REG - Sherborne Inv. C Ld - Half-year Report
18/08/2022 07:00
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RNS Number : 3952W Sherborne Investors (Guernsey)C Ltd 18 August 2022
SHERBORNE INVESTORS (GUERNSEY) C LIMITED
Interim Report and Unaudited Condensed Consolidated Financial Statements
For the period from 1 January 2022 to 30 June 2022
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's 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.
Chairman's Statement
For the period ended 30 June 2022
Dear Shareholder,
I am pleased to present the Interim Report of Sherborne Investors (Guernsey) C
Limited (the "Company") and its subsidiaries for the period 1 January 2022 to
30 June 2022.
The Company co‐invests in Navient Corporation ("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"). Newbury currently owns 21% of Navient's outstanding
shares, making it the largest shareholder in Navient. The Company is pursuing
its investment strategy through its indirect shareholding in Navient.
As at 30 June 2022, the net asset value ("NAV") attributable to shareholders
of the Company was £464.1 million (30 June 2021: £557.7 million and 31
December 2021: £576.7 million) or 66.3 pence per share (30 June 2021: 79.7
pence per share and 31 December 2021: 82.9 pence per share) (see Note 8). The
Company's NAV was based on the closing price of $13.99 as at 30 June 2022 for
the shares of Navient (30 June 2021: $19.33 and 31 December 2021: $21.22). As
at 31 July 2022 the estimated (unaudited) NAV, as reported, was 75.4 pence per
share based on the closing price of $16.47 as at 31 July 2022 for the shares
of Navient.
On 14 April 2022, Navient and Sherborne Investors entered into an agreement
that, among other things, provided 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. Mr. Bramson was subsequently elected to Navient's board of
directors by shareholders at the Annual General Meeting on 2 June.
As noted in the annual results released in April 2022, I am pleased to confirm
the commencing of a dividend, with the first payment of 0.5 pence per share
being paid on 16 September 2022 to shareholders of record on 26 August 2022.
The present intention is to pay a further 0.5 pence per share to shareholders
following the full year results.
On 26 May 2022, the Company announced that all resolutions proposed at the
2022 AGM were passed with the necessary majority. Two shareholders however
voted against the Board's re-election and one further shareholder withheld its
vote against my re-election. The Board has continued to engage with
shareholders in the light of these votes and the engagement has been
productive. The Board is now seeking to appoint an additional director to
increase diversity and offer fresh perspective. The Board is using the
services of a London based professional recruitment consultant (Cornforth
Consulting) to assist it in this regard.
The principal risks and uncertainties of the Company are in relation to
performance risk, market risk, relationship risk and operational risk. These
are unchanged from 31 December 2021, and further details may be found in the
Directors' Report within the Annual Report and Audited Consolidated Financial
Statements of the Company for the year ended 31 December 2021. The Directors
will continue to assess the principal risks and uncertainties relating to the
Company for the remaining six months of the year but expect these to remain
unchanged.
Details of related party transactions during the period are included in Note 9
of the Condensed Consolidated Financial Statements.
We are grateful for your continued support and will keep you informed of the
status of our investment as it develops..
Responsibility statement
We confirm that to the best of our knowledge:
• The condensed set of financial statements has been prepared in
accordance with IAS 34 'Interim Financial Reporting' as adopted in the
European Union;
• The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and their impact on the condensed financial statements and
description of principal risks and uncertainties for the remaining six months
of the year);
• The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein); and
• The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting standards, gives
a true and fair view of the assets, liabilities, financial position and profit
or loss of the issuer, or the undertakings included in the consolidation as a
whole as required by DTR 4.2.4R.
Going Concern
The Condensed Consolidated Financial Statements have been prepared on the
going concern basis. The net current asset position as at 30 June 2022 is
£5.6 million. The Directors have considered the impact to the Company, as
well as to Navient's stock price, of the current economic environment,
including the current interest rates and inflationary environment, and have
concluded that there is no impact on the going concern. The consideration also
factored in the continuing uncertainty around Covid-19 and the Russian
invasion in Ukraine and the resulting impact on global economy. At 30 June
2022 the Company had a NAV of £464.1 million. The Company, via the Investment
Partnership and other funds (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.
Therefore, after making enquiries and based on the sufficient cash reserves as
at 30 June 2022, the Directors are of the opinion that the Company and its
subsidiaries have 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 Condensed
Consolidated Financial Statements.
Independent Auditor's Review Report to the Members of Sherborne Investors
(Guernsey) C Limited
We have been engaged by the Company to review the condensed consolidated set
of financial statements in the half-yearly financial report for the six months
ended 30 June 2022 which comprises the condensed consolidated statement of
comprehensive income, condensed consolidated statement of financial position,
condensed consolidated statement of changes in equity, condensed consolidated
statement of cash flows and related notes 1 to 12.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated set of financial statements in the
half-yearly financial report for the six months ended 30 June 2022 is not
prepared, in all material respects, in accordance with International
Accounting Standard 34 as adopted in the European Union and the Disclosure
Guidance and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the company are
prepared in accordance with international accounting standards. The condensed
set of financial statements included in this half-yearly financial report has
been prepared in accordance with International Accounting Standard 34 as
adopted by the European Union, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410; however future events or conditions may cause the entity to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Company's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Company a conclusion on the condensed set of financial
statement in the half-yearly financial report. Our Conclusion, including our
Conclusion Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for Conclusion
paragraph of this report.
Use of our report
This report is made solely to the company in accordance with ISRE (UK) 2410.
Our work has been undertaken so that we might state to the company those
matters we are required to state to it in an independent review report and for
no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company, for our review work,
for this report, or for the conclusions we have formed.
Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the period from 1 January 2022 to 30 June 2022
1 January 2022 to 1 January 2021 to 1 January 2021 to
30 June 2022 30 June 2021 31 December 2021
(unaudited) (unaudited) (audited)
Notes £ £ £ £ £ £
Income 1(e)
Unrealised gain/(loss) on financial assets at fair value through profit or 1(d), 5
loss
(114,319,958) 139,165,329 162,293,243
Interest income - 157 556
Total income/(loss) (114,319,958) 139,165,486 162,293,799
Expenses 1(f)
Management fees 9 2,119,512 1,697,352 2,912,321
Professional fees 181,140 152,482 163,261
Directors' fees 2, 9 80,000 80,000 160,000
Administrative fees 70,539 65,877 131,355
Other fees (438,866) (83,385) 2,320
Total operating expenses 2,012,325 1,912,326 3,369,257
Comprehensive income/(loss) (116,332,283) 137,253,160 158,924,542
Comprehensive income/(loss) attributable to:
Equity Shareholders (116,309,767) 137,225,328 158,891,816
Non-controlling interest (NCI) 1(b) (22,516) 27,832 32,726
Weighted average number of shares outstanding 4 700,000,000 700,000,000 700,000,000
Basic and diluted earnings per share attributable to shareholders 4 (16.62)p 19.60p 22.70p
(excluding NCI)
All revenue and expenses are derived from continuing operations.
Although not required by IAS 34 - 'Interim Financial Reporting', the
comparative figures for the preceding year and the related notes have been
included on a voluntary basis.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Financial Position (Unaudited)
As at 30 June 2022
30 June 2022 30 June 2021 31 December 2021
(unaudited) (unaudited) (audited)
Notes £ £ £ £ £ £
Non-Current Assets
Financial assets at fair value through profit or loss 1(d), 5 458,563,506 552,449,985 575,577,900
458,563,506 552,449,985 575,577,900
Current Assets
Cash and cash equivalents 1(h) 5,675,805 6,403,075 5,026,666
Prepaid expenses 46,864 67,308 17,589
5,722,669 6,470,383 5,044,255
Current Liabilities
Trade and other payables 1(i), 6 124,953 98,245 128,650
124,953 98,245 128,650
Net Current Assets 5,597,716 6,372,138 4,915,605
Net Assets 464,161,222 558,822,123 580,493,505
Capital and Reserves
Called up share capital and share premium 7 688,939,403 688,939,403 688,939,403
Retained reserves (224,874,682) (131,246,388) (112,276,754)
Equity attributable to the Company 464,064,721 557,693,015 576,662,649
Non-controlling interest (NCI) 1(b) 96,501 1,129,108 3,830,856
Total Equity 464,161,222 558,822,123 580,493,505
NAV Per Share (excluding NCI) 8 66.29p 79.67p 82.93p
The Condensed Consolidated Financial Statements were approved by the Board of
Directors for issue on 17 August 2022.
Although not required by IAS 34 - 'Interim Financial Reporting', the
comparative figures for the interim period and the related notes have been
included on a voluntary basis.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Changes in Equity (Unaudited)
For the period from 1 January 2022 to 30 June 2022
Share Capital Retained Non- Total
and Share Reserves Controlling Equity
Premium Interest
Notes £ £ £ £
Balance at 1 January 2022 (audited) 688,939,403 (112,276,754) 3,830,856 580,493,505
Comprehensive loss - (116,309,767) (22,516) (116,332,283)
Incentive allocation 9 - 3,711,839 (3,711,839) -
Balance at 30 June 2022 (unaudited) 688,939,403 (224,874,682) 96,501 464,161,222
Share Capital Retained Non- Total
and Share Reserves Controlling Equity
Premium Interest
£ £ £ £
Balance at 1 January 2021 (audited) 688,939,403 (267,456,731) 86,589 421,569,261
Comprehensive income - 137,225,328 27,832 137,253,160
Incentive allocation 9 - (1,014,985) 1,014,985 -
Contributions - - 109,422 109,422
Distributions - - (109,720) (109,720)
Balance at 30 June 2021 (unaudited) 688,939,403 (131,246,388) 1,129,108 558,822,123
Share Capital Retained Non- Total
and Share Reserves Controlling Equity
Premium Interest
£ £ £ £
Balance at 1 January 2021 (audited) 688,939,403 (267,456,731) 86,589 421,569,261
Comprehensive income - 158,891,816 32,726 158,924,542
Incentive allocation 9 - (3,711,839) 3,711,839 -
Contributions - - 109,422 109,422
Distributions - - (109,720) (109,720)
Balance at 31 December 2021 (audited) 688,939,403 (112,276,754) 3,830,856 580,493,505
Although not required by IAS 34 - 'Interim Financial Reporting', the
comparative figures for the preceding year and the related notes have been
included on a voluntary basis.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Cash Flows (Unaudited)
For the period from 1 January 2022 to 30 June 2022
Notes 1 January 2022 to 30 June 2022
(unaudited) 1 January 2021 1 January 2021 to
£ to 30 June 2021 31 December 2021
(unaudited) (audited)
£ £
Net cash flow used in operating activities See (2,045,297) (1,937,690) (3,314,498)
below
Investing activities
Contribution to investments 5 - (543,574,886) (543,574,886)
Distributions from 5 2,694,436 549,603,716 549,603,716
investments
Interest income - 157 556
Net cash flow from investing activities 2,694,436 6,028,987 6,029,386
Financing activities
Contributions from non-controlling interest - 109,422 109,422
Distributions to non-controlling interest - (109,720) (109,720)
Net cash flow used in financing activities - (298) (298)
Net movement in cash and cash equivalents 649,139 4,090,999 2,714,590
Opening cash and cash equivalents 5,026,666 2,312,076 2,312,076
Closing cash and cash equivalents 5,675,805 6,403,075 5,026,666
Net cash flow used in operating activities
Comprehensive income/(loss) (116,332,283) 137,253,160 158,924,542
Unrealised (gain)/loss on financial assets at fair value through profit or 5 114,319,958 (139,165,329) (162,293,243)
loss
Movement in prepaid (29,275) (45,551) 4,168
expenses
Movement in trade and other payables 6 (3,697) 20,187 50,591
Interest income - (157) (556)
Net cash flow used in operating (2,045,297) (1,937,690) (3,314,498)
activities
Although not required by IAS 34 - 'Interim Financial Reporting', the
comparative figures for the preceding year and the related notes have been
included on a voluntary basis.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the period from 1 January 2022 to 30 June 2022
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 (the "Investment Partnership") and SIGC Midco Limited. Both
subsidiaries are established/incorporated in Guernsey.
Basis of preparation
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards ("IFRSs") as adopted in the
European Union. The financial information for the year ended 31 December 2021,
as included in this Interim Report, is derived from the financial statements
delivered to the Listing Authority and does not constitute statutory accounts
as defined by the Companies (Guernsey) Law, 2008 (as amended). The Auditor
reported in the statutory financial statements for the year ended 31 December
2021: their report was unqualified; did not draw attention to going concern by
way of emphasis; and did not contain a statement under Section 263(2) or
263(3) of the Companies (Guernsey) Law, 2008 (as amended).
The Condensed Consolidated Financial Statements of the Group have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting' ("IAS 34") as adopted in the European Union, 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 Condensed Consolidated Financial Statements for the period.
These Condensed Consolidated Financial Statements have been prepared on the
historical cost basis, as modified by the measurement at fair value of
investments. The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim period.
Going concern
The Condensed Consolidated Financial Statements have been prepared on the
going concern basis. The net current asset position as at 30 June 2022 is
£5.6 million. The Directors have considered the impact to the Company, as
well as to Navient's stock price, of the current economic environment,
including the current interest rates and inflationary environment, and have
concluded that there is no impact on the going concern. The consideration also
factored in the continuing uncertainty around Covid-19 and the Russian
invasion in Ukraine and the resulting impact on global economy. At 30 June
2022 the Company had a NAV of £464.1 million. The Company, via the Investment
Partnership and other funds (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.
Therefore, after making enquiries and based on the sufficient cash reserves as
at 30 June 2022, the Directors are of the opinion that the Company and its
subsidiaries have 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 Condensed
Consolidated Financial Statements.
Critical accounting judgments and key sources of estimation uncertainty
The preparation of the Group's Condensed 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
Condensed Consolidated Financial Statements and revenue and expenses during
the reported period. 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 30 June 2022 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 at 30 June 2022. Please see Note 5 for further
details.
Adoption of new and revised standards
(i) New standards adopted as at 1 January 2022:
The following standards are effective for the first time for the financial
period beginning 1 January 2022 and are relevant to the Group and Company's
operations: IAS 37 (amended), 'Provisions, Contingent Liabilities and
Contingent Assets'.
The above standard has been adopted and did 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:
Unless stated otherwise, 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 Condensed 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, 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 Condensed Consolidated Financial Statements of the Group
are measured using the currency of the primary economic environment in which
the entity operates. The Condensed 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 Condensed Consolidated Statement of Financial Position are retranslated
into £ at the rate of exchange ruling at that date. Exchange differences are
reported in the Condensed Consolidated Statement of Comprehensive Income.
d. Financial assets at fair value through profit or loss
Investments, including equity investments in associates, are designated as
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 are subsequently re-measured at fair value, as determined by the
Directors. Unrealised gains or losses arising from the revaluation of
investments in voting shares and derivative contracts are taken directly to
the Condensed 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 Condensed Consolidated Statement of Comprehensive Income in the
period 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 Condensed 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 Condensed
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 Condensed
Consolidated Statement of Changes in Equity rather than recognised as an
expense in the Condensed Consolidated Statement of Comprehensive Income.
2. Comprehensive income/(loss)
The comprehensive income/(loss) has been arrived at after charging:
1 January 2022 to 30 June 2022 1 January 2021 to 30 June 2021 1 January 2021 to 31 December 2021
£ £ £
Directors' fees 80,000 80,000 160,000
Auditor's remuneration - Audit 19,806 13,500 42,344
Auditor's remuneration - Interim review 24,150 21,900 24,150
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) 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 weighted average
number of shares in issue during the period (30 June 2021: 700,000,000 and 31
December 2021: 700,000,000). The earnings per share attributable to
shareholders for the period ended 30 June 2022 amounted to a deficit of 16.62
pence per share (period ended 30 June 2021: 19.60 pence per share and year
ended 31 December 2021: 22.70 pence per share).
Date Shares Days in issue Weighted Average Shares
1 January 2022 700,000,000 700,000,000
30 June 2022 700,000,000 181 700,000,000
5. Financial assets at fair value through profit or loss
As at 30 June 2022 As at 30 June As at 31 December 2021
2021
£ £ £
Opening fair value 575,577,900 419,313,486 419,313,486
Contribution to investments - 543,574,886 543,574,886
Distributions from investments (2,694,436) (549,603,716) (549,603,716)
Unrealised gain/(loss) on financial assets at fair value through profit or (114,319,958) 139,165,329 162,293,244
loss
Closing fair value 458,563,506 552,449,985 575,577,900
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
30 June 2022 £ £ £ £
Financial assets at fair value through profit and loss - - 458,563,506 458,563,506
Level I Level II Level III Total
30 June 2021 £ £ £ £
Financial assets at fair value through profit and loss - - 552,449,985 552,449,985
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
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").
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. 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,
including shares of the Company. 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.
A reconciliation of fair value measurements in Level III is set out in the
following table:
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021
£ £ £
Opening fair value 575,577,900 419,313,486 419,313,486
Contribution to investments - 543,574,886 543,574,886
Distributions from investments (2,694,436) (549,603,716) (549,603,716)
Unrealised gain/(loss) on financial assets at fair value through profit or (114,319,958) 139,165,329 162,293,244
loss
Closing fair value 458,563,506 552,449,985 575,577,900
Contributions made during the period ended 30 June 2021 and the year ended 31
December 2021 were for investment into the new STC. Distributions made during
the period ended 30 June 2021 and the year ended 31 December 2021 were to
distribute proceeds from the disposal of the Barclays investment.
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.
6. Trade and other payables
As at 30 June 2022
As at 30 June 2021 As at 31 December 2021
£ £ £
Professional fees payable 40,151 18,001 31,062
Administration fees payable 33,119 31,605 64,319
Audit fees payable 51,683 48,639 31,354
Other fees payable - - 1,915
Total 124,953 98,245 128,650
7. Consolidated share capital and share premium
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021
Authorised share capital No. No. No.
Ordinary Shares of no par value Unlimited Unlimited Unlimited
Issued and fully paid No. No. No.
Ordinary Shares of no par value 700,000,000 700,000,000 700,000,000
As at 30 June 2022 As at 30 June 2021 As at 31 December 2021
Share premium account £ £ £
Share premium account upon issue 700,000,000 700,000,000 700,000,000
Less: Costs of issue (11,060,597) (11,060,597) (11,060,597)
Closing balance 688,939,403 688,939,403 688,939,403
8. Net asset value per share attributable to the Company
No. of Shares Pence per Share
30 June 2022 700,000,000 66.29
30 June 2021 700,000,000 79.67
31 December 2021 700,000,000 82.93
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 period, management fees of £2,119,512 (period ended 30 June 2021:
£1,697,352 and year ended 31 December 2021: £2,912,321) had been paid by the
Investment Partnership. No balance was outstanding at the period end (period
ended 30 June 2021: £Nil and year ended 31 December 2021: £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 30 June 2022, the incentive allocation has been computed based on a Stake
Building Investment basis and amounts to £Nil (30 June 2021: £1,014,985 and
31 December 2021: £3,711,839) in relation to the investment held by the
Investment Partnership. The movement in the incentive allocation in the period
was due to the decrease in the value of the investment.
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 30 June 2022 (30 June 2021: Nil and 31 December 2021: 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.
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 Condensed Consolidated Statement of Financial Position:
As at 30 June 2022 Less than 1 month 1 - 12 months Total
£ £ £
Trade and other payables 5,014 119,939 124,953
5,014 119,939 124,953
As at 30 June 2021 Less than 1 month 1 - 12 months Total
£ £ £
Trade and other payables 31,605 66,640 98,245
31,605 66,640 98,245
As at 31 December 2021 Less than 1 month 1 - 12 months Total
£ £ £
Trade and other payables 64,331 64,319 128,650
64,331 64,319 128,650
Credit risk
The Company 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 standalone credit rating of A-
with Standard & Poor's (30 June 2021: A- with Standard & Poor's and 31
December 2021: A- with Standard & Poor's), whilst Barclays Bank PLC has a
standalone credit rating of A with Standard & Poor's (30 June 2021: A with
Standard & Poor's and 31 December 2021: 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. Further information can be
found in the Annual Report and Audited Consolidated Financial Statements of
the Company for the year ended 31 December 2021.
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 direct foreign exchange risk exposure.
Whistle III's investment in the US based STC during the year exposes Whistle
III to foreign currency risk, however, as a 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
ongoing basis in order to maximise the interest rates obtained.
As at 30 June 2022 Interest bearing
Less than 1 month to 3 months to Non- interest bearing Total
1 month 3 months 1 year
£ £ £ £ £
Assets
Cash and cash equivalents 5,675,805 - - - 5,675,805
Financial assets at fair value through profit or loss - - - 458,563,506 458,563,506
Prepaid expenses - - - 46,864 46,864
Total Assets 5,675,805 - - 458,610,370 464,286,175
Liabilities
Other payables - - - 124,953 124,953
Total Liabilities - - - 124,953 124,953
As at 30 June 2021 Interest bearing
Less than 1 month to 3 months to Non- interest bearing Total
1 month 3 months 1 year
£ £ £ £ £
Assets
Cash and cash equivalents 6,403,075 - - - 6,403,075
Financial assets at fair value through profit or loss - - - 552,449,985 552,449,985
Prepaid expenses - - - 42,603 42,603
Other receivables - - - 24,705 24,705
Total Assets 6,403,075 - - 552,517,293 558,920,368
Liabilities
Other payables - - - (98,245) (98,245)
Total Liabilities - - - (98,245) (98,245)
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
£ £ £ £ £
Assets
Cash and cash equivalents 5,026,666 - - - 5,026,666
Financial assets 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)
As at 30 June 2022, the total interest sensitivity gap for interest bearing
items was a surplus of £5,675,805 (30 June 2021: surplus of £6,403,075 and
31 December 2021: surplus of £5,026,666).
As at 30 June 2022, interest rates reported by the Bank of England were 1.25%
(30 June 2021: 0.1% and 31 December 2021: 0.25%) which would equate to income
of £70,948 (period ended 30 June 2021: £6,403 and year ended 31 December
2021: £12,567) per annum if interest bearing assets remained constant. If
interest rates were to fluctuate by 100 basis points (period ended 30 June
2021: 50 basis points and year ended 31 December 2021: 50 basis points), this
would have a positive or negative effect of £56,758 (period ended 30 June
2021: positive effect £32,015 or negative effect of £6,403 and year ended 31
December 2021: positive effect £25,133 or negative effect of £12,567) 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 30 June 2022, the Group is not subject to any
external capital requirement.
The Directors believe that at the date of the Condensed Consolidated Statement
of Financial Position there were no other material risks associated with the
management of the Group's capital.
11. Distributions
Distributions of £Nil were paid by the Group to non-controlling interests
during the period (period ended 30 June 2021: £109,720 and year ended 31
December 2021: £109,720). Distributions of £ Nil were paid by the Group to
shareholders (period ended 30 June 2021 and year ended 31 December 2021:
£Nil).
12. Subsequent events
The Company has declared a dividend of 0.5 pence per share, payable on 16
September 2022 to shareholders on the register at 26 August 2022.
The share price of Navient increased subsequent to period end resulting in an
estimated (unaudited) NAV of 75.4 pence per share as at 31 July 2022 compared
to a NAV of 66.3 pence per share as at the reporting date.
There were no other material subsequent events that require disclosure in the
condensed consolidated financial statements.
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