio(6)
Market value(4) value(5) (net)
$000 $000
Shaw Communications Inc 2.7 3,143 2.7
Activision Blizzard Inc 2.5 2,870 2.5
Coherent Inc II-VI Inc 2.3 2,693 (399) 2.0
Mandiant Inc 2.1 2,486 2.1
Vifor Pharma AG 2.1 2,442 2.1
Change Healthcare Inc 2.1 2,389 2.1
Rogers Corp 2.0 2,327 2.0
First Horizon Corp 1.9 2,245 1.9
PNM Resources Inc 1.9 2,179 1.9
Tower Semiconductor Ltd 1.8 2,112 1.8
BioHaven Pharmaceutical
Holding Company Ltd 1.8 2,076 1.8
Aerojet Rocketdyne Holdings
Inc 1.7 1,960 1.7
Citrix Systems Inc 1.7 1,924 1.7
Nielsen Holdings plc 1.5 1,750 1.5
Intertape Polymer Group Inc 1.4 1,672 1.4
Altaba Inc 1.4 1,666 1.4
SailPoint Technologies Inc 1.4 1,630 1.4
Tegna Inc 1.4 1,592 1.4
Zendesk Inc 1.4 1,567 1.4
MoneyGram International Inc 1.2 1,412 1.2
Sub-total 36.3 42,135 (399) 36.0
Other holdings(7) 63.7 78,868 (4,901) 64.0
Total holdings 100.0 121,003 (5,300) 100.0
(1) Long position.
(2) The offsetting short position of II-VI taken in advance of its
acquisition of Coherent Inc., which was converted into the right to receive
$220 in cash plus 0.91 share of II-VI common stock.
(3) Represents the market value as a percentage of the total
portfolio value.
(4) Market value of the long position.
(5) Market value of the offsetting short position.
(6) Represents the total position value (market value plus the
offsetting market value) as a percentage of the total portfolio value.
(7) Including derivatives and equity short positions, and excluding
U.S. Treasuries. A Statement of Portfolio Changes is available from the
Administrator upon request.
STRATEGY
OUR KEY PERFORMANCE INDICATORS ("KPIS")
The Company's strategy is to generate returns for its shareholders by pursuing
its investment objective while mitigating shareholder risk, by investing in a
diversified spread of equity investments. Through a process of bottom-up stock
selection and the implementation of disciplined portfolio construction, we aim
to create value for the Company's shareholders.
The largest holdings in the Company's portfolio are listed below.
GEARING POLICY
At the sole discretion of the Portfolio Manager, the Company may use leverage
as part of its investment programme. It is anticipated that the Company will
structurally gear and use tactical leverage or portfolio borrowings in an
amount (calculated at the time of investment) of around 2 times of the Net
Asset Value, subject to maximum gearing of 2.5 times the Net Asset Value.
LEVERAGE
Leverage is calculated using two methods:
i) Gross method and ii) Commitment method.
BUSINESS MODEL
Please see the Methodology in Action on page 7 of the full report.
Board Diversity
Please see the "Board Diversity" item on page 29 of the full report
KEY PERFORMANCE INDICATORS ("KPIS")
The Board recognises that it is share price performance that is most important to the Company's shareholders. Fundamental to share price performance is the performance of the Company's net asset value. The central priority is to generate returns for the Company's shareholders through net asset value and share price total return, and discount management.
For the year ended 30 June 2022, the Company's KPIs, as monitored closely by the Board at each meeting, are listed below:
Net Asset Value Total Return
Year ended 30 June 2022
(1.34)%
(30 June 2021: 12.12%)
Share Price Total Return
Year ended 30 June 2022
29.06%
(30 June 2021: 5.46%)
Discount to Net Asset Value
Year ended 30 June 2022
3.74%
(30 June 2021: 25.63%)
The above table sets out the key KPIs for the Company. These KPIs fall within
the definition of 'Alternative Performance Measures' (APMs) under guidance
issued by the European Securities and Markets Authority (ESMA). Information
explaining how these are calculated is set out in the Glossary. These KPIs
including APMs have been carefully selected by the Board on discussion with
the Portfolio Manager, to give the most appropriate overview of performance in
the financial year to shareholders and other stakeholders.
Performance measured against various indices The Company does not use a benchmark. However, at each meeting the Board
reviews and compares portfolio performance in the context of the performance
of the ETF MNA and Credit Suisse Merger Arb Liquid Indices. Information on the
Company's performance is given in the Chairman's Statement and the Portfolio
Manager's Review.
Share Price Total Return The Company's primary investment objective is to seek to generate total return
consisting of capital appreciation and current income.
In order to allow the Shareholders to realise a predictable, but not assured,
level of cash flow and some liquidity periodically on their investment, the
Company has adopted a "managed dividend policy". This policy seeks to pay
Shareholders a quarterly dividend in relation to the Net Asset Value of the
Company at the time, which may be changed at any time by the Board. Between
inception and 30 June 2022, the Company returned
$2.27 per share to shareholders, consistent with its dividend policy.
Dividends are paid only when declared by the Board subject to the Board's
assessment of the Company's financial position and only if the Company has
sufficient income and distributable reserves to make the dividend payment, and
the level of dividend may vary over time. As such, the portfolio's managed
distribution of capital through the payment of quarterly dividends is under
review as we enter the new Fiscal Year.
Share price discount to net asset value (NAV) per share The NAV per share is published on a daily basis on the London Stock Exchange
and The International Stock Exchange. The NAV is calculated in accordance with
the Association of Investment Companies (AIC) formula.
At each Board meeting, the Board monitors the level of the Company's discount
to NAV, the changes thereto and the reason for such changes. The Directors
recognise the importance to investors that the shares should not trade at a
significant discount to NAV. Accordingly, the Board would consider
implementing a share buy back programme to ensure that the share price does
not trade at a significant discount to the NAV.
In the year under review, the Company's shares have traded from a discount of
25.63% as of 30 June 2021 to a discount of 3.85% as of 30 June 2022.
Performance is assessed on a total return basis for the NAV and share price.
Cumulative Performance Chart (USD) from 19 July 2017
Dividend History
Rate ($) Ex-dividend date Record date Payment date
Fourth interim 2022 Not yet declared*
Third interim 2022 0.12 18 April 2022 19 April 2022 28 April 2022
Second interim 2022 0.12 20 January 2022 21 January 2022 03 February 2022
First interim 2022 0.12 18 November 2021 19 November 2021 03 December 2021
Total 0.36
Fourth interim 2021 0.12 14 October 2021 15 October 2021 29 October 2021
Third interim 2021 0.12 15 April 2021 16 April 2021 30 April 2021
Second interim 2021 0.12 14 January 2021 15 January 2021 28 January 2021
First interim 2021 0.12 15 October 2020 16 October 2020 30 October 2020
Total 0.48
* The Board expects to announce the final interim dividend in respect of the
Company's financial year ended 30 June 2022 after the Tranche Two Tender Offer
has concluded. Qualifying Registered Shareholders who participate in either
Tender Offer will not be entitled to any such dividend in respect of any
Ordinary Shares validly tendered.
PRINCIPAL RISKS
The Company continues to have exposure to a variety of risks and
uncertainties, and the Audit & Risk Committee has focused attention on
identifying and mitigating key risks likely to crystallise in the current
economic environment. The Board continues to prioritise a robust system of
controls to minimise exposure to global macro events in particular, which
remains highlighted as a generic risk as in recent Annual Reports.
The Directors confirm that they have carried out a further robust assessment
of the principal risks facing the Company during the year, including those
that would threaten its investment objective, business
model, future performance, solvency or liquidity. The Company maintains a risk
matrix which sets out the risks facing the Company, the likelihood and
potential impact of each risk and the controls established for mitigation. The
risk matrix is reviewed by the Audit & Risk Committee on a regular basis
throughout the financial year, and was specifically refreshed in 2022 to
introduce more stringent risk ratings for each risk and to reflect the impact
of related mitigating controls.
The core principal risks set out in the 2021 Annual Report remain largely
unchanged, however there are some risks that have emerged which are set out in
the
following table with an explanation of how they are mitigated. On review
during the year, the Board re-rated several principal risks and considered the
adequacy of mitigating controls in place across the Company's operations and
those of its key third party providers. The Audit & Risk Committee has
also specifically considered the risks associated to the Portfolio Manager's
use of Contracts for Difference within the investment strategy, which on
review were felt to continue to be appropriate. The risk narrative in the
table below includes a summary of the actions taken to position the Company to
withstand the related effects for markets and investments:
Risk Mitigation
Investment Portfolio Risks
Decline in the U.S. equity markets. By investing in a diversified portfolio and by adhering to a carefully
monitored series of investment restrictions, enabled by automated pre-trade
compliance features and daily review of trade tickets. These strictures
mandate that no single security purchase can, at the time of investment,
account for more than 15% of the gross assets of the Company. The Board meets
the portfolio management team quarterly at the Board meetings to review the
risk factors and their effects on the portfolio, and a thorough analysis of
the investment strategy is undertaken.
Merger and event driven risks address the possibility that deals do not go Portfolio management team's careful selection and active monitoring of mergers
through, are delayed beyond the original closing dates, or that the terms of and acquisitions deals, and maintaining a thorough knowledge of the selected
the proposed transactions change adversely. securities in the portfolio.
Global Macro Events Risks
Unforeseen global emergencies such as the pandemic could lead to dramatically Global economic, geopolitical, and financial conditions are constantly
increased market instability and Company share price volatility. monitored. Diversification of Company assets is incorporated into the
investment strategy and, if disruptive events occur, the Manager is prepared
to adopt a temporary defensive position and invest some or all of the
Company's portfolio in cash or cash equivalents, money market instruments,
bonds, commercial paper, or other debt obligations with banks or other
counterparties, with appropriate ratings as determined by an internationally
recognised rating agency and approved by the Board. Another option is the
investment in "government and public securities" as defined for the purposes
of the Financial Conduct Authority Handbook.
The effects of the COVID-19 pandemic appear to be easing, but the aftermath of
the pandemic continues to create uncertainty for economic forecasts and
markets as Governments globally seek to transition communities, businesses and
individuals back to normality. The Manager has therefore carefully managed the
Company's investments to protect shareholders' interests and to position the
Company to benefit from future performance of markets in line with its key
investment principles. The pandemic also impacted the day-to-day operational
management of both the Board and the Company's third party service providers.
The Board and all its third party service providers continue to successfully
work and meet remotely, and regular third party briefings have kept the Board
informed of how related risks are minimised through the pandemic and ongoing
global recovery.
The military aggression undertaken by Russia against Ukraine has upset the The Board continues to monitor the events unfolding in Ukraine. The portfolio
world economic order. The geopolitical repercussions are extensive, creating management team of the Trust monitors the holdings for their exposure to the
global problems including higher energy and food prices and possibly altering war.
global food and energy flows permanently.
The Audit & Risk Committee have noted that it is possible that a future
event may temporarily compromise the availability of an individual board
member or a key representative or integral team member of a third party
service provider, in turn impacting the Company's performance and have plans
in place to prepare for such eventualities such as remote working etc to
ensure continuity.
Fraud and cybersecurity vulnerability could increase for key service providers The Board relies on assurances from the Company's key third-party providers
resulting from the war in Ukraine. Such events are external to the management that they have appropriate and adequate cybersecurity policies in place to
and beyond the controls of the Company. mitigate the risk of a cyberattack. The Board keep these policies under review
by receiving regular presentations from the Heads of cybersecurity of its
service providers, who describe in detail the efforts they take to secure the
company's data and to mitigate the risks of loss or potential damages that
could result from such attacks.
Operational Risks
Outsourcing
The operational functions of the Company are outsourced to third parties. All third party service providers report to the Board on a regular basis and
Systems disruptions, control failures and/or operational lockdowns caused by their reports and representations are reviewed by the Board, the AIF Manager
the COVID-19 pandemic at these companies could impact the Company. and the Portfolio Manager.
A state-backed cyberattack could also result in widespread disruption across Whilst the Board takes all reasonable endeavours to safeguard the Company from
the financial industry. a cyberattack on this scale, complete mitigation of this external risk cannot
be guaranteed, however the Board, together with its' service providers remain
vigilant to the likelihood of such an event in the current climate and have
improved the company's readiness to reduce disruptions to the company's
activities, in the event of such threat.
Market and Share Price Risks
Market risk arising from volatility in the prices of the Company's To address a discount, the Board may consider using share buybacks, through
investments. The share price of the Company may fall below the NAV. which shares would be repurchased when trading at a discount from NAV, up to a
maximum percentage of 14.99% of the issued share capital. The Company has
continued its shareholder engagement programmes to increase its visibility and
interaction with existing and potential investors.
Financial Risks
Comprise: (i) share price risk (comprising interest rate risk, currency risk Further details of these risks are disclosed in Note 12 to the financial
and other price related risks); (ii) liquidity risk; and (iii) credit risk. statements together with a summary of the policies for managing these risks.
Corporate Governance and Regulatory Compliance Risks
Damage to its reputation through poor corporate governance. The Board complies with good governance practices in accordance with the
Association of Investments Trusts' ("AIC") Code of Corporate Governance
guidelines which endorse the UK Corporate Governance Code. The Board and its
Committees actively perform self-assessments of compliance through the annual
effectiveness evaluation and receive are advised regularly advice from by the
Company Secretary in relation to any regulatory changes within the corporate
governance landscape that may impact the company.
The Board is in contact with its major shareholders on a regular basis, and it
monitors shareholder sentiment.
Shareholder discontent due to a lack of appropriate communications and/or
inadequate financial reporting
Failure to comply with legal and regulatory requirements The Company receives and responds to guidance from both its external and
internal advisors on compliance with the Listing Rules, the Financial Conduct
Authority's Disclosure and Transparency Rules, UK Companies Act 2006, as well
as other applicable regulations.
In order to qualify as an investment trust, the Company must comply with The Board receives confirmations periodically that the Company remains
Section 1158-59 of the Corporation Tax Act 2010 ("CTA 2010"). A breach of compliant with s1158 CTA 2010 in maintaining its Investment Trust Status. The
these sections could result in the Company losing investment trust status and, criteria are monitored by the Administrator, AIF Manager, and the Portfolio
as a consequence, capital gains realised within the Company's portfolio would Manager who reports to the Board on compliance at each quarterly meeting. In
be subject to Corporation Tax. addition, the Audit & Risk Committee are also kept informed of any
potential breaches by the Company's External Auditors who review compliance as
part of the audit process and provide guidance accordingly.
Emerging Risks Mitigation
Environmental, Social and Climate Change Risks
Environmental, Social and Climate issues pose some of the most significant The Board and Investment Manager are committed to supporting business
challenges to the long-term prosperity of the global economy, the well-being activities that are environmentally and socially responsible in line with its
of people and communities, and the natural environmental ability to support sustainability commitments and its support of the goals of the Paris Accord.
life.
Geopolitical Risks
Geopolitical risks have risen with Russia's invasion of Ukraine. The impact of The Board is keeping these evolving risks and market pressures under constant
sanctions and the rise in commodity prices are likely to be the main review and will continue to monitor the volatility around investee company
transmission mechanism to markets. Rising commodity prices and further valuations and implications for the Company's likely future dividend income
disruption to supply chains shall exacerbate inflationary pressure and may stream.
also create a negative impact on global growth, with Europe at particular
risk.
VIABILITY & GOING CONCERN STATEMENT
In accordance with the provisions of the UK Corporate Governance Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months referred to in the 'Going Concern' guidelines.
The Board conducted this review focusing on a period of five years. This
period was selected as it is aligned with the Company's investment objective
of generating total return, consisting of capital appreciation and current
income. In making this assessment the Board also considered the Company's
principal risks.
Investment Companies in the UK operate in a well established and robust
regulatory environment and the Directors have assumed that:
· Investors will continue to want to invest in closed-end investment
companies because the fixed capitalisation structure is suited to pursuing the
Portfolio Manager's proprietary long-term PMV with a Catalyst(TM) investment
strategy;
· The Company's remit of investing globally with an emphasis on
securities traded in the U.S., and predominantly equity securities issued by
companies of any market capitalisation will continue to be attractive to
investors.
· The UK's well established investment and robust regulatory
environment will continue as such and will remain an attractive global
domicile for the Company's remit.
· The recent period of UK political instability as reflected in the
Sterling exchange rate relative to the US Dollar, the interplay of
parliamentary politics with the Bank of England, and the regulatory
unravelling of Brexit relative to the European Union, will pass in the medium
term and return to a period of marketplace stability and instil domicile
confidence for global investors.
As with all investment vehicles, there is a risk that the performance of
individual investments will vary and that capital may be lost, but this is not
regarded as a threat to the viability of the Company.
Operationally, the Company retains title to all assets, and cash and
securities are held with a custodian bank approved by the Portfolio Manager
and the Board.
The nature of the Company's investments means that solvency and liquidity
risks are low because:
· The Company's portfolio is invested in readily realisable, listed
securities;
· The closed-end nature of the Company means that, unlike an open-ended
fund, it does not need to liquidate positions when shareholders wish to sell
their shares; and
· The expenses of the Company are predictable and modest in comparison
with the assets and there are no capital commitments currently foreseen which
would alter that position.
· The taxation of the Company should it operate as a close investment
company are predictable and modest in comparison with the return profile of
the investment programme, and as a result of regular consultation with
shareholders, an effort to undertake the mitigation of such close status
taxation, such as a re-domiciliation, is not expected in the period after 12
months from the tranche two tender offer.
The Board have closely monitored the impact of the ongoing COVID-19 pandemic,
Brexit uncertainty, and the war in Ukraine. Those impacts and related
continuing uncertainty have short- and potentially medium-term implications
for the Company's investment strategy. Additionally, the Board is monitoring
the period ahead on the basis of the Company no longer having investment trust
status and its implications on the Company's investment return profile over
the longer term. In context, the Board continuously monitors the Company's
investment portfolio, liquidity and gearing, along with levels of market
activity, to appropriately minimise and mitigate consequential risks to
capital and future income such as geopolitical risks, financial risks etc. The
risks are discussed in more detail in the Chairman's statement.
Taking these factors into account, the Directors confirm that they have a
reasonable expectation that the Company will continue to operate and meet its
expenses. The Directors have also considered the fact that there will be a
continuation vote at the Company's 2022 Annual General Meeting, and having
consulted and maintained close contact with the Company's major shareholders,
have received a letter in Deed, which contains enforceable irrevocable
undertakings, from the largest shareholder, Associated Capital Group, legal
and beneficial owner of 6,216,256 shares at the time of this writing, that
they will both vote in favour of continuation of the company and not
participate in the 2nd tender offer. Thereby the Directors confirm with
certainty that the company's largest shareholder will vote in favour of the
company to continue to operate.
The Company's portfolio consists primarily of U.S. investments. Accordingly,
the Company believes that the post "Brexit" arrangements introduced by the
U.K. government and market U.K. government and market regulators will not
materially affect the prospects for the Company, but the Board and Portfolio
Manager will continue to keep developments under review.
This Viability & Going Concern Statement, the Strategic Report for the
year ended 30 June 2022 and the s172 statement have been approved by the Board
and signed on its behalf by:
Marc Gabelli
Chairman
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company Law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have prepared the financial
statements in accordance with UK- adopted international accounting standards
in conformity with the requirements of the Companies Act 2006. Under company
law the Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
In preparing the financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· state whether applicable UK-adopted international accounting
standards in conformity with the requirements of the Companies Act 2006 have
been followed, subject to any material departures disclosed and explained in
the financial statements;
· make judgements and accounting estimates that are reasonable and
prudent; and
· prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Company will continue in business.
The Directors 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 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
enable them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Company's position and performance, business
model and strategy.
In the case of each Director in office at the date the Director's Report is
approved:
· so far as the Director is aware, there is no relevant audit
information of which the Company's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Company's auditors are aware of that information.
By order of the Board
Marc Gabelli
Chairman of the Board
FINANCIAL STATEMENTS
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2022
Year ended 30 June 2022 Year ended 30 June 2021
Income
Notes
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
Investment income 5 1,076 - 1,076 327 - 327
Total investment income 1,076 - 1,076 327 - 327
Gains/(Losses) on investments
Net realised and unrealised (losses)/gains on
investments - (460) (460) - 15,435 15,435
3, 14
Net realised and unrealised currency gains/(losses) on
investments - 490 490 - (142) (142)
Net gains/(losses) on investments - 30 30 - 15,293 15,293
Total income and gains on investments 1,076 30 1,106 327 15,293 15,620
Expenses
Portfolio management fee 6 (842) - (842) (852) - (852)
Performance fee 6, 13 - - - - (2,796) (2,796)
Other expenses 6 (1,127) (124) (1,251) (901) (174) (1,075)
Total expenses (1,969) (124) (2,093) (1,753) (2,970) (4,723)
Net return on ordinary activities before finance costs and taxation
(893) (94) (987) (1,426) 12,323 10,897
Interest expense and similar charges (1) - (1) - - -
Profit/(loss) before taxation (894) (94) (988) (1,426) 12,323 10,897
Taxation on ordinary activities 8 (49) - (49) (33) - (33)
Profit/(loss) for the year (943) (94) (1,037) (1,459) 12,323 10,864
Earnings/(Loss) per share (basic and diluted) 9 ($0.09) ($0.01) ($0.10) ($0.14) $1.20 $1.06
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with International Financial Reporting Standards
("IFRS"). The supplementary revenue return and capital return columns are both
prepared under guidance issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year ended 30 June
2022.
The Company does not have any income or expense that is not included in net
profit for the year. Accordingly, the net profit for the period is also the
total comprehensive income for the year, as defined in IAS1 (revised).
The notes form part of these financial statements.
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2022
Year ended 30 June 2022 Year ended 30 June 2021
Income
Notes
Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000
Investment income 5 1,076 - 1,076 327 - 327
Total investment income 1,076 - 1,076 327 - 327
Gains/(Losses) on investments
Net realised and unrealised (losses)/gains on
investments - (460) (460) - 15,435 15,435
3, 14
Net realised and unrealised currency gains/(losses) on
investments - 490 490 - (142) (142)
Net gains/(losses) on investments - 30 30 - 15,293 15,293
Total income and gains on investments 1,076 30 1,106 327 15,293 15,620
Expenses
Portfolio management fee 6 (842) - (842) (852) - (852)
Performance fee 6, 13 - - - - (2,796) (2,796)
Other expenses 6 (1,127) (124) (1,251) (901) (174) (1,075)
Total expenses (1,969) (124) (2,093) (1,753) (2,970) (4,723)
Net return on ordinary activities before finance costs and taxation
(893) (94) (987) (1,426) 12,323 10,897
Interest expense and similar charges (1) - (1) - - -
Profit/(loss) before taxation (894) (94) (988) (1,426) 12,323 10,897
Taxation on ordinary activities 8 (49) - (49) (33) - (33)
Profit/(loss) for the year (943) (94) (1,037) (1,459) 12,323 10,864
Earnings/(Loss) per share (basic and diluted) 9 ($0.09) ($0.01) ($0.10) ($0.14) $1.20 $1.06
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with International Financial Reporting Standards
("IFRS"). The supplementary revenue return and capital return columns are both
prepared under guidance issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year ended 30 June
2022.
The Company does not have any income or expense that is not included in net
profit for the year. Accordingly, the net profit for the period is also the
total comprehensive income for the year, as defined in IAS1 (revised).
The notes form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2022
Year ended 30 June 2022
Year ended 30 June 2022
Note
Called up Special Distributable
Share Capital Reserve* Capital Reserve Revenue Reserve*
$000 $000 $000 $000 Total
$000
Balance as at 1 July 2021 103 83,976 21,059 (3,413) 101,725
Loss for the period after tax on ordinary activities - - (94) (943) (1,037)
Dividends - (4,914) - - (4,914)
paid
7
Balance as at 30 June 2022 103 79,062 20,965 (4,356) 95,774
Year ended 30 June 2021
Year ended 30 June
2021
Note
Called up Special Distributable
Share Capital Reserve* Capital Reserve Revenue Reserve*
$000 $000 $000 $000 Total
$000
Balance as at 1 July 2020 103 88,912 9,279 (1,954) 96,340
Ordinary shares bought back into treasury - - (543) - (543)
Profit/(loss) for the period after tax on ordinary activities - - 12,323 (1,459) 10,864
Dividends - (4,936) - - (4,936)
paid
7
Balance as at 30 June 2021 103 83,976 21,059 (3,413) 101,725
* The Revenue Reserve and Special Distributable Reserve are treated as
distributable reserves. As at 30 June 2022, the net amount of reserves that
are distributable are $74,706,000 (2021: $80,563,000).
STATEMENT OF FINANCIAL POSITION
as at 30 June 2022
As at 30 June 2022 As at 30 June 2021
Note
$000 $000 $000 $000
Non-current assets
Investments held at fair value through profit or 92,381 98,369
loss
3
Current assets
Cash and cash 5,911 12,405
equivalents
10
Receivable for investment sold 423 2,622
Other 66 147
receivables
15
6,400 15,174
Current liabilities
Portfolio management fee payable (61) (82)
Performance fee payable - (2,796)
Payable for investment purchased (1,875) (1,822)
Other (212) (314)
payables
15
Bank overdrafts (391) -
Net current assets 3,861 10,160
Non-current liabilities
Investments at fair value through profit or (416) (6,752)
loss
3
Offering fees payable (52) (52)
Net assets 95,774 101,725
Share capital and reserves
Called-up share 103 103
capital
11
Special distributable reserve* 79,062 83,976
Capital reserve 20,965 21,059
Revenue reserve* (4,356) (3,413)
Total shareholders' funds 95,774 101,725
Net asset value per ordinary share $9.35 $9.94
* The Revenue Reserve and Special Distributable Reserve are treated as
distributable reserves. As at 30 June 2022, the net amount of reserves that
are distributable are $74,706,000 (2021: $80,563,000).
STATEMENT OF CASH FLOWS
for the year ended 30 June 2022
Year
ended
Year ended
30 June
2022 30
June 2021
$000 $000
$000 $000
Cash flows from operating activities
(Loss)/profit before tax (988) 10,897
Adjustments for:
Gains on investments (30) (15,293)
Cash flows from operating activities
Purchases of investments(1,2) (202,678) (277,371)
Sales of investments(1,2) 204,122 252,191
Increase in receivables(2) (995) (409)
(Decrease)/increase in payables(2) (2,918) 2,640
Interest paid (1) -
Dividend income 1,076 330
Foreign withholding taxes on dividends (49) (33)
Net cash flows from operating activities(3 )
(2,461)
(27,048)
Cash flows from financing activities
Shares bought back for cash -
(543)
Dividends paid (4,914) (4,936)
Net cash flows from financing activities (4,914)
(5,479)
Net decrease in cash and cash equivalents(3) (7,375)
(32,527)
Cash and cash equivalents at the start of the period 12,405
45,074
Effect of foreign exchange rates(3) 490
(142)
Cash and cash equivalents at the end of the period(4) 5,520 12,405
1 Receipts from the sale of, and payments to acquire, investment securities,
have been classified as components of cash flows from operating activities
because they form part of the Company's dealing operations.
2 Comparative figures have been updated to reflect a reclassification of
moving the non-cash elements of the purchases/sales from the
"increase/decrease in receivables/payables" to the "purchases/sales of
investments" section.
3 Comparative figures have been updated to reflect a reclassification of
effect of foreign exchange rates from "cash flows from operating activities"
to "net decrease in cash and cash equivalents" section.
4 As at 30 June 2022, $5,843,979 (2021: $11,697,439) was held as collateral at
UBS securities LLC and was restricted.
Gabelli Merger Plus(+) Trust Plc is registered in England and Wales under
Company number 10747219.
The financial statements were approved by the Board of Directors on 25 October
2022 and signed on its behalf by
Marc Gabelli
Chairman
Notes to the Financial Statements
1. General Information
Gabelli Merger Plus+ Trust Plc (the "Company") is a closed-ended public
limited company incorporated in the United Kingdom on 28 April 2017 with
registered number 10747219. The Company commenced operation on 19 July 2017
and intends to conduct its affairs so as to qualify, at all times, as an
investment trust for the purposes of section 1158 of the Corporation Tax Act
2010 (as amended).
2. Accounting policies
a. Basis of preparation - The financial statements of Gabelli
Merger Plus+ Trust Plc have been prepared in accordance with the UK adopted
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). The financial statements have
been prepared under the historical cost convention, as modified by the
revaluation of financial assets and financial liabilities (including
derivative financial instruments) at fair value through profit or loss.
The principal accounting policies adopted by the Company are set out below.
Where presentational guidance set out in the Statement of Recommended Practice
('SORP') for investment trusts issued by the Association of Investment
Companies ('AIC') in October 2019 is consistent with the requirements of IFRS,
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP.
b. Presentation of Statement of Comprehensive Income - To better reflect
the activities of an investment trust company and in accordance with guidance
issued by the AIC, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature has been
presented alongside the Statement of Comprehensive Income.
c. Going concern - The Directors, having taken account of the continuing
market regulatory changes affecting investee companies, investment valuations,
implications of the COVID-19 pandemic, and the war in Ukraine, and have
determined that the Company's strategy, longer-term asset allocation,
short-term liquidity and robust governance structure provide a sufficient
basis for the Board to adopt the going concern basis for the Company as at 30
June 2022.
In forming this position, the Directors consulted with shareholders utilizing
the tender offer process, considered the Company's investment objectives, risk
management policies, capital management policies and procedures, the nature of
the portfolio and expenditure projections in detail. These items are discussed
in more detail in the Directors' Report and the Chairman's Statement.
The Directors have also considered the fact that there will be a continuation
vote at the Company's 2022 Annual General Meeting, and having consulted and
maintained close contact with the Company's major shareholders, have received
a letter in Deed, which contains enforceable irrevocable undertakings, from
the largest shareholder, Associated Capital Group, legal and beneficial owner
of 6,216,256 shares at the time of this writing, that they will both vote in
favour of continuation of the company and not participate in the 2nd tender
offer. Thereby the Directors confirm with certainty that the company's largest
shareholder will vote in favour of the company to continue to operate. The
Viability & Going Concern Statement contains additional information.
d. Statement of estimation uncertainty - In the application of the
Company's accounting policies, the Investment Manager is required to make
judgements, estimates, and assumptions about carrying values of assets and
liabilities that are not always readily apparent from other sources. The
estimates and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results may vary from
these estimates. There have been no significant judgements, estimates, or
assumptions for the period.
e. Income recognition - Revenue from investments (other than
special dividends), including taxes deducted at source, is included in revenue
by reference to the date on which the investment is quoted ex-dividend, or
where no ex-dividend date is quoted, when the Company's right to receive
payment is established. Franked investment income is stated net of the
relevant tax credit. Other income includes any taxes deducted at source.
Special dividends are credited to capital or revenue, according to the
circumstances. Scrip dividends are treated as unfranked investment income; any
excess in value of the shares received over the amount of the cash dividend is
recognised as a capital item in the Statement of Comprehensive Income.
Interest income is accounted for on an accrual basis by reference to the
principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying amount.
f. Expenses - The management fees are allocated to revenue in the
Statement of Comprehensive Income. Interest receivable and payable and
management expenses are treated on an accruals basis. All other expenses are
charged to revenue except where they directly relate to the acquisition or
disposal of an investment, in which case, they are added to the cost of the
investment or deducted from the sale proceeds.
The formation and initial expenses of the Company are allocated to capital.
g. Investments - Investments have been designated upon initial
recognition at fair value through profit or loss. Investments are recognised
and de-recognised at trade date where a purchase or sale is under a contract
whose terms require delivery within the time frame established by the market
concerned, and are initially measured at fair value. Subsequent to initial
recognition, investments are valued at fair value. Movements in the fair value
of investments and gains/losses on the sale of investments are taken to the
Statement of Comprehensive Income as capital items.
The Company's investments are classified as held at fair value through profit
or loss in accordance with applicable International Financial Standards.
Financial assets and financial liabilities are recognised in the Statement of
Financial Position when the Company becomes a party to the contractual
provisions of the instrument. The Company shall offset financial assets and
financial liabilities if it has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net basis.
Financial assets and liabilities are derecognised when the Company settles its
obligations relating to the instrument.
Contracts for Difference (CFDs)
CFDs are recognised in the Statement of Financial Position at the accumulated
unrealised gain or loss as an asset or liability, respectively. This
represents the difference between the nominal book cost and market value of
each position held. Movements in the unrealised gains/losses are taken to the
Statement of Comprehensive Income as capital items.
h. Cash and cash equivalents - The Company may invest part of its
net assets in cash and cash equivalents, money market instruments, bonds,
commercial papers or other debt obligations with banks or other
counterparties, having at least a single-A (or equivalent) credit rating from
an internationally recognised rating agency or government and other public
securities, if the Portfolio Manager believes that it would be in the best
interests of the Company and its shareholders. This may be the case, for
example, where the Portfolio Manager believes that adverse market conditions
justify a temporary defensive position. Any cash or surplus assets may also be
temporarily invested in such instruments pending investment in accordance with
the Company's investment policy. Cash balances are marked to market based on
the prevailing exchange rate as of the valuation date. US Treasuries are
valued at their amortised cost.
i. Transaction costs - Transaction costs incurred on the
purchase and disposal of investments are recognised as a capital item in the
Statement of Comprehensive Income.
j. Foreign currency - Foreign currencies are translated at the
rates of exchange ruling on the period end date. Revenue received/ receivable
and expenses paid/payable in foreign currencies are translated at the rates of
exchange ruling at the transaction date.
k. Fair value - All financial assets and liabilities are
recognised in the financial statements at fair value.
l. Dividends payable - Interim and final dividends are
recognised in the period in which they are declared.
m. Capital reserve - Capital distributions received, realised gains or
losses on investments that are readily convertible to cash, and capital
expenses are transferred to the capital reserve. Share buybacks are funded
through the capital reserve, with details of buybacks disclosed note 11.
n. Taxation - The tax effect of different items of income/gains
and expenditure/losses is allocated between revenue and capital on the same
basis as the particular item to which it relates, under the marginal method,
using the Company's effective rate of tax. Deferred taxation is recognised in
respect of all timing differences that have originated but not reversed at the
period end date where transactions of events that result in an obligation to
pay more or a right to pay less tax in future have occurred at the period end
date measured on an undiscounted basis and based on enacted tax rates. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the underlying timing differences can be deducted. Timing
differences are differences arising between the Company's taxable profits and
its results as stated in the accounts which are capable of reversal in one or
more subsequent periods.
o. Functional and presentation currency - The functional and
presentation currency of the Company is the U.S. dollar.
3. INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
The financial assets measured at fair value through profit or loss in the
financial statements are grouped into the fair value hierarchy as follows:
As at 30 June 2022
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Quoted equities 89,577 1,782 - 91,359
Contingent value rights - 132 5 137
Derivatives - 885 - 885
Gross fair value 92,381
Derivatives - (416) - (416)
Net fair value 89,577 2,383 5 91,965
As at 30 June 2021
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Quoted equities 92,205 5,498 - 97,703
Contingent value rights - 278 - 278
Derivatives - 388 - 388
Gross fair value 98,369
Derivatives - (1,892) - (1,892)
Quoted equities - shorts (4,860) - - (4,860)
Net fair value 87,345 4,272 - 91,617
* Dova Pharmaceuticals Inc has been transferred from Level 1 to Level 2 and
Zagg Inc has been transfered from Level 2 to Level 3 during the year.
Analysis of changes in market value and book cost of portfolio investments in
year
Year ended 30 June 2022 Year ended 30 June 2021
$000 $000
Opening book cost 93,078 59,509
Opening investment holding losses (1,461) (9,377)
Opening market value 91,617 50,132
Additions at cost 202,731 276,928
Disposals proceeds received (201,923) (250,878)
Gains/(losses) on investments (460) 15,435
Market value of investments 91,965 91,617
Closing book cost 99,687 93,078
Closing investment holding losses (7,722) (1,461)
Closing market value 91,965 91,617
The company received $201,923,000 (2021: $250,878,000) from investments sold
in the year. The book cost of these investments when they were purchased was
$196,122,000 (2021: $243,359,000). Further explanation of the disposal
proceeds received in the year can be found in the Net realised and unrealised
gains/(losses) on investments section.
Fair value hierarchy
IFRS 13 requires the Company to classify its financial instruments held at
fair value using a hierarchy that reflects the significance of the inputs used
in the valuation methodologies. These are as follows:
· Level 1 - quoted prices in active markets for identical
investments;
· Level 2 - other significant observable inputs (including quoted
prices for similar investments, interest rates, prepayments, credit risk,
etc.); and
· Level 3 - Significant unobservable inputs.
Valuation process and techniques for Level 3 valuations
The investments in contingent value rights are reviewed regularly to ensure
that the initial classification remains correct given each asset's
characteristics and the Company's investment policies. The contingent value
rights are initially recognised using the transaction price as the best
evidence of fair value at acquisition, and are subsequently measured at fair
value. At 30 June 2022, the quantitative inputs used to value the level 3
contingent value rights included the last sale price, broker quotes, or the
merger price.
Level 2 financial assets at fair value through profit or loss
The investments in contracts for difference are marked at the price of the
underlying equity. Contingent value rights in Level 2 are marked using broker
quotes.
Level 3 financial assets at fair value through profit or loss.
Year ended 30 June 2022 Year ended 30 June 2021
$000 $000
Opening valuation - 42
Assets acquired during the year - 2
Assets disposed during the year - -
Total profit or loss included in net profits/(losses) on investments in
the Statement of Comprehensive Income 5 (44)
Closing valuation 5 -
Net realised and unrealised gains/(losses) on investments
Year ended 30 June 2022 Year ended 30 June 2021
$000 $000
Realised gains on investments 5,801 7,519
Movement in unrealised gains/(losses) on investments (6,261) 7,916
Net realised and unrealised gains/(losses) on investments (460) 15,435
4. TRANSACTIONS COSTS
During the year commissions and other expenses were incurred in acquiring
within gains/(losses) in the Statement of Comprehensive Income. The total
costs were as follows:
Year ended 30 June 2022 Year ended 30 June 2021
$000 $000
Purchases 68 79
Sales 33 75
Total transaction costs 101 154
5. Income/(loss) from investments Expenses
Year ended 30 June 2022 Year ended 30 June 2021
$000 $000
Income/(loss) from investments
Overseas equities 530 286
Income on short-term investments(1) 3 (7)
Other income 543 48
Total income/(losses) 1,076 327
1 Income on short-term investments represents the return on cash and cash
equivalents, primarily U.S. Treasury Bills. Further information can be found
in Note 10
6. EXPENSES
Year ended Year ended 30 June
2022 30 June 2021
$000 $000
Revenue expenses
Portfolio Management Fee (842) (852)
Contracts for Difference (429) (277)
Directors' Remuneration (157) (163)
Legal Fees (110) (45)
Company Secretary Fees (94) (62)
Audit Fees - PwC (70) (68)
AIFM - Carne (60) (53)
Administration Fees - State Street (44) (42)
Custodian/Depositary Fees - State Street (42) (38)
Printing (17) (13)
Other (33) (36)
Directors' Expenses (15) -
Ongoing LSE and UKLA Fees (14) (10)
Registrar - Computershare(1) (13) (16)
Regulatory Filing Fees - AIFMD (13) (58)
LSE RNS fees (8) (14)
Marketing expenses (4) (3)
Dividend Expense on Securities Sold Short (4) (7)
Broker Retainer Fee(2) - 4
Total revenue expenses (1,969) (1,753)
Capital expenses
Transaction costs on derivatives (73) (103)
Transaction Charges - State Street (51) (71)
Performance Fee(3) - (2,796)
Total capital expenses (124) (2,970)
1 The regulatory filing fees for the year ended 30 June 2021 include filing
fees from prior fiscal years.
2 The broker retainer fees for the year ended 30 June 2022 reflects a Cantor
Fitzgerald Europe Retainer reimbursement.
3 Further information regarding the Performance Fee can be found in Note 13.
Portfolio Management Fee
Under the terms of the Portfolio Management Agreement, the Portfolio Manager
will be entitled to a management fee ("Management Fee"), together with
reimbursement of reasonable expenses incurred by it in the performance of its
duties under the Portfolio Management Agreement, other than the salaries of
its employees and general overhead expenses attributable to the provision of
the services under the Portfolio Management Agreement. The Management Fee
shall be accrued daily and calculated on each Business Day at a rate
equivalent to 0.85% of NAV per annum.
AIFM fees
The Company has appointed Carne Global Fund Managers (Ireland) Limited
("Carne") as its Alternative Investment Fund Manager pursuant to the AIFMD.
Carne is entitled to receive from the Company such annual fees, accrued and
payable at such times, as may be agreed in writing between itself and the
Company from time to time. The fees are payable monthly and subject to a
minimum monthly fee of £2,500.
7. EQUITY DIVIDENDS
Year ended Year ended 30 June
2022 30 June 2021
$000 $000
Dividends paid 4,914 4,936
During the year ended 30 June 2022 dividends paid per share totalled $0.48 (30
June 2021: $0.48 per share). More detailed information can also be found in
the Dividend History table
8. TAXATION ON ORDINARY ACTIVITIES
Year ended 30 June 2022
Analysis of the tax charge in the year
Revenue Capital Total
$000 $000 $000
Irrecoverable overseas tax (49) - (49)
Total (49) - (49)
Year ended 30 June 2021
Analysis of the tax charge in the year
Revenue Capital Total
$000 $000 $000
Irrecoverable overseas tax (33) - (33)
Total (33) - (33)
Year ended 30 June 2022
Factors affecting the tax charge for the year
Revenue Capital Total
$000 $000 $000
Loss before taxation (894) (94) (988)
UK Corporation tax at effective rate of 19% 170 18 188
Effects of:
Non taxable overseas dividends 98 - 98
Gains on investments held at fair value through profit or loss - (87) (87)
Irrecoverable overseas tax (49) - (49)
Expenses not deductible for tax purposes (1) (10) (11)
Losses on foreign currencies - 93 93
Movement in excess management expenses (352) (18) (370)
Movement in deferred tax rate on excess management expenses 85 4 89
Total (219) (18) (237)
Total tax charge for the year (49) - (49)
Factors affecting the tax charge for the year
(Loss)/profit before taxation (1,426) 12,323 10,897
UK Corporation tax at effective rate of 19% 271 (2,341) (2,070)
Effects of:
Non taxable overseas dividends 54 - 54
Losses on investments held at fair value through profit or loss - 2,933 2,933
Irrecoverable overseas tax (33) - (33)
Expenses not deductible for tax purposes (1) (12) (13)
Gains on foreign currencies - (27) (27)
Movement in excess management expenses (324) (553) (877)
Total (304) 2,341 2,037
Total tax charge for the year (33) - (33)
At the year end after offset against income taxable on receipt, there is a
potential deferred tax asset of $2,354,232 (2021:
$1,498,961) in relation to surplus tax reliefs. As the Company has not
generated sufficient taxable profits to utilise these amounts, no deferred tax
asset has not been recognised.
Due to the Company's status as an investment trust and the intention to
continue to meet the conditions required to obtain approval in the foreseeable
future, the Company has not provided deferred tax on capital gains and losses
arising on the revaluation or disposal of investments.
9. EARNINGS PER SHARE
Earnings per ordinary share is calculated with reference to the following
amounts:
Year ended 30 June 2022 Year ended 30 June 2021
Revenue return
Revenue loss attributable to ordinary shareholders ($000) (943) (1,459)
Weighted average number of shares in issue during year 10,238,206 10,247,238
Total revenue return (loss) per ordinary share ($0.09) ($0.14)
Capital return
Capital return attributable to ordinary shareholders ($000) (94) 12,323
Weighted average number of shares in issue during year 10,238,206 10,247,238
Total capital return per ordinary share ($0.01) $1.20
Total return per ordinary share ($0.10) $1.06
As at 30 June 2022 As at 30 June 2021
Net asset value per share
Net assets attributable to shareholders ($000) 95,774 101,725
Number of shares in issue at year end 10,238,206 10,238,206
Net asset value per share $9.35 $9.94
10. CASH AND CASH EQUIVALENTS
As at As at
30 June 2022 30 June 2021
$000 $000
Cash 5,911 12,405
Total 5,911 12,405
The Board and Investment Manager oversee investments held in cash and cash
equivalents in accordance with the Investment Policy.
11. CALLED UP SHARE CAPITAL
As at 30 June 2022 As at 30 June 2021
$000 $000
Allotted, called up and fully paid:
10,238,206 (2021: 10,238,206) Ordinary shares of $0.01 each - equity
102 102
Treasury shares:
95,960 (2021: 95,960) Ordinary shares of $0.01 each - equity
1 1
Total shares 103 103
12. FINANCIAL RISK MANAGEMENT
The Company's financial instruments comprise securities and other investments,
cash balances, receivables, and payables that arise directly from its
operations; for example, in respect of sales and purchases awaiting
settlement, and receivables for accrued income. The Company also has the
ability to enter into derivative transactions in the form of forward foreign
currency contracts, futures, and options, for the purpose of managing currency
and market risks arising from the Company's activities.
The main risks the Company faces from its financial instruments are (i) share
price risk (comprising interest rate risk, currency risk, and other price
risk), (ii) liquidity risk, and (iii) credit risk.
The Board regularly reviews, and agrees upon, policies for managing each of
these risks. The Portfolio Manager's policies for managing these risks are
summarised below and have been applied throughout the year. The numerical
disclosures exclude short term receivables and payables, other than for
currency disclosures.
a. Share price risk
The fair value or future cash flows of a financial instrument held by the
Company may fluctuate because of changes in market prices. This market risk
comprises three elements - interest rate risk, currency risk, and other price
risk.
b. Interest rate risk
Interest rate movements may affect the level of income receivable and payable
on cash deposits.
The possible effects on fair value and cash flows that could arise as a result
of changes in interest rates are taken into account when making investment
decisions.
12 Financial risk management (continued)
Interest risk profile
The interest rate risk profile of the portfolio of financial
assets/(liabilities) at the year end date was as follows:
As at 30 June 2022
Interest Local currency Foreign exchange US Dollar equivalent
rate 000 rate $000
%
Assets:
US dollar 0.24 5,585 1.00 5,585
Australian dollar 0.12 (48) 1.45 (33)
Canadian dollar 0.15 15 1.29 12
Euro currency (0.75) (8) 0.96 (8)
GBP Sterling 0.12 (24) 0.82 (29)
Hong Kong dollar 0.00 1 7.85 *
New Zealand dollar 0.10 5 1.61 3
Norwegian krone 0.00 (5) 9.88 (1)
South African rand 0.00 (13) 16.38 (1)
Swedish krona (0.75) (80) 10.25 (8)
Total 5,520
* Less than $500.
As at 30 June 2021
Interest Local currency Foreign exchange US Dollar equivalent
rate 000 rate $000
%
Assets:
US dollar 0.00 12,462 1.00 12,462
Australian dollar 0.00 1 1.33 1
Canadian dollar 0.00 6 1.24 5
Euro currency (0.75) (12) 0.84 (14)
GBP sterling 0.00 (39) 0.72 (54)
Hong Kong dollar 0.00 1 7.77 *
Japanese yen (0.35) 265 110.99 2
Polish zloty 0.00 1 3.81 *
Singapore dollar 0.00 4 1.34 3
Swedish krona (1.25) 1 8.55 *
Total 12,405
* Less than $500.
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to
interest rates for both derivative and non-derivative instruments at the year
end date and the stipulated change taking place at the beginning of the
financial year and held constant throughout the reporting period in the case
of instruments that have floating rates.
If interest rates had been 10 (2021: 10) basis points higher or lower and all
other variables were held constant, the Company's profit or loss for the
reporting year to 30 June 2022 would increase/decrease by $6,000 (2021:
$12,000). This is mainly attributable to the Company's exposure to interest
rates on its floating rate cash balances.
Currency risk
The Company's investment portfolio is invested predominantly in foreign
securities and the year end can be significantly affected by movements in
foreign exchange rates. It is not the Company's policy to hedge this risk on a
continuing basis but the Company may, from time to time, match specific
overseas investments with foreign currency borrowings.
The revenue account is subject to currency fluctuation arising from verses
income. Currency risk exposure by currency of denomination:
As at 30 June 2022
Net Investments Net monetary Total currency exposure
$000 assets $000
$000
Australian dollar - (55) (55)
Canadian dollar 5,295 (5,222) 73
Euro currency 98 (55) 43
GBP Sterling 937 (805) 132
Hong Kong dollar - 2 2
New Zealand dollar - 3 3
South African rand - (7) (7)
Swedish krona - 108 108
Swiss franc - - -
Total non US Investments 8,772 (6,031) 2,741
US dollar 82,724 10,309 93,033
Total 91,496 4,278 95,774
As at 30 June 2021
Net Investments Net monetary Total currency
$000 assets exposure
$000 $000
Australian dollar - (7) (7)
Canadian dollar 4,845 (4,851) (6)
Euro currency 1,327 (604) 723
GBP sterling - (44) (44)
Hong Kong dollar - (12) (12)
Japanese yen - 5 5
Norwegian krone - 4 4
Singapore dollar - 2 2
South African rand - (2) (2)
Total non US Investments 6,172 (5,509) 663
US dollar 91,806 9,256 101,062
Total 97,978 3,747 101,725
12. Financial risk management (continued) Currency sensitivity
The following table details the Company's sensitivity to a 10% increase and
decrease in US dollars against the relevant foreign currencies and the
resultant impact that any such increase or decrease would have on net return
before tax and equity shareholders' funds. The sensitivity analysis includes
only outstanding foreign currency denominated items and adjusts their
translation at the year end for a 10% change in foreign currency rates.
As at As at
30 June 2022 30 June 2021
$000 $000
Australian dollar (6) (1)
Canadian dollar 8 (1)
Euro currency 5 72
GBP Sterling 13 (4)
Japanese yen - 1
South African rand (1) -
Swedish krona 11 -
Swiss franc - -
The relevant US dollar exchange rates as at 30 June 2022 were: Australian
Dollar (1: 1.4542); Canadian Dollar (1: 1.2900); Euro currency (1: 0.9565);
GBP Sterling
(1: 0.8234), South African rand (1: 16.3825), Swedish krona (1: 10.2474) and
Swiss franc (1: 0.9574).
Other price risk
Other price risks, i.e., changes in market prices other than those arising
from interest rate or currency risk, may affect the value of the quoted
investments.
The Investment Manager actively monitors market prices throughout the year and
reports to the Board, which meets regularly in order to review investment
strategy. The investments held by the Company are listed on a recognised stock
exchange.
Other price risk sensitivity
If market prices at the year end date had been 15% higher or lower while all
other variables remained constant, the return attributable to ordinary
shareholders for the year ended 30 June 2022 would have increased/decreased by
$13,795,000. The calculations are based on the portfolio valuations as at the
year end date, and are not representative of the year as a whole.
a. Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities. All creditors are payable
within 3 months.
Liquidity risk is not considered to be significant as the Company's assets
comprise mainly readily realisable securities, which can be sold to meet
funding commitments if necessary.
b. Credit risk
This is the risk of failure of the counterparty to a transaction to discharge
its obligations under that transaction that could result in the Company
suffering a loss.
The table below shows the counterparty risk as at the Balance Sheet date:
Derivative exposure: CFDs
Collateral posted
Net exposure
$000 $000 $000
Counterparty
UBS Securities, LLC
(469) (5,844) (6,313)
Total (469) (5,844) (6,313)
Net exposure represents the mark-to-market value of derivative contracts less
any cash collateral held. Negative exposure represents the Fund's exposure to
that counterparty. Positive amounts are not an exposure to the Fund.
The risk is managed as follows:
• Investment transactions are carried out mainly with brokers whose
credit ratings are reviewed periodically by the Portfolio Manager.
• Most transactions are made delivery versus payment on recognised
exchanges
Cash is held at State Street Bank and Trust which has a credit rating by
Standard and Poor's on short term deposits of A-1+ and long term deposits AA-.
The maximum credit risk exposure as at 30 June 2022 was $6,400,000 (2021:
$15,174,000). This was due to cash and receivables as per note (10) 'Cash
& cash equivalents', note (15) 'Total other receivables' and Statement of
Financial Position Receivable for investment sold.
Capital management policies and procedures
The Company's capital management objectives are
• to ensure that the Company will be able to continue as a going
concern; and
• to maximise the revenue and capital return to its equity
shareholders through an appropriate balance of equity capital and debt.
The Board monitors and reviews the broad structure of the Company's capital on
an ongoing basis. The Board considers the Company's capital requirements in
the context of both the Special Distributable and Revenue reserves being
treated as distributable, as permitted by current accounting standards for
listed investment trusts. The distributable reserves can be used to fund
dividends and share repurchase programmes. This review includes the nature and
planned level of gearing, which takes account of the Portfolio Manager's views
on the market and the extent to which revenue in excess of that which is
required to be distributed under the investment trust rules should be
retained.
The analysis of shareholders' funds is as follows:
As at June 2022 As at June 2021
30 $000 30 $000
Called-up share capital 103 103
Special distributable reserve* 79,062 83,976
Capital reserve 20,965 21,059
Revenue reserve* (4,356) (3,413)
Total shareholders' funds 95,774 101,725
*The Revenue Reserve and Special Distributable Reserve are treated as
distributable reserves. As at 30 June 2022, the net amount of reserves that
are distributable are $74,706,000 (2021: $80,563,000).
Alternative Investment Fund Managers' ('AIFM') Directive
In accordance with the Alternative Investment Fund Managers' Directive
("AIFMD"), the Company has appointed Carne Global Fund Managers (Ireland)
Limited as its Alternative Investment Fund Manager (the "AIFM") to provide
portfolio management and risk management services to the Company in accordance
with the investment management agreement.
Leverage
Leverage is calculated using two methods: i) Gross method and ii) Commitment
method.
The Company's maximum leverage levels at 30 June 2022 are shown below:
Gross method Commitment
Leverage Exposure method
Maximum permitted limit 500% 250%
Actual 131% 137%
The leverage limits are set by the AIFM and approved by the Board and are in
line with the maximum leverage levels permitted in the Company's Articles of
Association. The AIFM is also required to comply with the gearing parameters
set by the Board in relation to borrowings.
13. PERFORMANCE FEE
Subject to the satisfaction of the Performance Conditions, the Portfolio
Manager shall be entitled under the Portfolio Management Agreement, in respect
of each Performance Period, to receive 20% of the Total Return relating to
such Performance Period, provided that such amount shall not exceed 3% of the
Average NAV.
14. PERFORMANCE CONDITIONS
The Portfolio Manager's entitlement to a Performance fee in respect of any
Performance Period shall be conditional on the Closing NAV per Share in
respect of the Performance Period (adjusted for any changes to the NAV per
Share through dividend payments, Share repurchases (howsoever effected) and
Share issuances since Admission) being in excess of the Performance Hurdle and
High Water Mark. For the year ended 30 June 2022, no Performance fee was paid.
As at 30 June 2022, no amount was outstanding to the Portfolio Manager in
respect of the performance fee, reflecting the performance period matching the
Company's financial year (2021: $2,795,658).
15. DERIVATIVES RISK
The Company's investment policy may involve the use of derivatives (including,
without limitation, forward foreign exchange contracts, equity contracts for
difference swap agreements ("CFDs"), securities sold short and/or structured
financial instruments). The Company may use both exchange-traded and
over-the-counter derivatives as part of its investment activity. The cost of
investing utilizing derivatives may be higher than investing in securities
(whether directly or through nominees) as the Company will have to bear the
additional costs of purchasing and holding such derivatives, which could have
a material adverse effect on the Company's returns. The low initial margin
deposits normally required to establish a position in such instruments permit
a high degree of leverage. As a result, depending on the type of instrument, a
relatively small movement in the price of a contract may result in a profit or
a loss which is high in proportion to the amount of funds actually placed as
initial margin and may result in unquantifiable further losses exceeding any
margin deposited. In addition, daily limits on price fluctuations and
speculative position limits on exchanges may prevent prompt liquidation of
positions resulting in potentially greater losses.
The use of derivatives may expose the Company to a higher degree of risk.
These risks may include credit risk with regard to counterparties with whom
the Company trades, the risk of settlement default, lack of liquidity of the
derivative, imperfect tracking between the change in value of the derivative
and the change in value of the underlying asset that the Company is seeking to
track and greater transaction costs than investing in the underlying assets
directly. Additional risks associated with investing in derivatives may
include a counterparty breaching its obligations to provide collateral, or,
due to operational issues (such as time gaps between the calculation of risk
exposure to a counterparty's provision of additional collateral or
substitutions of collateral or the sale of collateral in the event of a
default by a counterparty), there may be instances where credit exposure to
its counterparty under a derivative contract is not fully collateralised. The
use of derivatives may also expose the Company to legal risk, which is the
risk of loss due to the unexpected application of a law or regulation, or
because a court declares a contract not legally enforceable.
The use of CFDs is a highly specialised activity that involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. In a CFD, a set of future cash flows is exchanged
between two counterparties. One of these cash flow streams will typically be
based on a reference interest rate combined with the performance of a notional
value of shares of a stock. The other will be based on the performance of the
shares of a stock. Depending on the general state of short term interest rates
and the returns on the Company's portfolio securities at the time a CFD
transaction reaches its scheduled termination date, there is a risk that the
Company will not be able to obtain a replacement transaction or that terms of
the replacement will not be as favourable as on the expiring transaction. At
30 June 2022 the Company held CFDs, as shown in the following table.
As at
30 June 2022
Unrealised
Security name Trade currency Shares (000) gain/(loss)
$000
Aareal Bank AG EUR 7 (3)
ADTRAN Inc USD (15) 7
ADVA Optical Networking SE USD 27 (7)
Ardent Leisure Group Ltd AUD 190 6
Atlantia SpA EUR 73 (2)
Atotech Ltd USD 27 (5)
Avast plc USD 383 160
Befimmo EUR 7 **
Black Knight Inc USD 3 3
Brewin Dolphin Holdings plc GBP 109 4
Broadcom Inc USD (1) 14
Caretech Holdings plc GBP 9 **
Cazoo Group Ltd USD 27 (8)
CMC Materials Inc USD 11 10
ContourGlobal plc GBP 60 (1)
Deutsche Euroshop AG EUR 56 11
Disruptive Capital GP GBP 86 **
Distell Group Ltd ZAR 44 (6)
Drilling Co USD 15 (130)
EcoOnline Holding AS NOK 103 **
EDF SA EUR 14 (7)
Emis Group plc GBP 2 **
Entain plc GBP 22 (26)
Entegris Inc USD (5) 29
Euronav NV USD 1 **
Flagstar Bancorp Inc USD 11 8
Frontline Ltd USD (1) **
Fulton Financial USD (9) **
Genkyotex SA EUR 7 **
Grief Inc USD (4) (7)
Grifols SA USD (12) (4)
Healthcare Realty Trust Inc USD (37) (64)
Healthcare Trust of America USD 37 15
HomeServe plc GBP 67 8
Hunter Douglas EUR * **
Ideagen Inc GBP 88 2
II-VI Inc USD (8) 45
Intercontinental Exchange Inc USD * 1
As at 30 June 2022 Unrealised gain/(loss)
$000
Security name
Trade currency Shares (000)
Intertrust NV EUR 29 1
IVECO Group NV EUR 6 **
Lennar Corp USD (5) (3)
Leovegas AB SEK 46 **
Link Admin AUD 94 (28)
MaxLinear Inc USD (2) 3
Mediaset Espana Comunicacion, S.A. EUR 32 (2)
Meggitt plc GBP 395 97
MKS Instruments Inc USD (1) 5
New York Community Bancorp USD (44) (4)
Newcrest Mining AUD (3) 5
Noble Corp USD (25) 156
NortonLifeLock USD (10) 3
Orange Belgium SA EUR 5 (4)
Praemium Ltd AUD 121 (5)
Prudential USD 11 4
Randall & Quilter Investment Holdings Ltd GBP 32 5
Rentokil Initial plc USD (77) (2)
Sanne Group plc GBP 11 1
SciPlay Corp USD 20 10
Siemens Gamesa Renewable Energy S.A. EUR 12 1
Silicon Motion Technology Corp ADR USD 4 (21)
Siltronic AG EUR 5 (41)
SOHO China Ltd HKD 437 2
Spear Investment Group EUR 39 (2)
Spire Healthcare plc GBP 62 6
Swedish Match AB SEK 391 115
Telecom Italia EUR 285 1
Ultra Electronics Holdings plc GBP 30 73
Vivo Energy plc USD 412 11
VMware Inc USD 5 (34)
Vonage Holdings Corp USD 45 63
Total unrealised gain on derivatives 469
* Less than 500 shares.
** Less than $500.
16. OTHER ASSETS AND LIABILITIES
The categories of other receivables and other payables include:
As at 30 June As at 30 June
2022 2021
$000 $000
Other receivables
FX currency sold 12 57
All other receivables 54 90
Total other receivables 66 147
Other payables
FX currency purchased - 20
Custodian fees 7 8
Accounting fees 17 13
Audit fees 70 70
All other payables 118 203
Total other payables 212 314
14 Related party disclosure: Directors
Each of the Directors is entitled to receive a fee from the Company at such
rate as may be determined in accordance with the Articles of Incorporation.
The Directors' remuneration is $30,000 per annum for each Director, other
than:
• the Chairman, who will receive an additional $1,000 per annum *;
• the Chairman of the Audit & Risk Committee, who will receive
an additional $5,000 per annum; and
• the Members of the Audit & Risk Committee, who will receive an
additional $1,000 per annum.
Each of the Directors is also entitled to be paid all reasonable expenses
properly incurred by them in connection with the performance of their duties.
These expenses will include those associated with attending general meetings,
Board or committee meetings and legal fees. The Board may determine that
additional remuneration may be paid, from time to time, to any one or more
Directors in the event such Director or Directors are requested by the Board
to perform extra or special services on behalf of the Company.
Carne Global Fund Managers (Ireland) Limited, as AIFM is considered a related
party to the Company as it is considered to have significant influence over
the Company in its role as AIFM. During the financial year ended 30 June 2022,
the AIFM received fees of US$46,403, of which US$3,135 was payable at year
end. Carne Global Financial Services Limited, the parent Company of the AIFM,
received fees amounting to US$14,645 during the financial year ended 30 June
2022 in respect of other fund governance services to the Company, of which
US$3,223 was payable at year end. The related party transactions with the
Directors are set out in the Directors' Remuneration Report.
Related parties disclosure: other
The Portfolio Management fee and Performance fee for the year ended 30 June
2022 paid by the Company to the Portfolio Manager are presented in the
Statement of Comprehensive Income. Details of Portfolio management fee paid
during the year are disclosed in Note 6. Details of Performance fee paid
during the year are disclosed in Note 13.
As at 30 June 2022, Associated Capital Group Inc., an affiliate of the
Portfolio Manager, held 6,195,825 Ordinary Shares in the Company.
Further details of related parties and transactions, including with the
Company's AIFM Carne Global Fund Managers (Ireland) Limited, are disclosed in
the Directors' Report.
Connected party transactions
All connected party transactions are carried out at arm's length. There were
no such transactions during the year ended 30 June 2022.
* Mr Gabelli has waived his fees since appointment as Chairman.
17. CONTINGENT LIABILITIES AND COMMITMENTS
As at 30 June 2022, the Company had no contingent liabilities or commitments
(30 June 2021: nil).
18. HISTORICAL SHARE AND NAV INFORMATION
30 June 2022 30 June 2021 30 June 2020
Total Shares 10,238,206 10,238,206 10,328,206
Total NAV ($000) 95,774 101,725 96,430
NAV per share $9.35 $9.94 $9.33
19. SIGNIFICANT EVENTS
The outbreak of Coronavirus (COVID-19), declared by the World Health
Organisation as a global pandemic in 2020, has impacted many aspects of daily
life and the global economy. Travel movements and operational restrictions
were implemented by many countries throughout 2019-2021. However in 2022, most
economies globally have fully reopened and the pace of recovery has varied
from country to country. Countries and their workforce have successfully
adapted to living and working in this pandemic environment. As we move into
the latter half of 2022, there continues to be potential unforeseen economic
consequences from this virus and market reaction to such consequences could be
rapid, unpredictable and vary significantly from country to country.
The Directors together with the Manager will continue to monitor business
continuity and resilience processes with the objective of mitigating any
potential for ongoing impact of COVID-19.
Conflict in Ukraine
Events arising in Ukraine, as a result of military action being undertaken by
Russia, may impact on securities directly or indirectly related to companies
domiciled in Russia and/or listed on exchanges located in Russia ("Russian
Securities"). As at 30 June 2022, the Company did not have direct exposure to
Russian securities. The Directors are monitoring developments related to this
military action, including economic sanctions and actions of foreign
governments.
20. POST BALANCE SHEET EVENTS
The Gabelli Merger Plus+ Trust conducted and completed the Tranche One Tender
Offer, as set out in the circular published by the Company on 19 August 2022.
The results of the tender were as follows: A total of 3,055,957 Qualifying
Shares were validly tendered under the Tranche One Tender Offer at the Tender
Price of 938.15 U.S. cents per share, which, upon being purchased by the
Company, are to be held in treasury. Proceeds of the tender were payable by 13
October 2022.
The post tender remaining Shareholder base may result in the Company being
deemed a Close Company for the purposes of taxation and is separately under
advice. The Company is committed to delivering its investment programme for
the long term and is examining alternatives to minimise taxes, costs and
expenses for its Shareholders.
Regulatory Disclosures
Information to be disclosed in accordance with Listing Rule 9.8.4
The disclosures below are made in compliance with the requirements of Listing
Rule 9.8.4.
9.8.4 (1) The Company has not capitalised any interest in the year under
review.
9.8.4 (2) The Company has not published any unaudited financial information in
a class 1 circular or prospectus or any profit forecast or profit estimate.
9.8.4 (4) The Company does not have any long term incentive schemes in
operation.
9.8.4 (5) and (6) The Chairman Mr Gabelli has waived or agreed to waive any
current or future emoluments from the Company.
9.8.4 (7) During the year to 30 June 2021 , the Company has not issued shares.
9.8.4 (8) and 9.8.4 (9) are not applicable.
9.8.4 (10) As President of the Portfolio Manager's parent company, GGCP, and
an employee of the Portfolio Manager, Mr Gabelli is/ was deemed to be
interested in the Company's portfolio management agreement. There were no
other contracts of significance subsisting during the year under review to
which the Company is a party and in which a Director of the Company is or was
materially interested; or between the Company and a controlling shareholder.
9.8.4 (11) This provision is not applicable to the Company.
9.8.4 (12) and (13) There were no arrangements under which a shareholder has
waived or agreed to waive any dividends or future dividends.
9.8.4 (14) This provision is not applicable to the Company.
Enquiries:
Email: Info@Gabelli.co.uk (mailto:Info@Gabelli.co.uk)
LEI: 5493006X09N8HK0V1U37
Date: 26 October 2022
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