Gabelli Merger Plus+ Gabelli Merger -GMPP - Final Results
19/10/2023 16:14
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231019:nRSS7187Qa&default-theme=true
RNS Number : 7187Q Gabelli Merger Plus+ Trust PLC 19 October 2023
GABELLI MERGER PLUS+ TRUST PLC
(the Company)
Financial Results for the year ended 30 June 2023
19(th) October 2023
LEI: 5493006X09N8HK0V1U37
The Company today, are pleased to announce their financial results for the year ended 30 June 2023. A copy of the full Annual Report & Accounts will be published and mailed to shareholders on 26(th) October together with the Notice of Annual General Meeting. Further information with further instruction will be posted via RNS on the same day.
Gabelli Merger Plus+ Trust Plc's primary investment objective is to seek to generate total return consisting of capital appreciation and current income for the long term.
Financial Highlights
As at 30 June 2023 As at 30 June 2022
Performance
Net asset value per share (cum income)(1,2) $10.22 $9.35
Net asset value per share (ex income)(3) $10.52 $9.78
Dividends per share paid during the year(2,4) $0.12 $0.48
Share price $9.00 $9.00
Discount to Net Asset Value (5,6) (11.94)% (3.74)%
Year ended 30 June 2023 Year ended 30 June 2022
Total returns
Net asset value per share(6,7) 10.54% (1.37)%
U.S. 3-month Treasury Bill Index 3.80% 1.69%
Share price(6,8) 1.33% 29.06%
Year ended Year ended
Income 30 June 2023 30 June 2022
Revenue return per share $0.39 ($0.09)
Year ended Year ended
Ongoing charges(6,9) 30 June 2023 30 June 2022
Annualised ongoing charges 2.17% 1.67%
Source: Portfolio Manager (Gabelli Funds, LLC), verified by the Administrator
(State Street Bank and Trust Company).
1 Net Asset Value (NAV) includes balance sheet adjustments resulting from the
Company now being a close company. Such adjustments include deferred tax
assets as per Note 8 and Note 9, pages 55 to 57.
2 Cum-income net asset value includes all income, less the value of any
dividends paid together with the value of any dividends which have been
declared and marked ex dividend but not yet paid. Where the cum-income NAV is
lower than the ex-income NAV, this reflects the revenue deficit.
3 Ex-Income NAV: Ex-income net asset value is the Cum-income NAV excluding
net income (net income being all income, less the value of any dividends paid
together with the value of any dividends which have been declared and marked
ex-dividend but not yet paid).
4 The dividend paid during the year ended 30 June 2023 was the fourth interim
dividend for the year ended 30 June 2022. Following the Tranche Two Tender
Offer the Board has continued to review and assess the Company's distribution
policy. The Company paid the first interim dividend for the fiscal year ended
30 June 2023 on 8 September 2023.
5 The amount by which the market price per share is lower than the cum-income
NAV per share, expressed as a percentage of the cum-income NAV per share.
Figures are inclusive of income and dividends paid, in line with the
Association of Investment Companies (the "AIC") guidance.
6 These key performance indicators are alternative performance measures.
Further information regarding the use of alternative performance measures can
be found on page 12 and in the glossary on page 68.
7 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.
8 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.
9 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
2022 through June 2023, and note certain developments post financial year end.
Gabelli Merger Plus+ Trust Plc (the "Company") operates globally in the highly
specialised investment discipline of value investing utilising the Gabelli
Private Market Value with a Catalyst(TM) methodology. 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,
with an emphasis on Private Market Value.
The Company's primary objective is to seek to generate total return,
consisting of capital appreciation and current income for the long term. The
Company will seek a secondary objective of the protection of capital,
uncorrelated to equity and fixed income markets. The Fund utilises the Gabelli
Private Market Value (PMV) with a Catalyst(TM) investment methodology, and has
built a diversified portfolio using PMV catalyst event merger arbitrage
strategies to create an optimal risk/reward profile. The Company's activities
encompass a broad spectrum of special situation event driven opportunities
with an emphasis on PMV discount opportunities inclusive of announced merger
transactions. Value appreciation is derived through the narrowing of PMV
discount spreads as a function of their catalyst. The value spread is a
function of three primary elements: the risk free rate, the risk premium
associated with the fundamentals, and the time value of money. The dynamic
interplay across these components is evaluated within every investment by the
Portfolio Manager. Position sizing will vary according to a probabilistic
assessment of the risk and may include minority or majority controlling
operating interests through the market cycle with an effort to generate long
term shareholder returns.
The manager has broad investment flexibility to implement the investment
policy. The inherent risk in all PMV with a CatalystTM 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. Further details are available on the Portfolio Manager's website at
www. (http://www/) gabelli.com.
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
We as a society may have moved past COVID, but its aftereffects are still
felt. Uncertainty surrounding the current state of the global macroeconomic
environment, taxed supply chains coupled with inflationary pressures and
rising interest rates against the backdrop of war has plagued the pace of
global deal making. This adds an element of uncertainty to capital allocation
decisions. 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. The risks to equity market corrections and a
structural financial crisis have increased as the US banking system is
stressed with a changing yield curve. The Company is positioned to pursue
opportunities for the long term in this potentially generationally changing
market environment.
Performance
The Company's net asset value (NAV) plus dividends paid delivered a total
return to shareholders during the year under review of 10.54% in U.S. dollars.
This performance compared to the equivalent 13-week U.S. Treasury Bill which
yielded 5.32% as of
30 June 2023, and also relative to the IQ Merger Arbitrage ETF, S&P Merger
Arbitrage Index, and Credit Suisse Merger Arbitrage Liquid Index, which
returned
-0.80%, -3.46%, and 5.67%, respectively. The share price total return with
dividends reinvested was 1.33%. The performance for shareholders at IPO
through the end of the fiscal year was 31.77% with dividends reinvested,
versus a return of 24.64% for the Credit Suisse Merger Arbitrage Liquid Index.
The company may take advantage of market dislocations and establish
controlling and operating positions in businesses and may also invest
occasionally in other forms of relative value investing, such as such as share
class arbitrage and holdco arbitrage. The Company's portfolio today is largely
focused on the Catalyst events where the terms are known and transparent to
the market and the holdings are liquid.
Dividends
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 2023, the Company returned $2.39 per share to
shareholders, consistent with its dividend policy. Additionally, the Company
paid the first interim dividend in respect of the year ended 30 June 2023 on 8
September 2023, in the amount of
$0.12 per Ordinary Share. 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.
Organisational Matters
The company completed its Fifth year since listing on the London Stock
Exchange's Special Fund Market segment which set forth certain actions in
accordance with its shareholder Loyalty Programme, including completing a
Fifth Anniversary Tender Offer, resulting in the single participator
Associated Capital Group, Inc., controlling over 90% of the shares in issue.
The Company notified shareholders via an RNS announcement on 19 October 2022
that the Board of Directors determined that the Company now operates as a
Close Company for the purposes of taxation and no longer avails itself of
investment trust status, as per Section 1158 of the Corporation Tax Act 2010.
Net Asset Value (NAV) includes balance sheet adjustments resulting from the
Company now being a close company. Such adjustments include deferred tax
assets.
This report includes the Fifth Anniversary Tender Offer for Qualifying
Registered Shares via two tranches beginning in September 2022 and ending
February 2023. Shareholders whose shares were registered in the Loyalty
Programme for five years were eligible to participate in the Company's tender
offer. The Company
purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at 30 June
2023 versus 10,238,206 shares in issue in July 2022. The Board of Directors
acknowledges that the largest shareholder, Associated Capital Group, Inc., the
legal and beneficial owner of 6,210,619 shares at the time of this writing,
elected not to tender and has expressed its view that the Company should
continue. Associated Capital Group, Inc. also agreed to subscribe for Special
Voting Loyalty Shares, which will increase its voting interest when issued,
with issuance pending. 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. The Board expects a tender offer to be implemented in
2024, in the range of approximately 5% of the Ordinary Shares not owned by
Associated Capital Group, Inc. Any such offer is under further review and
analysis.
The company is expected to implement its investment policy to also include the
acquisition of shares for control which may require of the Company to operate
such investments to enhance its objective of total returns for the long term
while also seeking to enhance current income. As such in a subsequent event,
the Board has appointed executive management to help efficiently implement the
company's growth plans. In context, in 2022 shareholders authorised the
allotment of additional Ordinary Shares which can be utilised for acquisitions
to further expand and develop shareholder value in accordance with the
investment programme.
The Company has elected continued adherence to the AIC's SORP. Although no
longer a trust, the Company has elected to continue to prepare the financial
statements on a basis compliant with the recommendations of the SORP. The SORP
is issued by the AIC and it sets out recommendations, intended to represent
current best practice, on the form and
contents of the financial statements of Investment Companies. Investment
Companies include investment trust companies that have been, currently are, or
are directing its affairs so as to enable it to obtain or retain approval
under Section 1158 of the Corporation Tax Act 2010. Although the Company no
longer meets the requirements of Section 1158 of the Corporation Tax Act 2010
to be an investment trust, it continues to conduct its affairs as an
investment company.
Final Thoughts
We reiterate 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.
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
The Search For Value - Gabelli Merger Plus+ Investment Methodology
Process in Action
Gabelli Funds approach the global marketplace in a similar fashion; we invest
like owners. Our clients own businesses through the fractional interest of a
share. We are not index benchmarked, and construct portfolios agnostic of
market capitalisation and index weightings. We seek long term capital
appreciation for our clients relative to inflation over the long term,
regardless of market cycles. We have invested this way since 1977.
The Gabelli Merger Plus portfolio offers access to companies that have been
identified to have substantial disconnects between market price and our
estimate of the business value (PMV), and where catalyst events exist that may
narrow these discounts for the benefit of GMP shareholders. We thus establish
a "Margin of Safety" for our investors by identifying differences between our
estimate of PMV and the stock market price. The process seeks to identify
businesses undergoing some form of strategic change, typically with strong
organic cash flow characteristics, balance sheets reorganizational
opportunities, and strategic operational flexibility accelerated with the
prospect of management capital allocation actions.
Catalyst merger events can come in many forms including, but not limited to,
corporate restructurings (such as demergers and asset sales), operational
improvements, regulatory or managerial changes, special situations (such
as liquidations), and mergers and acquisitions. Corporate mergers provide
valuable insights into corporate capital allocation decisions and therefore
help in our assessment of long term valuations. Our proprietary research data
bases track thousands of announced deals globally and utilises that compounded
knowledge in the continued refinement of Private Market Valuations. PMV's will
change over time, and while our analysis is long term, it is through this
consistent process of bottom up stock selection and the implementation of
disciplined portfolio construction that we expect to create value for our
shareholders annually.
In this process, we do sector-by-sector analysis, assessing the PMV of a
business, and identifying the catalyst in place to realise returns. A
company's PMV is not constant, and changes as a function of many variables.
Our analysis emphasizes balance sheets, cash flows, and the long term
defendable position of a corporation. We achieve returns through investing in
businesses utilising our proprietary Private
Market Value ("PMV") with a Catalyst™ methodology. We PMV is the value that
we believe an informed buyer would be willing to pay to acquire an entire
company in a private transaction. Our team arrives at a PMV valuation by a
rigorous assessment of fundamentals from publicly available information.
Further, PMV's are enhanced through the analysis of announced corporate
mergers and acquisition activity. Mergers offer tangible insights into the
long term capital allocation decisions of global corporations. We focus on the
balance sheet, earnings, free cash flow, and the management, the stewards of
corporates assets, of prospective companies. The judgement gained from our
comprehensive, accumulated knowledge across a variety of sectors is deployed
for investors in a portfolio. Our analysts typically forecast model company
operations 5 years into the future. Unlike Wall Street's earnings momentum
players, we do not try to forecast earnings with accounting precision and then
trade stocks based on quarterly expectations and realities. We simply try to
position ourselves in front of long-term earnings trends. Throughout our
research process, the focus is on free cash flow: earnings before interest,
taxes, depreciation and amortization ("EBITDA") minus the capital
expendituresnecessary to grow the business. We believe free cash
flow is the best barometer of a business' value. Deteriorating or rising free
cash flow often foreshadows net earnings changes. We also look at earnings per
share trends. In addition, we analyse on and off balance sheet assets and
liabilities such as property, plant and equipment, inventories, receivables,
and legal, environmental and health care issues. We want to know everything
and anything that will add to, or detract from, our valuation models. This
method of analysis involves looking at businesses as a function of their
assets and earnings power. We examine businesses as if we were owners of those
businesses, and we believe that we can do that in a rational way by looking at
industries on a global basis. Our investment professionals visit with hundreds
of companies each year. Our work is proprietary, bottom up, and involves the
full utilisation of public resources.
Our analysts follow industries on a global basis, and narrow the universe of
potential investment candidates to a short list of the most attractive
companies. All publicly available company material is reviewed, including
annual and quarterly reports, 10-Ks, 10-Qs, and proxy statements.
Each analyst develops an operational understanding of their industry,
effectively becoming an expert in that industry. The analysts hone this
expertise by continually visiting companies and their senior managements, and
by talking to competitors, suppliers and customers. They also develop and
maintain government and trade sources to derive an overall understanding of
their industry. In addition, our firm hosts a number of industry seminars,
where the top executives of the leading firms share their insights with the
investment community.
The objective of this process is to identify companies that trade at
significant differences to their intrinsic or private market values.
We continually visit the management of hundreds of companies and integrate
their input with our knowledge base. Our goal is to understand management's
motivations and expectations. Given our approach, we want to know who our
partners are and if they are working to enhance shareholder value. This
process, coupled with our financial analysis, helps us select the most
attractive investment candidates for our portfolios.
We employ a three-dimensional approach to valuation:
•
Manager History
The Gabelli organisation, of which Gabelli Funds, LLC is an affiliate, began
in the U.S. in 1976 as an institutional value investing research firm. Mario
Gabelli, the firm's founder, is credited by the academic community for
establishing the notion of Private Market Value ("PMV"), the value an informed
industrialist would pay for an entire business in a negotiated transaction.
This is a long term oriented bottom-up investment process based on the
fundamental investment principles first articulated in 1934 by Graham and
Dodd, the founders of modern security analysis, and further augmented by Mario
Gabelli in 1977 with his introduction of the concepts of PMV into equity
analysis. Gabelli has added the element of a catalyst event to generate long
term returns. The Gabelli method, PMV with a Catalyst(TM), is part of the
Value Investing Curriculum at many major business schools and is thus applied
in the analysis of public equity securities by Gabelli Funds for shareholders.
Earnings per share
• Free cash flow
• Private market value
The first step is to analyse the income statement and cash flow. Cash flow is
viewed as a barometer of financial health, and often foreshadows earnings
trends. We attempt to forecast the direction and growth rates of the earnings
and cash flow streams.
The second step is to examine the balance sheet. The corporate balance sheet
is recast, assessing real-world values of inventories, property, plant and
equipment and stated book value.
To these two analytical processes, dynamic forecasting and static asset and
liability valuation, we add our assessment of the PMV of the business. In
other words, what would this company be worth to an informed business person
attempting to create or purchase a business with similar characteristics?
Catalyst: Identification of a mispriced situation, however, does not
necessarily guarantee a rewarding investment. The next step is to determine
events in businesses undergoing some form of strategic change that will help
narrow the spread between a stock's public market price and our determination
of its PMV. We call these events catalysts. Catalysts include industry events
such as consolidation, changes in the regulatory or accounting environment,
new technologies, or be indigenous to the company itself such as financial
engineering, demergers, acquisitions or sales.
Results: After we have identified and selected stocks that qualify as
candidates based on these fundamental and conceptual considerations, our
objective is to structure a diversified portfolio. This has been a proven
long-term method for creating wealth, risk adjusted, in the stock market.
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 for the long
term. 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 long term investment objective by utilising
the Gabelli Private Market Value (PMV) with a Catalyst(TM), investment
methodology, maintaining a diversified portfolio of event merger arbitrage
strategies to seek to create an optimal risk/ reward profile for the
portfolio. The company invests for the long term as owners with an emphasis on
cash generating, franchise companies, selling at a significant discount to our
appraisal of their Private Market Value. We define Private Market Value (PMV)
as the value an informed industrialist would pay to purchase assets with
similar characteristics in a privately negotiated transaction.
"Event Driven Merger Arbitrage" is a highly specialised active investment
approach designed principally to profit from the differences between PMV
estimates and public market price with returns realised through 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, but not limited to, management changes, announced mergers,
acquisitions, takeovers, tender offers, leveraged buyouts, restructurings,
demergers and other types of reorganisations and corporate actions ("deals").
The Company will invest and operate globally although it is expected to have
an emphasis on predominantly equity securities issued by companies in the
United States of any market capitalisation. The Company is permitted to use a
variety of investment strategies and instruments, including but not limited
to: minority or majority controlling operating interests in equity;
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 as an investment or by management contract; 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 is a long-term investor and
does not seek to generate short-term returns or profits from trading or
hedging. While taking a long-term view, the Company will realise opportunities
from hedging or for shorter-term gains when appropriate.
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, but
are not limited to: (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; (iv) entering
into agreements to acquire operating businesses including managing assets for
third parties and (v) 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.
No material change will be made without shareholder approval.
Portfolio Manager's Review
Methodology and Market Opportunity
In this context, let us outline the investment landscape during the year to 30
June 2023 and the environment ahead. 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 the Gabelli
investment methodology.
Global Deal Activity(1)
Global deal merger and acquisition activity ("M&A") totaled $3.6 trillion
during 2022, a year-over-year decrease of 37% (30% decrease if SPACs are
excluded). Deal activity began to slow down in the second half of the year, as
the third quarter was the first in two years that did not surpass $1 trillion
in announced deal activity. The total number of deals
1 Thomson Reuters M&A Review - Second Half 2022 and First Half 2023
worldwide decreased only 17% compared to 2021. Mega deals-those greater than
$10 billion-totaled $787 billion, while deals with values between $1 billion
and
$5 billion accounted for $1.0 trillion during the year, down 31% and 44% year
over year, respectively.
Cross border M&A activity totaled $1.1 trillion for the calendar year, a
decrease of 46% from last year's all-time high. Private equity deals decreased
36% year over year; however, these buyouts accounted for a record 20% of total
deal activity.
During the first half of 2023, global M&A activity totaled $1.3 trillion,
a year-over- year decrease of 37%, the slowest first half since the COVID
pandemic. Deal activity did start to pick up in the second quarter, increasing
33% sequentially. Additionally, the number of deals in the first half was only
down 9% compared to last year. This dichotomy was driven by the lack of mega
deals-those greater than $10 billion-which totaled $259 billion, down 53% year
over year.
Cross border M&A activity totaled $494 billion through June, a decrease of
25%. Private equity deals decreased 49% year over year; however, these buyouts
accounted for 21% of total deal activity.
While deals involving United States- based targets declined 40% in the first
half, they still accounted for 43% of global deal activity. European M&A
tallied $263 billion of transactions over the same period, a decrease of 49%.
Asia Pacific targets totaled $294 billion in the first half of 2023, a 35%
decrease year over year.
In the first half, the Healthcare sector was the biggest contributor to merger
activity, totalling $188 billion and accounting for 14% of total announced
deal volume. The Energy and Power and Technology sectors were also large
contributors, each accounting for 14% of M&A activity.
Portfolio in Review
Marked by stubborn inflation, conflict in Europe, and the Federal Reserve's
war on inflation, 2022 was a difficult year for risk assets, marked. Higher
interest rates and the prospect of a recession spared neither stocks nor
bonds, as the S&P 500 and investment grade bonds were down 18% and 13%,
respectively. As we have noted in the past, our merger arbitrage portfolios
generate returns from taking idiosyncratic deal risk and not market risk, and
thus were able to earn a positive return for our clients, despite the volatile
markets. Uncertainty in the boardroom, elevated borrowing costs, and a bid-ask
divide- that often persists until market participants can digest a sharp
decline in asset values- all contributed to a 30% decline in M&A volumes
(ex-SPACs) in 2022. However, despite the sharp decline from record 2021
levels, volumes only declined mid-single digits from more normalized 2018 and
2019 levels. The fourth quarter did enjoy an uptick in announced M&A with
a healthy
$800 billion in deal activity. We expect
M&A to remain fairly robust on a historical basis. In terms of merger
arbitrage spreads, they remain wide and attractive compared to recent history.
There are three main reasons for this: (1) market volatility; (2) perceived
regulatory risk; and
(3) interest rates. Deals close in all market environments, and
volatility provides
us with an opportunity, as it is often indiscriminate. Mispriced risk allows
us to add to our highest conviction positions at lower prices-the benefits of
which will be apparent as these transactions progress towards closing.
Regarding regulatory risk, the aggressive policy reform rhetoric we have
written about in the past has translated in some cases into aggressive action.
Some deals were able to close in spite of regulatory action (Change
Healthcare) and some were able to find alternative, less problematic suitors
(Aerojet Rocketdyne). We feel as though this regulatory regime has created
unique investment opportunities and an attractive risk/reward. Lastly, 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. With the 3 month U.S. Treasury bill
yielding well over 5%, this should continue to create a more compelling spread
environment going forward. 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 prospects to generate absolute
returns.
U.S. capital markets rebounded significantly in the first half of 2023 despite
headwinds. The S&P 500 finished the first half up 16.8% against the
backdrop of a debt ceiling drama, a U.S. banking crisis, geopolitical
uncertainty, and a Fed that has so far been unwavering in its commitment to
fight inflation.
M&A volumes did not prove as resilient, as economic uncertainty and
combative regulators contributed to a 37% year- over-year decline in the first
half. Despite this sharp decrease in dollar volumes, the number of
transactions was only down 9% compared to last year. Deals are still getting
done-albeit, smaller in size. The second quarter did begin to show some green
shoots, as volumes totaled $750 billion, a 33% sequential improvement. We
expect this momentum to continue as the year progresses.
The aggressive policy stance of regulators has persisted in 2023, but
companies are adapting and showing a willingness to fight back when case law
supports their cause. Regulators' efforts to bring cases with more novel
theories of harm thus far have not translated into much success in court.
While this has created volatility in certain arbitrage spreads, it has
provided
unique investment opportunities with an attractive risk/reward.
A company's PMV is not constant, and changes as a function of many variables.
Our analysis emphasizes balance sheets, cash flows, and the long term
defendable position of a corporation. We achieve returns through investing in
businesses utilising our proprietary Private Market Value ("PMV") with a
Catalyst™ methodology. We PMV is the value that we believe an informed buyer
would be willing to pay to acquire an entire company in a private transaction.
Our team arrives at a PMV valuation by a rigorous assessment of fundamentals
from publicly available information. Further, PMV's are enhanced through the
analysis of announced corporate mergers and acquisition activity. Mergers
offer tangible insights into the long term capital allocation decisions of
global corporations. We highlight several investments across sectors which
have offered insights to the corporate allocation process below.
Notable contributors to performance include:
Defense Infrastructure
The strategic rational around US defense spending as a long term investment
continues, notably in the race to develop hypersonic weapons capabilities as
seen in Aerojet Rocketdyne Holdings, Inc. (AJRD-NYSE) agreement to be acquired
by L3Harris Technologies, Inc. (LHX- NYSE). Aerojet Rocketdyne Holdings, Inc.
(AJRDNYSE), which designs and manufactures specialised power and propulsion
systems for space and defense applications, agreed to be acquired by L3Harris
Technologies for $58 cash per share, or about $5 billion. In December 2020,
Aerojet agreed to be acquired by Lockheed Martin for $51 cash per share, but
that deal was terminated in February 2022 after the U.S. Fair Trade Commission
sued to block the transaction, claiming that Lockheed would be able to raise
the prices the U.S. government pays for rocket engines, and potentially
deliver a lower quality product Portfolio Manager's review continued
Half-Yearly Financial Report (Unaudited) for the six months ended 31 December
2022 11 to Lockheed's rival defense contractors that utilise Aerojet's
propulsion systems. We believe the acquisition by L3Harris provides fewer
antitrust risks than the Lockheed transaction did. L3Harris primarily produces
electronics and communications systems, so there is no horizontal overlap with
Aerojet's business
and no benefit from bundling the two companies' products. An important
distinction from the Lockheed deal is that there is also no vertical
integration, as Aerojet does not supply L3Harris with any products used in
L3's programs, and Aerojet will become a new business unit for L3 as a
merchant supplier of engines to prime contractors. We believe shares of
Aerojet Rocketdyne were inexpensive after the deal with Lockheed Martin was
called off and certain shareholders were forced to sell their position. At the
time, shares traded at less than 10x EBITDA, a significant discount to its
historical valuation, and Tony Bancroft, Gabelli's defense analyst, thought
other buyers for Aerojet would emerge and that shares were worth more than $60
in a takeover. We expect the L3Harris deal to close in mid-2023.
Food Distribution
The attributes of consumer food distribution benefits through scale synergies
and as such our investment in Albertsons Companies, Inc. (ACI- NYSE) entered a
new stage as they agreed to be acquired by The Kroger Co. (KR-NYSE).
Albertsons operates food and drug retail stores in the U.S. under banners such
as Albertsons, Safeway, Vons, Tom Thumb, ACME and more. Under terms of the
agreement Albertsons' shareholders will receive $34.10 cash per share
(inclusive of a special dividend and potential spin-off), valuing the
transaction at approximately
$25 billion.
Biotech Pharma
Undervalued and fairly unique and well positioned business in our portfolio
continued to attract suitors and as such Dechra Pharmaceuticals plc (DPH
LN-London) agreed to be acquired by EQT and Abu Dhabi Investment Authority.
Dechra is a global veterinary pharmaceuticals and products business. Under
terms of the agreement, Dechra shareholders will receive £38.75 cash per
share, valuing the transaction at approximately £4.8 billion
Gaming and Entertainment Fundamentals for the online gaming industry continued
to accelerate as 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.
Portfolio Manager's Review continued
Financial Services
Access to the US financial investor is increasingly becoming a valuable asset
and as such Focus Financial Partners, Inc. (FOCS-NASDAQ) received an offer to
be acquired by Clayton, Dubilier & Rice, LLC. Focus provides wealth
management, investment advice, financial and tax planning, consulting, tax
return preparation, and family office services to ultra-high and high net
worth individuals, families, and business entities. Under terms of the offer,
Focus shareholders will receive $53.00 cash per share, valuing the transaction
at approximately $7 billion.
Biotech Pharma
The rationale for buy vs. build where developer costs are always increasing
led to Horizon Therapeutics plc (HZNP- NASDAQ) agreeing to be acquired by
Amgen, Inc. (AMGN-NASDAQ). Horizon is a biotechnology company that focuses on
the discovery, development, and commercialization of medicines for rare,
autoimmune, and severe inflammatory diseases. Under terms of the agreement,
Horizon shareholders will receive $116.50 cash per share, valuing the
transaction at approximately $28 billion.
Energy Infrastructure
US energy PNM Resources, Inc. (PNM- NYSE) agreed to be acquired by Avangrid,
Inc. (AGR-NYSE). PNM Resources engages in the energy and energy-related
businesses in the U.S. Under terms of the agreement, PNM shareholders will
receive $50.30 cash per share, valuing the transaction at approximately $8
billion.
Infrastructure and Engineering
Our analysis and understanding of PMV multiples benefit when our portfolio
holdings are subject to bidding wars. CIRCOR International, Inc. (CIR-NYSE),
which designs, manufactures, and distributes flow and motion control products
globally, was the subject of a bidding war. Under terms of the original
agreement, dated June 5, 2023, CIRCOR shareholders would have received $49.00
cash per share, for approximately $1.4 billion. Later, on June 27, 2023,
CIRCOR agreed to be acquired by KKR under improved terms of $51.00 cash per
share, after CIRCOR received an unsolicited bid of $52.65 cash per share from
an unnamed third party. Subsequently, on June 28, 2023, Arcline Investment
Management LP was revealed as the unnamed third party
with an all-cash proposal to buy CIRCOR for $57.00 cash per share. In
response, on June 29, 2023, CIRCOR entered into an agreement to be acquired by
KKR for $56.00 cash per share, valuing the transaction at approximately $1.6
billion. CIRCOR accepted KKR's lower price due to more certain financing and a
better antitrust profile.
Portfolio Summary
Largest Portfolio Security holdings (excluding cash and cash equivalents)
As at 30 June 2023
Security(1) Offsetting position(2)
% of total portfolio(6) (gross) Offsetting market % of total portfolio(3)
Market value(4) value(5) (net)
$000 $000
Horizon Therapeutics plc 5.4 3,425 5.4
Activision Blizzard Inc 4.4 2,770 4.4
IVERIC Bio Inc 4.3 2,722 4.3
PNM Resources Inc 4.3 2,692 4.3
Univar Solutions Inc 3.9 2,477 3.9
National Instruments Corp 3.9 2,448 3.9
Aerojet Rocketdyne Holdings
Inc 3.6 2,251 3.6
Tegna Inc 2.9 1,821 2.9
Albertsons Companies Inc 2.7 1,733 2.7
Focus Financial Partners LLC 2.7 1,728 2.7
VMWare Inc Broadcom Inc 2.7 1,724 (1,074) 1.0
Tower Semiconductor Ltd 2.1 1,358 2.1
Seagen Inc 2.1 1,299 2.1
Radius Global Infrastructure 2.0 1,293 2.0
Lennar Corp Class B Lennar Corp Class A 1.9 1,221 (1,081) 0.2
Uni-Select Inc 1.9 1,172 1.9
Triton International Ltd Brookfield Infrastructure 1.7 1,064 (113) 1.5
Liberty Media Corp 1.5 981 1.5
NuVasive Inc Globus Medial Inc 1.5 978 (898) 0.1
VectivBio Holding AG 1.5 943 1.5
Sub-total 57.0 36,100 (3,166) 52.0
Other holdings(7) 43.0 33,712 (3,340) 48.0
Total holdings 100.0 69,812 (6,506) 100.0
(1) Long position.
(2) Offsetting position taken, based on the acquirer of the
security when acquirer stock is being offered in whole, or in part, to finance
the transaction. Lennar Corp is a share class arbitrage.
(3) Represents the total position value (market value plus the
offsetting market value) as a percentage of the total portfolio value.
(4) Market value of the long position.
(5) Market value of the offsetting position.
(6) Represents the market value as a percentage of the total
portfolio value.
(7) Including derivatives and equity short positions and
excluding U.S. Treasuries.
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 on page 11.
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.
Please refer to page 69 in the Glossary for further discussion of gearing.
Leverage
Leverage is calculated using two methods:
i) Gross method and ii) Commitment method. For further details please see the
Glossary on page 69.
Business Model
Please see the Methodology in Action on page 5.
Board Diversity
Please see the "Board Diversity" section on page 26.
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 2023, 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 2023(1) Share Price Total Return Year ended 30 June 2023(2) Discount to Net Asset Value Year ended 30 June 2023(3)
10.54% 1.33% (11.94)%
(30 June 2022: (1.34)%) (30 June 2022: 29.06%) (30 June 2022: (3.74)%)
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 for the long term.
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 2023, the Company returned
$2.39 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. Additional information can be found in
the Glossary on page 71.
1 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.
2 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.
3 The amount by which the market price per share is lower than the
cum-income NAV per share, expressed as a percentage of the cum-income NAV per
share. Figures are inclusive of income and dividends paid, in line with the
Association of Investment Companies ("AIC") guidance.
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 traded at a discount of (3.74)%
as of 30 June 2022 and at a discount of (11.94)% as of 30 June 2023.
Performance is assessed on a total return basis for the NAV and share price.
Dividend History
Rate ($) Ex dividend date Record date Payment date
Fourth interim 2022 $0.12 6 April 2023 11 April 2023 25 April 2023
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
The Company paid the fourth interim dividend for the fiscal year ended 30 June
2022 on 25 April 2023. Following the Tranche Two Tender Offer the Board has
continued to review and assess the Company's distribution policy. The Company
paid the first interim dividend for the fiscal year ended 30 June 2023 on 8
September 2023.
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
register which sets out the risks facing the Company, the likelihood and
potential impact of each risk and the controls established for mitigation. The
risk register is reviewed by the Audit & Risk Committee on a regular basis
throughout the financial year and was specifically refreshed in 2023 to
introduce more stringent risk ratings for each risk and to reflect the impact
of related mitigating controls.
The core principle risks set out in the 2023 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 with 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 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
Excessive Portfolio Concentration their effects on the portfolio, and a thorough analysis of the investment
strategy is undertaken.
The increased scrutiny by U.S. and UK anti-trust authorities on M&A cross
border transactions represents an additional source of deal failure risk which
the Investment Manager can mitigate via appropriate portfolio diversification
and careful stock picking.
The Board and the Portfolio Manager regularly monitor the Company's exposure
to its counterparties. This oversight is intended to minimize the likelihood
Deal Failure Risk of loss to the Company resulting from a counterparty's failure to meet its
obligations.
Counterparty Risk
Global Macro Events Risks
Sharp Interest Rate Changes The Portfolio Manager monitors the interest rate environment and how those
changes would potentially impact the Company's investment strategy.
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, fraud or inadequate disaster recovery their reports and representations are reviewed by the Board, the AIF Manager
provisions at key service providers could adversely 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.
Fraud and cybersecurity vulnerability could increase for key service The Board relies on assurances from the Company's key third-party providers
providers. Such events are external to the management and beyond the control that they have appropriate and adequate cybersecurity policies in place to
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.
Risk Mitigation
Unforeseen global events such as geopolitical crisis, war, act of terrorism or Global economic, geopolitical, and financial conditions are constantly
outbreak of pandemics could lead to dramatically increased market instability monitored. Diversification of Company assets is incorporated into the
and Company share price volatility a decline in cross-border M&A activity. 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 Manager continues to carefully manage 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.
Equity Market Volatility
Equity Market Volatility, which may cause a widening of bid-ask spreads and a To address a discount, the Board may consider using share buybacks, through
wider price discount to 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; (iii) credit risk and statements together with a summary of the policies for managing these risks.
(iv) Derivative risk.
Tax Risks
The Company is no longer eligible to avail itself of Investment Trust Status The Company has engaged reputable, external tax consultants with whom the
as per Section 1158 of the Corporation Tax Act 2010 and is consequentially management team consults with on a regular basis and from whom the Board now
exposed to UK corporation tax payments. receives periodic updates to ensure the Company remains compliant with any
tax-related payments and disclosures.
Corporate Governance and Regulatory Compliance Risks
Damage to the Company's reputation through inadequate corporate governance The Board complies with good governance practices in accordance with the
arrangements. Association of Investments Companies'' ("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 evaluations and receive regular advice from by the Company
Secretary in relation to any regulatory changes within the corporate
governance landscape that may impact the company.
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, and
other applicable regulations.
Emerging Risks Mitigation
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 primary influences review and will continue to monitor the volatility around investee company
on markets. Rising commodity prices and further disruption to supply chains valuations and implications for the Company's likely future dividend income
shall exacerbate inflationary pressure and may also create a negative impact stream.
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 for the long term. 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 instill 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 as a close investment company is
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 next 12 months.
• The Company conducted and completed the Fifth Anniversary
Tender Offer, as set out in the circular published on 19 August 2022. The
Company purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at
30 June 2023 versus 10,238,206 shares in issue in July 2022. The Board
believes that the Company retains sufficient scale to continue to operate its
Investment Programme.
The Board has closely monitored the impact of the war in Ukraine. Those
impacts and related continuing uncertainty have short and potentially medium
term implications for the Company's investment strategy. The Board is
continuing to monitor the implications 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 and on pages 14 to 15.
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 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 2023 (on pages 2 to 16 of this document) and the s172
statement (on pages 26 to 29) have been approved by the Board and signed on
its behalf by:
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
Directors' Report
The Directors present the annual report and accounts of the Company for the
year ended 30 June 2023. The financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) as adopted
by the UK international accounting standards and have been prepared in
accordance with the requirements of the Companies Act 2006.
The Company
The Company was incorporated in England and Wales on 28 April 2017 with
registered number 10747219. The Company is registered as an investment company
as defined by Section 833 of the Companies Act 2006 (the "Companies Act") and
operates as such.
The Company was admitted to the Specialist Fund Segment of the Main Market of
the London Stock Exchange and trading on the Official List of the
International Stock Exchange on 19 July 2017.
The Company's Listing Sponsor on the International Stock Exchange is Ocorian
Administration (Guernsey) Limited. The Company also operates an additional
market quote for its ordinary shares on the London Stock Exchange, denominated
in sterling.
Investors should look to the Circular dated 19 August 2022 for information
about the Company, the Loyalty Programme, and the Tender Offer.
The Company has elected continued adherence to the AIC's SORP. Although no
longer a trust, the Company has elected to continue to prepare the financial
statements on a basis compliant with the recommendations of the SORP. The SORP
is issued by the AIC and it sets out recommendations, intended to represent
current best practice, on the form and contents of the financial statements of
Investment Companies. Investment Companies include investment trust companies
that have been, currently are, or are directing its affairs so as to enable it
to obtain or retain approval under Section 1158 of the Corporation Tax Act
2010. Although the Company no longer meets the requirements of Section 1158 of
the Corporation Tax Act 2010 to be an investment trust, it continues to
conduct its affairs as an investment company.
Going concern
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.
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 as they fall due. For these reasons, the Directors consider there is
reasonable evidence to continue to adopt the going concern basis in preparing
the accounts as at 30 June 2023.
This Going Concern statement should be read in conjunction with the Company's
Viability & Going Concern Statement which can be found on page 16.
Directors
The Directors of the Company in office at the date of this report and their
biographies are set out on pages 17 and 18. Details of Directors' interests in
the shares of the Company are set out in the Directors' Remuneration Report.
Directors' retirements are subject to the Company's Articles of Association
(the "Articles"). The Articles provide that the directors may appoint a person
who is willing to act as a director and any director so appointed is required
to retire at the next AGM after his or her appointment and is eligible for
reappointment. All directors who held office at the time of the two preceding
AGMs and who did not retire by rotation at either of them are also required to
retire by rotation and are eligible for reappointment. In addition, each
Director considered to be non-independent will retire and being eligible offer
themselves for re-election on an annual basis.
The Board has agreed to follow the recommendations of the U.K. and AIC
Corporate Governance Codes and ask all Directors of the Company to offer
themselves for re-election annually. Therefore, all the Directors will retire
at the forthcoming AGM and, being eligible will offer themselves for
re-election.
Having considered the Directors' performance as part of the annual Board
evaluation process the Board believes that it continues to be effective and
that each of the Directors brings an appropriate level of knowledge,
experience, business, financial and asset management skills. The Board
therefore recommends that shareholders vote in favour of each Director's
proposed election at the AGM.
Mr. Gabelli, as a Director and President of the Gabelli Group ("GGCP, Inc."),
the parent company of both Gabelli Funds, LLC (the "Portfolio Manager") and
Associated Capital Group, the Company's largest shareholder, is deemed to be
interested in the Company's Portfolio Management Agreement, as is Mr. Birch,
who serves on the Boards of other funds in the Gabelli/GAMCO group of
companies.
There were no other contracts subsisting during the year under review, or up
to the date of this report, in which a Director of the Company is, or was,
materially interested and which is, or was, significant in relation to the
Company's business.
None of the Directors have a service contract with the Company. The terms of
their appointment was provided to them in writing. No Director is entitled to
compensation for loss of office on the takeover of the Company. The powers of
the Directors are set out in the Corporate Governance Statement.
Directors' conflicts of interest
Directors have a duty to avoid situations in which they have, or could have, a
direct or indirect interest that conflicts, or may potentially conflict, with
the Company's interests. This is in addition to the continuing duty that
Directors owe the Company to disclose to the Board any transaction or
arrangement under consideration by the Company in which they are interested.
Directors are required to disclose any conflicts and potential conflicts of
interest upon appointment. A schedule of these is maintained by the Company
Secretary and provided at each quarterly Board meeting. Directors are
responsible for keeping these disclosures up to date and in particular to
notify any new potential conflicts of interest, or changes to existing
situations, to the Company Secretary.
In accordance with the Companies Act 2006 and the Company's Articles, the
Directors can authorise such conflicts or potential conflicts of interest. In
deciding whether to authorise any conflict, the Directors must consider their
general duties under the Companies Act 2006, and their overriding obligation
to act in a way they consider, in good faith, will be most likely to promote
the Company's success.
In addition, the Directors are able to impose limits or conditions when giving
authorisation to a conflict, or potential conflict of interest, if they think
this is appropriate. The authorisation of any conflict matter, and the terms
of any authorisation, may be reviewed by the Board at any time.
The Board believes that the procedures established to deal with conflicts of
interest operated effectively during the year under review.
Directors' Indemnities
In accordance with the provisions of the Companies Act, the Company's Articles
allow for Directors and officers of the Company to be indemnified out of the
assets of the Company against all costs, losses, and liabilities incurred for
negligence, default, breach of duty or trust in relation to the Company's
affairs and activities. The Articles also provide that, subject to the
provisions of the Companies Act 2006, the Board may purchase and maintain
insurance for the benefit of Directors and officers of the Company against any
liability which may incur in relation to anything done or omitted to be done,
or alleged to be done or omitted to be done, as a Director or officer. The
Company has taken out Directors' and Officers' Liability insurance, which
covers the Directors and officers of the Company.
Share Capital
Full details of the Company's issued share capital are given in Note 11 to the
Financial Statements on page 58. Details of the voting rights in the Company's
shares as at the date of this report are also given in Note 6 to the Notice of
Annual General Meeting on page 75.
The ordinary shares carry the right to receive dividends and have one voting
right per share. Voting rights may increase to certain Loyalty Programme
qualifying shareholders in the subsequent period commencing calendar year end
2023 (see "Loyalty Programme"). There are no restrictions on the voting rights
of the ordinary shares or any shares which carry specific rights with regard
to the control of the Company.
No shares were issued during the year under review, or up to close of business
on 30 June 2023.
At the year end and at the date of this report there were accordingly
3,483,374 ordinary shares held in treasury (33.7% of the issued share
capital).
In September 2022, concurrent with the Fifth Anniversary Tender Offer, the
Board of Directors of the Company were authorised to allot Ordinary Shares of
the Company up to an aggregate nominal value of $511,910.30, with such
authority to expire on the fifth anniversary of the date of the passing of the
resolution. In addition, at the November 2022 AGM, the Board of Directors was
authorised to allot relevant securities in the Company up to a maximum
aggregate nominal amount of $71,822 (being ten percent of the total number of
voting rights of the Company at the latest practicable date prior to the
publication of the Notice of AGM), with such authority to apply until the
conclusion of
this year's AGM. The resolutions for the 2023 AGM include authorisation to the
Company to allot equity securities up to an aggregate nominal value of
$45,672, that can be utilised for acquisitions by the company. These
transactions may result in the acquisition of other operating businesses to
further expand and develop shareholder value in accordance with the investment
programme.
Share Repurchase
The Company has authority to buy back shares in the market and may cancel or
hold ordinary shares acquired by way of market purchase in treasury.
The Directors will consider repurchasing shares in the market under an
extension of the programme if they believe it to be in shareholders'
interests. It is the Board's intention that any shares bought back by the
Company will be held in treasury and will only be sold at prices at or above
the prevailing NAV per share ensuring a positive overall effect for
shareholders when shares are bought back at a discount and then sold at a
price at or above the NAV per share.
The current authorities to buy back and sell shares from treasury and to issue
shares will expire at the conclusion of the 2023 Annual General Meeting. The
Directors are proposing that these authorities be renewed at the forthcoming
Annual General Meeting.
The Board expects a tender offer to be implemented in 2024, in the range of
approximately 5% of the Ordinary Shares not owned by Associated Capital Group,
Inc. Any such offer is under further review and analysis.
Close Company
As a result of the Fifth Anniversary Tender Offer, the Company has been
operating as an Investment Company with close company status. The Board has
not adjusted the Company's investment policy (as detailed in the Charter), as
a result of close status. The Board is examining alternatives to reduce costs
on an ongoing basis and will seek to undertake a comprehensive review during
the 2023-2024 period.
Loyalty Programme
The Company has implemented a loyalty programme to incentivise long-term share
ownership. The loyalty programme is open to all shareholders, who are entered
in the Loyalty Register, a separate register to allow a shareholder to
increase its voting power after holding shares for a continuous period of at
least five years. Each shareholder so registered will be entitled to subscribe
for one special voting loyalty share in respect of each ordinary share held.
These shares can also be used as a form of consideration when entering into
one or more agreements to acquire operating businesses in accordance with the
Investment Policy, and subject to approval by shareholders at the AGM, the
articles will be updated to reflect this dynamic.
Each ordinary shareholder and holder of special voting loyalty shares has the
right to receive notice of, to attend, to speak at, and vote at general
meetings of the Company. Each ordinary shareholder and holder of special
voting loyalty shares who is present in person or by proxy at general meetings
has one vote, whether on a show of hands or on a poll, in respect of each
ordinary and special voting loyalty share held. At any general meeting
ordinary shares and any special voting loyalty shares in the capital of the
Company in issue would vote effectively one class.
During the year, the Company authorised the issuance of Special Voting Loyalty
Shares in accordance with the terms specified in the Loyalty Programme, with
Associated Capital Group Inc. agreeing to subscribe for Special Voting Loyalty
Shares, which will increase its voting interest when issued, with issuance
pending.
The ordinary shares carry the right to receive dividends. The special voting
loyalty shares are not entitled to participate in any dividend or distribution
made or declared by the Company except for a fixed annual dividend equal to
0.00001% of their nominal value. On a winding up of the Company holders of
special voting loyalty shares would be entitled to be repaid the capital paid
up thereon pari passu with the repayment of the nominal amount of the ordinary
shares. The special voting loyalty shares are not transferrable without the
prior written consent of the Company. These shares can also be used as a form
of consideration when entering into one or more agreements to acquire
operating businesses in accordance with the Investment Policy, and subject to
approval by shareholders at the AGM, the articles will be updated to reflect
this dynamic.
There are no restrictions on the transfer of ordinary shares or on the
exercise of voting rights attached to them, which are governed by the
Company's Articles and relevant legislation.
There are no shares which carry specific rights with regard to the control of
the Company.
Activities and Business Review
A review of the business and details of research activities can be found
within the Strategy section of this Annual Report.
Alternative Investment Fund Managers
As an investment company that is managed and marketed in the United Kingdom,
the Company is an Alternative Investment Fund ("AIF") falling within the scope
of, and subject to the requirements of, the Alternative Investment Fund
Managers Directive ("AIFMD"). The Company had appointed Carne Global Fund
Managers (Ireland) Limited ("Carne") as its Alternative Investment Fund
Manager ("AIFM") pursuant to the AIFMD. As a result of the United Kingdom's
departure from the European Union, the Company assigned Gabelli Funds LLC, a
US SEC registered investment advisor as the AIFM in accordance with such
exemptions, effective 14 February 2023.
Carne was responsible for the portfolio management and risk management
functions of the Company until the point Gabelli Funds LLC was appointed AIFM
(on 13 February 2023). Carne continues to provide the Company AIFM support
services and monitor risks. The Carne Agreement may be terminated by either
party giving not less than 90 days' written notice.
Carne was 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 to be payable monthly and subject to a
minimum monthly fee of ¤2,500. During the year under review the AIFM fees
paid to Carne were $50,865 (2022: $48,062). Regulatory disclosures including
the Key Investor Information Document are provided on the website. Gabelli
Funds, LLC does not earn a fee for its role as AIFM; it earned $653,934 in
portfolio management fees during the year ended 30 June 2023 (2022: $841,642).
Disclosures on on Remuneration as required under AIFMD can also be found on
page 77.
Portfolio management and administration
Gabelli Funds, LLC ("Gabelli") was appointed as Portfolio Manager with effect
from 15 June 2017 under a Portfolio Management Agreement (the "Agreement")
with the Company under which portfolio management functions were delegated to
Gabelli. Gabelli receives a management fee, payable monthly within 10 business
days calculated at the rate of 0.85% of NAV accrued daily and calculated on
each business day.
Gabelli is entitled to earn a performance fee under the Agreement in respect
of each performance period, ending 30 June each year. For the year under
review Gabelli was entitled to a performance fee of 20% of any outperformance
of the net asset value total return, capped at 3% of the average NAV. For the
year ended 30 June 2023 no performance fee was paid (2022: nil).
Appointment of the Manager
The arrangements for the provision of portfolio management and other services
to the Company is considered by the Board on an ongoing basis and a formal
review is conducted annually.
During the year, the Board considered the performance of Gabelli as Portfolio
Manager by reference to the investment process, portfolio performance and how
it had fulfilled its obligations under the terms of the Portfolio Management
Agreement.
It is the opinion of the Board that the continuing appointment of Gabelli as
Portfolio Manager, on the terms disclosed is in shareholders' interests as a
whole. Among the reasons for this view is the depth, experience and investment
process of Gabelli.
Facilitating Retail Investments
The Company conducts its affairs so that its shares can be recommended by
independent financial advisers to ordinary retail investors in accordance with
the FCA's rules in relation to non- mainstream pooled investments and intends
to continue to do so for the foreseeable future.
The shares are excluded from the FCA's restrictions which apply to
non-mainstream pooled investments because they are shares in an investment
trust.
Other third party service providers Depositary and Custodian The Company
appointed State Street Trustees Limited as its Depositary under a Depositary
Agreement dated 30 June 2017 between Carne, Gabelli and the Company. The main
role of the Depositary under the AIFMD is to act as a central custodian with
additional duties to monitor the operations of the Company, including cash
flows and to ensure that the Company's assets are valued appropriately. The
Depositary receives a fee payable at 0.025% per annum of the gross assets of
the Company.
Under the Depositary Agreement, custody services in respect of the Company's
assets have been delegated to State Street Bank and Trust Company. The
Custodian receives a custody fee payable by the Company at rates depending on
the number of trades and the location of securities held subject to a minimum
annual fee payable of not less than $31,250. Custody fees of $51,569 were paid
during the year under review (2022: $41,736).
The depositary agreement is subject to 90 days' written notice of termination
by any party.
Registrar
Computershare Investor Services Plc (the "Registrar") has been appointed as
the Company's registrar pursuant to the Registrar Services Agreement. The
Registrar is responsible for maintaining the Company's register of
shareholders and also provides services in respect of the payment of
dividends, provision of shareholder documentation and compliance with the
Common Reporting Standard. Fees of $17,973 was paid to the Registrar during
the year under review (2022: $13,000). Fees in respect of corporate actions
will be agreed at the time of the corporate action.
Other Service Providers
Kin Company Secretarial Limited was appointed as Company Secretary in October
2021 and has the responsibility for overseeing the Governance arrangements of
the Company and assisting the Company fulfil its regulatory compliance
obligations. State Street Bank and Trust Company ("the Administrator") is
responsible for the day-to-day administration of the Company including the
maintenance of the Company's financial records and the calculation of the
daily NAV. Kin Company Secretarial has worked with the Administrator to
perform the functions of Company Secretary for the 2022/2023 financial year.
The Kin Company Secretarial agreement has no minimum term and is terminable by
Kin or the Company on not less than one month's notice. Fees of $100,252 were
paid for Company Secretarial services during the year under review (2022:
$84,466).
Related Party Transactions
Carne Global Fund Managers (Ireland) Limited is a related party to the Company
as it is considered to have had significant influence over the Company while
it served as AIFM. AIFM fees and AIFM service fees of $50,865 were paid to
Carne during the year ended 30 June 2023 (2022: $48,062).
Gabelli Funds, LLC is a related party to the Company as it is considered to
have significant influence over the Company. Gabelli Funds, LLC does not earn
a fee for its role as AIFM; it earned
$653,934 in portfolio management fees during the year ended 30 June 2023
(2022: $841,642).
Further details of related party transactions are provided in note · to the
financial statements.
Substantial shareholders
As at 30 June 2023, the Company had been advised by the following shareholder
of its interests of 3% or more in the Company's ordinary issued share capital:
% of
Results
The Company generated a revenue gain for the year ended 30 June 2023 of
$2,996,000 (2022: $(943,000)).
Disclosure of Information under Listing Rule 9.8.4
The disclosures required by Listing Rule 9.8.4, where relevant to the Company,
are discussed in more detail on page 67.
Dividends and dividend policy
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 2023, the Company returned $2.39 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. The Company declared and paid the final interim dividend of
US$0.12 per ordinary share for the financial year ending 30 June 2022, on 25
April 2023.
Exercise of Voting Rights in Investee Companies
The exercise of voting rights attached to the Company's portfolio has been
delegated to the Portfolio Manager.
Articles of Association
The Company's Articles can only be amended by special resolution at a general
meeting of the shareholders. Amendments will be proposed at the AGM that are
deemed immaterial. The articles are available upon request, on the company
website, and will be provided for at the AGM.
Change of Control
There are no agreements the Company is party to that might be affected by a
change in Control of the Company. There are no agreements between the Company
and its Directors for compensation for loss of office that occurs as a result
of a takeover bid.
Gabelli approach to voting at shareholder meetings
During the year, the Manager voted on approximately 1,089 proposals at
approximately 245 shareholder meetings on behalf of the Company. At these
meetings, the Manager voted in favour of the majority of resolutions, but
voted against the recommendations of management on approximately 52
Shareholder
Holding
resolutions.
Associated Capital Group
Inc
90.73%
Future developments
The Chairman's Statement and Portfolio Manager's report within this Annual
Report contain details of likely future developments.
Financial instruments
The financial risk management and internal control processes and policies, and
exposure to the risks associated with financial instruments can be found in
Note · to the financial statements.
Most of the votes against were in respect of resolutions relating to super
dilutive stock option plans, which were deemed by the Investment Manager not
to be in the best interests of shareholders.
Streamlined Energy and Carbon Reporting
The Company is categorised as a lower energy user under the HMRC Environmental
Reporting Guidelines March 2019 and is therefore not required to make the
detailed disclosures of energy and carbon information set out within the
guidelines. The Company's energy and carbon information is therefore not
disclosed in this report.
Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emissions producing sources under
the Companies Act 2006 (Strategic Report and Directors' Report) Regulations
2013.
Modern Slavery Act 2015 (the "MSA")
The Company is an investment company and has no employees and does not provide
goods and services in the normal course of business. Accordingly, the
Directors consider that the Company is not required to make a slavery and
human trafficking statement under the MSA.
Employees, Social, Human Rights and Environmental Matters The Company is an
investment company and has no employees and accordingly it has no direct
social, human rights or environmental impact from its operations. In carrying
on its investment activities and relationship with suppliers the Company aims
to conduct itself responsibly, ethically and fairly.
Board Diversity
As a close - end Investment Company, the Company falls within scope of LR
9.8.6 R (9) and LR 14.3.33 R (1) which require companies in-scope to disclose
against the following Diversity targets.
(i) at least 40% of the individuals on its board of directors are women
(ii) at least one of the following senior positions on its board of
directors is held by a woman:
(A) the chair
(B) the chief executive
(C) the senior independent director
(D) the chief financial officer
(iii) at least one individual on its board of directors is from a minority
ethnic background
As at 30 June 2023, the Company has not met the above targets, further details
of which are set out in the Corporate Governance Report on page 26.
Political donations
No political contributions or donations were made during the financial period
ended 30 June 2023.
Annual General Meeting
The following information to be discussed at the forthcoming Annual General
Meeting is important and requires your immediate attention. If you are in any
doubt about the action you should take, you should seek advice from your
stockbroker, bank manager, solicitor, accountant or other financial adviser
authorised under the Financial Services and Markets Act 2000 (as amended).
If you have sold or transferred all of your ordinary shares in the Company,
you should pass this document, together with any other accompanying documents,
including the form of proxy, at once to the purchaser or transferee, or to the
stockbroker, bank or other agent through whom the sale or transfer was
effected, for onward transmission to the purchaser or transferee.
The Directors currently anticipate that this year's Annual General Meeting
will be open to shareholders, but reserve the right to change arrangements for
the meeting at short notice. Therefore shareholders are strongly encouraged to
vote by proxy and to appoint the Chairman as their proxy. The following
resolutions will be proposed to the AGM. Resolutions 13 and 14 are proposed to
the meeting as special business of the meeting as ordinary resolutions.
Resolutions 15-20 are proposed as special resolutions. Ordinary resolutions
require a simple majority vote (above 50%) to be passed, whereas Special
resolutions require at least a 75% majority vote to be passed.
Resolution 14
In accordance with the Investment Policy and as opportunities present
themselves the Company may take majority and minority positions which may
require management of such investments. The Articles will be adjusted
accordingly in the resolution so that any such positions might be taken
utilising shares including Special Voting Loyalty Shares so that an issuance
and/or allotment could occur to parties that were not prior shareholders nor
members of the Loyalty Programme.
Resolution 15 Authority to Allot shares
The Directors may only allot shares for cash if authorised to do so by
shareholders in a general meeting. Resolution 15 seeks authority for the
Directors to allot shares for cash up to an aggregate nominal amount of
US$13,701 which represents 20% of the current issued share capital. The
authority will expire at the conclusion of the 2024 Annual General Meeting
unless renewed prior to that date.
Resolution 19 Authority to buy back shares
Resolution 19 seeks to renew the authority previously granted to Directors to
enable the Company to purchase up to 685,079 ordinary shares being 10% of the
issued share capital (excluding Treasury Shares).
The Directors will only consider repurchasing shares in the market if they
believe it to be in shareholders' interests and as a means of correcting any
imbalance between supply and demand for the Company's shares. Under the
Listing Rules of the Financial Conduct Authority ("FCA"), the maximum price
which can be paid is the higher of
(i) 5% above the average market value of the ordinary shares for the five
business days immediately preceding the date on which the purchase is made and
(ii) the higher of the price quoted for (a) the last independent trade of, and
(b) the highest current independent bid for, any number of ordinary shares on
the trading venue where the purchase is carried out.
In making purchases, the Company will deal only with member firms of the
London Stock Exchange. The authority will expire at the conclusion of the 2023
Annual General Meeting unless renewed prior to that date.
Resolution 20 General Meetings on 14 clear days' notice Resolution 20 seeks
shareholder authority to call general meetings other than an AGM on 14 clear
days' notice. The approval will be effective until the Company's next AGM,
when it is intended that a similar resolution will be proposed. The Board will
utilise this authority to provide flexibility when merited and would not use
it as a matter of routine.
Recommendation
Your Board recommends all resolutions to shareholders as being in the best
interests of the Company and its shareholders as a whole. The Directors
therefore unanimously recommend that shareholders vote in favour of each
resolution, as they intend to do in respect of their own beneficial holdings.
Directors' statement as to the disclosure of information to the auditors
In accordance with the requirement and definitions under section
418 of the Companies Act 2006, the Directors at the date of approval of this
report confirm that:
• so far as they are aware, there is no relevant audit
information of which the Company's auditors are unaware; and
• each Director has taken all the steps that they ought to have
taken as a Director to make themselves aware of any relevant audit information
and to establish that the Company's auditors are aware of that information.
Appointment of independent auditors
PricewaterhouseCoopers LLP, the independent external auditors of the Company,
were appointed in 2017. Resolutions to reappoint PricewaterhouseCoopers LLP as
the Company's auditors, and to authorise the Audit & Risk Committee to
determine their remuneration will be proposed at the forthcoming AGM.
The Directors' Report was approved by the Board on 19 October 2023.
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
Corporate Governance Report
This Report sets out the role and activities of the Board and explains how the
Company is governed.
Governance
Applicable Corporate Governance Code and compliance in the year under review
As a company admitted to trading on the Specialist Fund Segment, the Board has
considered the principles and provisions of the Association of Investment
Companies' Code of Corporate Governance (the 'AIC Code'). The AIC Code
addresses the Principles and Provisions set out in the 2018 version of the
Financial Reporting Council's UK Corporate Governance Code (the 'UK Code'), as
well as setting out additional provisions on issues that are of specific
relevance to the Company as an investment company listed on the London Stock
Exchange and in compliance with the FCA's Listing Rules.
The Board considers that reporting against the principles and provisions of
the AIC Code, which has been endorsed by the Financial Reporting Council,
provides more relevant information to shareholders.
The Board of Directors also recognise the critical importance of effective
corporate governance to investors, potential investors and the Company's
stakeholders, and the directors therefore give priority to high standards of
corporate governance.
The Board confirms that it complies with the recommendations of the AIC Code
and the relevant provisions of the UK Code except as follows:
Summary of AIC Code
Provision
Compliance
Performance in year
Director and Board independence and independence from the Manager
x
A formal policy and procedure ensure Board independence and the independence
of the investment Manager.
The Chair should be independent on appointment
x
Although the Chairman is not deemed independent for the purposes of the AIC
Code, given his qualifications and investment experience, and the significant
commitment being made by the Gabelli Group to the Company, the Board believes
that his appointment as Chairman is in the best interests of the Company and
the shareholders as a whole.
Appoint a Senior Independent Director ('SID')
x
The Board does not deem it necessary to appoint a SID given the nature of its
activities as a listed investment Company. The key responsibilities of the SID
under the UK Code are completed by the Non-executive Directors. The
performance of the Chairman is appraised annually by the Non-executive
Directors.
Monitor risk management and internal control systems
Identification of remuneration consultant in the Annual Report
x
The Company has delegated its operational management to third party service
providers, the Board therefore receives reports from those parties to satisfy
itself that an appropriate controls environment is maintained. These reports
extend to any relevant instances of whistleblowing at each of the service
providers.
x
The Remuneration Committee does not deem it necessary to appoint a
remuneration consultant.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes
an explanation of how the AIC Code adapts the Principles and Provisions set
out in the UK Code to make them relevant for investment companies. The UK Code
is available from the Financial Reporting Council's website at frc.org.uk.
The Board
Overview of the Board
The Board consists of six non-executive Directors. All Directors have a wide
range of other interests and are not dependent on the Company itself. Their
biographical details, which are set out in detail on pages 17 and 18,
demonstrate a breadth of investment, commercial and professional experience
with an international perspective.
The Board has a formal schedule of matters specifically reserved for its
decision, which are categorised under various headings, including strategy and
management, internal controls and risk management, strategy and policy
considerations, transactions, and finance.
The provision of the UK Code which relates to the combination of the roles of
the chairman and chief executive does not apply as the Company has no
executive directors.
The Board meets quarterly to review investment performance, financial reports,
discuss strategy and has the overriding responsibility for assessing and
reviewing the company's risk appetite. Board or Committee meetings are also
held on an ad hoc basis and as required to consider any other material issues
as they arise.
Representatives of the Portfolio Manager and Company Secretary attend each
meeting. The Board, the AIFM, the Portfolio Manager, the Company Secretary and
other key services providers operate in a cooperative and constructive
relationship to ensure timely and relevant information flows to the board.
Chairman
The Board is satisfied that other than his relationship with the Portfolio
Manager, the Chairman, Marc Gabelli, does not have any appointments or
interests which may create a conflict of interest with the Company's
activities or interests.
Table B: Ethnic Diversity Disclosures
Number
Number of senior positions on
the board and its Committees
The Nomination Committee reviewed the performance of the Chairman during the
year and is comfortable that he continues
of Board Members
Percentage of the Board
(CEO, CFO, SID
and Chair(s))
to have sufficient time to commit to his duties, and that he performs
effectively in the role. The Board therefore recommends shareholders vote to
re-elect the Chairman at the 2023 Annual General Meeting.
Board Diversity
White British/White American or other White Minority Groups
5
83.33% 4
When recruiting a new Director, the Board's policy is to appoint Mixed/ Multiple Ethnic Groups 0 0.00% 0
individuals on merit. The Board believes diversity is important in bringing an
appropriate range of skills, knowledge and experience to the Board and gives
that consideration when recruiting new Directors.
Asian/ 1 16.67% 0
As at 30 June 2023 there were 6 male Directors, of multiple nationalities and
ethnicities, and no female Directors on the Board. Whilst all future board
appointments will be made on merit, the Directors have committed to keep the
Board's gender diversity under review with a view to complying with the FCA's
approved targets on Board Diversity and in improving the ratio over time.
In accordance with LR 14.3.33, as at 30 June 2023 (the reference date) the
Board has not met the FCA's specified targets on Board Diversity relating to
gender or ethnicity.
In accordance with LR 14.3.33 a, whilst the Company is supportive of the new
measures which aim to improve the representation of women and ethnic minority
groups at board level, the Board also acknowledges the size of the current
Board and believes it remains appropriate to serve the size and stature of the
company at this time. The Nominations Committee, however, is supportive of
ensuring a more diverse pool of Board Level candidates are assessed for any
future Board-Level appointments.
The Board's Diversity Policy can be found on the company's website:
https://www.gabelli.co.uk/investment-products/
(http://www.gabelli.co.uk/investment-products/)
gabelli-merger-plus/gmp-documents/
The tables below set out the numerical data on the ethnic background and the
gender identity of the Board or Directors. The Company do not have an
Executive Management team or any Executive Directors on the Board and
therefore have not reported against that target which is non-applicable.
Number of senior
positions on
the board and
Number its Committees
of Board Percentage (CEO, CFO, SID
Members of the Board and Chair(s))
Men 6 100% 4
Women 0 0% 0
Table A: Gender Diversity Disclosures
Asian/British Asian/ American
Role of the Board
The Board is collectively responsible for the long-term success of the Company
and is accountable to shareholders and the Company's wider stakeholders for
the performance and governance of the Company. It is also ultimately
responsible for setting and executing the Company's strategic aims, its
purpose, culture and values. The authority of the Board in these areas is
subject to the Articles and to such approval of the shareholders in a general
meeting as may be required from time to time.
The Board also ensures that the necessary resources are in place to enable the
Company's objectives to be met in accordance with the Company's investment
objective, and that shareholder value is maximised within a framework of
proper controls.
The Directors exercise the powers conferred by the Company's Articles of
Association and UK Company Law to manage the Company's interest for the
benefit of shareholders and stakeholders.
As an investment company the Company's day to day responsibilities are
delegated to third party service providers. The Company has no employees and
the Directors are non-executive with the Portfolio Manager represented by the
Chairman.
Stakeholder Interests (s.172 statement)
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to
explain more fully how they have discharged their duties under Section 172(1)
of the Companies Act 2006 in promoting the success of their companies for the
benefit of members as a whole. This enhanced disclosure covers how the Board
has engaged with and understands the views of stakeholders and how
stakeholders' needs have been taken into account, the outcome of this
engagement and the impact that it has had on the Board's decisions.
As the Company is an externally managed investment company and does not have
any employees or customers, the Board considers the main stakeholders in the
Company to be the shareholders and other key service providers. The reasons
for
this determination, and the Board's overarching approach to engagement with
these stakeholders, are set out in the table below.
Stakeholder Activity or mitigation in the year
Shareholders
• The Company operates a Loyalty Programme to reward shareholders who retain
their shares for at least five years. Further information regarding the
Programme can be found on pages 20 and 21;
• As a listed investment Company, the Board operates policies designed
to safeguard the value of shareholders' investment, in particular the Board
may initiate a buyback programme whenever the Company's share price represents
a discount of 7.5% or more;
• Shareholders' rights are also protected under the Company's Articles
of Association which require any proposal that may materially change those
rights to be subject to prior approval by a majority of shareholders in
general meeting; and
• Shareholders are given opportunities to attend meetings with the Board
and to also attend, ask questions and vote at the Annual General Meeting of
the Company.
Service
Providers
The Board regularly evaluates the performance of its key panel of third-party
professional
service providers. The appraisals involve an opportunity for those third
parties to provide 360° feedback.
Social &
Environment
Whilst the Company's key investment objective targets outperformance through
exposure
to corporate transactions in the United States, the Investment Manager,
Gabelli Funds, LLC operates a suite of investment policies designed to take
account of Environmental, Social, and Governance ('ESG') themes across its
investment strategies. These policies ensure that exposure to ESG risks is
minimised for the Company's stakeholders.
Other
Stakeholders
• The Board seeks to maintain the highest levels of corporate governance
through
compliance with the principles and provisions of both the AIC Code and, to the
maximum extent practicable, the UK Code; and
• The Board is committed to responding promptly and transparently to any
reputational or regulatory matter that might arise affecting the Company, its
future prospects or its investment activities.
Purpose, Values and Culture
The Board takes its responsibilities under the AIC Code seriously and has
accordingly sought to identify and promote each of: a corporate purpose,
distinct values and a culture for the Company.
However, as a listed investment Company, which has appointed third party
service providers to operate its day to day business, the chosen purpose,
values and culture are necessarily focused on the approach and activities of
the Board of Directors.
Nevertheless, the Board prioritises the Company's primary investment
objective, together with its proprietary Private Market Value with a Catalyst
methodology, in defining its PMV with a Catalyst purpose. The Company's values
and culture primarily reflect those of its experienced, independent and
diverse individual board members, combined with the approach and
professionalism of its appointed third party service providers.
The Board regularly monitors both the performance of the Company against its
investment objective and proprietary methodology; and its individual directors
and service providers to ensure continuing strong performance and integration
with the Board's values and culture.
Employees, Social, Human Rights and Environmental Matters As an investment
vehicle the Company has no employees and accordingly it has no direct social
or community impact and limited environmental impact from its operations.
However, the Company believes that it is in shareholders' interests to
consider human rights issues, together with environmental, social and
governance factors when selecting and retaining investments.
Directors' Appointment, Retirement and Succession
The rules concerning the appointment, retirement and rotation of Directors are
set out in the Directors' Report. The Board believes that it has a reasonable
balance of skills and experience. It recognises the value of the progressive
refreshing of, and succession planning for, company boards, including for the
Chairman. The Board's tenure and succession policy seeks to ensure that it
maintains the balance of skills and experience required.
Directors must be able to demonstrate their commitment, in terms of time, to
the Company. The Board is of the view that length of service does not itself
impair a Director's ability to act independently or exercise good judgement,
rather, a long serving Director can continue to offer valuable perspectives
and experience.
When Directors are appointed they go through an induction programme organised
by the Portfolio Manager to familiarise them with the specifics of the
portfolio. Directors are also provided with key information on the Company's
policies, regulatory and statutory requirements and internal controls on a
regular basis.
Committees of the Board
The Board has established an Audit & Risk Committee, Nomination Committee,
Remuneration Committee, Management Engagement Committee and a Conflicts
Committee. Each Committee has defined terms of reference and duties.
Audit & Risk Committee
The Audit & Risk Committee is chaired by Marco Bianconi. Further details
are provided in the report of the Audit & Risk Committee on pages 30 to
32.
Nomination Committee
The Nomination Committee is chaired by the Chairman of the Board (who would
not chair the Committee when the Chairman's successor was being considered)
and consists of Marc Gabelli, John Birch and Yuji Sugimoto. The Nomination
Committee is responsible for reviewing Board succession, the policy on
directors' tenure, the performance of the Board and its Committees and the
appointment of new Directors. When voting on candidates for the appointment of
new directors, only independent directors will vote.
Remuneration Committee
The Remuneration Committee is chaired by James Wedderburn and consists of John
Birch and Marco Bianconi. The Remuneration Committee is responsible for
setting the Directors' remuneration in conjunction with the Chairman and will
take into consideration the Company's peer group and the potential to appoint
external remuneration consultants when making decisions.
Management Engagement Committee
The Management Engagement Committee is chaired by John Birch and consists of
John Birch and Yuji Sugimoto. The Management Engagement Committee is
responsible for ensuring that the provisions of the Portfolio Management
Agreement remain competitive and in the best interest of shareholders and to
review the performance of the Manager, Portfolio Manager and other third party
service providers to the Company. Details of the management arrangements are
set out on page 21.
Conflicts Committee
The Conflicts Committee is chaired by John Birch and consists of Marco
Bianconi and Yuji Sugimoto. The Conflicts Committee is responsible for
considering the potential conflicts of interest that may arise in relation to
the operation of the Company with regard to the Directors, the AIF Manager,
the Portfolio Manager and other service providers of the Company.
Attendance at scheduled meetings
The table below sets out the number of Board and Committee meetings held
during the year under review to 30 June 2023 and the number of meetings
attended by each Director.
The Audit & Risk Committee will meet at least once per quarter and all
other Committees at least once a year and additionally as required.
Audit
& Risk Rem M.E Nom Conficts
Director Board Co. Co. Co. Co. Co.
Marc Gabelli 4/4 n/a n/a n/a 1/1 n/a
Marco Bianconi 4/4 7/7 1/1 n/a n/a 1/1
John Birch 4/4 n/a 1/1 1/1 1/1 1/1
John Newlands 4/4 7/7 n/a n/a n/a n/a
James Wedderburn 4/4 7/7 1/1 n/a n/a n/a
Yuji Sugimoto 4/4 n/a n/a 1/1 1/1 1/1
Board Evaluation
The Board undertook an annual self-evaluation of its performance, that of its
committees and individual Directors, including the Chairman. The reviews were
led by the Chairman, in the case of the Board, and the Chair of each committee
otherwise.
Each Chair, assisted by the Company Secretary, determined the scope and format
for the review, which generally confirmed the directors' view that the Board
and its governance continued to function well with some issues identified for
further consideration. Further details of the annual self-assessment of the
Audit & Risk Committee are set out in the Audit & Risk Committee
report on pages 30 to 32.
There were no significant actions arising from the evaluation process and it
was agreed that the composition of the Board, at that time, reflected a
suitable mix of skills and experience, and that the Board as a whole, the
individual Directors and its committees were performing in accordance with the
provisions of the AIC Code other than where explained in this Report. The
Board determined to keep the composition of the Board under review to align
with the FCA's specific targets on Board Diversity.
Risk Management Directors' liability insurance
During the year the Company has renewed and maintained appropriate Directors
& Officers' insurance on behalf of the Board.
Internal controls
The Board has overall responsibility for the Company's systems of internal
controls and for reviewing their effectiveness. In common with the majority of
investment Companies, the Board has determined that the most efficient and
effective management of the Company is achieved by the Directors determining
the investment strategy, and the Portfolio Manager being responsible for the
day-to-day investment management decisions on behalf of the Company.
Accounting, company secretarial and custodial services have also been
delegated to third party service providers who specialise in these areas and
can provide, because of their size and specialisation, economies of scale,
segregation of duties, and all that is required to provide proper systems of
internal control within a regulated environment.
As the Company has no employees and its operational functions are undertaken
by third parties, the Audit & Risk Committee does not consider it
necessary for the Company to establish its own internal audit function.
Instead, the Audit & Risk Committee examines internal control reports
received from its principal service providers to satisfy itself as to the
controls in place.
The internal controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained, and the financial
information used within the business and for publication is reliable. The need
for an internal audit function is reviewed annually by the Committee.
The system therefore manages rather than eliminates risk of failure to achieve
the Company's business objectives and provides reasonable, but not absolute
assurance against material misstatement or loss.
Shareholder Engagement and General Meetings
The primary medium by which the Company communicates with its shareholders is
through the Annual and Half Yearly Reports which aim to provide shareholders
with a clear understanding of the Company's activities and results in the
relevant financial period. This information is supplemented by the daily
calculation and publication of the NAV per share to a regulatory information
service.
The Annual and other General Meetings provide an opportunity for shareholders
to engage with the Board of Directors, and the individual directors and the
Investment Manager regularly communicate with significant shareholders to
discuss company updates and other key events.
Key Stakeholder Outcomes
On 8 September 2022, following the Company's extraordinary general meeting,
the Company was authorised to buy back Ordinary Shares in the Company.
Additionally, the results of the 2022 EGM authorised the Company to allot up
to 51 million ordinary shares via a special share issuance resolution which
was passed by a 75% majority vote. Accordingly, this provides the company with
the flexibility required to scale the business and return value to
shareholders in the long term.
All shareholders are ordinarily encouraged to attend and vote at the Company's
Annual General Meeting. Shareholders are strongly encouraged to vote by proxy
and to appoint the Chairman as their proxy if they are unable to attend in
person. The Board and representatives of the Portfolio Manager are similarly
usually available at the Annual General Meeting to discuss issues affecting
the Company. They will be happy to answer any questions provided in writing
prior to the meeting this year.
The Notice of Annual General Meeting is set out on pages 73 and 74 and details
the business of the meeting. Any item not of an entirely routine nature is
explained in the Directors' Report on pages 19 to 24. The Notice of Annual
General Meeting and any related papers are sent to shareholders at least 21
clear days before the meeting.
Substantial Shareholdings
A summary of the significant shareholders that have been notified to the Board
as at the date of this report can be found on page 22.
Anti-Bribery Policy
The Company has zero tolerance towards bribery and is committed to carrying
out business fairly, honestly and openly.
The Board takes its responsibility to prevent bribery seriously and its
service providers are contacted to regularly confirm their anti- bribery
policies and controls.
Criminal Finances Act 2017
The Board has a zero tolerance approach to the facilitation of tax evasion.
By order of the Board
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
Report of the Audit & Risk Committee
Chair of the
Audit & Risk Committee Marco Bianconi
Members Marco Bianconi John Newlands
James Wedderburn
As Chair of the Audit & Risk Committee, I am pleased to present the Report
of the Audit & Risk Committee for the year ended 30 June 2023.
Role of the Committee
The Company has established a separately chaired Audit & Risk Committee
(the "Committee") to ensure that the interests of shareholders are properly
protected in relation to financial reporting, internal controls and risk
mitigation.
The Committee meets on a quarterly basis in preparation for the publication of
both the annual and half yearly results, and otherwise as necessary.
• A review of the effectiveness of the external audit process,
including the scope, execution, level of materiality, together with the
independence, objectivity and efficiency of the external auditors and the
quality of the audit engagement team;
• A review and approval of the external audit plan together with
the annual audit fee;
• A review of the risks associated with the loss of Investment
Trust status resulting from the tender offer in October 2022 and of the most
appropriate financial statements structure for the Company. In fact, as a
result of the completed Fifth Anniversary Tender Offer, the Company is now
considered a "close company" from a UK tax perspective, being subject to UK
corporation tax. The Company has elected continued adherence to the AIC's SORP
and continued to prepare its financial statements on a basis compliant with
the recommendations of the SORP,
• A review of the appropriateness of the Company's accounting
policies;
• Receiving from the Company's main third-party service
providers reassurance on the adequacy and effectiveness of their internal
controls processes and risk management systems. This initiative included a
review of the key technology risks facing the company and its main service
providers,
The Committee's terms of reference are available from the Company's website at
https://www.gabelli.co.uk/docs/pdfs/gmp_
(http://www.gabelli.co.uk/docs/pdfs/gmp_) actr.pdf.
Composition of the Committee
The Committee consisted of three Directors during the year under review whose
biographies are on pages 17 and 18 and the Committee composition was therefore
unchanged.
The Committee as a whole has competence relevant to investment companies and
is able to discharge its responsibilities effectively, with each Director
having appropriate financial experience and as such contributing strongly to
the Committee's operation.
The Company's Auditors are invited to attend meetings of the Committee on a
regular basis. Representatives of the Portfolio Manager and other external
advisors, including the Administrator, may also be invited to attend if deemed
necessary by the Audit & Risk Committee.
Committee Responsibilities
The key responsibilities of the Audit & Risk Committee are to ensure the
integrity, clarity and completeness of the Company's financial statements,
evaluate the robustness of the systems of internal controls, monitor the
quality, effectiveness and objectivity of the external audit process and
monitor the key risks facing the Company.
During the year the principal activities of the Committee included:
• A comprehensive review of the half yearly report and annual
report and accounts, having considered the disclosures made therein in
relation to internal controls, risk management, viability, going concern,
related parties, whether the report is fair, balanced and understandable and
whether it provides the information necessary for shareholders to assess the
Company's position and performance, business model and strategy;
including, but not limited to policies, practices and safeguards,
cybersecurity and fraud, identification, assessment, monitoring, mitigation
and the overall management of those risks,
• A review of the adequacy and security of the company's
arrangements with its contractors and external parties to raise concerns, in
confidence, about possible wrongdoing in financial reporting or other matters.
The Committee considered that the arrangements remained appropriate and
proportionate.
Significant Issues and Audit Risk
During the year, the Audit & Risk Committee also considered a number of
significant issues and areas of key audit risk in respect of the Annual Report
and Accounts. The Committee reviewed the external audit plan at an early stage
and concluded that the
appropriate areas of audit risk relevant to the Company had been put in place
to obtain a reasonable assurance that the financial statements as a whole
would be free of material misstatement.
The following table sets out the key areas of risk identified and explains how
these were addressed.
Significant
issue
How the issue was addressed
Valuation and existence of
investments
The AIFM performs the valuation of the Company's assets in accordance with its
responsibilities under the AIFMD rules. Ownership of listed investments is
verified by reconciliation to the Custodian's records. Ownership of CFDs is
verified by reconciliation to the counterparty's records.
Recognition of
income
Income received is accounted for in line with the Company's accounting
policies, as set out on page 50.
Maintaining internal
controls
The Committee receives regular reports on internal controls from the
Administrator and the Investment Manager and has access to the relevant
personnel of both State Street and Gabelli Funds who have a responsibility for
risk management and internal audit.
Performance
fee
The performance fee calculation is prepared by the Administrator and reviewed
by the Manager and the Committee before recommendation to the Board, all with
reference to the portfolio management agreement.
Resource
Risk
The Company has no employees and its day to day activities are delegated to
third party suppliers. The Board monitors the performance of third-party
suppliers on an ongoing basis.
External audit
The Committee conducted a review of PricewaterhouseCoopers LLP's independence
and audit process effectiveness as part of its review of the financial
reporting for the year ended 30 June 2023 and separately completed a market
benchmarking exercise in respect of the external audit service. In considering
the effectiveness, the Committee reviewed the audit plan, the level of
materiality, key financial reporting risks, and the auditors' findings.
The Committee also considered the execution of the audit against the plan, as
well as the auditors reporting to the Committee in respect of the financial
statements for the year. Based on this, the Committee was satisfied with the
quality of the external audit process,with appropriate focus and challenge on
the key audit risks.
The Committee advises the Board on the appointment of the external auditors
and on their remuneration. It keeps under review the cost effectiveness and
the independence and objectivity of the external auditors, mindful of controls
in place to ensure the latter. To this end, the Committee has implemented a
policy on the engagement of the external auditors to supply non-audit
services.
The Committee was satisfied that the objectivity and independence of the
auditors was not impaired as no non- audit services were undertaken during the
year. Accordingly,
the Committee recommended to the Board that shareholder approval be sought at
the forthcoming AGM for the appointment of PricewaterhouseCoopers LLP as the
Company's auditors for the ensuing financial year, and for the Committee to
determine the auditors' remuneration.
Audit Tendering
PricewaterhouseCoopers LLP was appointed as auditors with effect from the
Company's launch in July 2017. The Company is required to put the external
audit out to tender at least every ten years, and at least every twenty years
to change the auditors. The Company will be required to put the audit out to
tender, at the latest following the 2027 year end.
The Audit & Risk Committee will consider annually the need to tender as a
consequence of audit quality or independence. There are no contractual
obligations that restrict the Company's choice of auditors.
During the year ended 30 June 2023 £0 was paid to the auditors for non-audit
services (2022: £0). The auditors are required to rotate the Company's Lead
Engagement Partner every five years. Kevin Rollo was appointed as the Audit
Engagement Partner in 2021 and has successfully overseen the engagement with
the support of a strengthened audit team for the financial year under review.
Internal Audit function
As the Company has no employees and its operational functions are undertaken
by third parties, the Committee does not consider it necessary for the Company
to establish its own internal audit function. Instead, the Committee examines
internal control reports received from its principal service providers to
satisfy itself as to the controls in place.
The internal controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained, and the financial
information used within the business and for publication is reliable. The need
for an internal audit function is reviewed annually by the Committee.
Whistleblowing, anti-bribery and corruption
The Company has no employees; therefore no policies relating to
whistleblowing, anti-bribery, or corruption are considered necessary.
Notwithstanding this, the Company seeks at all times to conduct its business
with the highest standards of integrity and honesty. Gabelli Funds, LLC is
committed to complying with all applicable legal and regulatory requirements
relating to accounting and auditing controls and procedures. Staff members of
Gabelli Funds, LLC are encouraged to report complaints and concerns regarding
accounting or auditing matters through available channels described in the
Portfolio Manager's Whistleblower Policy.
Marco Bianconi
Chair of the Audit & Risk Committee
19 October 2023
Directors' Remuneration Report
The Board presents the Directors' Remuneration Report which has been prepared
in accordance with the requirements of Sections 420-422 of the Companies Act
2006 and Schedule 8 to the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013. The law requires the
Company's auditors to audit certain of the disclosures provided. Where
disclosures have been audited this is indicated.
Statement from the Chairman
This Report describes how the Board has applied the principles relating to
Directors' remuneration. The Company's Remuneration Policy was originally
approved by shareholders at the AGM in 2018 and shareholders approved a
version of the Remuneration Policy with minor further updates at the AGMs in
2019 and in 2020, in accordance with section 439A of the Companies Act 2006.
Accordingly, the Company's Remuneration policy will be put to Shareholders for
approval at this year's Annual General
Meeting ('AGM') to be held on 30 November 2023. Further information on this
resolution is contained with the notice of AGM.
Director's Remuneration Policy
In 2020, the Remuneration Policy was updated to increase the overall aggregate
limit on fees payable to Directors from
$150,000 to $180,000. The Company does not propose an increase to the
aggregate limit to Non-Executive Director's fees this year and as such will
only be seeking shareholder approval for the current limit of $180,000, which
the Company deemed to be at an appropriate level at this time.
Remuneration Committee
The Company has established a Remuneration Committee which meets at least once
a year. Further details of the membership are provided in the Corporate
Governance Report on page 28.
Policy Table
Fixed fee
element
Remuneration consists of a fixed fee each year and the Directors of the
Company are
entitled to such rates of annual fees as the Board at its discretion
determines.
Discretionary
element
In accordance with the Company's Articles of Association, if a Director is
requested
to perform extra or special services, they will be entitled to receive such
additional remuneration as the Board considers appropriate.
Expenses
In accordance with the Company's Articles of Association the Directors are
also entitled to be reimbursed for out-of-pocket expenses and any other
reasonable expenses incurred in the proper performance of their duties.
Purpose and link to
strategy
Directors' fees are set to:
• be sufficient to attract and retain individuals of a high
calibre with suitable knowledge and experience to promote the long-term
success of the Company;
• reflect the time spent by the Directors working on the
Company's behalf and representing the Company;
• reflect the responsibilities borne by the Directors;
• recognise the greater time commitment and responsibility
required for the positions of Chairman of the Board and the Chairman of the
Audit & Risk Committee through appropriate fee supplements for each role.
Operation
Fees payable to the Directors will be reviewed annually. A number of factors
will be considered to ensure that the fees are set at an appropriate level.
These will include the average rate of inflation during the period since the
last fee increase, the level of Directors' remuneration for other Investment
Companies of a similar size and complexity of the Directors' responsibilities.
Maximum
The total remuneration paid to the non-executive Directors is subject to an
annual aggregate limit of $180,000 in accordance with the Company's Articles
of Association, following approval by shareholders at the AGM in 2020. Any
further changes to this limit will require Shareholder approval by ordinary
resolution.
The Company has no employees to consult in drawing up the policy. There are no
performance related elements to the Directors' fees and the Company have no
Executive Directors.
To ensure fees are set at an appropriate level, the Company Secretary provides
a comparison of the Directors' remuneration with other investment trusts of a
similar size and/or mandate, as well as taking into account any data published
by the
Association of Investment Companies. This comparison, together with
consideration of any alteration in non-executive Directors' responsibilities,
is used to review whether any change in remuneration is necessary. The review
of fees is performed on an annual basis.
Remuneration
Fees per annum US$
Director of the
Board
30,000
Additional fee for the Chairman of the
Board
1,000* Additional fee for the Chairman of the Audit
& Risk
Committee
5,000
Additional fee for the members of the Audit
& Risk
Committee
1,000
* On 6 October 2023 John Birch was appointed as Co-Chairman of the Board.
Following a review in September 2022, the Committee agreed that the Directors'
fee would not increase for the year ending 30 June 2023.
Any remuneration arrangements for new directors will be determined by the
Committee in accordance with the Remuneration Policy, and would also be
expected to mirror the above fee structure.
The additional fees shown in the table above paid to the Chairman of the Board
(albeit Mr Gabelli waived his fee) and the Chairman and members of the Audit
& Risk Committee during the year ended 30 June 2023 will also remain
unchanged for the year ending 30 June 2024.
Consideration of Shareholders' Views
Shareholders' approval for the remuneration report and the Company's
Remuneration Policy will be sought at the 2023 AGM. Shareholders will have the
opportunity to express their views and raise any queries on the policy either
at or in advance of this meeting.
At the previous AGM held on 30 November 2022, the Director's Remuneration
Report received 100% votes in favour of the resolution.
Details of voting on the Remuneration Report and the Remuneration Policy at
the 2023 AGM will be released via RNS announcement following the meeting and
will be provided in the annual report for the year ending 30 June 2024.
Director's Remuneration Implementation Report (audited) Single Total Figure of
Remuneration
The single total remuneration figure for each Director who served during the
year to 30 June 2023 is set out below with prior year comparison. As the
Company has no employees the table below sets out the total remuneration costs
paid by the Company. Mr Gabelli waived the entitlement to his fees as
Chairman. Mr Gabelli devotes a portion of his time employed by Gabelli to
serve as Chairman of the Company. An apportionment of his remuneration on a
time served basis from employment by an affiliate of the Portfolio Manager
would materially equate to the fees received by the other Directors of the
Company for similar qualifying services.
Directors' notice periods and payment for loss of office Directors'
appointments may be terminated without notice. In this event, the Director
will only be entitled to fees accrued at the date of termination, together
with reimbursement of any expenses properly incurred to that date.
None of the Directors are entitled to post-employment benefits or termination
benefits.
No discretionary payments were made during the year to 30 June 2023.
The fees paid to Directors on an annual basis during the year to 30 June 2023
are as follows:
Year Fees to 30 June 2023 Year Fees to 30 June 2022 Year Fees to 30 June 2021
Total Change over prior Total Change over prior Shares(1) Total
year % year % Change over prior
year %
Marc Gabelli - - - - - - - - - -
Marco Bianconi 35,000 35,000 - 35,000 35,000 (3.2)% 25,000 11,167 36,167 24.0%
John Birch* 30,000 30,000 - 30,000 30,000 (3.7)% 20,000 11,167 31,167 29.0%
John Newlands 31,000 31,000 - 31,000 31,000 (3.6)% 21,000 11,167 32,167 21.1%
Yuji Sugimoto 30,000 30,000 - 30,000 30,000 (3.7)% 20,000 11,167 31,167 28.9%
James Wedderburn 31,000 31,000 - 31,000 31,000 (3.6)% 21,000 11,167 32,167 27.8%
Total 157,000 157,000 - 157,000 157,000 107,000 55,835 162,835
* On 6 October 2023 John Birch was appointed as Co-Chairman of the Board.
1 Represents the fee supplement originally to be paid in shares, on a pro rata
basis for the period 1 January to 30 June 2020 following shareholder approval
in 2019. Owing to complexities surrounding the share issuance scheme approved
at the 2019 Annual General Meeting, and following legal advice, the
incremental compensation was paid in cash, in the amount of $10,000 per annum,
per Director. The amount presented for the year ended 30 June 2021 includes
cash payments equivalent to and in lieu of dividends that would have been paid
between 1 January 2020 and 30 June 2021, in the amount of $1,167 per Director.
Directors' Interests
The interests of the Directors (including their connected persons), who are
not required to purchase shares, in the Company's share capital are as
follows:
Ordinary shares of $0.01
As at 30 June 2023 As at 30 June 2022
Directors
Marc Gabelli 20,100 20,100
Marco Bianconi 1,200 1,200
John Birch 1,000 1,000
John Newlands - -
Yuji Sugimoto - -
James Wedderburn 1,500 1,500
Total 23,800 23,800
None of the Directors has been granted, or exercised, any options or rights to
subscribe for the Ordinary Shares of the Company.
Company Performance
A graph showing the Company's NAV performance measured by total shareholder
return compared with the Credit Suisse Merger Arb Liquid Index, the S&P
Merger Arb Index, the 13 week US Treasury Bills, and the IQ Merger Arbitrage
ETF (MNA), since launch, can be found on page 13.
Relative Importance of Spend on Pay
The table below shows the Directors' remuneration (2022:
$157,000 and 2021: $162,835) in comparison with Portfolio management fees
paid, dividends paid to shareholders and the Company's annual revenues.
Statement by the Chairman of the Board
The Directors confirm that the Directors' Remuneration Report set out above
provides a fair and reasonable summary for the financial year ended 30 June
2023 of:
a) the major decisions on Directors' remuneration;
b) any substantial changes relating to Directors' remuneration made
during the period; and
c) the context in which those changes occurred and the decisions which
have been taken.
The Directors' Remuneration Report was approved by the Board on 20 September
2023 and is signed on its behalf by:
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
2023
Directors' remuneration as a % of $000 %
Directors' remuneration 157
Dividends to Shareholders 822 19.1
Portfolio management fees 654 24.0
Revenues 1,012 15.5
Statement of Directors' Responsibilities in respect of the Financial Statements
We share this Report to Shareholders, encompassing the year ended 30 June
2023, and note certain developments post calendar year end. This period
included several important changes for the Gabelli Merger Plus+ Trust Plc (the
"Company"), which include:
• NAV increase of 10.54% against a volatile market backdrop.
• Fifth Anniversary Tender Offer implemented in accordance with
the Loyalty Programme. The Company purchased 3,387,414 shares, resulting in
6,850,792 shares in issue at 30 June 2023 versus 10,238,206 shares in issue in
July 2022.
• The Company has elected continued adherence to the AIC's SORP.
Although no longer a trust, the Company has elected to continue to prepare the
financial statements on a basis compliant with the recommendations of the
SORP. The SORP is issued by the AIC and it sets out recommendations, intended
to represent current best practice, on the form and contents of the financial
statements of Investment Companies. Investment Companies include investment
trust companies that have been, currently are, or are directing its affairs so
as to enable it to obtain or retain approval under Section 1158 of the
Corporation Tax Act 2010. Although the Company no longer meets the
requirements of Section 1158 of the Corporation Tax Act 2010 to be an
investment trust, it continues to conduct its affairs as an investment
company.
• Confirmation of the Investment Policy in accordance with the
original offering prospectus.
• The allowance to issue Special Voting Loyalty Shares at the
AGM for qualifying shareholders under the terms of the Loyalty Programme.
During the year, the Company authorised the issuance of Special Voting Loyalty
Shares in accordance with the terms specified in the Loyalty Programme, with
Associated Capital Group Inc. agreeing to subscribe for Special Voting Loyalty
Shares, which will increase its voting interest when issued, with issuance
pending.
Gabelli Merger Plus+ Trust Plc ("GMP") seeks to achieve long- term total
return from capital appreciation and income utilizing the Gabelli Private
Market Value with a Catalyst(TM) methodology, primarily investing in the
securities of businesses undergoing some form of strategic change where there
are substantial disconnects between market price and business value, and,
where catalysts exist that may narrow these discounts for the benefit of
shareholders. GMP objectives, operating within this highly specialised value
based catalyst event driven merger arbitrage discipline, are to compound and
preserve shareholder wealth over time while remaining non-correlated to the
broad equity and fixed income markets.
The GMP investment process begins by focusing on a company's balance sheet and
underlying fundamentals, looking for changes in market positions and analyzing
the company's ability to generate free cash flow relative to competition. The
process continues with the calculation of corporate replacement and intrinsic
values while accounting for sector wide industrial synergies in the context of
profitability and growth. The manager attempts to understand what an informed
industrialist would pay for a business in its entirety through a negotiated
acquisition process. This element serves as the foundation in determining what
is deemed a business's Private Market Value ("PMV"). Lastly, the manager
builds a diversified portfolio of companies in the public market that are
selling at discounts to their PMVs,
with a catalyst in place to generate returns. The investment programme is
global, encompassing a broad spectrum of value based special situations and
event driven opportunities, with an analytical emphasis on announced merger
transactions. As market price dislocations continue, it is expected this
programme will include minority and also majority controlling stakes in
businesses. Controlling stakes may require the management of operating
businesses on behalf of the company's shareholders in an effort to deliver the
company's objectives in accordance with investment policy. Over the long term
GMP strives to achieve superior risk-adjusted annual returns above inflation
for shareholders.
On behalf of the Board of Directors, we thank investors for entrusting a
portion of their assets with the Gabelli Merger Plus+ Trust ("GMP"). We
appreciate your confidence in the Gabelli long-term oriented investment
method.
The Portfolio Manager's Review on pages 8 to 11 provides details of the
important events that have occurred during the period and their impact on the
financial statements.
Company Considerations
Investors should note the difference between book and accounting value.
Deferred tax assets ("DTA") can be used to offset certain taxes as applicable
in the United Kingdom. And as such based on a continuing level of activity the
DTA are expected to be utilised over the foreseeable future resulting in the
company not paying UK tax for this year.
As a result of Associated Capital Group Inc's ownership of 90.7% of shares in
issue, the Company is a consolidated subsidiary for Associated Capital Group
Inc.'s financial reporting purposes. As such, activities of the Company and of
Associated Capital Group Inc. could be deemed related parties for purposes of
this disclosure.
Investors should note that as a close company with Associated Capital Group
Inc. controlling greater than 90% of shares and 95% of voting shares that
Associated Capital Group Inc. may be able to ensure the passage of shareholder
resolutions.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company fall into the
following broad categories: investment portfolio; global macro events;
operational; market and share price; financial; corporate governance and
regulatory compliance; taxation; emerging and geopolitical risks. The global
macro event category includes specific market and operational risks associated
with the ongoing war in Ukraine and the aftermath of the global COVID-19
pandemic, which continue to cause uncertainty and disruption across global
economies and markets. Information on each of these identified risk areas,
including mitigating actions taken by the Company, was provided on pages 14 to
15 in the Strategic Report in the Company's Annual Report and Accounts for the
year ended 30 June 2023.
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 and the conflict in Ukraine.
Related Party Disclosure and Transactions
During the financial year, other than fees payable by the Company in the
ordinary course of business, there have been no material transactions with
related parties which have materially affected the financial position or the
performance of the Company.
As a result of Associated Capital Group Inc's ownership in excess of 90% of
shares in issue, the Company is a consolidated subsidiary for Associated
Capital Group Inc.'s financial reporting purposes. As such, activities of the
Company and of Associated Capital Group Inc. could be deemed related parties
for purposes of this disclosure.
Significant Events
In the year ended 30 June 2023 the Company conducted and completed the Fifth
Anniversary Tender Offer, as set out in the circular published on 19 August
2022, and purchased 3,387,414 shares, resulting in 6,850,792 shares in issue
at 30 June 2023 versus 10,238,206 shares in issue in July 2022. The Company
determined that the post tender remaining Shareholder base has resulted in the
Company being deemed a close company for the purposes of taxation, and the
company no longer avails itself of investment trust status. The Company is
committed to delivering its investment programme for the long term and
Directors, together with management are in the process of examining
alternatives to minimise taxes, costs and expenses for its Shareholders.
Going Concern
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.
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 as they fall due. For these reasons, the Directors consider there is
reasonable evidence to continue to adopt the going concern basis in preparing
the accounts as at 30 June 2023.
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.
The annual financial report was approved by the Board on
19 October 2023 and the above responsibility statement was signed on its
behalf by the Chairman.
By order of the Board
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
Independent auditors' report to the members of Gabelli Merger Plus(+) Trust Plc
Report on the audit of the financial statements
Opinion
In our opinion, Gabelli Merger Plus+ Trust plc's financial statements:
• give a true and fair view of the state of the company's
affairs as at 30 June 2023 and of its result and cash flows for the year then
ended;
• have been properly prepared in accordance with UK-adopted
international accounting standards; and
• have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements, included within the Annual Report
and Accounts (the "Annual Report"), which comprise: the Statement of Financial
Position as at 30 June 2023; the Statement of Comprehensive Income, the
Statement of Changes in Equity, and the Statement of Cash Flows for the year
then ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK)
are further described in the Auditors' responsibilities for the audit of the
financial statements section of our report. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We remained independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC's Ethical Standard, as applicable to listed public
interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services
prohibited by the FRC's Ethical Standard were not provided.
We have provided no non-audit services to the company in the period under
audit.
Our audit approach Overview
Audit scope
• The company is a standalone Investment trust company and
engages Gabelli Funds, LLC (the "Manager") to manage its assets.
• We conducted our audit of the Financial Statements using
information from State Street Global Services (the "Administrator") to whom
the Manager has, with the consent of the Directors, delegated the provision of
certain administrative functions.
• We tailored the scope of our audit taking into account the
types of investments within the company, the involvement of the third parties
referred to above, the accounting processes and controls, and the industry in
which the company operates.
• We obtained an understanding of the control environment in
place at both the Manager and the Administrator, and adopted a fully
substantive testing approach using reports obtained from the administrator.
Key audit matters
• Valuation and existence of investments.
• Income from investments.
• Taxation.
Materiality
• Overall materiality: $664,931 (2022: $958,410) based on 1% of
net assets.
• Performance materiality: $498,698 (2022: $718,808).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors' professional
judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts
of the engagement team. These matters, and any comments we make on the results
of our procedures thereon, were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Taxation is a new key audit matter this year. Assessment of the
appropriateness of the going concern basis of preparation of the financial
statements, which was a key audit matter last year, is no longer included
because of the fact that the conditions that existing in the prior year in
relation to the Tender Offers and upcoming Continuation Vote have now passed
and are not recurring this year. Otherwise, the key audit matters below are
consistent with last year.
Key audit
matter
How our audit addressed the key audit matter
Valuation and existence of investments
Refer to Accounting Policies, note 2 (g) and Notes to the financial
statements, Note 3. The company's investments have decreased to US$55m.The
investment portfolio at year end consisted of listed equity investments and
derivatives (contracts for difference). We focused on the valuation and
existence of investments because investments represent the principal element
of the net asset value as disclosed in the Statement of Financial Position in
the financial statements. We also focused on the accounting policy for the
valuation of investments as set out in the accounting standards as incorrect
application could indicate a misstatement in the valuation of investments.
• We assessed the accounting policy for the valuation of
investments for compliance with accounting standards and the AIC SORP and
performed testing to check that investments are accounted for in accordance
with this stated accounting policy.
• We tested the valuation of the listed equity investments by
agreeing the prices used in the valuation to independent third party sources.
• We tested the existence of the investment portfolio by
agreeing listed equity investment holdings to an independent custodian
confirmation.
• For derivatives, we tested a sample of the valuation of these
investments using valuation techniques as indicated by our investment
specialists.
• We tested existence of derivatives by using broker statements
obtained through the administrator.
• No material issues were identified.
Income from investments
Income from investments refers to dividend income and net capital gains from
investments. Refer to Accounting Policies, Note 2(e) and 2(g). The company's
dividend income for the year is US$1m. Realised gains on investments for the
year is US$4.7m and unrealised gains on investments is US$0.7m. We focused on
the accuracy, occurrence and completeness of dividend income, and existence of
net capital gains as incomplete or inaccurate income could have a material
impact on the company's net asset value and dividend cover. We also focused on
the accounting policy for income recognition and its presentation in the
Statement of Comprehensive Income as set out in the requirements of The
Association of Investment Companies Statement of Recommended Practice (the
"AIC SORP") as incorrect application could indicate a misstatement in income
recognition.
• We assessed the accounting policies implemented were in
accordance with accounting standards and the AIC SORP, and that income has
been accounted for in accordance with the stated accounting policy.
• We tested the accuracy of dividend receipts by agreeing the
dividend rates from investments to independent market data. To test for
occurrence, we confirmed that a sample of dividends recorded had occurred in
the market. To test for completeness, we tested that the appropriate dividends
had been received in the year by reference to independent data of dividends
declared for all listed investments during the year.
• We also tested the allocation and presentation of dividend
income between the revenue and capital return columns of the Income Statement
in line with the requirements set out in the AIC SORP by confirming reasons
behind dividend distributions.
• The gains/losses on investments held at fair value comprise
realised and unrealised gains/losses. For unrealised gains and losses, we
tested the valuation of the portfolio at the year end (on a sample basis for
derivatives), together with testing the reconciliation of opening and closing
investments. For realised gains/losses, we tested a sample of disposals by
agreeing the proceeds to bank statements and we re-performed the calculation
of a sample of realised gains/ losses.
• No material issues were identified.
Key audit
matter
How our audit addressed the key audit matter
Taxation
The Company under its previous status as an Investment Trust Company was able
to benefit from a tax exemption under s1158 of the Corporation Tax Act (2010).
However, due to the significant uptake by shareholders of the 5th Anniversary
Tender offer and resulting loss of ITC status, the Company is no longer
afforded this exemption. As a result, tax considerations which the Company was
previously exempt from are now due to be borne in the current period. Refer
Accounting Policies, note 2 (n) and Notes to the financial statements, Note 8.
We have performed testing over the taxation paid by the Company and the effect
of the loss of s1158 exemption status on the deferred tax asset. Additionally,
as part of our testing, we have assessed the appropriateness of the
recognition of the deferred tax asset. We have found no issues in relation to
this testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to
be able to give an opinion on the financial statements as a whole, taking into
account the structure of the company, the accounting processes and controls,
and the industry in which it operates.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements. In particular, we
looked at where the Directors made subjective judgements, for example in
respect of significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain.
The impact of climate risk on our audit
In planning our audit, we made enquiries of the Directors and Manager to
understand the extent of the potential impact of climate change risk on the
Company's financial statements.
In conducting our audit, we made enquiries of the Directors and Manager to
understand the extent of the potential impact of the climate change risk on
the Company's financial statements. Both concluded that the impact on the
measurement and disclosures within the financial statements is not material
because the Company's investment portfolio is primarily made up of Level 1
quoted securities which are valued at fair value based on market prices. We
found this to be consistent with our understanding of the Company's investment
activities.
We also considered the consistency of the climate change disclosures included
in the Strategic Report with the financial statements and our knowledge from
our audit.
Materiality
The scope of our audit was influenced by our application of materiality. We
set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall company
materiality
$664,931 (2022: $958,410).
How we determined
it
1% of net assets
Rationale for benchmark
applied We
believe that net assets is the primary measure used by shareholders in
assessing
the performance of the company and is a generally accepted auditing benchmark
for investment trust audits.
We use performance materiality to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance materiality in
determining the scope of our audit and the nature and extent of our testing of
account balances, classes of transactions and disclosures, for example in
determining sample sizes. Our performance materiality was 75% (2022: 75%) of
overall materiality, amounting to $498,698 (2022:
$718,808) for the company financial statements.
In determining the performance materiality, we considered a number of factors
- the history of misstatements, risk assessment and aggregation risk and the
effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above $33,247 (2022:
$47,921) as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors' assessment of the company's ability to
continue to adopt the going concern basis of accounting included:
• Evaluating the Directors' assessment of potential operational
impacts of the results of the recent Tender offer and the upcoming
Continuation vote, considering their consistency with other available
information and our understanding of the business and assessed the potential
impact on the financial statements;
• Reviewing the Directors' assessment of the Company's financial
position in the context of its ability to meet future expected operating
expenses, their assessment of liquidity as well as their review of the
operational resilience of the Company and oversight of key third-party service
providers;
• Assessing the implications of potential significant reductions
in Net Asset Value as a result of market performance on the ongoing ability of
the Company to operate;
• Evaluating the legally binding confirmation from the majority
shareholder regarding their intention and ability to continue to support the
Company; and
• Assessing the impact of the loss of Investment Trust Company
status and the continued operations of the Company.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the company's ability to continue
as a going concern for a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
However, because not all future events or conditions can be predicted, this
conclusion is not a guarantee as to the company's ability to continue as a
going concern.
In relation to the directors' reporting on how they have applied the UK
Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report
other than the financial statements and our auditors' report thereon. The
directors are responsible for the other information. Our opinion on the
financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly
stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility
is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there
is a material misstatement of the financial statements or a material
misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic report and Director's Report, we also considered
whether the disclosures required by the UK Companies Act 2006 have been
included.
Based on our work undertaken in the course of the audit, the Companies Act
2006 requires us also to report certain opinions and matters as described
below.
Strategic report and Director's Report
In our opinion, based on the work undertaken in the course of the audit, the
information given in the Strategic report and Director's Report for the year
ended 30 June 2023 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment
obtained in the course of the audit, we did not identify any material
misstatements in the Strategic report and Director's Report.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited
has been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors' statements in relation
to going concern, longer-term viability and that part of the corporate
governance statement relating to the company's compliance with the provisions
of the UK Corporate Governance Code specified for our review. Our additional
responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of
this report.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the corporate governance statement is materially
consistent with the financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to in relation
to:
• The directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify emerging risks and
an explanation of how these are being managed or mitigated;
• The directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material
uncertainties to the company's ability to continue to do so over a period of
at least twelve months from the date of approval of the financial statements;
• The directors' explanation as to their assessment of the
company's prospects, the period this assessment covers and why the period is
appropriate; and
• The directors' statement as to whether they have a reasonable
expectation that the company will be able to continue in operation and meet
its liabilities as they fall due over the period of its assessment, including
any related disclosures drawing attention to any necessary qualifications or
assumptions.
Our review of the directors' statement regarding the longer-term viability of
the company was substantially less in scope than an audit and only consisted
of making inquiries and considering the directors' process supporting their
statement; checking that the statement is in alignment with the relevant
provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and
understanding of the company and its environment obtained in the course of the
audit.
In addition, based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate governance
statement is materially consistent with the financial statements and our
knowledge obtained during the audit:
• The directors' statement that they consider the Annual Report,
taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the company's position,
performance, business model and strategy;
• The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the
Audit Committee.
We have nothing to report in respect of our responsibility to report when the
directors' statement relating to the company's compliance with the Code does
not properly disclose a departure from a relevant provision of the Code
specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit Responsibilities
of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the
directors are responsible for the preparation of the financial statements in
accordance with the applicable framework and for being satisfied that they
give a true and fair view. The directors are also responsible for such
internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or
to cease operations, or have no realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditors' report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the
principal risks of non-compliance with laws and regulations related to
breaches of the Corporation Tax Act 2010, and we considered the extent to
which non-compliance might have a material effect on the financial statements.
We also considered those laws and regulations that have a direct impact on the
financial statements such as the Companies Act 2006. We evaluated management's
incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that
the principal risks were related to posting of inappropriate journal entries
to increase income or to overstate the value of investments and increase the
net asset value of the company. Audit procedures performed by the engagement
team included:
• Discussions with the Directors, the Manager and the
Administrator, including consideration of known or suspected instances of
non-compliance with laws and regulation and fraud;
• Evaluation of the controls implemented by the Manager and the
Administrator designed to prevent and detect irregularities;
• Assessment of the company's compliance with the Corporation
Tax Act 2010, including recalculation of numerical aspects of the tax expense;
and
• Identifying and testing journal entries, in particular a
sample of journals posted as part of the financial year end close process.
There are inherent limitations in the audit procedures described above. We are
less likely to become aware of instances of non- compliance with laws and
regulations that are not closely related to events and transactions reflected
in the financial statements. Also, the risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain
transactions and balances, possibly using data auditing techniques. However,
it typically involves selecting a limited number of items for testing, rather
than testing complete populations. We will often seek to target particular
items for testing based on their size or risk characteristics. In other cases,
we will use audit sampling to enable us to draw a conclusion about the
population from which the sample is selected.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at: www.frc.org.
(http://www.frc.org/) uk/auditorsresponsibilities. This description forms part
of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the
company's members as a body in accordance with Chapter 3 of Part 16 of the
Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our
opinion:
• we have not obtained all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the company,
or returns adequate for our audit have not been received from branches not
visited by us; or
• certain disclosures of directors' remuneration specified by
law are not made; or
• the financial statements and the part of the Directors'
Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the
members on 1 July 2017 to audit the financial statements for the year ended 30
June 2018 and subsequent financial periods. The period of total uninterrupted
engagement is 6 years, covering the years ended 30 June 2018 to 30 June 2023.
Kevin Rollo (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and
Statutory Auditors London
19 October 2023
Statement of Comprehensive Income
for the year ended 30 June 2023
Year ended 30 June 2023 Year ended 30 June 2022
Income
Notes
Revenue Capital Total Revenue
Capital Total
$000 $000 $000
$000
$000 $000
Investment income 5 1,012 - 1,012 1,076
- 1,076
Total investment income 1,012 - 1,012 1,076
- 1,076
Gains/(losses) on investments
Net realised and unrealised gains/(losses) on
investments - 4,707 4,707 - (460) (460)
3, 13
Net realised and unrealised currency gains on
investments - 114 114 - 490
490
Net gains on investments - 4,821 4,821 -
30 30
Total income and gains on investments 1,012 4,821 5,833 1,076
30 1,106
Expenses
Portfolio management fee 6 (654) - (654) (842)
- (842)
Performance fee 6, 14 - - - -
- -
Other expenses 6 (807) (501) (1,308) (1,127) (124) (1,251)
Total expenses (1,461) (501) (1,962) (1,969) (124) (2,093)
Net return on ordinary activities before finance costs and taxation
(449) 4,320 3,871 (893) (94)
(987)
Interest expense and similar charges (26) - (26) (1)
- (1)
Profit/(loss) before taxation (475) 4,320 3,845 (894) (94)
(988)
Taxation on ordinary activities 8 3,471 - 3,471 (49)
- (49)
Profit/(loss) for the year 2,996 4,320 7,316 (943) (94) (1,037)
Earnings/(loss) per share (basic and diluted) 9 $0.39 $0.55 $0.94 ($0.09) ($0.01) ($0.10)
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with UK International Accounting Standards (UK
IAS). 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
2023.
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 UK IAS.
The notes on pages 49 to 66 form part of these financial statements.
Statement of Changes in Equity
for the year ended 30 June 2023
Year ended 30 June 2023
Year ended 30 June
2023
Note
Called up Special Distributable
Share Capital Reserve* Capital Reserve Revenue Reserve*
$000 $000 $000 $000
Total
$000
Balance as at 1 July 2022 103 79,062 20,965 (4,356) 95,774
Ordinary shares bought back into treasury - (32,245) - - (32,245)
Profit/(loss) for the period after tax on ordinary activities - - 4,320 2,996 7,316
Dividends - (822) - - (822)
paid
7
Balance as at 30 June 2023 103 45,995 25,285 (1,360) 70,023
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
* The Revenue Reserve and Special Distributable Reserve are distributable. The
amount of the Revenue Reserve and Special Distributable Reserve that is
distributable is not necessarily the full amount of the reserves as disclosed
within these financial statements. As at 30 June 2023, the net amount of
reserves that are distributable are $44,635,000 (2022: $74,706,000).
Statement of Financial Position
as at 30 June 2023
As at 30 June 2023 As at 30 June 2022
Note
$000 $000 $000 $000
Non-current assets
Investments held at fair value through profit or 56,514 92,381
loss
3
Current assets
Cash and cash 9,555 5,911
equivalents
10
Receivable for investment sold 1,800 423
Other 73 66
receivables
15
Deferred tax 3,530 -
asset
8
14,958 6,400
Current liabilities
Portfolio management fee payable (46) (61)
Payable for investment purchased (571) (1,875)
Other (349) (212)
payables
15
Bank overdrafts (106) (391)
Net current assets 13,886 3,861
Non-current liabilities
Investments at fair value through profit or (325)
loss (416)
3
Offering fees payable (52)
(52)
Net assets 70,023 95,774
Share capital and reserves
Called-up share 103 103
capital
11
Special distributable reserve* 44,635 79,062
Capital reserve 25,285 20,965
Revenue reserve* (1,360) (4,356)
Total shareholders' funds 70,023 95,774
Net asset value per ordinary share $10.22 $9.35
* The Revenue Reserve and Special Distributable Reserve are distributable. The
amount of the Revenue Reserve and Special Distributable Reserve that is
distributable is not necessarily the full amount of the reserves as disclosed
within these financial statements. As at 30 June 2023, the net amount of
reserves that are distributable are $44,635,000 (2022: $74,706,000).
Signed by:
Statement of Cash Flows
for the year ended 30 June 2023
Year end 30 June ed 2023 Year ended 30 June 2022
$000 $000 $000 $000
Cash flows from operating activities
Profit/(loss) before tax 3,845 (988)
Adjustments for:
Gains on investments (4,821) (30)
Cash flows from operating activities
Purchases of investments(1) (140,570) (202,678)
Sales of investments(1) 178,372 204,122
Increase in receivables(2) (7) 81
Increase/(decrease) in payables 148 (2,918)
Foreign withholding taxes on dividends (59) (49)
Net cash flows from operating activities 36,908
(2,460)
Cash flows from financing activities
Shares bought back for cash (32,245) -
Dividends paid (822) (4,914)
Interest paid (26) (1)
Net cash flows from financing activities (33,093)
(4,915)
Net increase/(decrease) in cash and cash equivalents 3,815
(7,375)
Cash and cash equivalents at the start of the period 5,520 12,405
Effect of foreign exchange rates 114 490
Cash and cash equivalents at the end of the period 9,449(3) 5,520
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 2022 increase/(decrease) in receivables line has been adjusted to be
consistent with the classifications applied in 2023.
3 As at 30 June 2023, $3,942,151 (2022: $5,843,979) was held as collateral
at UBS Securities LLC for Contracts for Difference, and was restricted.
Gabelli Merger Plus+ Trust Plc is registered in England and Wales under
Company number 10747219.
The financial statements on pages 45 to 48 were approved by the Board of
Directors on 19 October 2023 and signed on its behalf by
John
Birch
Marc Gabelli
Co-Chairman
Co-Chairman 19 October 2023
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.
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.
For the accounting period ended 30 June 2022, the Company met the requirements
to be an investment trust under sections 1158 and 1159 of the Corporation Tax
Act of 2010. However, as a result of the Tranche One Tender Offer completed in
the third quarter of 2022, the Company subsequently became a close company due
to becoming controlled by a single participator, Associated Capital Group,
Inc.
Although no longer a trust, the Company has elected to continue to prepare the
financial statements on a basis compliant with the recommendations of the
SORP. The SORP is issued by the AIC and it sets out recommendations, intended
to represent current best practice, on the form and contents of the financial
statements of Investment Companies. Investment Companies include investment
trust companies that have been, currently are, or are directing its affairs so
as to enable it to obtain or retain approval under Section 1158 of the
Corporation Tax Act 2010. Although the Company no longer meets the
requirements of Section 1158 of the Corporation Tax Act 2010 to be an
investment trust, it continues to conduct its affairs as an investment
company. Further, management of the Company also believes that consistency in
presentation will be beneficial to individuals reviewing the Company's
financial statements.
(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, have taken account of the continuing
market regulatory changes affecting investee companies, investment valuations
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 and financial risks. 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 as they fall due. For these
reasons, the Directors consider there is reasonable evidence to continue to
adopt the going concern basis in preparing the accounts as at 30 June 2023.
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 on pages 19 to 24 and the Chairman's
Statement on pages 3 and 4.
(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.
2 Accounting policies (continued)
(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. 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. Starting with the year ended 30
June 2023, transaction and finance charges related to contracts for difference
are charged to capital.
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 in 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.
GMP has historically been authorized as an Investment Trust under Sections
1158 and 1159 Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011 (S.I.2011/2999).
Following a share buy-back offer from 19 August 2022 to 22 September 2022, GMP
became a close company due to becoming controlled by a single participator,
Associated Capital Group Inc. This constituted a "serious" breach of the
Investment Trust rules.
Accordingly, GMP notified HMRC of this development in December 2022 and
requested confirmation that GMP's authorization as an Investment Trust should
be withdrawn from the commencement of the current accounting period (being 1
July 2022).
The primary benefit associated with the Investment Trust regime is that
capital gains income realized by a qualifying Investment Trust company is
exempt from UK Corporation Tax. Therefore, loss of Investment Trust status for
a UK company can have potentially significant consequences for its tax profile
moving forwards, as it would be subject to tax on any capital gains realized
thereafter at the main rate of UK Corporation Tax (currently 19%, but rising
to 25% with effect from 1 April 2023).
At the year ended 30 June 2023, after offset against income taxable on
receipt, there was a deferred tax asset ("DTA") of
$3,530,045 (2022: Unrecognised Potential DTA $2,354,232) in relation to
surplus tax reliefs.
After the loss of its Investment Trust Status it is now possible for GMP to
utilise this DTA in order to shelter capital gains from UK Corporation Tax. In
order for the DTA to remain available, GMP must maintain its investment
business moving forwards. GMP's activities are such that it will have an
investment business for UK tax purposes.
In particular, the Investment Trust rules require that "substantially all of
the business of the Investment Trust company consists of investing its funds
in shares, land or other assets with the aim of spreading investment risk and
giving members of the company the benefit of the results of the management of
its funds". This may be considered analogous to having an investment business.
Therefore, given (i) GMP previously received approval from HMRC that this
requirement was met, and (ii) the activity of the company is not intended to
change, GMP will continue having an investment business and will meet the
conditions to carry forward and use its excess management expenses in current
and future periods. As such GMP has now included the DTA in the financial
statements.
(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 2023
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Equities 55,219 903 - 56,122
Contingent value rights - 257 - 257
Derivatives - 135 - 135
Gross fair value 56,514
Derivatives - (326) - (326)
Net fair value 55,219 969 - 56,188
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
Analysis of changes in market value and book cost of portfolio investments in
year
Year ended 30 June 2023 Year ended 30 June 2022
$000 $000
Opening book cost 99,687 93,078
Opening investment holding losses (7,722) (1,461)
Opening market value 91,965 91,617
Additions at cost 139,266 202,731
Disposals proceeds received (179,749) (201,923)
Gains/(losses) on investments 4,707 (460)
Market value of investments 56,189 91,965
Closing book cost 63,218 99,687
Closing investment holding losses (7,029) (7,722)
Closing market value 56,189 91,965
The company received $179,749,000 (2022: $201,923,000) from investments sold
in the year. The book cost of these investments when they were purchased was
$175,735,000 (2022: $196,122,000). Further explanation of the disposal
proceeds received in the year can be found in the Net realised and unrealised
gains/(losses) on investments section on page 53.
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 2023, the quantitative inputs used to value the level 3
contingent value rights were the last sale price and the merger price for
each.
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 2023 Year ended 30 June 2022
$000 $000
Opening valuation 5 -
Assets acquired during the year - -
Assets disposed during the year (5) -
Total profit or loss included in net profit on investments in the Statement
of Comprehensive Income - 5
Closing valuation - 5
Net realised gains/(losses) and unrealised gains/(losses) on investments
Year ended 30 June 2023 Year ended 30 June 2022
$000 $000
Realised gains on investments 4,014 5,801
Movement in unrealised on investments 693 (6,261)
Net realised gains/(losses) and unrealised gains/(losses) on investments 4,707 (460)
4 Transactions costs
During the year commissions and other expenses were incurred in acquiring
within gains in the Statement of Comprehensive Income. The total costs were as
follows:
Year ended 30 June 2023 Year ended 30 June 2022
$000 $000
Purchases 54 68
Sales 34 33
Total 88 101
5 Income
Year ended 30 June 2023 Year ended 30 June 2022
$000 $000
Income from investments
Overseas equities 423 530
Income on short-term investments(1) 387 3
Other income 202 543
Total income 1,012 1,076
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 on page 57.
6 Expenses
Year ended Year ended 30 June
2023 30 June 2022
$000 $000
Revenue expenses
Portfolio Management Fee (654) (842)
Directors' Remuneration (157) (157)
Audit Fees - PwC(1) (145) (70)
Legal Fees(2) (122) (110)
Company Secretary Fees(2) (100) (94)
Administration Fees - State Street (55) (44)
Custodian/Depositary Fees - State Street (52) (42)
Former AIFM - Carne (51) (60)
Other (34) (17)
Printing (28) (4)
Registrar - Computershare (18) (33)
Regulatory Filing Fees - AIFMD (14) (13)
Directors' Expenses (11) (13)
Ongoing LSE and UKLA Fees (10) (15)
LSE RNS fees (10) (14)
Contracts for Difference - (429)
Dividend Expense on Securities Sold Short - (8)
Marketing expenses - (4)
Total revenue expenses (1,461) (1,969)
Capital expenses
Contracts for Difference(3) (317) -
Transaction costs on derivatives (92) (73)
Transaction Charges - State Street (92) (51)
Total capital expenses (501) (124)
1 Audit fees for the year ended 30 June 2023 include $34,808 related to the
prior fiscal year.
2 Legal Fees and Company Secretary Fees include approximately $39,000 and
$4,000 of tender offer related fees that will not recur.
3 Beginning with the year ended 30 June 2023 expenses related to Contracts for
Difference are treated as capital expenses. In prior years these expenses were
treated as revenue expenses.
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 previously appointed Carne Global Fund Managers (Ireland) Limited
("Carne") as its former 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. The Company appointed Gabelli Funds, LLC to
serve as AIFM effective 14 February 2023. Gabelli Funds, LLC does not earn a
fee for its role as AIFM; it earned $653,934 in portfolio management fees
during the year ended 30 June 2023 (2022: $841,642).
7 Equity dividends
Year ended Year ended 30 June
2023 30 June 2022
$000 $000
Dividends paid 822 4,914
During the year ended 30 June 2023 dividends paid per share totaled $0.12 (30
June 2022: $0.48 per share). More detailed information can also be found in
the Dividend History table on page 13.
8 Taxation on ordinary activities Deferred Tax Assets
At 30 June 2023 the Company has excess expenses of $7,284,611 carried forward.
This sum, which is net of the amount set against current period provides, had
arisen due to the cumulative deductible expenses having exceeded taxable
income over the life of the Company when it was authorized as an Investment
Trust for tax purposes. Now that it is no longer a trust and therefore subject
to capital gains tax, the Company believes it is more likely than not that it
will have sufficient taxable profits against which these expenses can be
offset. Therefore, a deferred tax asset of $1,821,153 has now been recognized.
Provided the Company continues to maintain its current investment profile, it
is likely that this deferred tax asset will be utilised to offset future
taxable income subject to the normal corporate tax loss restriction rules for
carried forward losses which restrict their use for any particular period to
£5 million plus 50% of profits in excess of that initial £5 million. The
Company has also recognised a deferred tax asset of $1,709,699 on the
unrealised losses on the value of its equity investments. At 30 June 2023
total deferred tax assets recognised was $3,530,045, or $0.52 per Ordinary
Share.
Year ended 30 June 2023
Analysis of the charge in the year
Revenue Capital Total
$000 $000 $000
Deferred tax asset 3,530 - 3,530
Current tax expense Irrecoverable overseas tax - (59) - - (59)
-
Total 3,471 - 3,471
Year ended 30 June 2022
Analysis of the charge in the year
Revenue Capital Total
$000 $000 $000
Irrecoverable overseas tax (49) - (49)
Total (49) - (49)
8 Taxation on ordinary activities (continued)
Year ended 30 June 2023
Factors affecting the tax charge for the year
Revenue
Capital Total
$000
$000 $000
(Loss)/profit before taxation (475)
4,320 3,845
UK Corporation tax at effective rate of 20.5% 97
(886) (789)
Effects of:
Non taxable overseas dividends
Losses on investments held at fair value through profit or loss Deferred tax
benefit -
- -
Current tax expense Irrecoverable overseas tax
-
Expenses not deductible for tax purposes Losses on foreign currencies - -
Movement in excess management expenses 3,530
- 3,530
-
- -
(59)
- (59)
-
- -
-
- -
-
- -
Total 3,471
- 3,471
Total tax charge for the year 3,568
(886) 2,682
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)
At the year end after offset against income taxable on receipt, there is a
deferred tax asset of $3,530,281 (2022: Unrecognised Potential DTA $2,354,232)
in relation to surplus tax reliefs.
Note: the difference between book and accounting value. Deferred tax assets
("DTA") can be used to offset certain taxes as applicable in the United
Kingdom. As such based on a continuing level of activity the Company's DTA are
expected to be utilised over the foreseeable future resulting in the company
not paying UK tax for this year.
9 Earnings per share
Earnings per ordinary share is calculated with reference to the following
amounts:
Year ended Year ended 30 June
2023 30 June 2022
Revenue return
Revenue return attributable to ordinary shareholders ($000) 2,996 (943)
Weighted average number of shares in issue during year 7,797,333 10,238,206
Total revenue return per ordinary share $0.39 ($0.09)
Capital return
Capital return attributable to ordinary shareholders ($000)
4,320 (94)
Weighted average number of shares in issue during year 7,797,333 10,238,206
Total capital return per ordinary share $0.55 ($0.01)
Total return per ordinary share $0.94 ($0.10)
As at 30 June 2023 As at 30 June 2022
Net asset value per share
Net assets attributable to shareholders ($000) 70,023 95,774
Number of shares in issue at year end 6,850,792 10,238,206
Net asset value per share $10.22 $9.35
The Company continues to report according to SORP standards as provided by the
AIC. As such, the net asset value per share is provided in accordance with
IFRS standards inclusive of the Deferred Tax Asset of $0.52 per share, or
$3.53 million, as a result of the Company having Close status and no longer
availing itself of Section Investment Trust status under Section 1158 of the
Corporation Tax Act 2010. Furthermore, net asset value cum-income, which
includes the Revenue Reserves, is for illustrative purposes.
10 Cash and cash equivalents
As at 30 June 2023 As at 30 June 2022
$000 $000
Cash 6,090 5,911
U.S. Treasuries 3,465 -
Total 9,555 5,911
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 2023 As at 30 June 2022
$000 $000
Allotted, called up and fully paid:
6,850,792 (2022: 10,238,206) Ordinary shares of $ 0.01 each - equity
68 102
Treasury shares:
3,483,374 (2022: 95,960) Ordinary shares of $ 0.01 each - equity
35 1
Total shares 103 103
In September 2022, concurrent with the Fifth Anniversary Tender Offer, the
Board of Directors of the Company were authorised to allot Ordinary Shares of
the Company up to an aggregate nominal value of $511,910.30, with such
authority to expire on the fifth anniversary of the date of the passing of the
resolution. In addition, at the November 2022 AGM, the Board of Directors was
authorised to allot relevant securities in the Company up to a maximum
aggregate nominal amount of $71,822 (being ten percent of the total number of
voting rights of the Company at the latest practicable date prior to the
publication of the Notice of AGM), with such authority to apply until the
conclusion of this year's AGM. The resolutions for the 2023 AGM include
authorisation to the Company to allot equity securities up to an aggregate
nominal value of $45,672, that can be utilised for acquisitions by the
company. These transactions may result in the acquisition of other operating
businesses to further expand and develop shareholder value in accordance with
the investment programme.
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) market
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.
(i) Market 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.
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.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and
liabilities at the year-end date was as follows:
As at 30 June 2023
Interest Local currency Foreign exchange US Dollar equivalent
rate 000 rate $000
%
Assets:
US dollar 1.52 9,469 1.00 9,469
Australian dollar 0.42 (53) 1.50 (35)
Canadian dollar 0.48 99 1.32 75
Danish krone 0.00 (1) 6.82 -
Euro currency 0.60 (5) 0.92 (6)
GBP Sterling 0.51 (44) 0.79 (56)
Hong Kong dollar 0.00 1 7.84 *
New Zealand dollar 0.15 3 1.63 2
Total 9,449
* Less than $500.
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.
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 (2022: 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 2023 would increase/decrease by $9,000 (2022:
$6,000). 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 overseas
income.
12 Financial risk management (continued)
Currency risk exposure by currency of denomination:
As at 30 June 2023
Net Investments Net monetary Total currency
$000 assets exposure
$000 $000
Australian dollar 226 465 691
Canadian dollar 1,645 (1,664) (19)
Danish krone - (7) (7)
Euro currency - (30) (30)
GBP Sterling 371 1,208 1,579
Hong Kong dollar - (1) (1)
Japanese yen - (1) (1)
New Zealand dollar - 2 2
Norwegian krone - (10) (10)
Polish zloty - 1 1
Swedish krona - (7) (7)
Swiss franc - 6 6
Total non US Investments 2,242 (38) 2,204
US dollar 57,602 10,217 67,819
Total 59,844 10,179 70,023
As at 30 June 2022
Net Investments Net monetary Total currency
$000 assets exposure
$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 2,442 - 2,442
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
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 monetary items and adjusts their
translation at the year end for a 10% change in foreign currency rates.
As at As at
30 June 2023 30 June 2022
$000 $000
Australian dollar 69 (6)
Canadian dollar (2) 8
Danish krone (1) -
Euro currency (3) 5
GBP Sterling 158 13
Norwegian krone (1) -
South African rand - (1)
Swedish krona (1) 11
Swiss franc 1 244
The relevant US dollar exchange rates as at 30 June 2023 were: Australian
dollar (1: 1.5023); Canadian dollar (1: 1.3233); Danish krone (1: 0.9166);
Euro currency
(1: 6.8249); GBP Sterling (1: 0.7866); Norwegian krone (1: 10.7136); Swedish
krona (1: 10.8013); Swiss franc (1: 0.8947).
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 2023 would have increased/decreased by
$8,428,000. The calculations are based on the portfolio valuations as at the
year-end date, and are not representative of the year as a whole.
(ii) 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.
(iii) 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 191 (4,053) (3,862)
Total 191 (4,053) (3,862)
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.
12 Financial risk management (continued)
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 2023 was $14,958,000 (2022:
$6,400,000). 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 companies. 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 30 June 2023 As at 30 June 2022
$000 $000
Called-up share capital 103 103
Special distributable reserve(1) (45,995) 79,062
Capital reserve 25,602 20,965
Revenue reserve* (1,677) (4,356)
Total shareholders' funds 70,023 95,774
1 The Revenue Reserve and Special Distributable Reserve are distributable. The
amount of the Revenue Reserve and Special Distributable Reserve that is
distributable is not necessarily the full amount of the reserves as disclosed
within these financial statements. As at 30 June 2023, the net amount of
reserves that are distributable are $45,995,000 (2022: $74,706,000).
Alternative Investment Fund Managers' ('AIFM') Directive
In accordance with the Alternative Investment Fund Managers' Directive
("AIFMD"), the Company has appointed Gabelli Funds, LLC as its Alternative
Investment Fund Manager (the "AIFM"), effective 14 February 2023, 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. For further details please see the Glossary on page 69.
The Company's maximum leverage levels at 30 June 2023 are shown below:
Gross method Commitment
Leverage Exposure method
Maximum permitted limit 500% 250%
Actual 115% 131%
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 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 utilising 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 2023 the Company held CFDs, as shown in the following table.
As at
30 June 2023
Unrealised
Security name Trade currency Shares (000) Nominal ($000) gain/(loss)
$000
ADVA Optical Networking SE USD 1 30 1
Allfunds Group plc EUR 4 30 (4)
Alliance Aviation Service AUD 60 111 7
Arlington Asset Investment Corp USD 34 151 7
Black Knight Inc USD 3 188 10
Broadcom Inc USD (1) (1,054) (20)
Brookfield Infrastructure Partners USD (2) (117) 4
Chevron Corp USD (3) (436) 1
Chr. Hansen A/S DKK 6 406 (28)
Curtis Banks Group plc GBP 16 64 **
Dechra Pharmaceuticals plc GBP 34 1,546 15
Disruptive Capital GP GBP 1 8 (8)
Egetis Therapeutics AB SEK 68 34 (7)
Ellington Financial Inc USD (13) (172) (3)
Emis Group plc GBP 20 336 1
Entain plc GBP 25 387 18
Essential Metals Ltd AUD 248 74 (4)
Extra Space Storage Inc USD (2) (286) (6)
Fox Corp USD (3) (115) (2)
13 Derivatives risk (continued) As at
30 June 2023
Unrealised
Security name Trade currency Shares (000) Nominal ($000) gain/(loss)
$000
Genkyotex SA EUR 7 ** **
Globus Medical Inc USD (15) (850) (48)
Grifols SA USD (12) (149) (11)
Heico Corp USD (2) (369) (27)
Intercontinental Exchange Inc USD * (41) (2)
Iveco Group NV EUR 3 27 2
John Wood Group plc GBP 23 38 1
Lennar Corp USD (9) (1,000) (80)
Link Admin AUD 20 27 (3)
Livent Corp USD (7) (204) **
Lookers plc GBP 274 409 3
Magellan Midstream Partners USD 6 338 17
Majorel Group Luxembourg SA EUR 26 808 (4)
Maxlinear Inc USD (1) (34) (1)
Meltwater Holding NV NOK 113 201 (10)
Network International Holdings plc GBP 254 1,227 1
Newcrest Mining Ltd USD 37 666 (9)
Newmont Corp USD (13) (551) **
Novozymes A/S DKK (8) (413) 25
Numis Corporation plc GBP 35 147 **
ONEOK Inc USD (4) (229) (5)
Orange Belgium SA EUR 5 81 (3)
Ordina NV EUR 34 210 1
Origin Energy Ltd AUD 248 1,416 (2)
PDC Energy Inc USD 5 324 (3)
PEXA Group Ltd AUD 3 24 1
Praemium Ltd AUD 121 49 6
Ramsay Health Care Ltd AUD 1 24 (1)
Randall & Quilter Investment Holdings Ltd GBP 32 18 3
Regency Centers Corp USD (5) (301) (6)
Rovio Entertainment Oyj EUR 108 1,065 (4)
Siltronic AG EUR 2 183 (19)
SimCorp A/S DKK 9 949 (3)
Softwareone Holding AG CHF 1 25 **
SOHO China Ltd HKD 437 66 (1)
Spear Investment Group EUR 39 9 **
Spire Healthcare plc GBP 29 78 1
STS Holding SA PLN 25 145 1
Telecom Italia EUR 285 76 4
Telenet Group Holding NV EUR 21 467 3
As at 30 June 2023 Unrealised gain/(loss)
$000
Security name Trade currency Shares (000) Nominal ($000)
Toshiba Corp JPY 28 914 (1)
Vivendi SE EUR 4 34 1
Total unrealised loss on derivatives (191)
* Fewer than 500 shares.
** Less than $500.
14 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.
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. The Performance Hurdle is equal to the Starting NAV per Share
increased by two times the rate of return on 13 week Treasury Bills published
by the US Department of the Treasury over the Performance Period, less the
Starting NAV per Share; multiplied by the weighted average of the number of
Shares in issue (excluding any Shares held in treasury) at the end of each day
during the Performance Period. For the year ended 30 June 2023, no Performance
fee was paid. As at 30 June 2023, no amount was outstanding to the Portfolio
Manager in respect of the performance fee, reflecting the performance period
matching the Company's financial year (2022: $nil).
15 Other Assets and Liabilities
The categories of other receivables and other payables include:
As at 30 June As at 30 June
2023 2022
$000 $000
Other receivables
FX currency purchased 3 -
FX currency sold - 12
All other receivables* 70 54
Total other receivables 73 66
Other payables
FX currency sold 6 -
Custodian fees 15 7
Accounting fees 26 17
Audit fees 86 70
All other payables 216 118
Total other payables 349 212
* As at 30 June 2023, all other receivables included prepaid expenses and
dividend and swap income.
16 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, was considered a related party
to the Company as it was considered to have significant influence over the
Company while in its role as AIFM. During the financial year ended 30 June
2023, Carne earned fees of US$39,926, of which US$12,708 was payable at year
end. Carne Global Financial Services Limited, the parent Company of the AIFM,
earned fees amounting to US$12,173 during the financial year ended 30 June
2023 in respect of other fund governance services to the Company, of which
US$5,458 was payable at year end. The related party transactions with the
Directors are set out on pages 36 and 37 and on page 22.
Related parties disclosure: other
The Portfolio management fee for the period ended 30 June 2023 paid by the
Company to the Portfolio Manager is presented in the Statement of
Comprehensive Income. Details of the Portfolio Management fee paid during the
period is disclosed in Note 6. Details of Performance fee paid during the year
are disclosed in Note 14.
As at 30 June 2023, Associated Capital Group Inc., an affiliate of the AIFM
and Portfolio Manager, held 6,210,619 Ordinary Shares in the Company.
Associated Capital Group Inc. also agreed to subscribe for Special Voting
Loyalty Shares, which will increase its voting interest when issued, with
issuance pending.
Investors should note that as a close company with Associated Capital Group
Inc. controlling greater than 90% of shares and greater than 90% of voting
shares Associated Capital Group Inc. may be able to ensure the passage of
shareholder resolutions.
Further details of related parties and transactions, including with the
Company's AIFM Gabelli Funds, LLC, are disclosed in the Directors' Report on
page 22.
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 2023.
17 Contingent Liabilities and Commitments
As at 30 June 2023, the Company had no contingent liabilities or commitments
(30 June 2022: nil).
18 Historical Share and NAV information
30 June 2023 30 June 2022 30 June 2021
Total Shares(1) 6,850,792 10,238,206 10,238,206
Total NAV ($000) 70,023 95,774 101,725
NAV per share $10.22 $9.35 $9.94
1 Data excludes 3,484,374 shares held in treasury as of 30 June 2023.
* Mr Gabelli has waived his fees since appointment as Chairman.
19 Significant events
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 2023, 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.
The Company appointed Gabelli Funds, LLC to serve as AIFM effective 14
February 2023.
20 Post balance sheet events
The Company paid the first interim dividend for the fiscal year ended 30 June
2023 on 8 September 2023. On 5 October 2023 the Company named John Birch as
non-executive Co-Chairman.
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 2023, 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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR FFSFIUEDSEFS
Recent news on Gabelli Merchant Partners
See all newsGabelli Merchant. Gabelli Merch - GMPP - Annual Financial Report
Gabelli Merchant. Gabelli Merch - GMPP - Half-year Financial Report
Gabelli Merchant. Gabelli Merch - GMPP - Annual Financial Report
Gabelli Merger Plus+ Gabelli Merger -GMPP - Half-year Report
Gabelli Merger Plus+ Gabelli Merger -GMPP - Annual Financial Report & Notice of AGM