REG - Sherborne Inv. C Ld - Final Results
29/04/2022 07:00
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RNS Number : 7869J Sherborne Investors (Guernsey)C Ltd 29 April 2022
SHERBORNE INVESTORS (GUERNSEY) C LIMITED
Annual Report and Audited Consolidated Financial Statements
Company Summary
The Company Sherborne Investors (Guernsey) C Limited (the "Company") is a Guernsey
domiciled limited company and its shares are admitted to trading on the London
Stock Exchange Specialist Fund Segment ("SFS"). The Company was incorporated
on 25 May 2017. The Company commenced dealings on the SFS on 12 July 2017.
Investment Objective To realise capital growth from investment in a target company identified by
the Investment Manager, with the aim of generating a significant capital
return for Shareholders.
Investment Policy To invest, through its investment in SIGC, LP (Incorporated) (the "Investment
Partnership"), in a company which is publicly quoted, which it considers to be
undervalued as a result of operational deficiencies and which it believes can
be rectified by the Investment Manager's active involvement, thereby
increasing the value of the investment. The Company will only invest in one
target company at a time.
Investment Manager Sherborne Investors (Guernsey) GP, LLC (the "General Partner") and the
Investment Partnership have appointed Sherborne Investors Management
(Guernsey) LLC (the "Investment Manager") to provide investment management
services to the Investment Partnership.
For the year ended 31 December 2021
Chairman's Statement
I am pleased to present the Annual Report and Audited Consolidated Financial
Statements of the Company for the year from 1 January 2021 to 31 December
2021.
At 31 December 2021, the net asset value ("NAV") attributable to shareholders
of the Company was £580.5 million (2020: £421.6 million) or 82.93 pence per
share (2020: 60.21 pence per share) (see Note 8). As at 31 March 2022 the
estimated (unaudited) NAV, as reported, was 71.3 pence per share.
In May 2021, SIGC, LP (Incorporated) and other third-party investors in funds
(the "Funds") managed by affiliates of Sherborne Investors Management
(Guernsey) LLC (the "Investment Manager") disposed of the Funds' entire 6.0%
shareholding in Barclays PLC. In accordance with the Company's prospectus, the
Board of the Company approved a New Selected Target Company, which was
identified in December 2021 as Navient Corporation ("Navient").
The Investment Manager advised the Board that it believed that the risk of and
rewards from an investment in Navient offered a better return to the Company's
shareholders than a continuing investment in Barclays. The Investment Manager
has advised the Board that it believes Navient represents an attractive active
turnaround investment opportunity and that an operating turnaround of Navient
will increase shareholder value in line with the Investment Manager's
customary return objectives.
SIGC, LP (Incorporated) co‐invests in Navient with other investors through
Newbury Investors LLC ("Newbury") which is managed by an affiliate of the
Investment Manager, Sherborne Investors Management LP ("Sherborne Investors").
As of the date of this letter, Newbury owns 19.9% of Navient's outstanding
shares, making it the largest shareholder in Navient.
On 14 April 2022, Navient and Sherborne Investors entered into an agreement
that, among other things, provides for Navient to nominate and recommend the
election of Mr. Edward Bramson, a partner in Sherborne Investors, to the board
of directors of Navient at Navient's annual general meeting of shareholders on
2 June 2022.
I am pleased to announce that after a review of the financial position of the
Company, the Board has determined that the Company will commence the payment
of a dividend. It is presently expected that the dividend will be 1.0 pence
per share on an annual basis, commencing with 0.5 pence per share being paid
following the half-year results and the balance with the full year results.
The Company is pursuing its investment strategy through its indirect
shareholding in Navient.
Details of Related Party Transactions are contained in the Notes to the
Consolidated Financial Statements.
We are grateful for your continued support and will keep you informed of the
status of our investment as it develops.
Board of Directors
Talmai Morgan (Chairman)
Appointed to the Board 25 May 2017
Mr Morgan has served as a non-executive director on the board of 14 publicly
listed investment companies (including 3 FTSE 250 companies) since 2005. He is
currently Chairman of Sherborne Investors (Guernsey) C Limited. From 1999 to
2004, Mr Morgan worked as a financial services regulator (Director of
Fiduciary Services and Enforcement at the Guernsey Financial Services
Commission) and was particularly involved in the activities of the Financial
Action Task Force and the Offshore Group of Banking Supervisors. Prior to
1999, Mr Morgan held positions at Barings and the Bank of Bermuda. He
qualified as a barrister in 1976 and holds an MA in Economics and Law from the
University of Cambridge.
Trevor Ash (Director)
Appointed to the Board 25 May 2017
Mr Ash has been a non-executive director of a number of investment entities
since 1999, including funds managed by Rothschild, Insight, Cazenove, Merrill
Lynch and Thames River Capital. He was formerly Chairman of JPEL Private
Equity Limited. Prior to 1999, Mr Ash spent 27 years with the Rothschild Group
in various capacities, most recently as Managing Director of Rothschild Asset
Management (CI) Limited and as a non-executive director of Rothschild Asset
Management Limited in London. Mr Ash is a fellow of the Chartered Institute
for Securities & Investment.
Christopher Legge (Audit Committee Chairman)
Appointed to the Board 25 May 2017
Mr Legge is a Chartered Accountant having started his career at Pannell Kerr
Forster (PKF), before moving to Ernst & Young in 1983, where he became a
partner in 1986 and managing partner Guernsey in 1998. Since leaving Ernst
& Young in 2003 he has taken on a number of non-executive directorships.
He is currently a non-executive director of Ashmore Global Opportunities
Limited, NB Distressed Debt Investment Fund Limited and Multi-Manager
Investment Programmes PLC Limited. Mr Legge is an FCA and holds a BA (Hons) in
Economics from the University of Manchester.
Ian Brindle (Director)
Appointed to the Board 25 May 2017
Mr Brindle was the Senior Partner of Price Waterhouse from 1991 to 1998 and
Chairman of PricewaterhouseCoopers until 2001. Mr Brindle was a member of the
Accounting Standards Board between 1992 and 2001 and Deputy Chairman of the
Financial Reporting Review Panel between 2001 and 2008. Mr Brindle has served
as a non-executive director on a number of Boards including Electra Private
Equity PLC, F&C Asset Management PLC, Spirent Communications PLC,
Elementis PLC and 4 Imprint Group PLC.
Directors' Report (including the Strategic Report)
The Directors present their annual report on the affairs of Sherborne
Investors (Guernsey) C Limited and its subsidiaries (together, the "Group"),
together with the audited consolidated financial statements, for the year
ended 31 December 2021.
Principal activities and investing policy
The Company is a Guernsey domiciled company incorporated on 25 May 2017 with
limited liability. The Company's shares were admitted to trading on the SFS on
12 July 2017.
The Company, via SIGC Midco Limited, is a limited partner in the Investment
Partnership, a limited partnership registered in Guernsey on 24 May 2017. The
Company aims to provide investors with capital growth through its investment
in the Investment Partnership, to which it has committed £700,000,000.
The Company's investment policy, which it will effect indirectly through its
investment in the Investment Partnership, is to invest in a company which is
publicly quoted, and which the Investment Manager considers to be undervalued
as a result of operational deficiencies and which it believes can be rectified
by the Investment Manager's active involvement, thereby increasing the value
of the investment (a ''Turnaround''). Accordingly, the investment will not be
passive. The Company's investment may be made on-market or off-market.
The Company may invest, through the Investment Partnership, in a company
operating in any economic sector but will only be invested in one company at a
time. Thus, it will not seek to reduce risk through diversification. The
choice of target company will be subject to a vote in the affirmative of a
majority in interest of the limited partners of the Investment Partnership, in
effect giving the Board a veto on such decision since the Company owns, and is
currently expected to continue to own, more than 50% of the interests in the
Investment Partnership.
The investment in a target company is intended to be in shares, but could also
be in warrants, convertibles, derivatives and any other equity, debt or other
securities.
Depending on the size of the investment, all or part of the Company's assets
will be invested in the Selected Target Company ("STC"), through the
Investment Partnership, less the minimum capital requirements. The investment
objective and investment policy of the Investment Partnership are the same as
those of the Company. In selecting the STC, the Investment Manager will
consider the relevant ESG aspects of the STC and will seek to positively
influence the relevant policies and performance of the STC through its active
involvement in seeking to effect a turnaround.
The holding period for investments is neither fixed nor predictable, but the
Company expects that a typical holding period would be greater than one year.
The average holding period of the four completed UK Turnarounds in companies
with which the Investment Manager's key personnel have been involved is 28
months; however, this should not be taken as being indicative of the holding
period to be adopted in effecting the Company's investment policy.
The Investment Partnership may engage in hedging transactions to protect the
market value of its investment in any company in which it is invested and may
also engage in stock lending.
The Company and the Investment Partnership do not currently intend to
undertake borrowings but are permitted to do so. Any borrowings undertaken by
the Company and the Investment Partnership will not, in aggregate, be greater
than 30% of the Company's Gross Assets as measured at the time that such
borrowings are incurred.
In the event that the Board considers it appropriate to amend materially the
investment objective or policy of the Company, Shareholder approval to any
such amendment will be sought. For further details on the current investment
refer to the Chairman's Statement.
Risk Management
The Directors are responsible for supervising the overall management of the
Company, whilst the day-to-day management of the Company's assets has been
delegated to the Investment Manager. Portfolio exposure has been limited by
the guidelines which are detailed within the Principal activities and
investment policy section of the annual report above. In its role as a
third-party fund administration services provider, Apex Fund and Corporate
Services (Guernsey) Limited produced an annual PERE SSAE 18 and ISAE 3402 Type
2 Assurance Report on the internal control procedures in place for the year
ended 30 September 2021 and this is subject to review by the Audit Committee
and the Board.
The principal risks facing the Group and Company relate to the Company's
investment activities and these risks include the following:
· performance risk;
· market risk;
· relationship risk; and
· operational risk.
An explanation of these principal risks and how they are managed is set out
below.
The Board can confirm that the principal risks of the Company, including those
which would threaten its business model, future performance, solvency or
liquidity, have been robustly assessed for the year ended 31 December 2021.
· Performance risk - The Board is responsible for approving the
Investment Manager's recommended investment in a STC and monitoring the
performance of the Investment Manager. An inappropriate strategy or poor
execution of strategy may lead to underperformance. To manage that risk the
Investment Manager will typically have several potential target companies
under review at any one time in various stages of analysis. The Investment
Manager's recommendation of a STC includes an assessment of the capital
appreciation potential of the proposed investment, assuming certain operating
improvements and capital realignment are successfully implemented. The Company
intends that its holding in the STC will be less than 30% of the outstanding
shares if the STC is a UK company, so that it is not required to make a bid
for the entire company. Accordingly, the Company will not control the STC. The
Investment Manager's involvement in the Turnaround of the STC requires the
support of other independent shareholders. The Board receives and reviews
regular reports of the Investment Partnership's ownership interest in the STC
and other information that impacts its Turnaround strategy.
· Market risk - Market risk arises from uncertainty about the future
operating performance and market response to the Company's investment in the
STC. The Company's investment approach is to invest in only one company at a
time. Such investment concentration may subject the Company to greater market
fluctuation and loss than might result from a diversified investment
portfolio. The market's valuation of the STC is also subject to fluctuations
in overall market prices as well as fluctuations in the industry sectors in
which the STC operates. The Investment Manager does not typically hedge
against overall market or sector fluctuations. The Company also may use a
limited amount of short-term leverage to acquire a portion of its ownership
interest in the STC which will amplify the results of the STC. In addition to
interest and dividend income received from the STC, the source of debt
repayment could come from the proceeds realised from the sale of a portion of
the STC. The Group's market risk is managed by the Investment Manager in
accordance with policies and procedures in place as disclosed in the Group's
prospectus.
· Relationship risk - Neither the Company nor the Investment
Partnership has a physical presence (employees and/or premises). The Company
and Investment Partnership are heavily dependent on the Investment Manager for
the selection of an appropriate STC and for the day-to-day management and
operation of the STC's business and the execution of its Turnaround.
· Operational risk - Operational risk is reviewed by the Board at
each Board meeting. The Board also monitors the Group's investment performance
and activities since the last Board meeting to ensure that the Investment
Manager adheres to the agreed investment policy and approved investment
guidelines. Further, at each Board meeting, the Board receives reports from
the Company Secretary and Administrator in respect of compliance matters and
duties performed by it on behalf of the Company.
The full impact of the UK's withdrawal from the EU on 31 January 2021 and the
commencement of practical implementation of the Brexit conditions as of 1
January 2021 continue to unroll and its full impact may only be realised in
years to come, as the economy adjusts to the new regime. A focus of the Board
in 2021 was the continued oversight of the Company's ability to respond to the
political and economic uncertainty following the UK's decision to leave the
EU.
The global economy continues to react to the worldwide COVID-19 pandemic
leading to significant volatility in capital markets, and an increased focus
on market risk. The emergence of variants has resulted in reinstatement of
global measures to contain outbreaks and have caused market volatility on a
global scale. The situation is constantly evolving as governments, regulators
and businesses continue to combat the impact of the pandemic. As an investment
company, for day to day operations the Company is ultimately dependent on the
Investment Manager, Administrator and Company Secretary all of whom have
robust business continuity plans in place to ensure that they can continue to
service the Company
The Board have considered recent political events in Ukraine and while any
specific impact to the Company is difficult to quantify the Board does not
currently expect there to be a direct impact to the Company and its
investment.
Other risks faced by the Company are described in detail within the Company's
Offering Document and can be obtained at www.sherborneinvestorsguernseyc.com
(http://www.sherborneinvestorsguernseyc.com) .
The Board have considered the Company's solvency and liquidity risk and
disclosure of this is made in the Consolidated Financial Statements and in the
Viability Statement below.
Viability Statement
In accordance with provision 31 Principle O of the UK Corporate Governance
Code 2018, the Directors have assessed the viability of the Group and Company
over the year ending 31 December 2021. The Directors have determined that the
three year period to 31 December 2024 is the maximum period over which to
provide its viability statement in order to keep in line with its investment
strategy. The holding period for the investment in the STC is neither fixed
nor predictable, but the Company expects that a holding period of 3-4 years
would be sufficient to execute the Investment Manager's turnaround strategy.
The Directors have identified the following factors as potential contributors
to ongoing viability:
· The principal risks documented in the Directors' Report as set out
above;
· The liquidity of the Group's portfolio; and
· The ongoing relevance of the Group's investment objective in the
current environment.
At 31 March 2022 the Group had an estimated (unaudited) NAV of £499.4
million. The Company, via the Funds, has sufficient liquid assets to meet
expected costs. Should additional liquidity be required at the Fund level
shares could be sold and the investment manager of the Funds has the full
intent and ability to provide the Group (via the Investment Partnership) with
funds as and if required.
Based on the foregoing, the Directors have a reasonable expectation that the
Group and Company will be able to continue in operation and meet its
obligations as and when they fall due over the three year period to 31
December 2024.
Subsequent events
Details of events that have occurred after the date of the Consolidated
Statement of Financial Position are provided in the Consolidated Financial
Statements.
Dividend policy
The Company's dividend policy, subject to the discretion of the Directors who
reserve the right to retain amounts for minimum capital requirements, is to
pay dividends to Shareholders following receipt of any distributions from the
Investment Partnership, subject always to compliance with the solvency test
prescribed by the Companies (Guernsey) Law, 2008, as amended (the "Companies
Law").
This will be dependent on the frequency with which the STC pays dividends to
its shareholders (of which the Investment Partnership is an indirect holder)
as well as the extent such dividends are first required to be used to repay
outstanding indebtedness and meet the minimum working capital requirements.
Dividend
No dividends were declared or paid during the year (2020: Nil).
Business review
A review of the Company's business during the year and an indication of likely
future developments are contained in the Chairman's Statement.
Capital
Details of the Company's capital are provided in the Consolidated Financial
Statements. All shares carry equal voting rights.
Substantial interests
As at 31 March 2022, the Company has been notified of the following material
shareholdings:
Shareholder Number of Ordinary % of issued share capital
Shares
Invesco Limited 139,467,736 19.9%
Columbia Threadneedle 129,298,511 18.5%
Aviva plc 99,824,647 14.3%
Janus Henderson Group plc 73,267,400 10.5%
Sherborne Investors Management LP(1) 70,150,000 10.0%
Fidelity International Limited 70,000,000 10.0%
(1) Shares are owned by Newbury Investors LLC, an indirect subsidiary to
Whistle Investors III LLC. Refer to the consolidated financial statements for
additional detail.
The Directors currently hold no shares in the Company (unchanged from prior
year).
Independent Auditor
A resolution to re-appoint the Auditors to the Company will be proposed at the
Annual General Meeting of the Company on 26 May 2022. Deloitte LLP have
indicated their willingness to continue as Auditors.
Directors' Remuneration Report
Remuneration Policy & Components
The Board endeavours to ensure the Remuneration Policy reflects and supports
the Company's strategic aims and objectives throughout the period under
review. It has been agreed that, due to the small size and structure of the
Company, a separate Remuneration Committee would be inefficient; therefore,
the Board is responsible for discussions regarding remuneration. No external
remuneration consultants were appointed during the period under review.
The remuneration for the Directors has not changed since incorporation and, as
such, there is no annual percentage change.
As per the Company's Articles of Incorporation ("Articles"), all Directors are
entitled to such remuneration as is stated in the Company's Prospectus or as
the Company may by ordinary resolution determine; the aggregate overall limit
is currently set at £250,000. Subject to this limit, it is the Company's
policy to determine the level of Directors' fees, having regard for the level
of fees payable to non-executive Directors in the industry generally, the role
that individual Directors fulfil in respect of responsibilities related to the
Board and Audit Committee and the time dedicated by each Director to the
Company's affairs. Base fees are set out below.
Base Fees and Fees Received 2021 Actual £ Base fee £
Chairman (Talmai Morgan) 50,000 50,000
Audit Committee Chairman (Christopher Legge) 40,000 40,000
Non-Executive Director (Trevor Ash) 35,000 35,000
Non-Executive Director (Ian Brindle) 35,000 35,000
Total 160,000 160,000
As outlined in the Articles, the Directors may also be paid for all reasonable
travelling, hotel and other out-of-pocket expenses properly incurred in the
attendance of Board or Committee meetings, General meetings, or meetings with
shareholders of the Company or otherwise in the discharge of their duties; and
all reasonable expenses properly incurred by them seeking independent
professional advice on any matter that concerns them in the furtherance of
their duties as Directors of the Company, such expenses having been immaterial
during 2021.
No Director has any entitlement to pensions, paid bonuses or performance fees,
been granted share options or has been invited to participate in long-term
incentive plans. No loans have been extended to a Director by the Company and
neither have any loans to a Director been guaranteed by the Company.
None of the Directors have a service contract with the Company. Each of the
Directors has entered into a letter of appointment with the Company, were
subject to election at the first Annual General Meeting ("AGM"), or as
determined in line with the Company's Articles, and re-election at subsequent
AGMs in accordance with the Company's Articles and all due regulations and
provisions. The Directors do not have any interests in contractual
arrangements with the Company or its investment during the year under review,
or subsequently. Each appointment can be terminated in accordance with the
Company's Articles and without compensation. No notice period is stated in the
Articles and is terminable at will of both parties.
Directors' and Officers' liability insurance cover is maintained by the
Company but is not considered a benefit in kind nor does it constitute part of
the Directors' Remuneration. The Company's Articles indemnify each Director,
Secretary, agent and officer of the Company, former or present, out of assets
of the Company in relation to charges, losses, liabilities, damages and
expenses incurred during the course of their duties, in so far as the law
allows and provided that such indemnity is not available in circumstances of
fraud, wilful misconduct or negligence.
Corporate Governance Report
As an unregulated Guernsey incorporated company quoted on the SFS, the Company
is not required to comply with the UK Corporate Governance Code or the GFSC
Finance Sector Code of Corporate Governance. The Directors, however, place
great importance on ensuring that high standards of corporate governance are
maintained. Accordingly, the Directors will take appropriate measures to
ensure that the Company operates with due consideration to any codes of
corporate governance that the Board deems appropriate and may choose to
operate in accordance with the UK Corporate Governance Code and/or the GFSC
Finance Sector Code of Corporate Governance, in each case having regard to the
Company's size and nature of business. The Board perceives that good corporate
governance practice is necessary for delivering sustainable value, enhancing
business integrity and maintaining shareholder confidence in the Company. To
further these aims, the Board has decided to voluntarily comply with the UK
Corporate Governance Code dated July 2018 (the "Code"), which sets out
guidance in the form of principles and provisions for companies to follow good
corporate governance practice. Further information on the Code can be obtained
from www.frc.org.uk (http://www.frc.org.uk) .
Except as disclosed within the report, the Board is of the view that
throughout the year ended 31 December 2021, the Company complied with the
recommendations of the Code and the provisions of the Code. Key issues
affecting the Company's corporate governance responsibilities, how they are
addressed by the Board and application of the Code are presented below.
Board Leadership and Company Purpose
The Board is composed entirely of non-executive Directors, who meet as
required without the presence of the Investment Manager and service providers
to scrutinise the achievement of agreed goals and objectives and monitor
performance. Through the Audit Committee, they are able to ascertain the
integrity of financial information and confirm that all financial controls and
risk management systems are robust. In addition, a non-executive Director may
provide a written statement outlining any concerns to the Chairman upon
resignation. See the statements on Board and Committee responsibilities for
further information.
Information and Support
Information Provided to the Board
Reports and papers, containing relevant, concise and clear information, are
provided to the Board and Committees in a timely manner to enable review and
consideration prior to both scheduled and ad-hoc specific meetings. This
ensures that Directors are capable of contributing to, and validating, the
development of Company strategy and management. The regular reports also
provide information that enables scrutiny of the Company's Investment Manager
and other service providers' performance. When required, the Board has sought
further clarification of matters with the Investment Manager and other service
providers, both in terms of further reports and via in-depth discussions, in
order to make a more informed decision for the Company. Should Directors
raise concerns in relation to the operation of the Board or the management of
the Company, these concerns are recorded in the Board minutes.
The Directors place a great deal of importance on communication with
shareholders. The Investment Manager and Numis Securities Limited (the
"Broker") aim to meet with large shareholders at least annually. The Board
also receives reports from the Broker on shareholder issues. The Annual Report
and Audited Consolidated Financial Statements are widely distributed to other
parties who have an interest in the Company's performance and are available on
the Company's website. The Chairman also meets with major shareholders
independently of the Investment Manager from time to time. Due to Covid-19
restrictions, virtual alternatives have been employed for such communication.
All Directors are available for discussions with the shareholders, in
particular the Chairman and the Audit Committee Chairman, at the AGM and as
and when required.
Division of Responsibilities
The Chairman
Appointed to the position of Chairman of the Board on 25 May 2017, Mr Morgan
is responsible for leading the Board in all areas, including determination of
strategy, organising the Board's business and ensuring the effectiveness of
the Board and individual Directors. He also endeavours to produce an open
culture of debate within the Board. Mr Morgan is a non-executive Independent
Director.
There are no executive Directors appointed to the Board and therefore no Chief
Executive. The non-executive Directors are all independent and their
responsibilities are clearly defined within the Schedule of Matters reserved
to the Board. All day to day functions are outsourced to external service
providers.
The Board believes that its balance of skills, experience and knowledge,
provides for a sound base from which the interest of investors will be served
to a high standard. Due to the size and structure of the Company, the
appointment of a senior independent director is not deemed appropriate.
Board and Committee Meeting Attendance
The Board met five times and the Audit Committee met three times during the
year. Individual attendance at Board and Audit Committee meetings is set out
below.
Board Audit Committee
Talmai Morgan 5 N/A
Trevor Ash 5 3
Christopher Legge 5 3
Ian Brindle 5 3
Total Meetings for Year 5 3
The Board ensures that the Company's contracts of engagement with the
Investment Manager, Administrator and other service providers are operating
satisfactorily so as to ensure the safe and accurate management and
administration of the Company's affairs and business and that they are
competitive and reasonable for Shareholders. Terms of Reference that contain a
formal schedule of matters reserved for the Board of Directors and its duly
authorised Committee for decision has been approved and can be reviewed at the
Company's registered office.
Management of the Investment Partnership is the responsibility of the General
Partner, which has delegated investment decisions and day-to-day management of
the Investment Partnership to the Investment Manager under the terms of an
Investment Management Agreement. Through its majority interest in the
Investment Partnership, the Company and therefore the Board, has the ability
to approve proposed investments and to remove the General Partner. The
performance of the Investment Manager is subject to regular review by the
Board.
Other matters for the Board include review of the Company's overall strategy
and business plans; approval of the Company's half-yearly and annual financial
statements; review and approval of any alteration to the Group's accounting
policies or practices and valuation of investments; approval of any alteration
to the Company's capital structure; approval of dividend policy; appointments
to the Board and constitution of Board Committees; and performance review of
key service providers.
The Company holds appropriate Directors' and Officers' Liability Insurance
cover in respect of any legal action taken against the Board.
Commitment
Chairman's Commitment
Prior to the Chairman's appointment, discussions were undertaken to ensure the
Chairman was sufficiently aware of the time needed for his role and agreed to
upon signature of his appointment letter. Other significant commitments of the
Chairman were disclosed prior to appointment to the Board, and any changes
declared as and when they arise. These commitments, and their subsequent
impact, can be identified in his biography.
Non-executive Directors' Commitments
The terms and conditions of appointment for non-executive Directors are
outlined in their letters of appointment and are available for inspection by
any person at the Company's registered office during normal business hours and
at the AGM for fifteen minutes prior to and during the meeting, subject to
COVID-19 restrictions. As with the Chairman, significant appointments are
declared prior to appointment, any changes reported as and when appropriate.
Development
The Board believes that the Company's Directors should develop their skills
and knowledge through participation at relevant courses. The Chairman is
responsible for reviewing and discussing the training and development of each
Director according to identified needs. Upon appointment, all Directors
participate in discussions with the Chairman and other Directors to understand
the responsibilities of the Directors, in addition to the Company's business
and procedures.
The Company also provides regular opportunities for the Directors to obtain a
thorough understanding of the Company's business by regularly meeting members
of the senior management team from the Investment Manager and other service
providers, both in person and by phone.
Company Secretary
Under the direction of the Chairman, the Company Secretary facilitates the
flow of information between the Board, Committees, Investment Manager and
other service providers' through the development of comprehensive meeting
packs, agendas and other media.
Full access to the advice and services of the Company Secretary is available
to the Board; in turn, the Company Secretary is responsible for advising on
all governance matters through the Chairman. The Articles and schedule of
matters reserved for the Board indicate the appointment and resignation of the
Company Secretary is an item reserved for the full Board. A review of the
performance of the Company Secretary is undertaken by the Board on a regular
basis.
Composition, succession and evaluation
Board Appointments Process
Appointment Process
There is currently no Nomination Committee for the Company as it is deemed
that the size, composition and structure of the Company would mean the process
would be inefficient and counter-productive.
The Board has chosen not to adopt a definitive policy with quantitative
targets for board diversity. The Board believes that the current mix of
skills, experience, knowledge and age of the Directors is appropriate to the
requirements of the Company. In accordance with the Code, any Director who has
served on the Board for longer than nine years will be subject to rigorous
review to ensure the need for progressive refreshing of the Board is complied
with.
Each Director is required to be elected by shareholders at the first AGM
following his initial appointment to the Board. The Board recommends the
on-going annual re-election of each Director and supporting biographies,
including length of service, are disclosed in the biographies.
The Board consists of four non-executive members. For further information
relating to the Board, please refer to the biographies.
For the purposes of assessing compliance with the Code, the Board considers
the Directors are independent of the Investment Manager and free from any
business or other relationship that could materially interfere with the
exercise of their independent judgment.
Evaluation
Board and Director Evaluation
Using a pre-determined template based on the Code's provisions as a basis for
review, the Board undertakes an evaluation of its performance and that of the
Audit Committee. This was last completed in March 2021 with a positive
outcome. Additionally, an evaluation focusing on individual commitment,
performance and contribution of each Director is conducted. The Chairman will
meet with each Director to fully understand their views of the Company's
strengths and to identify potential weaknesses. If appropriate, new members
would be proposed to resolve the perceived issues, or a resignation sought.
Due to the size and structure of the Board the evaluation of the Chairman of
the Board and Audit Committee is dealt with within the Board and Audit
evaluations.
Given the Company's size and the structure of the Board, no external
facilitator or independent third party is used in the performance evaluation.
New Directors would receive an induction from the Investment Manager. All
Directors receive other relevant training as necessary.
Re-election and Board Tenure
The Board has considered the need for a policy regarding tenure of office;
however, the Board believes that any decisions regarding tenure should
consider the Company's investment objective and the average length of seeking
to achieve that, the need for continuity and maintenance of knowledge and
experience and to balance this against the need to periodically refresh Board
composition and have a balance of skills, experience, age and length of
service.
Statement on AGM 2021 Votes Against
On 26 May 2021, the board of the Company announced that all resolutions
proposed at the 2021 AGM were passed with the necessary majority. In
accordance with the requirement of provision 4 of the UK Corporate Governance
Code 2018, the Company is providing the following further update following the
significant minority votes against resolutions 3, 4, 5, and 6 for the
re-elections of Mr T Morgan (33.05%), Mr T Ash (32.19%), Mr C Legge (31.99%),
and Mr I Brindle (31.99%), respectively, at the AGM.
As previously noted, the Board has identified that the votes against these
resolutions relate principally to two shareholders. The Board and the
Investment Manager engaged with these shareholders, both prior to and after
the 2021 AGM, to understand their views. Following the announcement of the new
Selected Target Company in December 2021, the Investment Manager has engaged
with shareholders to discuss the merits of the investment, to which
shareholder feedback has been positive. The Company remains committed to
consultation with its shareholders and continues its policy of maintaining an
open dialogue.
Audit, Risk and Internal Control
The Board has established an Audit Committee composed of Christopher Legge,
Trevor Ash and Ian Brindle, each of whom are independent. Mr Legge is a
Chartered Accountant and is a previous partner of Ernst & Young, further
information is provided in his biography. The Chairman of the Board, is not a
member of the Audit Committee, in accordance with Provision 24 of the Code
which states that the Chair of the Board shall not be a member of the Audit
Committee. The Committee, its membership and its terms of reference, which
can be found on the Company's website, are kept under regular review by the
Board.
The Audit Committee meets at least twice a year and is responsible for
ensuring that the financial performance of the Company is properly reported on
and monitored, including reviews of the half-yearly and annual financial
statements, results announcements, internal control systems and procedures and
accounting policies.
The Audit Committee is intended to assist the Board in discharging its
responsibilities for the integrity of the Company's financial statements, as
well as aid the assessment of the Company's internal control effectiveness and
objectivity of external auditors. Further information on the Committee's
responsibilities is given in the Report of the Audit Committee. The work of
the Audit Committee is set out separately in the Report of the Audit
Committee.
The Board has reviewed the need for an internal audit function and has decided
that the systems and procedures employed by the Administrator and Investment
Manager, including their own internal controls and procedures, provide
sufficient assurance that a sound system of risk management and internal
control, which safeguards shareholders' investment and the Group and Company's
assets, is maintained. An internal audit function specific to the Group is
therefore considered unnecessary.
The Audit Committee considers the scope and effectiveness of the Company's
external audit. The Company's Auditor, Deloitte LLP, may also provide
additional non-audit services to the Company, which in the Audit Committee's
opinion, will not compromise the independence of Deloitte LLP's audit team.
Further information is provided in the Report of the Audit Committee.
The Directors' Responsibility Statement confirms that the financial
statements, prepared in accordance with the applicable set of accounting
standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Group as a whole, whilst the Chairman's
Statement includes a fair view of the development and performance of the
business and the position of the Group.
Financial and Business Reporting
An explanation of the Directors' roles and responsibilities in preparing the
Annual Report and Audited Consolidated Financial Statements for the year ended
31 December 2021 is provided in the Directors' Report, and Statement of
Directors' Responsibilities.
Further information enabling shareholders to assess the Company's performance,
business model and strategy can be sourced in the Chairman's Statement.
In respect of the UK Criminal Finances Act 2017 which has introduced a new
corporate criminal offence of "failing to take reasonable steps to prevent the
facilitation of tax evasion", the Board confirms it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
Going concern
The Consolidated Financial Statements have been prepared on the going concern
basis. The net current asset position at year end is £4.9 million. The
estimated net current asset position as at 31 March 2022 is £6.5m. During the
year, the coronavirus (COVID-19) pandemic has continued to disrupt businesses
and economic activities globally. The emergence of variants has resulted in
reinstatement of global measures to contain outbreaks and has caused market
volatility on a global scale. At 31 March 2022 the Company had an estimated
NAV of £499.4 million. The Company, via the Funds, has sufficient liquid
assets to meet expected costs. The Investment Manager, affiliates of which are
also the investment manager of the Funds has the full intent and ability to
provide the Investment Partnership with funds as and if required. Therefore,
after making enquiries and based on the sufficient cash reserves as at 31
December 2021, the Directors are of the opinion that the Group has adequate
resources to continue its operational activities for the foreseeable future.
The Board is therefore of the opinion that the going concern basis should be
adopted in the preparation of the Consolidated Financial Statements. Further
detail can be found in the Viability Statement.
Investment Manager
After careful consideration of the Investment Manager's performance, primarily
in terms of advice, managing the portfolio and communicating effectively with
shareholders, the Board agreed that it would be in the best interests of the
Company that the Investment Manager continues on the current agreed
contractual terms.
The Investment Management Agreement will continue in force until terminated:
(i) upon the dissolution of the Investment Partnership; (ii) by the Investment
Manager, voluntarily, upon 180 days' prior written notice to the Managing
Partner and the Investment Partnership; or (iii) automatically upon removal of
the General Partner.
Risk Management and Risk Control
The Board is required to annually review the effectiveness of the Company's
key internal controls such as financial, operational and compliance controls
and risk management. The Board has documented the controls to be reviewed and
will review their effectiveness on an ongoing basis. The controls are
designed to ensure that the risk of failure to achieve business objectives is
managed rather than eliminated, and are intended to provide reasonable, rather
than absolute, assurance against material misstatement or loss. Through
regular meetings and meetings of the Audit Committee, the Board seeks to
maintain full and effective control over all strategic, financial, regulatory
and operational issues.
The Board maintains an organisational and committee structure with clearly
defined lines of responsibility and delegation of authorities. The Company's
system of internal control includes inter alia the overall control exercise,
procedures for the identification and evaluation of business risk, the control
procedures themselves and the review of these internal controls by the Audit
Committee on behalf of the Board. Each of these elements that make up the
Company's system of internal control is explained in further detail as
follows:
(i) Control environment
The Company is ultimately dependent upon the quality and integrity of the
staff and management of both its Investment Manager, and Administration and
Company Secretarial service provider. In each case, qualified and able
individuals have been selected at all levels. The staffs of both the
Investment Manager and Administrator are aware of the internal controls
relevant to their activities and are also collectively accountable for the
operation of those controls. Appropriate segregation and delegation of duties
is in place. The Audit Committee undertakes a review of the Company's
financial controls on a regular basis.
In its role as a third-party fund administration services provider, Apex Fund
and Corporate Services (Guernsey) Limited produced an annual PERE SSAE 18 and
ISAE 3402 Type 2 Assurance Report on the internal control procedures in place
for the year ended 30 September 2021 and this is subject to review by the
Audit Committee and the Board, no exceptions were noted during the review.
(ii) Identification and evaluation of business risks
Another key business risk is the performance of the Company's investment. This
is managed by the Investment Manager, who undertakes regular analysis and
reporting of business risks in relation to the STC, who then propose
appropriate courses of action to the Board for their review.
(iii) Key procedures
In addition to the above, the Board's key procedures involve a comprehensive
system for reporting financial results to the Board regularly. A review of
controls is conducted by the Audit Committee annually, and a twice-yearly
review of investment valuations by the Board, including reports on the
underlying investment performance.
Due to the size and nature of the Company and the outsourcing of key services
to the Administrator and Investment Manager, the Company does not have an
internal audit function. It is the view of the Board that the controls in
relation to the operating, accounting, compliance and IT risks performed
robustly throughout the year. In addition, all key procedures have been in
full compliance with the various policies and external regulations, including:
§ Investment policy, as outlined in the IPO documentation
§ Personal Account Dealing
§ Whistleblowing Policy
§ Anti-Bribery Policy
§ Applicable Financial Conduct Authority Regulations
§ Treatment and handling of confidential information
§ Conflicts of interest
§ Compliance policies
§ Market Abuse Regulation
The Company has delegated the provision of all services to external service
providers whose work is overseen by the Board. Each year a short questionnaire
is circulated to all external service providers requesting thorough details in
regard to controls, personnel and information technology, amongst others. This
is in order to provide additional detail when reviewing the performance
pursuant to their terms of engagement.
There were no protected disclosures made pursuant to the whistleblowing policy
of service providers in relation to the Company, during the year ended 31
December 2021 (unchanged from prior year).
In summary, the Board considers that the Company's existing internal controls,
coupled with the analysis of risks inherent in the business models of the
Company and its subsidiaries, continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.
Remuneration
There is currently no Remuneration Committee for the Company as it is deemed
that the size, composition and structure of the Company would mean the process
would be inefficient and counter-productive.
Level and Components of Remuneration
Directors are paid in accordance with agreed principles covering various
functions. Further information can be sourced in the Directors' Remuneration
Report.
Procedures
The Company has a formal remuneration policy, outlined in the Directors'
Remuneration Report.
UK Companies Act, Section 172 Statement
Whilst directly applicable to UK domiciled companies, the intention of the
Code is that the below matters set out in section 172 of the UK Companies Act,
2006 are reported on by all listed entities.
Under Section 172, directors have a duty to promote the success of the Company
for the benefit of its members as a whole and in doing so have regard to the
consequences of any decisions in the long term, as well as having regard to
the Company's stakeholders amongst other considerations.
The importance of stakeholder considerations, particularly in the context of
decision-making, is taken into account at every Board meeting. All discussions
involve careful consideration of the longer-term consequences of any decisions
and their implications for stakeholders.
Risk Management
In order to minimise the risk of failure to achieve business objectives and
promote the success of the Company, the Company and the Board actively
identifies, evaluates, manages and mitigates risk as well as continually
evolving the approach to risk management. Further details in connection with
Risk Management can be found in the Directors Report and in the Corporate
Governance Report.
People, Community and Environment
As an externally managed investment company, the Company has no direct
employees and minimal direct impact on the environment, nor is it responsible
for the emission of greenhouse gases. The principal responsibility to
shareholders is ensuring that the portfolio is properly managed. The
Investment Manager is responsible for the management of the portfolio and
engages with the STC in relation to their corporate governance practices and
wider community responsibilities. For further details on their corporate and
social practices refer to the STC's website.
Business Relationships
In order for the Company to succeed, it requires to develop and maintain long
term relationships with service providers for services such as custodian,
investment management, administration, company secretarial, external audit,
among others. The Company values all of its service providers and engages with
them on a regular basis.
Business Conduct
The Company is committed to act responsibly and ensure that the business
operates in a responsible and effective manner and with high standards in
order to meet its objectives.
Shareholders
The Board place a great deal of importance on communication with all
shareholders and envisage to continuing effective dialogue with all
shareholders. Further information in connection with shareholder engagement
can be found in the Corporate Governance Report. Throughout 2021, the Board,
both individually and collectively, will continue to review and challenge how
the Company can continue to act in good faith to promote the success of the
Company for the benefit of its members in the decisions taken.
Report of the Audit Committee
The Board is supported by the Audit Committee, which is comprised of three of
the Directors, not including the Chairman of the Board. The Board has
considered the composition of the Committee and is satisfied that there are
sufficient recent relevant skills and experience, in particular with the
Chairman of the Audit Committee, Christopher Legge, having a background as a
Chartered Accountant. The Board is also satisfied that the Committee as a
whole has competence relevant to the sector in which the Company operates.
Role and Responsibilities
The primary role and responsibilities of the Audit Committee are outlined in
the Committee's Terms of Reference, available at the registered office,
including:
· Monitoring the integrity of the financial statements of the Company
and any formal announcement relating to the Company's financial performance,
consideration of the viability statement and reviewing significant financial
reporting judgements contained within said statements and announcements;
· Reviewing the Company's internal financial controls, and the
Company's internal control and risk management systems;
· Monitoring the need for an internal audit function annually;
· Monitoring and reviewing the scope, independence, objectivity and
effectiveness of the external auditors, taking into consideration relevant
regulatory and professional requirements;
· Making recommendations to the Board in relation to the appointment,
re-appointment and removal of the external auditors and approving their
remuneration and terms of engagement, which in turn can be placed to the
shareholders for their approval at the AGM;
· Developing and implementing policy on the engagement of the external
auditor to supply non-audit services, taking into account relevant ethical
guidance regarding the provision of non-audit services by the external
auditors, and reporting to the Board, identifying any matters in respect of
which it considers that action or improvement is needed and making
recommendations as to the steps to be taken;
· Reviewing the arrangements in place to enable Directors and staff of
service providers to, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters insofar as
they may affect the Company;
· Providing advice to the Board on whether the annual financial
statements, taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the Company's
performance, business model and strategy; and
· Reporting to the Board on how the Committee discharged all relevant
responsibilities, undertaken by the Chairman at each Board meeting.
Financial Reporting
The primary role of the Audit Committee in relation to the financial reporting
is to review with the Administrator, Investment Manager and the Auditor the
appropriateness of the Annual Report and Audited Consolidated Financial
Statements and Interim Condensed Consolidated Financial Statements,
concentrating on, amongst other matters:
· The quality and acceptability of accounting policies and practices;
· The clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
· Material areas in which significant judgements have been applied or
there has been discussion with the Auditor;
· Whether the Annual Report and Audited Consolidated Financial
Statements, taken as a whole, is fair, balanced and understandable and
provides the information necessary for the shareholders to assess the
Company's performance, business model and strategy; and
· Any correspondence from regulators in relation to the Company's
financial reporting.
To aid its review, the Audit Committee considers reports from the
Administrator and Investment Manager and also reports from the Auditor on the
outcomes of their half-year review and annual audit. The Audit Committee
supports the Auditor in displaying the necessary professional scepticism their
role requires.
The Committee met three times during the year under review; individual
attendance of Directors is outlined in the Board and Committee Meeting
Attendance section. The main matters discussed at those meetings were:
· Review of auditor independence;
· Review and approval of the annual audit plan of the external
auditors;
· Discussion and approval of the fee for the external audit;
· Detailed review of the Half Year Report and Accounts and Annual
Report and Consolidated Financial Statements and recommendation for approval
by the Board;
· Discussion of reports from the external auditors following their
interim review and annual audit;
· Assessment of the effectiveness of the external audit process as
described below;
· Review of the Company's key risks and internal controls, including
valuation uncertainty as described below; and
· Consideration of the UK Corporate Governance Code 2018, Guidance on
Audit Committees and other regulatory guidelines, and the subsequent impact
upon the Company.
The Committee has also reviewed and considered the whistleblowing policies in
place for the Investment Manager and Administrator and is satisfied the
relevant staff can raise concerns in confidence about possible improprieties
in matters of financial reporting or other matters insofar as they may affect
the Company.
Annual General Meeting
The Audit Committee Chairman, or other members of the Audit Committee
appointed for the purpose, shall attend each AGM of the Company, prepared to
respond to any shareholder questions on the Audit Committee's activities.
Internal Audit
The Audit Committee considers at least once a year whether or not there is a
need for an internal audit function. Currently, the Audit committee does not
consider there to be a need for an internal audit function, given that there
are no employees in the Group and all outsourced functions are with parties /
administrators who have their own internal controls and procedures. This is
evidenced by the internal control reports provided by the providers, which
give sufficient assurance that a sound system of internal control is
maintained.
Significant Risks in Relation to the Financial Statements
Throughout the year, the Audit Committee identified a number of significant
issues and areas of key audit risks in respect of the Annual Report and
Audited Consolidated Financial Statements. The Committee reviewed the external
audit plan at an early stage and concluded that the appropriate areas of audit
risk relevant to the Company had been identified and that suitable audit
procedures had been put in place to obtain reasonable assurance that the
financial statements as a whole would be free of material misstatements. The
below table sets out the key areas of risk identified and how the Committee
addressed the issues.
Significant Issue Actions to Address Issue
Valuation and ownership of investment - focus upon one target company means The Audit Committee and Board review detailed portfolio valuations on a
that any errors in valuation, depending on their size, can be highly material. regular basis throughout the year under review, and receive confirmation from
A key risk is incorrect pricing used based on requirement of IFRS taking into the Investment Manager that the pricing basis is appropriate and in line with
account the market for those shares. relevant accounting standards.
At 31 December 2021, the Group's investment consists solely of a
non-controlling interest in Whistle Investors III LLC ("Whistle III"). Whistle
III, which has received unqualified audit opinions since inception, measures
its balance sheet at fair value. The net asset value of Whistle III, obtained
from the audited Whistle III financial statements at year end, is used as a
proxy for fair value to measure the fair value of the Investment Partnership's
investment in Whistle III.
Auditor Tenure and Objectivity
The Company's Auditor, Deloitte LLP, has been appointed to act pursuant to an
Engagement Letter signed in August 2021. Deloitte LLP have been auditor since
inception of the Company. The Committee reviews the Auditor's performance on a
regular basis with a detailed formal review conducted on an annual basis to
ensure the Company receives an optimal service. The re-appointment of the
Company's Auditor will be subject to annual shareholder approval at the AGM.
The Auditor is required to rotate the audit partner regularly every five
years. A new audit partner was appointed to the Company during 2019. There
are no contractual obligations restricting the choice of external auditor and
the Company will consider putting the audit services contract out to tender at
least every ten years. In line with the audit committee's review of auditor
independence and audit partner rotation the tender of the audit was considered
during 2020, however it was the collective view of the audit committee that
they were satisfied with Deloitte's performance and therefore would recommend
them for re-appointment at the Company's Annual General Meeting. The
re-appointment of Deloitte was approved by the shareholders at the AGM held on
26 May 2021.
Deloitte LLP regularly updates the Committee on the rotation of audit
partners, staff, level of fees in proportion to overall fee income of the
Company, details of any relationships between the Auditor, the Company and any
target company, and also provides overall confirmation from the Auditor of
their independence and objectivity.
In addition to the audit related remuneration, £24,150 non-audit fees were
paid to the Auditor in relation to the interim review. Prior to the
implementation of the new Crown Dependency Audit Rules 2020 for the period
commencing 1 January 2021, Deloitte ceased providing tax compliance services
to the Company.
The Audit Committee undertook a formal review of the external auditor for the
year ended 31 December 2021, with no issues arising. As a result of their
review, the Committee is satisfied that Deloitte LLP is independent of the
Company, the Investment Manager and other service providers and recommends the
continuing appointment of the Auditor to the Board. There are currently no
plans for retendering the audit.
Conclusions in Respect of the Financial Statements
The production and the audit of the Company's Annual Report and Audited
Consolidated Financial Statements is a comprehensive process requiring input
from a number of different contributors. In order to reach a conclusion on
whether the Company's financial statements are fair, balanced and
understandable, the Board has requested that the Committee advise on whether
it considers that the Annual Report and Financial Statements fulfils these
requirements. In outlining their advice, the Committee has considered the
following:
· The comprehensive documentation that is in place outlining the
controls in place for the production of the Annual Report, including the
verification processes in place to confirm the factual content;
· The detailed reviews undertaken at various stages of the production
process by the Investment Manager, Administrator and the Committee that are
intended to ensure consistency and overall balance; and
· The controls enforced by the Investment Manager, Administrator and
other third party service providers to ensure complete and accurate financial
records and security of the Company's assets.
As a result of the work performed during the year, the Audit Committee has
concluded it has acted in accordance with its Terms of Reference and ensured
the independence and objectivity of the external Auditor. The Annual
Report for the year ended 31 December 2021, taken as a whole, is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's performance, business model and strategy,
and has reported on these findings to the Board. The Board's conclusions in
this respect are set out in the Statement of Directors' Responsibilities.
Statement of Directors Responsibilities
The Directors are responsible for preparing the Annual Report and the
Consolidated Financial Statements for each financial year which give a true
and fair view, in accordance with applicable laws and regulations, of the
state of affairs of the Company and of the profit and loss of the Company for
that year.
The Companies (Guernsey) Law, 2008 requires the directors to prepare financial
statements for each financial year. The financial statements have been
prepared in accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union. In preparing these financial
statements, International Accounting Standard 1 ("IAS1") requires that
directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the Group's
financial position and financial performance; and
· make an assessment of the Group's ability to continue as a going
concern.
The Directors confirm that they have complied with the above requirements in
preparing the Consolidated Financial Statements. The Directors are responsible
for keeping proper accounting records that are sufficient to show and explain
the Group's transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that the financial
statements comply with the Companies (Guernsey) Law, 2008.
They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and
other irregularities. The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on the Company's
website. Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
· the financial statements, prepared in accordance with IFRS as adopted
in the European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group;
· the Chairman's Statement, Directors' Report and Corporate Governance
Statement include a fair review of the development and performance of the
business and the position of the Group, together with a description of the
principal risks and uncertainties that they face; and
· the annual report and consolidated financial statements, taken as a
whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance, business model
and strategy.
In accordance with section 249 of the Companies (Guernsey) Law, 2008, each of
the Directors confirms that, to the best of their knowledge:
· There is no relevant audit information of which the Company's
Auditors are unaware; and
· All Directors have taken the necessary steps that they ought to have
taken to make themselves aware of any relevant audit information and to
establish that the Auditor is aware of said information.
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Sherborne Investors (Guernsey) C
Limited (the 'parent company') and its subsidiaries (the 'group'):
· give a true and fair view of the state of the group's affairs as at
31 December 2021 and of its profit for the year then ended;
· have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European Union;
· have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
· the Consolidated Statement of Comprehensive Income;
· the Consolidated Statement of Financial Position;
· the Consolidated Statement of Changes in Equity;
· the Consolidated Statement of Cash Flows; and
· the related notes 1 to 13.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the group in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed entities and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
3. Summary of our audit approach
Key audit matters
The key audit matter that we identified in the current year was:
· Valuation and ownership of investments at fair value through profit
or loss.
Within this report, key audit matters are identified as follows:
· Newly identified
· Increased level of risk
· Similar level of risk
· Decreased level of risk
Materiality
The materiality that we used for the group financial statements in the current
year was £5,804,000 which was determined on the basis of 1% of net asset
value ("NAV")
Scoping
The response to the risk of material misstatement was performed directly by
the group audit engagement team. Balances were scoped in for testing based on
our assessment of risk of material misstatement. As part of our risk
assessment process, we considered the impact of controls implemented at
service organisations of the Company.
Significant changes in our approach
There were no significant changes to the audit approach in the current year.
4. Conclusions relating to going concern
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.
Our evaluation of the directors' assessment of the group's and parent
company's ability to continue to adopt the going concern basis of accounting
included:
· Challenging management's going concern assessment and the relevant
disclosures in the financial statements including assessing the current
economic environment and the Group's investment performance;
· Evaluating the cash flow forecasts for reasonableness;
· Challenge of the key assumptions made by management including
consideration of the impact of COVID-19, assessment of Navient's shares post
year end and the subsequent impact on the valuation of Whistle III, how
Navient's current performance has impacted the Group's viability assessment,
and the liquidity of Navient shares; and
· Evaluating the appropriateness of the financial statement disclosures
for going concern.
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 group's and parent 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 relation to the reporting on how the group has 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.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
5.1. Valuation and ownership of investments at fair value through profit or
loss
Key audit matter description
The group has a single Level 3 investment in Whistle III as at 31 December
2021 of £575.6m (2020: £419.3m).
Management have designated it as Level 3 in the fair value hierarchy due to
the attributed fair value being comprised of the NAV of the entity. The
material balances within this entity are its investments which are designated
as Level 3 investments, as such not all inputs into the valuation of Whistle
III are observable and there may be judgement or estimation uncertainty within
this balance, and also the corresponding movement in unrealised gains or
losses.
Investments are the most quantitatively significant balance on the
Consolidated Statement of Financial Position and is an area of focus as they
drive the performance and net asset value of the group. Owing to the fact that
Key Performance Indicators and performance based remuneration are based on the
net asset value of the group we have determined there to be the potential for
fraud through possible manipulation of the balance, whether through
manipulation of the ownership holding or through the value attributed to the
holding.
Further details are included within the Directors' report, the audit committee
report, critical accounting estimates and judgements noted in the financial
statements.
How the scope of our audit responded to the key audit
matter
In order to test the investments balance as at 31 December 2021 we performed
the following
procedures:
· We obtained an understanding of relevant controls around the
reconciliation of investments held and the year-end valuation of investments.
This included obtaining an understanding of controls of the administrator,
Apex Fund and Corporate Services (Guernsey) Limited;
· We evaluated the ownership of Whistle III by agreeing the ownership
amount to the Limited Liability Company Agreement as provided by the Managing
Member of Whistle III;
· We challenged the recognition of Whistle III as an investment that is
held at fair value through profit or loss despite SIGC, LP having a major
shareholding by assessing the circumstance against the criteria in IFRS 10;
· We obtained the audited financial statements of Whistle III from the
investment manager and assessed whether the NAV materially reflected that
entity's fair value;
Key observations
Based on the work performed we conclude that the valuation and ownership of
the investment held at fair value through profit or loss is appropriate.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group Materiality £ 5,804,000 (2020: £4,215,000)
Basis for determining 1% of the group NAV (2020: 1% of the group NAV)
Materiality
Rationale for the In determining the materiality, we
considered what the most important benchmark
balances on which the users of the financial
statements would judge
the
applied
performance of the group. As the investment objective of the group is to
invest in a Selected Target Company ("STC") by the investment manager and
realise a return on the growth in fair value of the investment, we consider
the NAV of the group to be a key performance indicator for shareholders. We
have taken into account industry benchmarking and applied the same benchmark
of 1% as in prior year.
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole. Group
performance materiality was set at 70% of group materiality for the 2021 audit
(2020: 70%). In determining performance materiality, we considered the quality
of the control environment including that present at the administrator, Apex
Fund and Corporate Services (Guernsey) Limited based on its ISAE 3402 report
as well as our past experience of the audit, which has indicated a low number
of corrected and uncorrected misstatements identified in prior periods.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of £290,000 (2020: £210,000), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our group audit was scoped by obtaining an understanding of the group and its
environment, including group-wide controls, and assessing the risks of
material misstatement at the group level.
Sherborne Investors (Guernsey) C Limited is a limited partner in SIGC, LP
("the Investment Partnership"), holding a 99.98% capital interest. The
Investment Partnership holds the underlying investment in the STC. We have
audited both the group and the Investment Partnership and therefore the audit
team have audited the whole group directly.
At the parent entity level we also tested the consolidation process and
carried out analytical procedures to confirm our conclusion that there were no
significant risks of material misstatement of the aggregated financial
information of the remaining components not subject to audit or audit of
specified account balances.
The administrator maintains the books and records of the group. Our audit
therefore included obtaining an understanding of this service organisation
(including obtaining and reviewing their controls assurance report) and its
relationship with the entity.
7.2. Our consideration of the control environment
The accounting function for the group is provided by Apex Fund and Corporate
Services (Guernsey) Limited ("Apex"). We have obtained their ISAE 3402 Report
for the period 1 October 2020 to 30 September 2021 which documents the
suitability of design and operating effectiveness of controls. We have
reviewed the report and extracted the controls relevant to the accounting
functions undertaken by Apex. As the reporting date of the group is 31
December 2021 we have obtained a bridging letter from Apex detailing that
there have not been any material changes to the internal control environment
nor any material deficiencies in the internal controls.
8. Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
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 course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. 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 in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the group's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
11. Extent to which the audit was considered capable of detecting
irregularities, including fraud
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.
11.1. Identifying and assessing potential risks
related to irregularities.
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
· the nature of the industry and sector, control environment and
business performance including the design of the group's remuneration
policies;
· results of our enquiries of management and the Audit Committee about
their own identification and assessment of the risks of irregularities;
· any matters we identified having obtained and reviewed the group's
documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud; and
o the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations; and
· the matters discussed among the audit engagement team and involving
relevant internal specialists, including tax specialists, regarding how and
where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following area: the valuation and
ownership of investments at fair value through profit or loss. In common with
all audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that
the group operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the Companies (Guernsey) Law, 2008 and the
Listing Rules. In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the group's ability to operate or
to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified the valuation and ownership
of investments at fair value through profit or loss as a key audit matter
related to the potential risk of fraud. The key audit matters section of our
report explains the matter in more detail and also describes the specific
procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified
included the following:
· reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of relevant laws
and regulations described as having a direct effect on the financial
statements;
· enquiring of management and the audit committee concerning actual and
potential litigation and claims;
· performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud;
· reading minutes of meetings of those charged with governance; and
· in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting
estimates are indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including internal specialists, and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
Corporate Governance Statement
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 with regards to the appropriateness of
adopting the going concern basis of accounting and any material uncertainties;
· the directors' explanation as to its assessment of the group's
prospects, the period this assessment covers and why the period is;
· the directors' statement on fair, balanced and;
· the board's confirmation that it has carried out a robust assessment
of the emerging and principal risks;
· the section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and the section
describing the work of the audit committee.
12. Matters on which we are required to report by exception
12.1. Adequacy of explanations received and
accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
· we have not received all the information and explanations we require
for our audit; or
· proper accounting records have not been kept by the parent company;
or
· the financial statements are not in agreement with the accounting
records.
We have nothing to report in respect of these matters.
13. Use of our report
This report is made solely to the company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these financial statements form part of the
European Single Electronic Format (ESEF) prepared Annual Financial Report
filed on the National Storage Mechanism of the UK FCA in accordance with the
ESEF Regulatory Technical Standard (('ESEF RTS'). This auditor's report
provides no assurance over whether the annual financial report has been
prepared using the single electronic format specified in the ESEF RTS.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
1 January 2021 to 31 December 2021 1 January 2020 to 31 December 2020
Notes £ £ £ £
Income 1(e)
Unrealised gain/(loss) on financial assets at fair value through profit or 1(d), 5 162,293,243 (120,607,066)
loss
Interest income 556 1,194
Total income/(loss) 162,293,799 (120,605,872)
Expenses 1(f)
Management fees 9 2,912,321 3,669,168
Professional fees 163,261 246,404
Directors' fees 2,9 160,000 160,000
Administrative fees 131,355 142,964
Other fees 2,320 1,654
Total operating expenses 3,369,257 4,220,190
Comprehensive income/(loss) 158,924,542 (124,826,062)
Comprehensive income/(loss) attributable to:
Equity Shareholders 158,891,816 (124,801,928)
Non-controlling interest (NCI) 1(b) 32,726 (24,134)
Weighted average number of shares outstanding 4 700,000,000 700,000,000
Basic and diluted earnings per share attributable to shareholders (excluding 22.70p (17.83)p
NCI)
All revenue and expenses are derived from continuing operations.
The accompanying notes form an integral part of these Consolidated Financial
Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021 2020
Notes £ £ £ £
Non-Current Assets
Financial assets at fair value through profit or loss 1(d),5 575,577,900 419,313,486
575,577,900 419,313,486
Current Assets
Cash and cash equivalents 1(h),10 5,026,666 2,312,076
Prepaid expenses 17,589 21,757
5,044,255 2,333,833
Current Liabilities
Trade and other payables 1(i),6 128,650 78,058
128,650 78,058
Net Current Assets 4,915,605 2,255,775
Net Assets 580,493,505 421,569,261
Capital and Reserves
Called up share capital and share premium 7 688,939,403 688,939,403
Retained reserves (112,276,754) (267,456,731)
Equity attributable to the Company 576,662,649 421,482,672
Non-controlling interest (NCI) 1(b) 3,830,856 86,589
Total Equity 580,493,505 421,569,261
NAV Per Share (excluding NCI) 8 82.93p 60.21p
The accompanying notes form an integral part of these Consolidated Financial
Statement.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Share Capital Retained Non- Total
and Share Reserves Controlling Equity
Premium Interests
Notes £ £ £ £
Balance at 1 January 2021 688,939,403 (267,456,731) 86,589 421,569,261
Comprehensive income - 158,891,816 32,726 158,924,542
Incentive allocation - (3,711,839) 3,711,839 -
Contributions - - 109,422 109,422
Distributions 11 - - (109,720) (109,720)
Balance at 31 December 2021 688,939,403 (112,276,754) 3,830,856 580,493,505
Share Capital Retained Non- Total
and Share Reserves Controlling Equity
Premium Interests
Notes £ £ £ £
Balance at 1 January 2020 688,939,403 (142,654,803) 110,123 546,394,723
Comprehensive loss - (124,801,928) (24,134) (124,826,062)
Contributions - - 600 600
Balance at 31 December 2020 688,939,403 (267,456,731) 86,589 421,569,261
The accompanying notes form an integral part of these Consolidated Financial
Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS Notes 1 January 2021 to 31 December 2021 1 January 2020 to 31 December 2020
For the year ended 31 December 2021
£ £
Net cash flow used in operating activities See below (3,314,498) (4,277,978)
Investing activities
Contribution to investments 5 (543,574,886) (4,849,515)
Distribution from investments 5 549,603,716 2,749,725
Interest income 556 1,194
Net cash flow (used in)/from investing activities 6,029,386 (2,098,596)
Financing activities
Contributions from non-controlling interest 109,422 600
Distributions to non-controlling interest 11 (109,720) -
Net cash flow (used in)/from financing activities (298) 600
Net movement in cash and cash equivalents 2,714,590 (6,375,974)
Opening cash and cash equivalents 2,312,076 8,688,050
Closing cash and cash equivalents 5,026,666 2,312,076
Net cash flow (used in)/from operating activities
Comprehensive income/(loss) 158,924,542 (124,826,062)
Unrealised (gain) /loss on financial assets at fair value through profit or 5 (162,293,243) 120,607,066
loss
Movement in prepaid expenses 4,168 (4,533)
Movement in trade and other payables 6 50,591 (53,255)
Interest income (556) (1,194)
Net cash flow used in operating activities (3,314,498) (4,277,978)
The accompanying notes form an integral part of these Consolidated Financial
Statements.
1. Summary of significant accounting policies
Reporting entity
Sherborne Investors (Guernsey) C Limited (the "Company") is a closed-ended
investment company with limited liability formed under the Companies
(Guernsey) Law, 2008 (as amended). The Company was incorporated and registered
in Guernsey on 25 May 2017. The Company commenced dealings on the London Stock
Exchange's Specialist Fund Segment on 12 July 2017. The Company's registered
office is 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel
Islands, GY1 2HL. The "Group" is defined as the Company and its subsidiaries,
SIGC, LP (Incorporated) (the "Investment Partnership") and SIGC Midco Limited.
Both subsidiaries are established/incorporated in Guernsey.
Basis of preparation
The Consolidated Financial Statements of the Group have been prepared in
accordance with International Financial Reporting Standards ("IFRS") as
adopted in the European Union, which comprise standards and interpretations
approved by the International Accounting Standards Board and International
Accounting Standards and Standing Interpretations Committee interpretations
approved by the International Accounting Standards Committee that remain in
effect, together with applicable legal and regulatory requirements of Guernsey
law. The Directors of the Company have taken the exemption in Section 244 of
the Companies (Guernsey) Law, 2008 (as amended) and have therefore elected to
only prepare Consolidated Financial Statements for the year.
These Consolidated Financial Statements have been prepared on the historical
cost basis, as modified by the measurement at fair value of investments.
Going concern
Under the UK Corporate Governance Code 2018 and applicable regulations, the
Directors are required to satisfy themselves that it is reasonable to assume
that the Group is a going concern.
The Board is of the opinion that the going concern basis should be adopted in
the preparation of the Consolidated Financial Statements. Further detail can
be found in the Viability Statement.
The Directors have undertaken a rigorous review of the Group's ability to
continue as a going concern including reviewing the ongoing cash flows and the
level of cash balances as of the reporting date, as well as taking forecasts
of future cash flows into consideration.
The coronavirus (COVID-19) pandemic has continued to cause disruptions to
businesses and economic activities globally. The emergence of variants has
resulted in reinstatement of global measures to contain outbreaks and have
caused market volatility on a global scale. The specific impact on the
Company's performance attributable to the pandemic is difficult to quantify.
The situation is constantly evolving and as countries return towards
normality, governments and businesses encourage people to return to their
offices and the remaining restrictions are being removed. The Company, via the
Funds, has sufficient liquid assets to meet expected costs. The Investment
Manager, affiliates of which are also the investment manager of the Funds, has
the full intent and ability to provide the Company (via the Investment
Partnership) with funds as and if required.
After making enquiries of Sherborne Investors Management (Guernsey) LLC (the
"Investment Manager") and Apex Fund and Corporate Services (Guernsey) Limited
(the "Administrator"), the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt a going concern basis
in preparing these audited Consolidated Financial Statements. Please see the
Corporate Governance section.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of the Group's Consolidated Financial Statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities and contingencies at the date of the Group's
Consolidated Financial Statements and revenue and expenses during the reported
year. Actual results could differ from those estimated.
i) Critical accounting judgement: Incentive allocation
As more fully described in Note 9, the Special Limited Partner is entitled to
receive an incentive allocation once aggregate distributions to partners of
the Investment Partnership exceed a certain level. The basis of the incentive
calculation differs depending on how the investment in the Selected Target
Company ("STC") is ultimately characterised (i.e. as a Turnaround or Stake
Building Investment). The incentive allocation has been computed on a Stake
Building Investment basis, as it does not meet the criteria of a Turnaround
investment.
ii) Critical accounting judgement: Consolidation of entities
As described further in Note 5, as of 31 December 2021 the Group holds a
non-controlling interest in Whistle Investors III LLC ("Whistle III"). Whilst
the Group holds a majority interest in Whistle III and holds access to the
rewards and benefits, it does not exercise control over the day to day
operations nor does it have the ability to remove the controlling party. As
such, Whistle III is not considered a subsidiary and is not consolidated but
held at fair value through profit or loss.
iii) Source of estimation uncertainty: Financial assets at fair value through
profit or loss
The Group's investments are measured at fair value for financial reporting
purposes. The fair value of financial assets are based on the net asset value
("NAV") of the investment. The main contribution to their NAV is the quoted
closing price of the STC as at 31 December 2021. Please see Note 5 for further
details.
Adoption of new and revised standards
(i) New standards adopted as at 1 January 2021:
The following standards (some of which are amendments to existing standards)
are effective for the first time for the financial period beginning 1 January
2021 and are relevant to the Group and Company's operations: Amendments to
IFRS 4, 7, 9, 16 and IAS 39).
The above standards have been adopted and do not have a material impact on the
financial statements.
(ii) Standards, amendments and interpretations early adopted by the Group:
There were no standards, amendments and interpretations early adopted by the
Group.
(iii) Standards, amendments and interpretations in issue but not yet
effective:
The following standards, which have not been applied in these Financial
Statements, were in issue at the reporting date but not yet effective:
· IAS 1 (amended), 'Presentation of Financial Statements' - (effective
for accounting periods commencing on or after 1 January 2023)
· IAS 8 (amended), 'Accounting Policies, Changes in Accounting
Estimates and Errors' - (effective for accounting periods commencing on or
after 1 January 2023)
· IAS 37 (amended), 'Provisions, Contingent Liabilities and Contingent
Assets' - (effective for accounting periods commencing on or after 1 January
2022)
The amendments to IAS 1 were published in January 2020 and relate to the
classification of liabilities. The amendments to IAS 8 were published in
February 2021 and clarify how companies should distinguish changes in
accounting policies from changes in accounting estimates. The amendments to
IAS 37 were published in May 2020 and relate to the costs to include when
assessing whether a contract is onerous.
In addition, the IASB has issued the following publication - 'Annual
Improvements to IFRS Standards 2018-2020', published in May 2020, which has
amended certain existing standards, effective for accounting periods
commencing on or after 1 January 2022.
The Directors do not consider the adoption of any new and revised accounting
standards and interpretations to have a material impact as the new standards
or amendment are not relevant to the operations of the Group.
a. Basis of consolidation
The Consolidated Financial Statements incorporate the financial statements of
the Company and two entities controlled by the Company (its subsidiaries).
Control is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from its
activities. Investments where a majority interest is held but control is not
achieved are held at fair value through profit or loss.
Non-controlling interests in the net assets of the consolidated subsidiaries
are identified separately from the Group's equity therein. Non-controlling
interests consist of the amount of those interests at the date of the original
business combination and the non-controlling entities' share of changes in
equity since the date of the combination. Losses applicable to the
non-controlling entities in excess of their interest in the subsidiaries
equity are allocated against their interests to the extent that this would
create a negative balance.
Where necessary, adjustments are made to the financial statements of the
subsidiary to bring the accounting policies used into line with those used by
the Group.
All intra-group transactions, balances and expenses are eliminated on
consolidation.
The Company, via SIGC Midco Limited, a 100% owned subsidiary, owns 99.98% of
the capital interest in the Investment Partnership. Whilst the general partner
of the Investment Partnership, Sherborne Investors (Guernsey) GP, LLC, a
company registered in Delaware, USA, is responsible for directing the day to
day operations of the Investment Partnership, the Company, through its
majority interest in the Investment Partnership, has the ability to approve
the proposed investment of the Investment Partnership and to remove the
general partner. Hence, the Company has consolidated the Investment
Partnership and SIGC Midco Limited in its financial statements.
b. Non-controlling interest
The interest of non-controlling parties in the subsidiary is measured at the
minority's proportion of the net fair value of the assets, liabilities and
contingent liabilities recognised.
c. Functional currency
Items included in the Consolidated Financial Statements of the Group are
measured using the currency of the primary economic environment in which the
entity operates. The Consolidated Financial Statements are presented in Pound
Sterling ("£"), which is the Group's functional and presentational currency.
Transactions in currencies other than £ are translated at the rate of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the date of the Consolidated
Statement of Financial Position are retranslated into £ at the rate of
exchange ruling at that date. Exchange differences are reported in the
Consolidated Statement of Comprehensive Income.
d. Financial assets at fair value through profit or loss
Investments, including equity investments in associates, are designated at
fair value through profit or loss in accordance with IFRS 9 'Financial
instruments', as the Group's business model is to invest in financial assets
with a view to profiting from their total return in the form of interest and
changes in fair value. Under International Accounting Standard 28 'Investments
in Associates', the fund can hold its investments at fair value through profit
or loss rather than as an associate as the Investment Partnership is a
closed-ended fund.
Investments in voting shares and derivative contracts are initially recognised
at cost and subsequently re-measured at fair value, as determined by the
Directors. Unrealised gains or losses arising from the revaluation of
investments in voting shares and derivative contracts are taken directly to
the Consolidated Statement of Comprehensive Income.
The Group's investments are measured at fair value for financial reporting
purposes as described earlier in Note 1 under critical accounting judgements
and key sources of estimation uncertainty.
In determining fair value in accordance with IFRS 13 'Fair Value Measurement'
("IFRS 13"), investments measured and reported at fair value are classified
and disclosed in one of the following categories within the fair value
hierarchy:
Level I - An unadjusted quoted price for identical assets and liabilities in
an active market provides the most reliable evidence of fair value and is used
to measure fair value whenever available. As required by IFRS 13, the Group
will not adjust the quoted price for these investments, even in situations
where it holds a large position and a sale could reasonably impact the quoted
price.
Level II - Inputs are other than unadjusted quoted prices in active markets,
which are either directly or indirectly observable as of the reporting date,
and fair value is determined through the use of models or other valuation
methodologies.
Level III - Inputs are unobservable for the investment and include situations
where there is little, if any, market activity for the investment. The inputs
into the determination of fair value require significant management judgement
or estimation.
The Group's investments are summarised by Level in Note 5. On disposal of
shares, cost of investments are allocated on a first in, first out basis.
e. Revenue recognition
Dividend income is recognised when the Group's right to receive payment has
been established. Tax suffered on dividend income for which no relief is
available is treated as an expense.
Investment income and interest receivable from short-term deposits and
Treasury gilts are recognised on an accruals basis. Where receipt of
investment income is not likely until the maturity or realisation of an
investment then the investment income is accounted for as an increase in the
fair value of the investment.
f. Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the Consolidated Statement of Comprehensive Income in the year in
which they occur.
g. Prepaid expenses and trade receivables
Trade and other receivables are initially recognised at fair value and
subsequently, where necessary, re-measured at amortised cost using the
effective interest method. A provision for impairment of trade receivables is
established when there is objective evidence the Group will not be able to
collect all amounts due according to the original terms of the receivables.
The Group only holds trade receivables with no financing component and which
have maturities of less than 12 months at amortised cost and has therefore
applied the simplified approach to expected credit loss.
h. Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, call and current balances
with banks and similar institutions, which are readily convertible to known
amounts of cash and which are subject to insignificant risk of changes in
value. This definition is also used for the Consolidated Statement of Cash
Flows. The carrying amount of these assets approximate their fair value,
unless otherwise stated.
i. Trade and other payables
Trade and other payables are initially recognised at fair value and
subsequently, where necessary, re-measured at amortised cost using the
effective interest method.
j. Financial instruments
Financial assets and liabilities are recognised in the Group's Consolidated
Statement of Financial Position when the Group becomes a party to the
contractual provisions of the instrument.
k. Segmental reporting
As the Group invests in one investee company, there is no segregation between
industry, currency or geographical location and therefore no further
disclosures are required in conjunction with IFRS 8 'Operating Segments'.
l. Incentive allocation
The incentive allocation is accounted for on an accruals basis and the
calculation is disclosed in Note 9. The incentive allocation is payable to the
non-controlling interest and therefore recognised in the Consolidated
Statement of Changes in Equity rather than recognised as an expense in the
Consolidated Statement of Comprehensive Income.
2. Comprehensive income/(loss)
The consolidated comprehensive income/(loss) has been arrived at after
charging:
1 January 2021 to 31 December 2021 1 January 2020 to 31 December 2020
£ £
Directors' fees 160,000 160,000
Auditor's remuneration - Audit 42,344 42,259
Auditor's remuneration - Interim review 24,150 23,000
In addition to the audit and half-yearly review related remuneration above, a
further £Nil, was paid to the Auditor for Tax compliance services (2020:
£28,542).
3. Tax on ordinary activities
The Company has been granted exemption from income tax in Guernsey under the
Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance 1989, and is
liable to pay an annual fee (currently £1,200 per company) under the
provisions of the Ordinance. As such it will not be liable to income tax in
Guernsey other than on Guernsey source income (excluding deposit interest on
funds deposited with a Guernsey bank). No withholding tax is applicable to
distributions to Shareholders by the Company.
The Investment Partnership will not itself be subject to taxation in Guernsey.
No withholding tax is applicable to distributions to partners of the
Investment Partnership.
Income which is wholly derived from the business operations conducted on
behalf of the Investment Partnership with, and investments made in, persons or
companies who are not resident in Guernsey will not be regarded as Guernsey
source income. Such income will not therefore be liable to Guernsey tax in
the hands of non-Guernsey resident limited partners.
Dividend income is shown gross of any withholding tax.
4. Earnings per share
The calculation of basic and diluted earnings per share is based on the return
on ordinary activities less total comprehensive income attributable to the
non-controlling interest and on there being 700,000,000 (2020: 700,000,000)
weighted average number of shares in issue during the year. The earnings per
share for the year ended 31 December 2021 amounted to 22.70 pence per share
(31 December 2020: a deficit of 17.83 pence per share).
Date Shares Days in issue Weighted Average Shares
1 January 2021 700,000,000 700,000,000
31 December 2021 700,000,000 365 700,000,000
5. Financial assets at fair value through profit or loss
2021 2020
£ £
Opening fair value 419,313,486 537,820,762
Contribution to investments 543,574,886 4,849,515
Distributions from investments (549,603,716) (2,749,725)
Unrealised gain/(loss) on financial assets at fair value through profit or (120,607,066)
loss
162,293,244
Closing fair value 575,577,900 419,313,486
The following tables summarise by level within the fair value hierarchy the
Group's financial assets and liabilities at fair value as follows:
Level I Level II Level III Total
31 December 2021 £ £ £ £
Financial assets at fair value through profit and loss - - 575,577,900 575,577,900
Level I Level II Level III Total
31 December 2020 £ £ £ £
Financial assets at fair value through profit and loss - - 419,313,486 419,313,486
In May 2021, the Investment Partnership and other third-party investors in the
Funds managed by affiliates of the Investment Manager disposed of the Funds'
entire shareholding in Barclays PLC ("Barclays"). In accordance with the
Company's prospectus, the Board of the Company approved a new STC which was
identified in December 2021 as Navient Corporation ("Navient").
As at 31 December 2021, the Group's investment consists solely of a
non-controlling interest in Whistle III which was organised to invest in the
STC. With Whistle III's balance sheet being measured at fair value, the NAV of
Whistle III provides the best estimate of fair value for the Investment
Partnership's investment in Whistle III. As at the year end, Whistle III's
investment, via an intermediary, consisted of its non-controlling interest in
Newbury Investors LLC ("Newbury"). Newbury's investment in the STC consisted
of both common stock and derivatives. Furthermore, the level III investments
disclosed in the financial statements are solely comprised of the Group's
non-controlling interest in Whistle IIII. The value of those investments
equated to the Group's maximum exposure to loss from Whistle III and Newbury.
As at 31 December 2020, Whistle III's investment, via an intermediary,
consisted of a direct investment in Barclays as well as a non-controlling
interest in Whistle Investors LLC ("Whistle I") and Whistle Investors II LLC
("Whistle II"). The value of those investments equated to the Group's maximum
exposure to loss from the Whistle I, Whistle II and Whistle III entities.
A reconciliation of fair value measurements in Level III is set out in the
following table:
2021 2020
£ £
Opening fair value 419,313,486 537,820,762
Contribution to investments 543,574,886 4,849,515
Distributions from investments (549,603,716) (2,749,725)
Unrealised gain/(loss) on financial assets 162,293,244 (120,607,066)
at fair value through profit or loss
Closing fair value 575,577,900 419,313,486
Capital contributions made during the year ended 31 December 2021 were for
investment into the new STC. Capital distributions made during the year ended
31 December 2021 were to distribute proceeds from the disposal of the Barclays
investment. Capital contributions drawn by Whistle III during 2020 were for
investment into Barclays. The distributions during 2020 consisted of the
return of excess funds drawn.
The key unobservable inputs in the valuation of the Level III investment is
the value of Whistle III's indirect non-controlling interests in the
underlying intermediaries which is impacted by the share price of the STC.
Refer to Note 10 for the sensitivity analysis regarding changes in the Navient
share price.
6. Trade and other payables
2021 2020
£ £
Professional fees payable 31,062 18,923
Administration fees payable 64,319 31,876
Audit fees payable 31,354 27,259
Other fees payable 1,915 -
Total 128,650 78,058
7. Consolidated share capital and share premium
As at 31 December 2021 As at 31 December 2020
Authorised share capital No. No.
Ordinary Shares of no par value Unlimited Unlimited
Issued and fully paid No. No.
Ordinary Shares of no par value 700,000,000 700,000,000
As at 31 December 2021 As at 31 December 2020
Share premium account £ £
Share premium account upon issue 700,000,000 700,000,000
Less: Costs of issue (11,060,597) (11,060,597)
Closing balance 688,939,403 688,939,403
Each Ordinary share has no par value with no right to fixed income.
8. Net asset value per share attributable to the Company
Basic and Diluted
No. of Shares Pence per Share
31 December 2021 700,000,000 82.93
31 December 2020 700,000,000 60.21
9. Related party transactions
The Investment Partnership and its General Partner, have engaged Sherborne
Investors Management (Guernsey) LLC to serve as Investment Manager who is
responsible for identifying the STC, subject to approval by the Board of
Directors of the Company, as well as day to day management activities of the
Investment Partnership. The Investment Manager is entitled to receive from the
Investment Partnership a monthly management fee equal to one-twelfth of 1% of
the net asset value of the Investment Partnership, less cash and cash
equivalents and certain other adjustments. During the year, management fees of
£2,912,321 (31 December 2020: £3,669,168) were paid by the Investment
Partnership. No balance was outstanding at the year end (31 December 2020:
£Nil).
The Special Limited Partner interest was held by Sherborne Investors Limited,
a wholly owned subsidiary of Sherborne Investors LP through 11 May 2021.
Effective on 12 May 2021 the Special Limited Partner interest was transferred
from Sherborne Investors Limited to Sherborne Investors LP (Sherborne
Investors (Guernsey) GP, LLC and Sherborne Investors LP are the
Non-controlling interests). The Special Limited Partner is entitled to receive
an incentive allocation once aggregate distributions to partners of the
Investment Partnership, of which one is the Company, exceed a certain level of
capital contributions to the Investment Partnership, excluding amounts
contributed attributable to management fees.
For Turnaround investments, the incentive allocation is computed at 10% of the
distributions to all partners in excess of 110%, increasing to 20% of the
distributions to all partners in excess of 150% and increasing to 25% of the
distributions to all partners in excess of 200% of capital contributions,
excluding amounts contributed attributable to management fees. An investment
is considered a Turnaround investment when a member of the General Partner is
appointed chairman of, or accepts an executive role at, the STC.
If, after acquiring a shareholding, the share price of the STC rises to a
level at which further investment and the effort of a Turnaround is, in the
Investment Manager's opinion, no longer justified or otherwise no longer
presents a viable Turnaround opportunity, the Investment Partnership intends
to sell (and distribute the proceeds to the Company) or distribute in kind the
holding to the limited partners (in each case after deductions for any costs
and expenses and for the Investment Partnership's Minimum Capital Requirements
and subject to applicable law and regulation), rather than seeking to join the
Board of Directors or otherwise engage with the STC (a "Stake Building
Investment").
For Stake Building Investments, the incentive allocation is computed at 20% of
net returns on the investment of the Investment Partnership, such amount to be
payable after each partner in the Investment Partnership has had distributed
to it an amount equal to its aggregate capital contribution to the Investment
Partnership in respect to the Stake Building Investment (excluding any capital
contributions attributable to management fees). The Special Limited Partner
may waive or defer all or any part of any incentive allocation otherwise due.
At 31 December 2021, the incentive allocation has been computed based on a
Stake Building Investment basis and amounts to £3,711,839 (31 December 2020:
£Nil) in relation to the investment held by the Investment Partnership.
Each of the Directors (other than the Chairman) receives a fee payable by the
Company currently at a rate of £35,000 per annum. The Chairman of the Audit
Committee receives £5,000 per annum in addition to such fee. The Chairman
receives a fee payable by the Company currently at the rate of £50,000 per
annum.
Individually and collectively, the Directors of the Company hold no shares of
the Company as at 31 December 2021 (2020: nil).
Sherborne Investors GP, LLC has granted to the Company a non-exclusive licence
to use the name "Sherborne Investors" in the UK and the Channel Islands in the
corporate name of the Company and in connection with the conduct of the
Company's business affairs. The Company may not sub-licence or assign its
rights under the Trademark Licence Agreement. Sherborne Investors GP, LLC
receives a fee of £70,000 per annum for the use of the licenced name.
The Company does not have an ultimate controlling party.
10. Financial risk factors
The Group's investment objective is to realise capital growth from investment
in the STC, identified by the Investment Manager, with the aim of generating
significant capital return for Shareholders. Consistent with that objective,
the Group's financial instruments mainly comprise an investment in a STC. In
addition, the Group
holds cash and cash equivalents as well as having trade and other receivables
and trade and other payables that arise directly from its operations.
Liquidity risk
The Group's cash and cash equivalents are placed in demand deposits with a
range of financial institutions. The listed investment in the STC could be
partially redeemed relatively quickly (within 3 months) should the Group need
to meet obligations or ongoing expenses as and when they fall due.
The following table details the liquidity analysis for financial liabilities
at the date of the Consolidated Statement of Financial Position:
As at 31 December 2021 Less than 1 month 1 - 12 months 1 - 2 years Total
£ £ £ £
Trade and other payables (64,331) (64,319) - (128,650)
(64,331) (64,319) - (128,650)
As at 31 December 2020 Less than 1 month 1 - 12 months 1 - 2 years Total
£ £ £ £
Trade and other payables (31,876) (46,182) - (78,058)
(31,876) (46,182) - (78,058)
Credit risk
The Group is exposed to credit risk in respect of its cash and cash
equivalents, arising from possible default of the relevant counterparty, with
a maximum exposure equal to the carrying value of those assets. The credit
risk on liquid funds is mitigated through the Group depositing cash and cash
equivalents across several banks. The Group is exposed to credit risk in
respect of its trade receivables and other receivable balances with a maximum
exposure equal to the carrying value of those assets. UBS Financial Services
Inc. and HSBC Holdings PLC currently have a stand-alone credit rating of A-
with Standard & Poor's (31 December 2020 A- with Standard & Poor's)
whilst Barclays Bank PLC has a standalone credit rating of A with Standard
& Poor's (2020: A with Standard & Poor's). The Group considers these
ratings to be acceptable.
Market price risk
Market price risk arises as a result of the Group's exposure to the future
values of the share price of the STC. It represents the potential loss that
the Group may suffer through investing in the STC.
As at 31 December 2021, the share price of Navient was 21.22 US dollars per
share which produced the Group's NAV of £580.5 million. At 31 December 2021 a
10% increase/decreases in Navients' share price would increase/decrease the
Group's NAV by approximately £43.9 million.
Foreign exchange risk
Foreign currency risk arises as the value of future transactions, recognised
monetary assets and monetary liabilities denominated in other currencies
fluctuate due to changes in foreign exchange rates. The Investment Manager
monitors the Group's monetary and non-monetary foreign exchange exposure on a
regular basis. The Group has limited foreign exchange risk exposure. Whistle
III's investment in the US based STC during the year exposes the Group to
foreign currency risk, however, as aa Group this is considered as part of
market price risk.
Interest rate risk
The Group is subject to risks associated with changes in interest rates in
respect of interest earned on its cash and cash equivalents. The Group seeks
to mitigate this risk by monitoring the placement of cash balances on an
on-going basis in order to maximise the interest rates obtained.
As at 31 December 2021 Interest bearing
Less than 1 month to 3 months to Non- interest bearing Total
1 month 3 months 1 year 1 - 2 years
£ £ £ £ £ £
Assets
Cash and cash equivalents 5,026,666 - - - - 5,026,666
Financial assets held at fair value through profit or loss - - - - 575,577,900 575,577,900
Prepaid expenses - - - - 17,589 17,589
Total Assets 5,026,666 - - - 575,595,489 580,622,155
Liabilities
Other payables - - - - (128,650) (128,650)
Total Liabilities - - - - (128,650) (128,650)
Interest bearing
As at 31 December 2020
Less than 1 month to 3 months to Non- interest bearing Total
1 month 3 months 1 year 1 - 2 years
£ £ £ £ £ £
Assets
Cash and cash equivalents 2,312,076 - - - - 2,312,076
Financial assets held at fair value through profit or loss - - - - 419,313,486 419,313,486
Prepaid expenses - - - - 21,757 21,757
Total Assets 2,312,076 - - - 419,335,243 421,647,319
Liabilities
Other payables - - - - (78,058) (78,058)
Total Liabilities - - - - (78,058) (78,058)
As at 31 December 2021, the total interest sensitivity gap for interest
bearing items was a surplus of £5,026,666 (31 December 2020: £2,312,076).
As at 31 December 2021, interest rates reported by the Bank of England were
0.25% (31 December 2020: 0.1%) which would equate to net income of £12,567
(31 December 2020: £2,312) per annum if interest bearing assets and
liabilities remained constant. If interest rates were to fluctuate by 50 basis
points (31 December 2020: 50 basis points), this would have a positive or
negative effect of £25,133 (31 December 2020: £11,560) on the Group's annual
income.
Capital risk management
The capital structure of the Company consists of proceeds raised from the
issue of Ordinary Shares. As at 31 December 2021, the Group is not subject to
any external capital requirement.
The Directors believe that at the date of the Consolidated Statement of
Financial Position there were no other material risks associated with the
management of the Group's capital.
11. Distributions
Distributions of £109,720 were paid by the Group to non-controlling interests
during the year (year ended 31 December 2020: £Nil).
12. Subsequent events
During January 2022, Whistle III distributed approximately £2.7 million to
the Investment Partnership.
Subsequent to the year-end, Navients' share price decreased to 17.04 US
dollars per share at 31 March 2022 and, as disclosed on 1 April 2022, the 31
March 2022 estimated NAV (unaudited) of the Group decreased to 71.3 pence per
share.
Subsequent to the year-end, Newbury continued investing in Navient and
currently owns approximately 19.9% of Navient's outstanding shares. On 18
March 2022 Navient paid a dividend of 16 US cents per share to shareholders of
record on 4 March 2022.
There were no other material subsequent events that require disclosure in the
consolidated financial statements.
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