TIDMMHN
Menhaden PLC
(the "Company")
Final Results for the year ended 31 December 2020
The Annual Report will be posted to shareholders on or around 20 April 2021.
Copies may be obtained by writing to the Company Secretary, Frostrow Capital
LLP at 25 Southampton Buildings, London WC2A 1AL, or from the Company's website
- www.menhaden.com - where up to date information on the Company, including
daily NAVs, share prices and fact sheets, can also be found.
A copy of the Annual Report will be submitted to the National Storage Mechanism
and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/
nationalstoragemechanism
Frostrow Capital LLP
Company Secretary
020 3709 8734
8 April 2021
Menhaden PLC - Final Results for the Year Ended 31 December 2020
Company Performance
As at 31 As at 31
December 2020 December
2019
NAV per share 132.7p 117.5p
Share price 99.0p 96.5p
Share price discount to NAV per share 25.4% 17.9%
NAV per share (total return) 13.2% 30.5%
Share price (total return) 3.0% 45.3%
Total ongoing charges 2.0% 2.0%
This report contains terminology that may be unfamiliar to some readers. The
Glossary gives definitions for frequently used terms.
*Alternative performance measures (APMs)
To better reflect our non-benchmarked total return investment strategy, the
Board has decided to use Retail Price Index ("RPI") plus 3% as its primary long
term financial performance comparator and to remove reference to the MSCI World
Total Return Index from the investment objective. This more meaningfully aligns
with the Company's investment strategy which does not consider any stock market
index weightings.
Chairman's Statement
I am pleased to present our sixth annual report since the launch of the Company
in July 2015. This report covers the year ended 31 December 2020.
Performance
The Company's net asset value ("NAV") per share total return* for the year was
13.2%, adjusted for the dividend paid (2019: 30.5%) and the share price total
return* was 3.0% (2019: 45.3%).
The Company does not have a formal benchmark and our Portfolio Manager does not
invest by reference to an index and instead, to reflect our non-benchmarked
total return strategy more meaningfully, the Company uses RPI+3% as its primary
performance comparator. The year under review saw a RPI+3% total return of
4.2%. By way of additional comparison, the AIC Environmental Sector rose by
23.7% (2019: 27.4%).
Following a difficult start to the year, most asset classes in the Company's
portfolio have recovered from the impact of the Covid-19 pandemic and provided
good returns in the second half of the year. As the pandemic led to countries
adopting varying degrees of social distancing, one of our largest holdings in
the portfolio, Charter Communications now represents 19.4% of the Company's NAV
having benefitted from the favourable market conditions for that business.
Brazilian ports operator, Ocean Wilson, was a detractor from performance and
suffered during the market turmoil brought about by the pandemic. It has yet to
recover, although our Portfolio Managers remain optimistic for the long-term
prospects for the business.
Overall, the Board remains encouraged by the positive performance of the
portfolio which validates the Portfolio Manager's investment strategy of
selecting competitively advantaged businesses that are demonstrably delivering
or benefiting significantly from the efficient use of resources.
Our Portfolio Manager has provided a full description of the development and
performance of the portfolio over the fifth full year of your Company's
operation in the Portfolio Manager's Review.
*Alternative Performance Measure (see Glossary)
Environmental Impact
This year we have again integrated the Company's impact reporting within the
annual report. The report will also be made available as a separate document,
which will include the methodological detail, on the website www.menhaden.com.
This Impact Statement shows the Company's holdings helped save 32,000 MWh of
electricity in 2020, equivalent to powering roughly 10,850 houses for one year,
and 30,000 tonnes of CO2e emissions, equivalent to taking over 19,800 cars off
the road.
2020 Continuation Vote
As already noted at the interim stage, the Board was pleased to see
shareholders' strong support of the Company and its investment proposition at
our last Annual General Meeting in June 2020. With 98% of votes cast in favour
of the Company continuing as an investment trust for a further five years, we
are delighted to have received a solid mandate to continue with our long-term
plans for the development of the Company.
Following the successful continuation vote, the Board reviewed its future
strategy for the Company in December 2020 and looks forward to implementing
that strategy in the coming years.
Share Price Discount
At the year-end, the discount* to the NAV per share at which the Company's
shares trade had widened to 25.4% (2019: 17.9%) and the discount currently
remains at this level.
The Company's share price discount continues to be a matter that the Board
monitors closely.
The Board's aim is for the Company to eventually be in a position to grow
through the issuance of new shares and the Board has asked shareholders to
renew the Directors' share issuance authorities at this year's Annual General
Meeting. Enlarging the capital base will reduce the annual ongoing charges and
enhance the secondary market liquidity of the Company's shares, which the Board
believes is in the interests of all shareholders. However, the Company can only
issue new shares at a price representing a premium to the NAV per share and
therefore the Board remains focused on improving the Company's share rating
through investment performance and an effective marketing strategy.
As reported previously, the Board has been of the opinion that share buybacks
are not always in the interests of shareholders, as this would reduce the size
of the Company and increase the ongoing charges ratio. Instead, and in addition
to monitoring the Portfolio Manager's performance, the Board and the AIFM have
focused on the Company's marketing and distribution strategy. However, the
Board keeps the possibility of share buybacks under continuous review.
Accordingly, the Board has asked shareholders to renew the authority to
repurchase existing shares in the market at the forthcoming Annual General
Meeting.
Annual General Meeting
The Company's sixth Annual General Meeting ("AGM") will be held at the offices
of Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Thursday,
3 June 2021 at 12 noon. The Notice convening the AGM together with explanations
of the proposed resolutions can be found at the end of this document.
At the time of writing, it is hoped that it will be possible to hold the AGM in
its normal format at the venue set out above. The Board will keep the impact of
the Covid-19 pandemic under review and will make necessary changes to the
arrangements for the AGM should infection levels or continuing government
restrictions dictate. In that case, the Board may decide to hold a truncated
meeting or postpone the meeting to a later date. The situation will be kept
under constant review and any changes to the AGM will be communicated on the
Company's website. Shareholders are encouraged to consult the Company's website
at www.menhaden.com for any final arrangements.
In case no physical AGM will be possible, the Board intends to host a webinar
in addition of the AGM to enable the Portfolio Manager to give a presentation
online. Shareholders should send any questions they may have to the Company
Secretary at info@frostrow.com. Further details will be made available nearer
the time.
The Board strongly encourages all shareholders to exercise their votes in
respect of the meeting in advance. Shareholders can vote online by visiting
www.signalshares.com and following instructions. Any shareholders who require a
hard copy form of proxy may request one from the registrar, Link Group. Voting
by proxy will ensure that your votes are registered in the event that
attendance at the AGM is not possible or restricted, or if the meeting is
postponed (your votes will still be valid when the meeting is eventually held).
The Board will continue to monitor the Government's advice and urges all
shareholders to comply with any restrictions in place at the time of the AGM.
Dividend
The Company complies with the United Kingdom's investment trust rules regarding
distributable income and the Company's dividend policy is that the Company will
only pay dividends sufficient to maintain investment trust status.
Consequently, the Board is not recommending a final dividend for the year.
Outlook
The full extent of the economic and social impact of the pandemic is as yet
unclear, with effective vaccines against Covid-19 having been administered to
some of the most vulnerable in a number of countries. Progress with the roll
out of the vaccines remains encouraging.
Meanwhile, focus continues to be placed on addressing the global climate crisis
and consumer behaviour continues to evolve in response. The Board remains
confident of the resilience and long-term prospects of the portfolio as well as
the prospects of the environmental and resource-efficiency sectors.
Sir Ian Cheshire
Chairman
8 April 2021
Investment Objective and Policy
Investment Objective
The Company's investment objective is to generate long-term shareholder
returns, predominantly in the form of capital growth, by investing in
businesses and opportunities that are demonstrably delivering or benefitting
significantly from the efficient use of energy and resources irrespective of
their size, location or stage of development.
To reflect its non-benchmarked total return investment strategy, the Company
uses RPI+3% (previously MSCI World Total Return Index in sterling) as its
primary long term financial performance comparator. In addition to this
absolute return performance measure, the Company also uses a range of
specialist, sectoral and peer group benchmarks to assess its relative
performance.
Investment Policy
The Company's investment objective is pursued through constructing a
conviction-driven portfolio consisting primarily of direct listed and unlisted
holdings across asset classes and geographies.
Asset Allocation
The Company invests, either directly or through external funds, in a portfolio
that is comprised of three main allocations:
* listed equity;
* yield assets; and
* special situations.
The flexibility to invest across asset classes affords the Company two main
benefits:
. it enables construction of a portfolio based on an assessment of
market cycles; and
* it enables investment in all opportunities which benefit from the
investment theme.
It is expected that the portfolio will comprise approximately 15 to 30
positions.
Geographic Focus
Although the portfolio is predominantly focused on investments in developed
markets, if opportunities that present an attractive risk and reward profile
are available in emerging markets then these may also be pursued.
While many of the companies forming the portfolio are headquartered in the UK,
USA or Europe, it should be noted that many of those companies are global in
nature, so their reporting currency may not reflect their actual geographic or
currency exposures.
Investment Restrictions
Subject to any applicable investment restrictions contained in the Listing
Rules from time to time, the Portfolio Manager will not make an investment if
it would cause the Company to breach any of the following limits at the point
of investment:
* no more than 20% of the Company's gross assets may be invested, directly or
indirectly through external funds, in the securities of any single entity;
and
* no more than 20% of the Company's gross assets may be invested in a single
external fund.
Hedging
The Company may enter into any hedging or other derivative arrangements which
the Portfolio Manager (within such parameters as are approved by the Board and
the AIFM and in accordance with the Company's investment policy) may from time
to time consider appropriate for the purpose of efficient portfolio management,
and the Company may for this purpose leverage through the use of options,
futures, options on futures, swaps and other synthetic or derivative financial
instruments.
Cash Management
There is no restriction on the amount of cash or cash equivalent instruments
that the Company may hold and there may be times when it is appropriate for the
Company to have a significant cash position instead of being fully or near
fully invested.
Borrowing and Leverage Limits
The Company may incur indebtedness for working capital and investment purposes,
up to a maximum of 20% of the net asset value at the time of incurrence. The
decision on whether to incur indebtedness may be taken by the Portfolio Manager
within such parameters as are approved by the AIFM and the Board from time to
time. There will be no limitations on indebtedness being incurred at the level
of the Company's underlying investments (and measures of indebtedness for these
purposes accordingly exclude debt in place at the underlying investment level).
At the date of this report, the Company had no borrowings.
In addition, under the AIFMD rules, the Company is required to set maximum
leverage limits. Leverage is defined under the AIFMD as any method by which the
total exposure of an AIF is increased. Further explanations are provided in the
AIFMD Disclosures and in the Glossary.
Other Investment Restrictions
The Company will at all times invest and manage its assets with the objective
of spreading risk and in accordance with its published investment policy.
The Listing Rules restrict the Company from investing more than 10% of its
total assets in other listed closed-ended investment funds, save that this
restriction does not apply to investments in closed-ended investment funds
which themselves have published investment policies to invest no more than 15%
of their total assets in other listed closed-ended investment funds. The
Company will comply with this investment restriction (or any variant thereof)
for so long as such restriction remains applicable.
At the date of this report, the Company was not invested in any closed-ended
investment funds.
In the event of any material breach of the investment restrictions applicable
to the Company, shareholders will be informed of the actions to be taken by the
AIFM through an announcement to the Stock Exchange.
Portfolio
Investments held as at 31 December 2020
Fair % of
Investment Country/region Value Total Net
£'000 Assets
Alphabet United States 20,813 19.6
Charter Communications United States 20,641 19.4
Safran France 11,354 10.7
X-ELIO*1 Spain 11,120 10.5
Canadian Pacific Railway Canada 7,860 7.4
Calisen PLC*2 UK 6,019 5.7
Canadian National Railway Canada 5,141 4.8
Microsoft United States 4,665 4.4
Airbus France 4,340 4.1
Ocean Wilsons Holdings Bermuda 3,258 3.1
Top Ten investments 95,211 89.7
TCI Real Estate* United States 2,235 2.1
Waste Management United States 1,898 1.8
Union Pacific United States 1,369 1.3
ASML Holding Netherlands 889 0.8
LAM Research United States 725 0.7
KLA United States 682 0.7
WCP Growth Fund LP*3 UK 26 -
Total investments 103,035 97.1
Net Current Assets 3,097 2.9
Total Net assets 106,132 100.0
1 Investment made through Helios Co-Invest L.P.
2 Investment made through KKR Evergreen Co-Invest L.P.
3 The data regarding the WCP Growth Fund LP (the "Partnership") does not
necessarily reflect the current or expected future performance of the
Partnership and should not be used to compare returns of the Partnership
against returns of other private equity funds.
* Unquoted
Portfolio Manager's Review
Performance
During 2020, the Company's NAV per share increased from 117.5p to 132.7p. This
represents a total return of 13.2%, adjusted for the dividend paid, and
compares to the RPI +3% total return of 4.2%. The Company's share price traded
at a 25.4% discount to NAV as at 31 December 2020, having widened from 17.9% at
the end of 2019. The contribution to the 13.2% NAV per share total return over
the period is summarised below:
31 December Contribution
2020 to
Asset Category NAV % NAV %
Public Equities 78.8 13.5
Private Investments 16.2 0.7
Yield Investments 2.1 0.3
Liquidity 1.1 0.0
Foreign exchange forwards 1.8 0.5
Dividend Paid (0.3)
Expenses (1.8)
Net Assets 100.0
Net Return 12.9
Reinvested Dividend 0.3
Total Return 13.2
Net Assets 100.0
Despite the coronavirus pandemic remaining a very real issue, equity markets in
general still finished the calendar year higher than where they started. We
were pleased to be able to deploy a significant portion of the crystallised
gains from our private investments across our existing public equities
portfolio in March and April. These investments helped the portfolio generate
positive performance during this calendar year, and we believe are well
positioned to continue to deliver good returns. In the second half of the year,
we initiated positions in three new semiconductor capital equipment companies,
ASML, Lam Research and KLA, which meet our strict resource efficiency and
fundamental criteria.
Quoted Equities
Quoted equities represented 78.8% of total NAV at 31 December 2020, and
delivered a total return of 17.9% during the period, adding 13.5% to our NAV.
Quoted equities currently represent more of our portfolio than we aim for over
the long run, due largely to our success in realising some of our private
positions. We are actively looking for new private investments, but while we do
so, we are pleased to be able to keep the Company's cash deployed in attractive
investments in public equities.
Increase/ Contribution
Investment (Decrease) % to NAV %
Charter Communications 31.1 5.2
Alphabet 26.0 4.6
Canadian Pacific 33.2 2.1
Microsoft Corp 35.9 1.3
Canadian National 22.2 1.0
ASML 23.2 0.2
Union Pacific 12.7 0.2
Lam Research 22.0 0.1
KLA 19.0 0.1
Waste Management Inc 4.8 0.1
Safran (0.5) (0.1)
Ocean Wilsons Holdings (7.2) (0.3)
Airbus (17.8) (1.0)
Charter Communications' underlying business has remained relatively resilient
throughout the coronavirus pandemic and it remains one of our largest holdings,
representing 19.4% of NAV. The enforced lockdown and quarantine measures have
only served to emphasise reliance on broadband connectivity as an essential
service, as people have been working and learning remotely. Since we initiated
a position in April 2019, the shares had risen by approximately 85% by the end
of the period. In our view Charter's hybrid fibre coax network will serve as a
key piece of infrastructure in the ongoing digital transformation, with the
company's moves to secure valuable wireless spectrum in recent auctions only
set to further increase its importance. The Internet of Things (IoT) has the
potential to drive significant energy efficiency savings across residential and
commercial buildings, estimated by McKinsey to be worth US$540 billion
annually. We remain optimistic on the company's prospects and were also pleased
to see that the CEO, Tom Rutledge, extended his contract until 2024.
Despite a coronavirus induced advertising slowdown, Alphabet's core business
units continued to grow. The company remains one of the largest holdings in the
portfolio, representing 19.6% of NAV, and we were able to take advantage of the
lower share price to add to the position in March and April. Since we initiated
a position in January 2018, the shares had risen by over 50% by the end of the
period. We remain confident on the company's prospects, given its leading
position in search and its ability to further monetise its unparalleled levels
of user interaction, but we do continue to carefully monitor the various
antitrust cases against it. Meanwhile Alphabet continues to push forward its
sustainability agenda and remains one of the largest corporate buyers of
renewable power worldwide, with agreements covering 5.5GW of wind and solar
capacity, and we are pleased to see that it now aims to run on carbon-free
energy everywhere, at all times, by 2030.
The North American freight rail operators, Canadian National, Canadian Pacific
and Union Pacific, collectively represent 13.5% of the portfolio. These
businesses possess strong competitive positions and benefit from genuine
pricing power. Railroad traffic volumes in 2020 were naturally impacted by the
economic slowdown but had mostly recovered on a weekly basis in the fourth
quarter of 2020. Rail is the most environmentally friendly way to transport
freight over land, with current locomotives four times more fuel efficient than
trucking on a per unit basis, and we believe these companies can continue to
take share from the trucking sector, especially on long distance routes.
Furthermore, the ongoing application of technology to the railroad, such as
autonomous track inspection vehicles, holds potential to drive further
operational efficiencies over time.
Microsoft was a strong performer this year and we were happy to take advantage
of the market dislocation to significantly add to our position in March. The
holding now represents 4.4% of our NAV. Whilst, after an initial bounce, the
shares remained flat to the end of the year, Microsoft continued to gain ground
on Amazon, the market leader in cloud services. The company's Azure Cloud is at
the forefront of putting the growth of data (and data centres) on a sustainable
footing, with its services being up to 93% more energy efficient than
traditional, onsite enterprise datacentres. Meanwhile the rapid deployment of
the company's Teams product also continued, with the product reaching more than
115m daily users during the year. As the key technology partner for nearly all
enterprises, we expect the group to continue benefiting from the secular
digitisation theme for many years.
We initiated positions in a small basket of semiconductor capital equipment
companies, comprising ASML, Lam Research and KLA in October 2020. In aggregate,
these companies represent 2.2% of NAV. These companies provide specialised
tools which are used in different stages of the semiconductor manufacturing
process. The semiconductor industry's focus on productivity and efficiency is
well documented. Over the last fifty years Moore's Law has foretold the
doubling of computing power approximately every 2 years, whilst Koomey's law
describes how energy efficiency has doubled every approximately 1.6 years, in
terms of computations per unit of electricity (kWh). With the adoption of
artificial intelligence accelerating demand growth for computational power, the
onus remains on the semiconductor industry to continue developing and
manufacturing more advanced and energy efficient chips. We believe these
companies are an excellent way to obtain exposure to this resource efficient
theme. Each of them has come to effectively dominate its respective niche and
is tightly integrated with its customers' operations.
Waste Management was finally able to complete its acquisition of smaller peer
Advanced Disposal Services in November 2020, more than 18 months after the
transaction was announced, after agreeing to divest certain business units. The
company is constantly working to improve the sustainability of its operations
and opened two new fully automated recycling plants in Salt Lake City and
Raleigh, complementing its first facility in Chicago. Waste Management's
leadership team hopes that automation will significantly improve the economics
of the recycling business. We continue to believe that the company offers an
appealing combination of predictable free cash flow generation, solid
competitive position and a shareholder friendly management team.
Whilst Safran and Airbus have suffered this year from the coronavirus
epidemic's impact on the commercial aviation industry, we believe that both
have responded positively. Each management team has reacted quickly to ensure
their respective business can weather the current difficulties. We expect
Safran's aftermarket services and sales to recover first as airlines resume
operations and consequently chose to materially increase our position in May.
Safran represents 10.7% of NAV, whilst Airbus represents 4.1% of NAV. Longer
term, we do not believe that the current market turmoil fundamentally alters
the drivers underpinning the secular growth of aviation, with an estimated 75%
of the global population believed to have never flown. We still believe that
Airbus and Safran have important roles to play in helping the industry
transition to a more sustainable footing. Current industry targets include
stabilising carbon emissions from 2020 to 2035 and then reducing emissions to
half of 2005 levels by 2050, under the Carbon Offsetting and Reduction Scheme
for International Aviation (CORSIA). Both Airbus and Safran are working to
realise the goal of presenting the first zero-emission commercial aircraft by
2035 as part of the French government's plan.
Brazilian ports operator, Ocean Wilson, suffered during the market turmoil and
has yet to recover. Whilst container and towage volumes at its ports have been
negatively impacted, we expect this to reverse as the Brazilian economy
reopens. Longer term we still believe a growing Brazilian market will drive a
significant improvement in the group's financial performance. Furthermore, we
believe that there is significant value in the shares, with the current price
implying a value for the ports business of only circa 3x normalised EBITDA.
Yield Investments
Our portfolio of yield investments represented 2.1% of our total NAV as at 31
December 2020, and delivered total returns of 15.1% during the period, adding
0.3% to our NAV.
Increase/ Contribution
Investment (Decrease) % to NAV %
Brookfield Renewable Partners 11.5 0.2
TCI Real Estate 5.6 0.1
We continue to search for attractive yield investments in the current low
interest rate environment, with prospective returns not suitably compensating
investors for the associated risk. Whilst we did expect the TCI Real Estate
Partners Fund III, which currently represents 2.1% of NAV, to draw down
additional capital from our commitment over the coming year, the economic
impact of the pandemic has made that less certain. Our current undrawn
commitment stands at approximately US$12.0 million at the end of the period.
This fund provides asset-backed loans to prime real estate development projects
that are best in class in terms of energy efficiency and environmental
standards. We believe these loans offer an outstanding risk-reward proposition
with multiple layers of downside protection including seniority in the capital
structure, loan-to-value ratios of below 65% and third party guarantees as
additional collateral where required. The strategy has historically generated
returns of circa 11% annually since inception.
We opted to sell all of our remaining stake in Brookfield Renewable Partners on
valuation grounds during the period and in order to redeploy the proceeds into
Safran. Since initiating this position in January 2016, and subsequently adding
during periods of weakness, our investment in Brookfield delivered a total
return (including dividends) of 1.8x over a period of just over four years.
Private Investments
Our portfolio of private investments represented 16.2% of our total NAV as at
31 December 2020, and delivered total returns of 4.2% during the period, adding
0.7% to our NAV.
Increase/ Contribution
Investment (Decrease) % to NAV %
Calisen Group 32.5 1.6
Perfin Apollo 12 (2.2) (0.1)
X-ELIO (2.5) (0.3)
WCP Growth Fund LP (94.2) (0.4)
After completing an initial public offering in February 2020, Calisen Group
(formerly known as Calvin Capital), the smart meter operator, received a
takeover offer from a consortium of infrastructure investors led by BlackRock
in December. The takeover is expected to complete in April 2021, with the bid
of 261p per share representing a premium of approximately 9% compared to its
initial public offering price. This transaction marked the end of our original
co-investment in Calvin Capital, which was made alongside KKR in January 2017,
and generated a return on investment of approximately 1.7x over four years.
Electricity transmission infrastructure developer and operator, Perfin Apollo
12, completed its initial public offering in January. We received the cash
proceeds arising from the sale of our entire holding. This completed a
successful investment which has generated a return of nearly four times our
initial sterling investment in just two and a half years.
X-ELIO, the Spanish solar operator and developer, remains our single largest
private holding, representing 10.5% of NAV at the year end. This is after we
received cash proceeds from the partial sale of our investment to Brookfield.
We sold 30% of our holding, and approximately 20% of the proceeds from the sale
were retained by the KKR-managed holding entity for the purpose of funding
X-ELIO's near term growth, resulting in a distribution to Menhaden of $4.9
million. The transaction was completed in line with carrying value. X-Elio also
successfully sold a portfolio of more than 500MW of Spanish solar assets to
China Three Gorges Europe in August 2020.
The WCP Growth Fund continues to progress towards its full liquidation. We
received a small distribution following the sale of one of its penultimate
business interests, leaving Resysta, which produces an ecologically friendly
wood replacement, as the one remaining asset. We continue to hold the position
at a 50% discount to the manager's valuation. Subsequent to the period ended
31 December 2020, the Company's investment in WCP Growth Fund has been written
off.
FX Hedges
The sole aim of our currency hedging is to lower the volatility of our sterling
denominated returns by reducing our non-sterling exposure related to our
investments denominated in other currencies. We have been using currency
forward contracts to hedge between half and two thirds of our EUR and USD
denominated exposures. The appreciation of sterling during the period meant
that we benefited from a small gain on these currency forward contracts on a
standalone basis, which added 0.5% to the NAV.
Outlook
The full impacts of record fiscal and monetary actions to protect against
economic collapse remain unclear. Near term, with the United States Senate now
controlled by the Democrats, and the likelihood of higher fiscal spending,
inflation expectations appear to be rising. In our view, this provides further
justification for our decision to focus on companies which demonstrably deliver
or benefit from the efficient use of resources, have predictable financial
performance and a reasonable valuation. At the same time, we have removed high
barriers to entry as a core principle of our investment strategy.
From our private portfolio, we can now point to three successful full exits,
and one partial. However, the presence of better opportunities within public
markets has meant that both our yield and private buckets have remained below
their target allocations. Whilst we continue to search diligently for suitable
yield and private investments, which offer an attractive balance between risk
and reward, we intend to make sure they only improve the quality of the
portfolio.
The Company's net asset value has now successfully compounded at circa 9.6%
annually, after fees, for over five years and we remain optimistic on both our
current portfolio's prospects and the broader resource efficiency theme.
Net Asset NAV
Value per share
£'000 pence
31 December 2015 67,115 83.9
31 December 2020 106,132 132.7
Annualised Net Return 9.6%
Menhaden Capital Management LLP
Portfolio Manager
8 April 2021
Environmental Impact Statement
Foreword
This Impact Report comes at a unique and testing time for investors and firms
across the economy. Society as a whole is reckoning with the need to address
not just a global pandemic, but also the intersecting crises of a warming
planet and widespread biodiversity loss. As we approach the UN's COP26
conference in November 2021, there has never been a more important time for
investors to prioritise sustainability returns alongside financial ones.
That is why, at Menhaden Capital Management LLP (Menhaden), our main objective
is to generate long-term profits for our shareholders by investing in
high-quality businesses that have a positive impact on society and our natural
environment. In particular, as highlighted in this report, the theme of
resource and energy efficiency underpins our approach. An analysis of whether
investees and potential investees are embedding energy efficiency into their
business models, reducing reliance on natural resources and promoting reuse is
at the heart of our investment process. We also consider our holdings' approach
to environmental commitments and reporting.
We are proud to be making investments that contribute to the circular economy
and the low-carbon transition, including new portfolio additions in innovative
firms like ASML and LAM Research which are at the forefront of semiconductor
manufacturing technology. Their contribution to more energy-efficient
technology and devices is particularly timely in a year of increased and
accelerated digitisation.
This Impact Statement shows Menhaden's holdings helped save 32,000 MWh of
electricity in 2020, equivalent to powering roughly 10,850 houses for one year,
and 30,000 tonnes of CO2e emissions, equivalent to taking over 19,800 cars off
the road.
This is an approach which has brought strong financial performance too. At our
AGM in April 2020, we achieved a resounding vote in favour of continuation, a
testament to our five-year track record of sustained and sustainable returns.
Our portfolio has produced net investment performance of 9.6% annualised over
the last 5 years, and 13.0% over the last year. Our share price has also now
breached 100p.
Finally, in 2020, we were delighted to step up our active ownership activities.
We engaged with several holdings in sectors from aviation to communications to
encourage improved emissions disclosure, performance and target-setting. We
look forward to continuing our dialogue with these companies into 2021 on how
they can mitigate climate risks and reduce their carbon footprint in this
all-important year for climate action. We encourage our investee companies to
commit to the Net Zero Carbon Initiative.
Ben Goldsmith
Menhaden Capital Management LLP
Portfolio Manager
"By looking at environmental factors in its fundamental, research-oriented
approach and by actively engaging with companies on climate risk, Menhaden is
protecting value today and helping build the low carbon economy of tomorrow"
Our approach to impact
Our core mission, as a publicly-listed investment trust, is to generate
long-term profits for shareholders by investing in opportunities that deliver,
or benefit from, the efficient use of energy and resources.
Our hard-headed approach seeks to invest in those companies facilitating the
transition to a more resource-efficient economy. Companies that help us do more
with less, and protect our finite natural resources.
This includes investments such as X-ELIO, a global leader in renewable energy
which currently has 25 solar plants in operation across 10 countries, and
Calisen Group (formerly known as Calvin Capital), a provider of energy
infrastructure that is playing a central role in helping the UK roll out smart
metering across its energy network.
We see smart meters as crucial enablers of a more efficient future energy
system. They empower end-users to manage their energy usage and are helping to
unlock 'smart grid' predictive technology so energy companies can better
build-in efficiency. Similarly, we invest in leading semiconductor firms (see
case study below) that are supplying the tools to enable more efficiency in the
way the world runs its devices, solar panels and data centres.
Driving efficiency in transportation
We take a similar future-focused approach to our analysis of the transport
sector. We recognise that there will be continued demand for aviation, and
therefore seek to support those companies facilitating the most low-carbon ways
in which to meet that demand.
Our investee Airbus, for example, recently announced its ambition to develop
the world's first zero-emission commercial aircraft by 2025 by exploring
hydrogen propulsion, which they estimate has the potential to reduce the CO2
emissions of the aviation sector by up to 50%. The high energy density of
hydrogen means it carries more energy per unit of weight than other fuels, such
as kerosene, this innovation presents real energy-saving opportunities compared
to electricity being stored in heavy batteries which produce less energy for
their relative weight.
By investing in transport companies with best-in-class approaches to
sustainability, we calculate that Menhaden's transport investments have helped
save over 12,800 tCO2e of carbon emissions in 2020.
Powering sustainable digitisation with semiconductor technology
This year, remote working has increased our reliance on technology and
accelerated the digitalisation of the global economy. This provokes an
important question: How can we make the digital transition a sustainable one?
Remote data centres required to run our interconnected devices are thought to
use more than 2% of the world's electricity and generate the same amount of
carbon emissions as the global airline industry. One study suggested that if
each person in the UK sent one fewer email a day it could cut carbon output by
more than 16,000 tonnes a year. So improving the efficiency of the electronic
devices at the heart of our ever more connected lives is therefore a crucial
element of global attempts to reduce emissions.
Menhaden invests in three companies that are pre-eminent in the drive to
increase energy efficiency using semiconductor chips. Semiconductors are used
in the manufacturing of a wide range of devices from smartphones, to data
centres to solar panels, to televisions and underpin artificial intelligence,
5G and connected internet technology.
Innovation in the semiconductor sector is already delivering reductions in the
amount of energy needed to run these devices and process data. This has
contributed to the trend known as Koomey's Law, that states that the energy
efficiency of computers doubles roughly every 18 months.
ASML Corp is at the forefront of lithography printing for integrated circuits,
KLA Corp is a leader in process control solutions for semiconductor
manufacturing and LAM Research Group is a manufacturer of semiconductor chips
that leverages advanced etching technology to make chips more energy efficient.
These three new additions to our portfolio in 2020 are helping make the
fundamental building blocks of digitisation and computing more efficient, and
therefore greener too.
Active ownership: Leveraging our voice on climate
As a responsible steward of our shareholders' capital, Menhaden is committed to
using its voice to influence more sustainable industry practices, both by
engaging directly with companies in our portfolio and working in collaboration
with other investors and initiatives.
In particular, we believe climate-change related risks, including a company's
greenhouse gas emissions, will have an increasingly material effect on
long-term profitability. Therefore, we are keen to see management teams
proactively managing climate change risks like regulation, taxation,
competitive advantage, brand impairment and physical asset impairment. In 2020,
for the first time, the Company actively engaged with several holdings in our
portfolio to help us understand their exposure to those risks, as well as try
to influence more thorough climate risk management via disclosure and emissions
reductions targets.
In 2020, Menhaden supported the Children's Investment Fund (TCI)'s 'Say on
Climate' campaign, which filed resolutions at seven US-listed issuers: Moody's
Corp, S&P Global, Union Pacific Railroad, Charter Communications, Alphabet,
Canadian Pacific Railway and Canadian National. TCI outlined its expectation
for companies to have a credible, publicly-disclosed plan to reduce greenhouse
gas emissions, including science-based targets that align with the Paris
Agreement. TCI also requested that its portfolio companies disclose their
current greenhouse gas emissions in a manner consistent with the
recommendations of the Task Force on Climate-related Financial Disclosures
(TCFD).
Menhaden is an investor signatory to CDP, a public recognition of our
commitment to engaging with companies on environmental issues and part of our
efforts to promote industrial scale environmental disclosure aligned with the
TCFD. Menhaden is also a member of the FAIRR investor network, which is helping
promote greener practices in global animal agriculture, and has gained the
London Stock Exchange Green Economy Mark.
Engaging Airbus on climate risks
In February 2020, Menhaden engaged with Airbus on its climate risk management,
disclosure and target-setting. The Portfolio Manager recommended that Airbus
upgrade their GHG emissions targets to measurable science-based targets that
align with the Paris Agreement, disclose their Scope 3 emissions fully, make
public its disclosure to CDP, engage in carbon offsetting to mitigate its
footprint, and implement best practices for the sourcing and managing of energy
across all its buildings.
These steps will help Airbus continue to play a leading role in establishing
industry best practices and rapidly de-carbonize aviation given the industry
estimates for growth in air passenger traffic in the coming years.
Since our engagement started, Airbus has made its 2019 CDP disclosure public
and followed the recommendation to define their emissions commitments against
Science Based Targets methodology, in line with a pathway of well below 2°C.
Airbus has committed to reassess these targets at least every five years to
ensure it remains consistent with the most recent climate science.
SDG Impacts
The Menhaden Board and the Portfolio Manager support the UN Sustainable
Development Goals (SDGs) and many of the Company's holdings contribute to the
challenge of achieving them. The examples below offer a snapshot of how the
Company's investments contribute to at least six SDGs:
About this report
All impact data in this report is based on the proportion that Menhaden holds
of each entity as of 31 December 2020. Analysis refers to the Company's listed
portfolio and the biggest private holding, X?ELIO. It is calculated on best
estimates using publicly disclosed data and full details of our methodology can
be found in the Impact Report Appendix on our website.
Our global water crisis is an urgent one and increased water demand and rising
temperatures could reduce water availability in cities by more than 66% in 2050
. Microsoft has pledged to replenish water levels, by putting back more water
into stressed basins than it consumes as a company. Freight train company
Canadian Pacific has reported a decrease in water consumption by 59% since
2015, a significant contribution to reducing the water intensity of its
transportation operations.
In 2020, Google, part of Alphabet Inc, announced its ambition to power its data
centres with solely carbon-free electricity by 2030, building on its previous
goal of matching its energy use with 100% renewable energy. Waste Management
Inc turns waste at 124 of its active landfill sites into biogas which is then
used as a renewable energy resource, creating economic and environmental value
from waste. X-Elio has begun construction of its largest solar farm in
Australia which, once complete, will generate 420 GWh of green energy every
year.
Canadian National's network of 20,000 route miles of rail track is building
long-haul freight infrastructure that is four times more fuel-efficient than
trucks. KLA Corp's advanced semiconductor technologies are contributing to the
Internet of Things megatrend that is expected to exceed $500 billion by 2021,
embedding connectivity into digital infrastructure to help achieve SDG 9.
Charter Communications, a connectivity company, coordinates recycling schemes
for electronic equipment like batteries, network hardware and mobile equipment.
To date, 77 million pounds of materials have been either responsibly recycled
or sold through their Product Life Management initiative. ASML plans to cut its
amount of waste per revenue by 50% by 2025 as part of their ambition to extract
maximum value from the materials used and repurpose where possible.
Maritime services firm Ocean Wilsons Holdings is reducing its GHG emissions by
using rubber-tyre gantry (RTG) electric cranes with lower environmental impact
in container terminals. Airbus has announced an ambition to develop the world's
first zero-emission commercial aircraft by 2035.
Waste Management Inc is working to reduce the quantity of plastics entering
rivers, waterways and oceans by recycling materials with responsible
end-markets and educating consumers on recycling best practices. Alphabet
recently revealed Tidal, a team developing AI technologies to track and monitor
marine life, with the aim of understanding the impact of fish farming on our
oceans.
Business Review
The Strategic Report has been prepared to provide information to shareholders
to assess how the Directors have performed their duty to promote the success of
the Company.
The Strategic Report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
Business Model
The Company is an externally managed investment trust and its shares are listed
on the premium segment of the Official List and traded on the main market of
the London Stock Exchange.
The purpose of the Company is to provide a vehicle for investors to gain
exposure to a portfolio of companies that are demonstrably delivering or
benefiting significantly from the efficient use of energy or resources
irrespective of their size, location or stage of development, through a single
investment.
The Company is an Alternative Investment Fund ("AIF") under the UK's
Alternative Investment Fund Managers Regulation ("AIFMD UK Regulation") and
Frostrow Capital LLP is the appointed Alternative Investment Fund Manager.
As an externally managed investment trust, all of the Company's day-to-day
management and administrative functions are outsourced to service providers. As
a result, the Company has no executive directors, employees or internal
operations.
The Board is responsible for all aspects of the Company's affairs, including
setting the parameters for asset allocation, monitoring the investment strategy
and the review of investment performance and policy. It also has responsibility
for all strategic policy issues, including share issuance and buy backs, share
price and discount/premium monitoring, corporate governance matters, investor
relations, dividends and gearing.
Further information on the Board's role and the topics it discusses with the
AIFM and the Portfolio Manager is provided in the Corporate Governance
Statement.
Investment Strategy
The implementation of the Company's investment objective has been delegated to
Frostrow Capital LLP ("Frostrow" or the "AIFM") by the Board. Frostrow has, in
turn and jointly with the Company, appointed Menhaden Capital Management LLP as
the Portfolio Manager.
Details of the Portfolio Manager's approach are set out in the Investment
Process section and in their review.
While the Board's strategy is to allow flexibility in managing the investments,
in order to manage investment risk it has imposed various investment, gearing
and derivative guidelines and limits, within which Frostrow and the Portfolio
Manager are required to manage the investments, as set out in the Investment
Objective and Policy.
Any material changes to the investment objective or policy require approval
from shareholders.
The Board
Details of the Board of Directors of the Company are set out below.
All Directors will seek re-election by shareholders at the Annual General
Meeting to be held on 3 June 2021.
Dividend Policy
The Company complies with the United Kingdom's investment trust rules regarding
distributable income which require investment trusts to retain no more than 15%
of their income from shares and securities each year. The Company's dividend
policy is that the Company will only pay a dividend sufficient to maintain
investment trust status. No dividend was declared this year.
Key Performance Indicators ("KPIs")
The Board of Directors reviews performance against the following Key
Performance Indicators (KPIs). They comprise both specific financial and
shareholder-related measures and the results for the year can be found at the
beginning of the document. To better reflect our non-benchmarked total return
investment strategy, the Board has decided to use RPI+3% as its primary long
term financial performance comparator and to remove reference to the MSCI World
Total Return Index from the investment objective. This more meaningfully aligns
with the company's investment strategy which does not consider any stock market
index weightings. The KPIs for the Company are:
* Net asset value ("NAV") per share total return;
* Share price total return;
* Discount/premium of the share price to the NAV per share;
* Ongoing charges ratio; and
* RPI+3% (4.2% for the year to 31 December 2020)
Please refer to the Glossary for definitions of these terms and an explanation
of how they are calculated.
NAV per share total return
The Directors regard the Company's NAV per share total return as being the
overall measure of value delivered to shareholders over the long term. This
reflects both the net asset value growth of the Company and any dividends paid
to shareholders.
Share price total return
The Directors regard the Company's share price total return to be a key
indicator of performance and monitor this closely. This measure reflects the
return to the investor on last traded market prices, assuming any dividends
paid are reinvested.
Share price discount/premium to NAV per share
The share price discount/premium to the NAV per share is considered a key
indicator of performance as it impacts the share price total return and can
provide an indication of how investors view the Company's performance and its
investment objective. The Chairman's Statement describes the approach the Board
took to address share price performance during the year.
Ongoing charges ratio
Ongoing charges represent the costs that shareholders can reasonably expect to
pay from one year to the next, under normal circumstances. The Board continues
to be conscious of expenses and works hard to maintain a sensible balance
between good quality service and costs. The Board therefore considers the
ongoing charges ratio to be a KPI and reviews the figure both in absolute terms
and in comparison to the Company's peers.
The Board also monitors the Company's NAV return against its peer group and
other relevant indices such as the AIC Global Sector and the AIC Environmental
Sector. Details are given in the Chairman's Statement.
A full description of the portfolio and performance during the year under
review is contained in the Portfolio Manager's Review.
Principal Service Providers
The principal service providers to the Company are Frostrow Capital LLP
("Frostrow" or the "AIFM"), Menhaden Capital Management LLP ("MCM" or the
"Portfolio Manager") and J.P. Morgan Europe Limited (the "Depositary"). Details
of their key responsibilities and their contractual arrangements with the
Company follow.
AIFM
The Board has appointed Frostrow as the designated AIFM of the Company on the
terms and subject to the conditions of the alternative investment fund
management agreement between the Company and Frostrow (the "AIFM Agreement").
The AIFM Agreement assigns to Frostrow overall responsibility to manage the
Company, subject to the supervision, review and control of the Board, and
ensures that the relationship between the Company and Frostrow is compliant
with the requirements of the AIFMD. Frostrow, under the terms of the AIFM
Agreement provides, inter alia, the following services:
. risk management services;
. marketing and shareholder services;
. administrative and secretarial services;
. advice and guidance in respect of corporate governance requirements;
. maintenance of the Company's accounting records;
. preparation and dispatch of the annual and half yearly reports and
monthly factsheets; and
. ensuring compliance with applicable tax, legal and regulatory
requirements.
AIFM Fee
Under the terms of the AIFM Agreement, Frostrow receives a periodic fee equal
to 0.225% per annum of the Company's net assets up to £100 million, 0.20% per
annum of the net assets in excess of £100 million and up to £500 million, and
0.175% per annum of the net assets in excess of £500 million.
The AIFM Agreement is terminable on six months' notice given by either party.
Portfolio Manager
MCM is responsible for the management of the Company's portfolio of investments
under a delegation agreement between MCM, the Company and Frostrow (the
"Portfolio Management Agreement"). Under the terms of the Portfolio Management
Agreement, MCM provides, inter alia, the following services:
. seeking out and evaluating investment opportunities;
. recommending the manner by which cash should be invested, divested,
retained or realised;
. advising on how rights conferred by the investments should be
exercised;
. analysing the performance of investments made; and
. advising the Company in relation to trends, market movements and
other matters which may affect the investment objective and policy of the
Company.
Portfolio Management Fee
MCM receives a periodic fee equal to 1.25% of the Company's net assets up to £
100 million and 1.00% of the Company's net assets in excess of £100 million.
The Portfolio Management Agreement is terminable on six months' notice given by
any of the three parties.
Performance Fee
MCM is entitled to a performance fee which is dependent on the level of the
long-term performance of the Company.
In respect of a given three year performance period, a performance fee may be
payable equal to 10% of the amount, if any, by which the Company's adjusted NAV
at the end of that performance period exceeds the higher of (a) a compounding
hurdle (an annualised compound return)* on the gross proceeds of the IPO of 5%
per annum; and (b) a high watermark (the highest net asset value that the
Company has reached on which a performance fee has been paid)*. The performance
fee is subject to a cap in each performance period of an amount equal to the
aggregate of 1.5% of the weighted average NAV in each year (or part year, as
applicable) of that performance period.
*see Glossary for further details
Depositary
The Company has appointed J.P. Morgan Europe Limited as its Depositary in
accordance with the AIFMD on the terms and subject to the conditions of an
agreement between the Company, Frostrow and the Depositary (the "Depositary
Agreement"). The Depositary provides the following services, inter alia, under
its agreement with the Company:
. safekeeping and custody of the Company's custodial investments and
cash;
. processing of transactions; and
. foreign exchange services.
The Depositary must take reasonable care to ensure that the Company is managed
in accordance with the Financial Conduct Authority's Investment Funds
Sourcebook, the AIFMD and the Company's Articles of Association.
Under the terms of the Depositary Agreement, the Depositary is entitled to
receive an annual fee of the higher of £40,000 or 0.0175% of the net assets of
the Company up to £150 million, 0.015% of the net assets in excess of £150
million and up to £300 million, 0.01% of the net assets in excess of £
300 million and up to £500 million and 0.005% of the net assets in excess of £
500 million. In addition, the Depositary is entitled to a variable custody fee
which depends on the type and location of the custodial assets of the Company.
The Depositary has delegated the custody and safekeeping of the Company's
assets to JPMorgan Chase Bank N.A., London branch (the "Custodian").
The notice period on the Depositary Agreement is 90 days if terminated by the
Company and 120 days if terminated by the Depositary.
Evaluation of the AIFM and the Portfolio Manager
The performance of the AIFM and the Portfolio Manager is reviewed continuously
by the Board and the Company's Management Engagement Committee (the "MEC") with
a formal evaluation process being undertaken each year. As part of this
process, the Board monitors the services provided by the AIFM and the Portfolio
Manager and receives regular reports from them. The MEC reviewed the
appropriateness of the appointment of the AIFM and the Portfolio Manager in
December 2020 with a recommendation being made to the Board.
The Board believes the continuing appointment of the AIFM and the Portfolio
Manager, under the terms described above, is in the interests of shareholders
as a whole. In coming to this decision, the MEC and the Board took into
consideration, inter alia, the following:
. the terms of the AIFM Agreement and the Portfolio Management
Agreement, in particular the level and method of remuneration, the notice
period and the comparable arrangements of a group of the Company's peers;
. the quality of the service provided and the quality and depth of
experience of the company management, company secretarial, administrative and
marketing teams that the AIFM allocates to the management of the Company; and
. the quality of service provided by the Portfolio Manager in the
management of the portfolio; and the level of performance of the portfolio in
absolute terms and by reference to the RPI+3% and other relevant indices.
Risk Management
In fulfilling its oversight and risk management responsibilities, the Board
maintains a framework of key risks which affect the Company and the related
internal controls designed to enable the Directors to manage/mitigate these
risks as appropriate. The Directors have carried out a robust assessment of the
emerging and principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity.
The principal risks can be categorised under the following broad headings:
. Corporate Risks
. Investment Risks
. Operational Risks
. Financial Risks
. Legal and Regulatory Risks
The following sections detail the risks the Board considers to be the most
significant to the Company under these headings. The risks are broadly
unchanged from the prior year.
Principal Risks and Uncertainties Management and Mitigation
Corporate Risks At each meeting, the Board:
The share price return may differ . reviews the Company's
materially from the NAV per share i.e. investment objective in relation to
the shares may trade at a material the market, economic conditions and
discount to the NAV per share. the operation of the Company's peers;
. discusses the Company's
future development and strategy;
. reviews an analysis of the
shareholder register and reports on
investor sentiment from the Company's
corporate stockbroker and AIFM;
. reviews the level of the
share price discount to the NAV per
share and, in consultation with its
advisers, considers ways in which
share price performance may be
enhanced; and
. reviews the Company
promotional activities and
distribution strategy, which have been
delegated to Frostrow, to ensure the
Company is promoted to current and
potential investors.
Investment Risks
The implementation of the investment The Board regularly reviews the
strategy adopted by the Portfolio Company's investment mandate and MCM's
Manager may be unsuccessful and result long-term investment strategy in
in underperformance against the relation to market and economic
Company's principal performance conditions, and the performance of the
comparators and peer companies. Company's peers. The Portfolio Manager
provides an explanation of stock
The portfolio may be affected by selection decisions and an overall
market risk, that is volatile market rationale for the make-up of the
movements (in both equity and foreign portfolio, including the
exchange markets) in the sectors and resource-efficiency credentials of the
regions in which it invests. The portfolio holdings. MCM discuss
Company is also exposed to current and potential investment
concentration risk, which is the holdings with the Board on a regular
potentially higher volatility arising basis.
from its relatively concentrated
portfolio and sector-specific risks While market risk cannot be eliminated
such as global energy and commodity through diversification, it can be
prices or withdrawal of government potentially reduced through hedging.
subsidies for renewable energy. The Board sets the Company's policy on
hedging, which is detailed in the
The departure of a key member of the Investment Objective and Policy and
portfolio management team may affect details of the foreign exchange
the Company's performance. forwards in place are set out in the
Portfolio Manager's Review.
To manage concentration risk, the
Board has appointed the AIFM and the
Portfolio Manager to manage the
portfolio within the remit of the
investment objective and policy. The
investment policy limits ensure that
the portfolio is diversified, reducing
the risks associated with individual
stocks and markets. Compliance with
the investment restrictions is
monitored daily by the AIFM and
reported to the Board on a monthly
basis.
As part of its review of the going
concern and longer-term viability of
the Company, the Board also considers
the sensitivity of the Company to
changes in market prices and foreign
exchange rates (see note 16 to the
financial statements), an analysis of
how the portfolio would perform during
a market crisis, and the ability of
the Company to liquidate its portfolio
if the need arose. Further details are
included in the Going Concern and
Viability Statements.
The Portfolio Manager reports to the
Board on developments at MCM at each
Board meeting. All investment
decisions are made by an Investment
Committee, reducing reliance on a
single individual.
Operational Risks
As an externally managed investment The Board continuously monitors the
trust, the Company is reliant on the performance of all the principal
systems of its service providers for service providers with a formal
dealing, trade processing, evaluation process being taken each
administrative services, financial and year. The Audit Committee reviews the
other functions. If such systems were internal controls reports and key
to fail or be disrupted (including as policies (including measures taken to
a result of cyber crime or a pandemic) mitigate cyber risks and disaster
this could lead to a failure to comply recovery procedures) put in place by
with applicable laws, regulations and its principal service providers. Both
governance requirements and/or to a Frostrow and MCM provide a quarterly
financial loss. compliance report to the Audit
Committee, which details their
compliance with applicable laws and
regulations. The Audit Committee
maintains the Company's risk matrix
which details the risks to which the
Company is exposed, the approach to
managing those risks, the key controls
relied upon and the frequency of the
controls operation. Further details
are set out in the Audit Committee
Report.
Financial Risks
The Company is exposed to liquidity The Company's assets include liquid
risk and credit risk arising from the securities which can be sold to meet
use of counterparties. If a funding requirements, if necessary.
counterparty were to fail, it could Further information on financial
adversely affect the Company through instruments and risk can be found in
either delay in settlement or loss of note 16 to the financial statements.
assets. The most significant Details of the work undertaken in
counterparty to which the Company is regard to verifying ownership and the
exposed is the Depositary, which is valuation of unquoted (non-custodial)
responsible for the safekeeping of the assets is set out in the Independent
Company's custodial assets. Auditor's Report.
The Board reviews the services
provided by the Depositary and the
internal controls report of the
Custodian to ensure that the security
of the Company's custodial assets is
maintained. The Portfolio Manager is
responsible for undertaking reviews of
the credit worthiness of the
counterparties that it uses. The Board
reviews the Portfolio Manager's
approved list of counterparties and
the Company's use of those
counterparties.
Legal and Regulatory Risks
The regulatory or political The Board monitors regulatory
environment in which the Company developments but relies on the
operates could change to the extent services of its external advisers to
that it affects the Company's ensure compliance with applicable law
viability. and regulations. The Board has
appointed a specialist investment
trust company secretary who provides
industry and regulatory updates at
each Board meeting.
The Board has considered whether the
UK's exit from the European Union
('Brexit') poses a discrete risk to
the Company. At the date of this
report, the UK has left the EU and has
emerged from the transition period
with a trade and security deal
finalised with the EU on 24 December
2020. The impact and implications of
this remain to be seen.
While movements in exchange rates can
affect the Company's net asset value,
and sharp or unexpected changes in
investor sentiment, or tax and
regulatory changes, can lead to short
term selling pressure on the Company's
shares, the Board believes that Brexit
is unlikely to affect the Company's
business model or share price
performance over the longer term.
However, Brexit may have an adverse
impact on some of the Company's
portfolio companies which have an
exposure to the UK and/or European
markets, both in terms of their
operations and the manner in which
their distributions are treated for
tax purposes. The Board, the AIFM and
the Portfolio Manager will continue to
monitor developments as they occur.
Impact of COVID 19
The Board recognises that the emergence and spread of the new coronavirus
(Covid-19) represents a new area of risk, both to the Company's investment
performance and to its operations. In recent months the Portfolio Manager
successfully continued dialogue with investee companies and the Board has
stayed in close contact with the Portfolio Manager and has been continuously
monitoring portfolio and share price developments. The Board has also received
assurances from all of the Company's service providers in respect of:
. their business continuity plans and the steps being taken to
guarantee the ongoing efficiency of their operations while ensuring the safety
and well-being of their employees;
. their cyber security measures including improved user-access
controls, safe remote working and evading malicious attacks; and
. any increased risks of fraud as a result of decreased operations and
possible employee terminations and weakness in user access controls resulting
in the potential for management overrides.
With the emergence of several vaccines, the outlook is cautiously positive, but
the Board will continue to monitor developments as they occur.
Longer Term Viability Statement
In accordance with the UK Corporate Governance Code, the Directors have
carefully assessed the Company's position and prospects as well as the
principal risks and have formed a reasonable expectation that the Company will
be able to continue in operation and meet its liabilities as they fall due over
the next five financial years. The Board has chosen a five year horizon in view
of the long term nature and outlook adopted by the Portfolio Manager when
making investment decisions.
To make this assessment and in reaching this conclusion, the Audit Committee
has considered the Company's financial position and its ability to liquidate
its portfolio and meet its liabilities as they fall due:
. The portfolio is principally comprised of investments traded on major
international stock exchanges. Based on historic analysis 81% of the current
portfolio could be liquidated within 30 trading days with 78% in seven days and
there is no expectation that the nature of the investments held within the
portfolio will be materially different in future;
. The expenses of the Company are predictable and modest in comparison
with the assets and there are no capital commitments foreseen which would alter
that position; and
. The Company has no employees, only its non-executive Directors.
Consequently it does not have redundancy or other employment related
liabilities or responsibilities.
The Audit Committee, as well as considering the potential impact of its
principal risks and various severe but plausible downside scenarios, has also
considered the following assumptions in considering the Company's longer-term
viability:
. There will continue to be demand for investment trusts;
. The Board and the Portfolio Manager will continue to adopt a
long-term view when making investments, and anticipated holding periods will be
at least five years;
. The Company invests principally in the securities of listed companies
traded on major international stock exchanges to which investors will wish to
continue to have exposure;
. The closed ended nature of the Company means that, unlike open ended
funds, it does not need to realise investments when shareholders wish to sell
their shares;
. Regulation will not increase to a level that makes running the
Company uneconomical; and
. The performance of the Company will continue to be satisfactory.
COVID-19 was also factored into the key assumptions made by assessing its
impact on the Company's key risks and whether the key risks had increased in
their potential to affect the normal, favourable and stressed market
conditions. As part of this review the Board considered the impact of a
significant and prolonged decline in the Company's performance and prospects.
This included a range of plausible downside scenarios such as reviewing the
effects of substantial falls in investment values and the impact of the
Company's ongoing charges ratio, which were the subject of stress testing.
Company Promotion
The Company has appointed Frostrow to promote the Company's shares to
professional investors in the UK and Ireland. As investment company
specialists, the Frostrow team provides a continuous, proactive marketing,
distribution and investor relations service that aims to grow the Company by
encouraging demand for the shares.
Frostrow actively engages with professional investors, typically discretionary
wealth managers, some institutions and a range of execution-only platforms.
Regular engagement helps to attract new investors and retain existing
shareholders, and over time results in a stable share register made up of
diverse, long-term holders. Frostrow, in turn, provides the Board with
up-to-date and accurate information on the latest shareholder and market
developments.
Frostrow arranges and manages a continuous programme of one-to-one meetings
with professional investors around the UK. These include regular meetings with
'gate keepers', the senior points of contact responsible for their respective
organisations' research output and recommended lists. The programme of regular
meetings also includes autonomous decision makers within large multi-office
groups, as well as small independent organisations. Some of these meetings
involve MCM, but most of the meetings do not, which means the Company is being
actively promoted while MCM focuses on managing the portfolio.
The Company also benefits from involvement in the regular professional investor
seminars run by Frostrow in major centres, notably London and Edinburgh, which
are focused on buyers of investment companies.
The creation and dissemination of information on the Company is also overseen
by Frostrow. Frostrow produces all key corporate documents, monthly factsheets,
annual reports and manages the Company's website www.menhaden.com. All Company
information and invitations to investor events, including updates from MCM on
the portfolio and market developments, are regularly emailed to a growing
database, overseen by Frostrow, consisting of professional investors across the
UK and Ireland.
Frostrow maintains close contact with all the relevant investment trust broker
analysts, particularly those from Numis Securities Limited, the Company's
corporate broker, but also others who publish and distribute research on the
Company to their respective professional investor clients.
Anti-Bribery and Corruption Policy
The Board has adopted a zero-tolerance approach to instances of bribery and
corruption. Accordingly it expressly prohibits anyone performing services or
acting on behalf of the Company from accepting, soliciting, paying, offering or
promising to pay or authorise any payment, public or private, in the United
Kingdom or abroad, to secure any improper benefit for themselves or for the
Company.
A copy of the Company's Anti Bribery and Corruption Policy can be found on its
website at www.menhaden.com. The policy is reviewed regularly by the Audit
Committee.
Prevention of the Facilitation of Tax Evasion
In response to the implementation of the Criminal Finances Act 2017, the Board
has adopted a zero-tolerance approach to the criminal facilitation of tax
evasion. A copy of the Company's policy on preventing the facilitation of tax
evasion can be found on the Company's website www.menhaden.com. The policy is
reviewed annually by the Audit Committee.
Stakeholder Interests and Board Decision-Making
Under new reporting regulations and the new AIC Code of Corporate Governance,
the Directors must now explain more fully how they have discharged their duty
under s172 of the Companies Act 2006 in promoting the success of the Company
for the benefit of the members as a whole. This includes the likely
consequences of the Directors' decisions in the long-term and how they have
taken wider stakeholders' needs into account.
The Directors aim to act fairly as between the Company's shareholders. The
Board's approach to shareholder relations is summarised in the Corporate
Governance Statement. The Chairman's Statement also provides an explanation of
the approach taken by the Directors during the year to achieve the Board's
long-term aim of ensuring that the Company's shares trade at a price close to
the NAV per share, as well as steps that the Board has taken to reduce the
Company's own impact on the environment.
Social, Human Rights and Environmental Matters
The Company is an externally managed investment trust within the AIC
Environmental Sector and invests in companies and markets that are demonstrably
delivering or benefiting significantly from the efficient use of energy or
resources. It does not have any employees or premises, nor does it undertake
any manufacturing or other operations. All its functions are outsourced to
third party service providers and therefore the Company itself does not have
any employee or direct human rights issues, nor does it have any direct,
material environmental impact. The Company therefore has no environmental,
human rights, social or community policies.
As an investment company, the Company does not provide goods or services in the
normal course of business and does not have customers. Accordingly, the Company
falls outside the scope of the Modern Slavery Act 2015. The Company's suppliers
are typically professional advisers and the Company's supply chains are
considered to be low risk in this regard.
The Board believes that the integration of financially material environmental,
social and governance ("ESG") factors into investment decision-making can
reduce risk and enhance returns. In addition, the ongoing engagement and
dialogue with investee companies, including through proxy voting, are key parts
of an asset stewardship role.
Accordingly, the Directors encourage the Portfolio Manager to ensure the
Company's investments adhere to best practice in the management of ESG issues,
and encourage them to have due regard to the UN Global Compact and UN
Principles of Responsible Investment. The Portfolio Manager's statement of
compliance with the Financial Reporting Council UK Stewardship Code is
available at www.frc.org.uk. The Board has reviewed this statement as well as
the voting decisions made on the Company's behalf.
Engaging with The Company's Stakeholders
The following 'Section 172' disclosure, required by the Companies Act 2006 and
the AIC Code, describes how the Directors have had regard to the views of the
Company's stakeholders in their decision-making.
Who? Why? Who?
STAKEHOLDER THE BENEFITS OF ENGAGEMENT HOW THE BOARD, THE AIFM AND THE PORTFOLIO
GROUP WITH THE COMPANY'S MANAGER HAVE ENGAGED WITH THE COMPANY'S
STAKEHOLDERS STAKEHOLDERS
Investors Clear communication of the Frostrow as AIFM, the Portfolio Manager
Company's strategy and the and the Company's broker, on behalf of
performance against the the Board, complete a programme of
Company's objective can investor relations throughout the year.
help the share price trade
at a narrower discount or a An analysis of the Company's shareholder
wider premium to its net register is provided to the Directors at
asset value which benefits each Board meeting along with marketing
shareholders. reports from Frostrow. The Board reviews
and considers the marketing plans on a
regular basis. Reports from the Company's
broker are submitted to the Board on
investor sentiment and industry issues.
Key mechanisms of engagement include:
. The Annual General Meeting
. The Company's website which
hosts reports, video interviews with the
portfolio manager and monthly factsheets
. One-on-one investor meetings
. Should any significant votes be
cast against a resolution, proposed at
the Annual General Meeting the Board will
engage with Shareholders.
. The Board will explain in its
announcement of the results of the AGM
the actions it intends to take to consult
Shareholders in order to understand the
reasons behind the votes against.
. Following the consultation, an
update will be published no later than
six months after the AGM and the Annual
Report will detail the impact the
Shareholder feedback has had on any
decisions the Board has taken and any
actions or resolutions proposed.
Portfolio Engagement with the The Board meets regularly with the
Manager Company's Portfolio Manager Company's Portfolio Manager throughout
is necessary to evaluate the year both formally at the quarterly
their performance against Board meetings and informally as needed.
the Company's stated The Board also receives monthly
strategy and to understand performance and compliance reporting.
any risks or opportunities
this may present. The Board The Portfolio Manager's attendance at
ensures that the Portfolio each Board meeting provides the
Manager's environmental, opportunity for the Portfolio Manager and
social and governance Board to further reinforce their mutual
("ESG") approach is in line understanding of what is expected from
with standards elsewhere both parties.
and is in line with the
Board's expectations.
The Company produces an
annual environmental impact
statement setting out the
environmental purpose of
the Company and the impact
its investments have, or
intend to deliver. The
report is included within
this Annual Report and is
published as a separate
document on
www.menhaden.com.
Engagement also helps
ensure that Portfolio
Management costs are
closely monitored and
remain competitive.
Service The Company contracts with The Board and Frostrow engage regularly
Providers third parties for other with other service providers both in
services including: one-to- one meetings and via regular
depositary, investment written reporting. This regular
accounting & administration interaction provides an environment where
as well as company topics, issues and business development
secretarial and registrars. needs can be dealt with efficiently and
The Company ensures that collegiately.
the third parties to whom
the services have been The Board together with Frostrow have
outsourced complete their maintained regular contact with the
roles in line with their Company's key service providers during
service level agreements the pandemic, as well as carrying out a
thereby supporting the review of the service providers' business
Company in its success and continuity plans and additional cyber
ensuring compliance with security provisions.
its obligations.
It is the Board's belief that Frostrow
The Covid-19 pandemic has and Menhaden Capital Management LLP are
meant that it was vital to the most important service providers with
make certain there were relation to the success of the Company.
adequate procedures in
place at the Company's key
service providers to ensure
safety of their employees
and the continued high
quality service to the
Company.
Portfolio Gaining a deeper The Board encourages the Company's
companies understanding of the Portfolio Manager to engage with
portfolio companies and companies and in doing so expects ESG
their strategies as well as issues to be a key consideration.
incorporating consideration
of ESG factors into the The Board receives an update on MCM's
investment process assists engagement activities quarterly.
in understanding and
mitigating risks of an
investment as well as
identifying future
potential opportunities.
What? Outcomes and actions
WHAT WERE THE KEY TOPICS OF ENGAGEMENT? WHAT ACTIONS WERE TAKEN, INCLUDING
PRINCIPAL DECISIONS?
Key topics of engagement with investors
* Ongoing dialogue with shareholders
concerning the strategy of the In December 2020, The Board held a
Company, performance and the dedicated strategy session which reviewed
portfolio. 2015 to 2020 and the future strategy of
the Company including an enhanced
communication strategy with the Portfolio
Manager, Frostrow and the broker in
attendance.
To further aid the Board in the
monitoring of the share price discount,
the Board agreed at the strategy session
to change the Company's NAV per share
announcement from a monthly basis to a
daily basis.
Key topics of engagement with the
external Portfolio Manager on an ongoing
basis are portfolio composition,
performance, outlook and business
updates. . No specific action required.
. The impact of Brexit upon their
business and the portfolio. . The Board has received regular
updates from the Portfolio Manager
. The impact of COVID-19 upon throughout the COVID 19 pandemic and its
their business and how components in the impact on investment decision making. In
portfolio have sought to take advantage addition, the impact of new working
of the pandemic, in particular through practices adopted by the Portfolio
increased digitalisation. Manager as a consequence of the pandemic
have been reviewed by the Board.
. The integration of ESG into the
Portfolio Manager's investment processes. . The Portfolio Manager reports
regularly any ESG issues in the portfolio
companies to the Board.
Other Service Providers
· The Directors have frequent . No specific action required as
engagement with the Company's other the reviews of the Company's service
service providers through the annual providers, have been positive and the
cycle of reporting and due diligence Directors believe their continued
meetings or site visits by Frostrow. This appointment is in the best interests of
engagement is completed with the aim of the Company.
maintaining an effective working
relationship and oversight of the
services provided.
Performance and Future Developments
An outline of performance, investment activity and strategy, market background
during the year and the future outlook, is provided in the Chairman's Statement
and the Portfolio Manager's Review.
The Portfolio Manager believes that companies which supply products and
services that help to conserve scarce resources, reduce negative environmental
impacts and improve resource efficiency are likely to enjoy faster growing end
markets. The Directors continue to believe that environmental and
resource-efficiency solutions, together with the Portfolio Manager's investment
strategy, should provide good returns for the long-term investor.
It is expected that the Company's investment strategy in the coming year will
remain largely unchanged.
This Strategic Report has been signed for and on behalf of the Board.
Sir Ian Cheshire
Chairman
8 April 2021
Governance
Board of Directors
Sir Ian Cheshire (Chairman)
Sir Ian Cheshire was the Group Chief Executive of Kingfisher plc from January
2008 until February 2015. Prior to that he was Chief Executive of B&Q Plc from
June 2005. Sir Ian was the Chairman of Barclays UK, the ring-fenced retail bank
until December 2020. He was also previously the Government lead non-executive.
Sir Ian is a non-executive director of Barclays PLC and BT Group plc and
chairman designate of Spire Healthcare Group plc. In addition, he is Chair of
the Prince of Wales Charitable Fund and President of the Business Disability
Forum.
Sir Ian was knighted in the 2014 New Year Honours for services to Business,
Sustainability and the Environment.
Duncan Budge
Duncan Budge is Chairman of Dunedin Enterprise Investment Trust plc and Artemis
Alpha Trust plc, and a non-executive director of Lowland Investment Company
plc, Biopharma Credit plc and Asset Value Investors Ltd.
He was previously a director of J. Rothschild Capital Management from 1988 to
2012 and a director and chief operating officer of RIT Capital Partners plc
from 1995 to 2011. Between 1979 and 1985 he was with Lazard Brothers & Co. Ltd.
Emma Howard Boyd
Emma Howard Boyd has been the Chair of the Environment Agency since 2016. The
Agency is a public body responsible for the protection and enhancement of the
environment in England.
She is also an ex-officio board member of the Department for Environment, Food
& Rural Affairs (DEFRA) and an Advisor to the Board of Trade. Emma, with a
background in finance, is a board member or advisor to many organisations which
include The Prince's Accounting for Sustainability Project, the Green Finance
Institute, the Coalition for Climate Resilient Investment, the Centre for
Greening Finance and Investment, the Council for Sustainable Business, the
European Climate Foundation, and Menhaden PLC. Emma was the UK Commissioner to
the Global Commission on Adaptation from 2018 until its sunset in January 2021.
Past roles include being the Chair of Trustees at Share Action, Vice Chair of
Future Cities Capital, and non-executive director of the Aldersgate Group and
Thrive Renewables.
Howard Pearce
Howard Pearce is the founder of HowESG Ltd, a specialist environmental, asset
stewardship, and corporate governance consultancy business. His non-executive
roles include independent Chair of the Bank of Montreal Global Asset Management
(EMEA) Responsible Investment Advisory Council and Non-Executive Director of
Response Global Media Limited the publishers of Responsible Investor and
Responsible Company.
Previously he was Chair of the Pension Board of Avon and Wiltshire Pension
Funds, Board member and Chair of the Audit Committee of Cowes Harbour
Commission, and a Trustee and Chair of the Investment and Audit Committees of
the NHS 'Above and Beyond' charity. Between 2003 and 2013 Howard was the Head
of the Environment Agency pension fund and a member of its Pensions and
Investment Committee. Under his leadership, the fund won over 30 awards in the
UK, Europe and globally for its financially and environmentally responsible
investment, best practice fund governance, public reporting and
e-communications.
Meeting Attendance
The number of scheduled meetings of the Board and its committees held during
the year and each Director's attendance, is shown below:
Type and number of meetings Board Audit Management
Committee Engagement
Committee
held in 2020 (4) (3) (1)
Sir Ian Cheshire 4 N/A 1
Duncan Budge 4 3 1
Emma Howard Boyd 4 3 1
Howard Pearce 4 3 1
In addition to the normal, quarterly Board meetings, a Strategy meeting was
held in December 2020.
Directors' Interests
The Directors' beneficial interests in the Company's shares, together with
those of their families, are set out below.
Ordinary shares of 1p
each
31 December 31 December
2020 2019
Sir Ian Cheshire 115,000 115,000
Duncan Budge 10,000 10,000
Emma Howard Boyd 23,000 23,000
Howard Pearce 40,000 35,000
Total 188,000 183,000
No changes have been notified to the date of this report.
Directors' Report
The Directors present their annual report on the affairs of the Company
together with the audited financial statements and the Independent Auditor's
Report for the year ended 31 December 2020. Disclosures relating to
performance, future developments and risk management can be found within the
Strategic Report.
Business and Status of the Company
The Company is registered as a public limited company in England and Wales
(registered number 09242421) and is an investment company within the terms of
Section 833 of the Companies Act 2006 (the "Act"). Its shares are traded on the
main market of the London Stock Exchange, which is a regulated market as
defined in Section 1173 of the Act.
The Company has received approval from HM Revenue & Customs as an investment
trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. In the
opinion of the Directors, the Company continues to direct its affairs so as to
qualify for such approval.
Continuation of the Company
In accordance with the Company's Articles of Association, a continuation vote
was offered to shareholders at the AGM held on 9 June 2020 and was voted for by
an overwhelming majority of 98%. The next opportunity for shareholders to vote
on the continuation of the Company will be at the 2025 AGM and every five years
thereafter.
Results and Dividends
The results attributable to shareholders for the year are shown at the
beginning of this document.
An interim dividend of 0.4p per share in relation to the year ended 31 December
2019 was paid on 12 June 2020 to shareholders on the register on 15 May 2020.
No dividends were declared during the year ended 31 December 2020 and the
Directors have not recommended a final dividend for the year. It is expected
that the Board will revert to recommending a final dividend (if required to
maintain investment trust status) for shareholders' approval next year.
Alternative Performance Measures
The Financial Statements set out the required statutory reporting measures of
the Company's financial performance. In addition, the Board assesses the
Company's performance against a range of criteria which are viewed as
particularly relevant for investment trusts, which are summarised and explained
in greater detail in the Strategic Report, under the heading 'Key Performance
Indicators'. The Directors believe that these measures enhance the
comparability of information between reporting periods and investors in
understanding the Company's performance. The measures used for the year under
review have remained consistent with the prior year.
Definitions of the terms used and the basis of calculation are set out in the
Glossary.
Capital Structure
The Company's capital structure at the end of the year under review and to the
date of this report was comprised of 80,000,001 ordinary shares of 1p nominal
value each.
The voting rights of the ordinary shares on a poll are one vote for each share
held.
No shares were issued or repurchased during the year and to the date of this
report.
There are no:
* restrictions on transfer of, or in respect of the voting or dividend rights
of, the Company's ordinary shares;
* agreements, known to the Company, between holders of securities regarding
the transfer of ordinary shares; or
* special rights with regard to control of the Company attaching to the
ordinary shares.
At the end of the year under review and to the date of this report, the
Directors had shareholder authority to issue a further 919,999,999 ordinary
shares and to repurchase no more than 14.99% of the Company's issued share
capital per annum. These authorities will expire at the forthcoming annual
general meeting. Proposals to renew the Board's powers to issue and buy back
shares are set out in the Notice of Annual General Meeting at the end of this
document.
Substantial Interests in Share Capital
The Company was aware of the following substantial interests of 3% or more in
the voting rights of the Company as at 31 December 2020 and 28 February 2021,
the latest practicable date before publication of this Annual Report.
28 February 2021 31 December 2020
Number % of Number % of
of issued of issued
Ordinary share Ordinary share
Shareholder shares capital shares capital
Cavenham Private Equity 15,185,000 18.98 15,185,000 18.98
Aachen Muenchener Versicherung 10,000,000 12.50 10,000,000 12.50
Kendall Family Investments 3,069,000 3.84 5,000,000 6.25
Ravenscroft 2,891,550 3.61 2,929,050 3.66
Charles Stanley 2,879,147 3.60 2,821,989 3.53
Armstrong Investments 2,780,000 3.48 2,780,000 3.47
The Grantham Foundation 2,600,000 3.25 2,600,000 3.25
As at 31 December 2020 and to the date of this report, the Company had
80,000,001 ordinary shares in issue.
Going Concern
The Company's portfolio, investment activity, the Company's cash balances and
revenue forecasts, and the trends and factors likely to affect the Company's
performance are reviewed and discussed at each Board meeting. The Board has
considered a detailed assessment of the Company's ability to meet its
liabilities as they fall due, including stress tests which modelled the effects
of substantial falls in portfolio valuations and liquidity constraints, on the
Company's NAV, cash flows and expenses. Based on the information available to
the Directors at the date of this report, including the results of these stress
tests, the conclusions drawn in the Viability Statement in the Strategic Report
and the Company's cash balances, the Directors are satisfied that the Company
has adequate financial resources to continue in operation for at least the next
12 months and that, accordingly, it is appropriate to continue to adopt the
going concern basis in preparing the financial statements. In reaching these
conclusions and those in the Longer-Term Viability Statement, the stress
testing conducted also featured consideration of the effects of Covid-19 and
Brexit.
Beneficial Owners of Shares - Information Rights
Beneficial owners of shares who have been nominated by the registered holder of
those shares to receive information rights under section 146 of the Companies
Act 2006 are required to direct all communications to the registered holder of
their shares rather than to the Company's registrar or to the Company directly.
Greenhouse Gas Emissions
As the Board has engaged external firms to undertake the Company's investment
management, company management and custodial activities, the Company is exempt
from the requirements to report on greenhouse gas emissions from its
operations, and it has no responsibility for any other emissions-producing
sources under the Companies Act 2006 (Strategic Report and Directors' Reports)
Regulations 2013 or the Companies (Directors' Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018.
The Company produces an annual environmental impact statement which is included
within this Annual Report and also published separately on www.menhaden.com.
The impact report provides further detail on the environmental goals and impact
of the Company's portfolio holdings.
Directors' & Officers' Liability Insurance Cover
Directors' and officers' liability insurance cover was maintained by the
Company during the year ended 31 December 2020. It is intended that this cover
will continue for the year ending 31 December 2021 and subsequent years.
Directors' Indemnities
During the year under review and to the date of this report, indemnities were
in force between the Company and each of its Directors under which the Company
has agreed to indemnify each Director, to the extent permitted by law, in
respect of certain liabilities incurred as a result of carrying out his or her
role as a director of the Company. The Directors are also indemnified against
the costs of defending criminal or civil proceedings or any claim by the
Company or a regulator as they are incurred provided that where the defence is
unsuccessful the Director must repay those defence costs to the Company. The
indemnities are qualifying third party indemnity provisions for the purposes of
the Companies Act 2006.
A copy of each deed of indemnity is available for inspection at the Company's
registered office during normal business hours and will be available for
inspection at the Annual General Meeting.
Other Statutory Information
The following information is disclosed in accordance with the Companies Act
2006:
. the rules on the appointment and replacement of directors are set out
in the Company's articles of association (the "Articles"). Any change to the
Articles would be governed by the Companies Act 2006.
. subject to the provisions of the Companies Act 2006, to the Articles,
and to any directions given by special resolution, the business of the Company
shall be managed by the Directors who may exercise all the powers of the
Company. The powers shall not be limited by any special powers given to the
Directors by the Articles and a meeting of the Directors at which a quorum is
present may exercise all the powers exercisable by the Directors. The
Directors' powers to issue and buy back shares, in force at the end of the
year, are recorded above.
. there are no agreements:
(i) to which the Company is a party that might affect its control
following a takeover bid; and/or
(ii) between the Company and its directors concerning compensation for
loss of office.
Common Reporting Standard (CRS)
CRS is a global standard for the automatic exchange of information commissioned
by the Organisation for Economic Cooperation and Development and incorporated
into UK law by the International Tax Compliance Regulations 2015. CRS requires
the Company to provide certain additional details to HMRC in relation to
certain shareholders. The reporting obligation began in 2016 and is an annual
requirement. The Company's registrar, Link Group, has been engaged to collate
such information and file the reports with HMRC on behalf of the Company.
Political Donations
The Company has not made, and does not intend to make, any political donations.
Disclosure of Information to Auditors
The Directors at the time of approving the Directors' Report are listed above.
Each Director in office at the date of this report confirms that:
. to the best of each Director's knowledge and belief, there is no
information relevant to the preparation of their report of which the Company's
Auditor is unaware; and
. each Director has taken all the steps a director might reasonably be
expected to have taken to be aware of relevant audit information and to
establish that the Company's Auditor is aware of that information.
This information is given and should be interpreted in accordance with the
provisions of section 418 of the Companies Act 2006.
Nominee Share Code
Where the Company's shares are held via a nominee company name, the Company
undertakes:
. to provide the nominee company with multiple copies of shareholder
communications, so long as an indication of quantities has been provided in
advance; and
. to allow investors holding shares through a nominee company to attend
general meetings, provided the correct authority from the nominee company is
available.
Nominee companies are encouraged to provide the necessary authority to
underlying shareholders to attend the Company's general meetings.
Annual General Meeting
The Company's Annual General Meeting ("AGM") will be held on 3 June 2021 at 12
noon. Please refer to the Chairman's Statement for details of this year's
arrangements.
Resolutions relating to the following items of special business will be
proposed at the AGM:
Resolution 8 Authority to allot shares
Resolution 9 Authority to disapply pre-emption rights
Resolution 10 Authority to repurchase shares
Resolution 11 Authority to hold General Meetings (other than the AGM) on at
least 14 clear days notice.
The full text of the resolutions and the explanatory notes to the proposed
resolutions can be found in the Notice of AGM.
The Board considers that the proposed resolutions are in the best interests of
the shareholders as a whole. Accordingly, the Board unanimously recommends to
shareholders that they vote in favour of the resolutions to be proposed at the
forthcoming AGM, as the Directors intend to do in respect of their own
beneficial holdings.
By order of the Board
Frostrow Capital LLP
Company Secretary
8 April 2021
Statement of Directors' Responsibilities
Company law in the United Kingdom requires the Directors to prepare financial
statements for each financial year. The Directors are responsible for preparing
the financial statements in accordance with applicable law and regulations. In
preparing these financial statements, the Directors have:
. selected suitable accounting policies and applied them consistently;
. made judgements and estimates that are reasonable and prudent;
. followed applicable UK accounting standards; and
. prepared the financial statements on a going concern basis.
The Directors are responsible for keeping adequate accounting records which
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 Act 2006. 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 ensuring that the Directors' Report and other
information included in the Annual Report is prepared in accordance with
company law in the United Kingdom. They are also responsible for ensuring that
the Annual Report includes information required by the Listing Rules of the
FCA.
The financial statements are published on the Company's website
www.menhaden.com and via Frostrow's website www.frostrow.com. The maintenance
and integrity of these websites, so far as it relates to the Company, is the
responsibility of Frostrow. The work carried out by the Auditor does not
involve consideration of the maintenance and integrity of these websites and,
accordingly, the Auditor accepts no responsibility for any changes that have
occurred to the financial statements since they were initially presented on
these websites. Visitors to the websites need to be aware that legislation in
the United Kingdom governing the preparation and dissemination of the financial
statements may differ from legislation in their jurisdiction.
Responsibility Statement of the Directors in respect of the Annual Report
The Directors, whose details can be found above, confirm to the best of their
knowledge that:
. the financial statements within this Annual Report, prepared in
accordance with applicable accounting standards, give a true and fair view of
the assets, liabilities, financial position and the return for the year ended
31 December 2020; and
. the Chairman's Statement, Strategic Report and the Directors' Report
include a fair review of the information required by 4.1.8R to 4.1.11R of the
FCA's Disclosure Guidance and Transparency Rules.
The Directors consider that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary to assess
the Company's position, performance, business model and strategy.
On behalf of the Board
Sir Ian Cheshire
Chairman
8 April 2021
Corporate Governance Statement
The Board and Committees
Responsibility for effective governance lies with the Board whose role is to
promote the long-term success of the Company. The governance framework of the
Company reflects the fact that as an externally managed investment company, it
has no employees and outsources portfolio management services to Menhaden
Capital Management LLP and risk management, company management, company
secretarial, administrative and marketing services to Frostrow Capital LLP. The
Board generates value for shareholders through its oversight of the service
providers and management of costs associated with running the Company.
The Board
Chairman - Sir Ian Cheshire
Three additional non-executive Directors, all considered independent.
Key roles and responsibilities:
- to provide leadership and set strategy within a framework of
effective controls which enable risk to be assessed and managed;
- to ensure that a robust corporate governance framework is
implemented; and
- to challenge constructively and scrutinise performance of all
outsourced activities.
Management Engagement Committee
Chairman - Sir Ian Cheshire
All Directors
Key roles and responsibilities:
- to review the contracts, the performance and the remuneration of the
Company's principal service providers; and
- to make recommendations to the Board regarding the continuing
appointment of the AIFM and the Portfolio Manager.
Audit Committee
Chairman - Howard Pearce
Duncan Budge, Emma Howard Boyd
Key roles and responsibilities:
- to review the Company's financial reports;
- to oversee the risk and control environment; and
- to review the performance of the Company's external Auditors.
Copies of the full terms of reference, which clearly define the
responsibilities of each committee, can be obtained from the Company Secretary,
will be available for inspection at the Annual General Meeting, and can be
found on the Company's website www.menhaden.com.
The Directors have decided that, given the size of the Board and the fact that
all Directors are considered to be independent, it is unnecessary to form
separate remuneration and nomination committees; the duties that would fall to
those committees are carried out by the Board as a whole. However, the Chairman
takes no part in discussions regarding his own remuneration and will not chair
any discussions relating to the appointment of his successor.
The Board has considered the principles and recommendations of the AIC Code of
Corporate Governance published in February 2019 (the "AIC Code"). The AIC Code
addresses all the principles set out in the UK Corporate Governance Code (the
"UK Code"), as well as setting out additional provisions on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and provisions of the
AIC Code (which has been endorsed by the Financial Reporting Council) will
provide better information to shareholders. By reporting against the AIC Code,
the Company meets its obligations under the UK Code (and associated disclosure
requirements under paragraph 9.8.6 of the Listing Rules) and as such does not
need to report further on issues contained in the UK Code which are irrelevant
to the Company.
The AIC Code is available on the AIC's website www.theaic.co.uk and the UK Code
can be viewed on the Financial Reporting Council website www.frc.org.uk.
The Company has complied with the principles and provisions of the AIC Code
with one exception: the Board has not appointed a senior independent director.
The Board considers that this is not necessary given the small size of the
Board and the Company's shareholder register.
The AIC Code includes an explanation of how the AIC Code adapts the principles
and provisions set out in the UK Code to make them relevant for investment
companies.
Board Leadership and Purpose
Purpose and Strategy
The purpose and strategy of the Company are described in the Strategic Report.
Board Culture
The Board aims to fully enlist differences of opinion, unique vantage points
and areas of expertise. The Chairman encourages open debate to foster a
supportive and co-operative approach for all participants. Strategic decisions
are discussed openly and constructively. The Board aims to be open and
transparent with shareholders and other stakeholders and for the Company to
conduct itself responsibly, ethically and fairly in its relationships with
service providers.
The Board has gained assurance on whistleblowing procedures at the Company's
principal service providers to ensure employees at those companies are
supported in speaking up and raising concerns. No concerns relating to the
Company were raised during the year.
Shareholder Relations
During the year, representatives of Frostrow, MCM and Numis Securities Limited
(the Company's corporate stockbroker) regularly met with institutional
shareholders and private client asset managers to understand their views on
governance and the Company's performance. Reports on investor sentiment and the
feedback from investor meetings were discussed with the Directors at the
following Board meeting. The Chairman is available to meet with investors on
request.
Shareholder Communications
The Directors welcome the views of all shareholders and place considerable
importance on communications with them. Shareholders wishing to communicate
with the Chairman, or any other member of the Board, may do so by writing to
the Company Secretary.
The Board supports the principle that the AGM be used to communicate with
private investors, in particular. Shareholders are usually encouraged to attend
the Annual General Meeting, where they are normally given the opportunity to
question the Chairman, the Board and representatives of the Portfolio Manager.
In addition, the Portfolio Manager usually makes a presentation to shareholders
covering the investment performance and strategy of the Company at the Annual
General meeting. However, in view of the ongoing Covid-19 pandemic, the Board
might need to make changes to the arrangements for the forthcoming AGM. These
are explained in the Chairman's Statement. Details of the proxy votes received
in respect of each resolution will be published on the Company's website.
Significant Holdings and Voting Rights
Details of the shareholders with substantial interests in the Company's shares,
the Directors' authorities to issue and repurchase the Company's shares, and
the voting rights of the shares are set out in the Directors' Report.
Conflicts of Interest
In line with the Companies Act 2006, the Board has the power to authorise any
potential conflicts of interest that may arise and impose such limits or
conditions as it thinks fit. A register of interests and potential conflicts is
maintained and is reviewed at every Board meeting. It was resolved at each
Board meeting during the year that there were no direct or indirect interests
of a Director that conflicted with the interests of the Company. Appropriate
authorisation will be sought prior to the appointment of any new director or if
any new conflicts or potential conflicts arise.
Division of Responsibilities
Responsibilities of the Chairman
The Chairman's primary role is to provide leadership to the Board, assuming
responsibility for its overall effectiveness in directing the company. The
Chairman is responsible for:
* ensuring that the Board is effective in its task of setting and
implementing the Company's direction and strategy;
* taking the chair at general meetings and Board meetings, conducting
meetings effectively and ensuring all Directors are involved in discussions
and decision-making;
* setting the agenda for Board meetings and ensuring the Directors receive
accurate, timely and clear information for decision-making;
* taking a leading role in determining the Board's composition and structure;
* overseeing the induction of new directors and the development of the Board
as a whole;
* leading the annual board evaluation process and assessing the contribution
of individual Directors;
* supporting and also challenging the AIFM and the Portfolio Manager (and
other suppliers where necessary);
* ensuring effective communications with shareholders and, where appropriate,
stakeholders; and
* engaging with shareholders to ensure that the Board has a clear
understanding of shareholder views.
Director Independence
The Board consists of four non-executive Directors, each of whom is independent
of the AIFM and the Portfolio Manager. Each of the Directors, including the
Chairman, was independent on appointment and continues to be independent when
assessed against the circumstances set out in Provision 13 of the AIC Code (and
Provision 12 of the AIC Code which relates specifically to the Chairman).
Accordingly, the Board considers that all of the Directors are independent and
there are no relationships or circumstances which are likely to impair or could
appear to impair their judgement.
Directors' Other Commitments
Each of the Directors has assessed the overall time commitment of their
external appointments and it has been concluded that they have sufficient time
to discharge their duties.
Board Meetings
The primary focus at regular Board meetings is the review of investment
performance and associated matters, including asset allocation, marketing/
investor relations, gearing, peer group information and industry issues. The
Board reviews key investment and financial data, revenue and expenses
projections, analyses of asset allocation, transactions, performance
comparisons, share price and net asset value performance. The Board's approach
to addressing share price performance during the year is described in the
Chairman's Statement.
The Board is responsible for setting the Company's corporate strategy and
reviews the continued appropriateness of the Company's investment objective,
investment strategy and investment restrictions at each meeting.
The number of meetings and the individual attendance by directors is set out
above.
Matters Reserved for Decision by the Board
The Board has adopted a schedule of matters reserved for its decision. This
includes, inter alia, the following:
* requirements under the Companies Act 2006, including approval of the half
yearly and annual financial statements, recommendation of the final
dividend (if any), declaration of any interim dividends, the appointment or
removal of the Company Secretary, and determining the policy on share
issuance and buybacks;
. matters relating to certain Stock Exchange requirements and
announcements, the Company's internal controls, and the Company's corporate
governance structure, policy and procedures;
* decisions relating to the strategic objectives and overall management of
the Company, including the appointment or removal of the AIFM and other
service providers, and review of the Investment Policy; and
* matters relating to the Board and Board committees, including the terms of
reference and membership of the committees, the appointment of directors
(including the Chairman) and the determination of Directors' remuneration.
Day-to-day operational and portfolio management is delegated to Frostrow and
MCM respectively.
The Board takes responsibility for the content of communications regarding
major corporate issues, even if Frostrow or MCM act as spokesmen. The Board is
kept informed of relevant promotional material that is issued by Frostrow.
Relationship with the AIFM and the Portfolio Manager
Representatives from Frostrow and MCM are in attendance at each Board meeting
to address questions on specific matters and seek approval for specific
transactions which they are required to refer to the Board. There is a
respectful and constructive partnership between the Board, the AIFM and the
Portfolio Manager, and the three parties worked closely together throughout the
year.
The Management Engagement Committee evaluates Frostrow and MCM's performance
and reviews the terms of the AIFM and Portfolio Management Agreements at least
annually. The outcome of this year's review is described in the Business
Review.
Relationship with Other Service Providers
The Management Engagement Committee monitors and evaluates all of the Company's
other service providers, including the Depositary, Registrar and Broker. At the
most recent review in December 2020, the Committee concluded that all the
service providers were performing well and should be retained on their existing
terms and conditions.
Stewardship and the Exercise of Voting Powers
The Board has delegated authority to MCM (as Portfolio Manager) to engage with
companies held in the portfolio and to vote the shares owned by the Company.
The Board has instructed that MCM submit votes for such shares wherever
possible. MCM may refer to the Board on any matters of a contentious nature.
The Portfolio Manager's approach to stewardship, including their consideration
of environmental, social and governance issues, is set out in their stewardship
policy which can be found on the FRC's website www.frc.org. Details of the
Company's voting record can be found in the Portfolio Manager's Stewardship
Report which is published on the Company's website www.menhaden.com.
Independent Professional Advice
The Board has formalised arrangements under which the Directors, in the
furtherance of their duties, may seek independent professional advice at the
Company's expense. No such advice was sought during the year.
Company Secretary
The Directors have access to the advice and services of an investment trust
specialist Company Secretary through its appointed representative, which is
responsible for advising the Board on all governance matters. The Company
Secretary ensures governance procedures are followed and that the Company
complies with applicable statutory and regulatory requirements.
Composition, Succession and Evaluation
Board Evaluation
During the course of 2020, the performance of the Board, its committees and the
individual Directors (including each Director's independence) was evaluated
through a formal assessment process led by the Chairman. Mr Pearce led the
assessment of the Chairman's performance.
The Chairman is satisfied that the structure and operation of the Board
continues to be effective and that there is a satisfactory mix of skills,
experience and knowledge. This year, board succession was identified as an area
requiring further consideration and this is discussed in the following section.
All Directors submit themselves for annual re-election by shareholders. Further
information on the contribution of each individual Director can be found in the
explanatory notes to the notice of the AGM. Following the evaluation process,
the Board recommends that shareholders vote in favour of the Directors'
re-election at the forthcoming AGM.
Succession Planning
The Board regularly considers its structure and recognises the need for
progressive refreshment.
The Board has an approved succession planning policy to ensure that (i) there
is a formal, rigorous and transparent procedure for the appointment of new
directors; and (ii) the Board is comprised of members who collectively display
the necessary balance of professional skills, experience, length of service and
industry/Company knowledge.
During the year, the Board reviewed the policy on Directors' tenure and
considered the overall length of service of the Board as a whole. As all of the
Directors have been appointed since the launch of the Company, the Board
committed to review the long-term succession plan, to ensure that there is an
orderly succession when the time comes for the Directors to retire from the
Board.
Policy on the Tenure of the Chairman and other Non-Executive Directors
The tenure of each independent, non-executive director, including the Chairman,
is not ordinarily expected to exceed nine years. However, the Board has agreed
that the tenure of the Chairman may be extended for a limited time provided
such an extension is conducive to the Board's overall orderly succession. The
Board believes that this more flexible approach to the tenure of the Chairman
is appropriate in the context of the regulatory rules that apply to investment
companies, which ensure that the chair remains independent after appointment,
while being consistent with the need for regular refreshment and diversity.
Notwithstanding this expectation, the Board considers that a director's tenure
does not necessarily reduce his or her ability to act independently and will
continue to assess each Director's independence annually, through a formal
performance evaluation.
Appointments to the Board
The rules governing the appointment and replacement of directors are set out in
the Company's articles of association and the aforementioned succession
planning policy. Where the Board appoints a new director during the year, that
director will stand for election by shareholders at the next AGM. Subject to
there being no conflict of interest, all Directors are entitled to vote on
candidates for the appointment of new directors and on the recommendation for
shareholders' approval for the Directors seeking re-election at the Annual
General Meeting. When considering new appointments, the Board endeavours to
ensure that it has the capabilities required to be effective and oversee the
Company's strategic priorities. This will include an appropriate range, balance
and diversity of skills, experience and knowledge. The Company is committed to
ensuring that any vacancies arising are filled by the most qualified
candidates.
No new appointments were made during the year.
Diversity Policy
The Board supports the principle of Boardroom diversity, of which gender is one
important aspect. The Company's policy is that the Board should be comprised of
directors who collectively display the necessary balance of professional
skills, experience, length of service and industry knowledge and that
appointments to the Board should be made on merit, against objective criteria,
including diversity in its broadest sense.
The objective of the policy is to have a broad range of approaches,
backgrounds, skills, knowledge and experience represented on the Board. The
Board believes that this will make the Board more effective at promoting the
long-term sustainable success of the company and generating value for all
shareholders by ensuring there is a breadth of perspectives among the directors
and the challenge needed to support good decision-making. To this end achieving
a diversity of perspectives and backgrounds on the Board will be a key
consideration in any Director search process.
The gender balance of three men and one woman meets the original recommendation
of Lord Davies' report on Women on Boards. The Board is aware that new gender
representation objectives have been set for FTSE 350 companies and that targets
concerning ethnic diversity have been recommended for FTSE 250 companies. While
the Company is not a FTSE 350 constituent and the Board is small in size, the
Board will continue to monitor developments in this area and will consider
diversity during any director search process.
Audit, Risk and Internal Control
The Statement of Directors' Responsibilities describes the Directors'
responsibility for preparing this report.
The Audit Committee Report explains the work undertaken to allow the Directors
to make this statement and to apply the going concern basis of accounting. It
also sets out the main roles and responsibilities and the work of the Audit
Committee and describes the Directors' review of the Company's risk management
and internal control systems.
A description of the principal risks facing the Company and an explanation of
how they are being managed is provided in the Strategic Report.
The Board's assessment of the Company's longer-term viability is set out in the
Strategic Report.
Remuneration
The Directors' Remuneration Report and the Directors' Remuneration Policy
Report set out the levels of remuneration for each Director and explain how
Directors' remuneration is determined.
By order of the Board
Frostrow Capital LLP
Company Secretary
8 April 2021
Audit Committee Report
Statement from the Chairman
I am pleased to present the Audit Committee report for the year ended 31
December 2020. The Committee met three times during the year under review.
The role of the Committee is to ensure that shareholder interests are properly
protected in relation to the application of financial reporting and internal
control principles and to assess the effectiveness of the audit. The
Committee's roles and responsibilities are set out in full in its terms of
reference which are available on request from the Company Secretary and can be
seen on the Company's website (www.menhaden.com). A summary of the Committee's
main responsibilities and how it has fulfilled them is set out below.
Composition
The Audit Committee comprises Howard Pearce (Chairman of the Committee), Duncan
Budge and Emma Howard Boyd. The Committee as a whole has experience relevant
to the investment trust industry with Committee members having a range of
financial and investment experience. Mr Pearce has extensive experience in
audit, having chaired the audit committees of numerous organisations as
outlined in his biography. Mr Budge serves on the audit committees of the three
other investment trusts of which he is a non-executive director.
Responsibilities
In summary, the Committee's principal functions are:
* to monitor the integrity of the Company's annual and half-year financial
statements and any announcements relating to the Company's financial
performance;
* to review the internal controls and risk management systems of the Company
and its third-party service providers;
* to make recommendations to the Board regarding the appointment,
re-appointment or removal of the external Auditor, and to be responsible
for leading an audit tender process at least once every ten years;
* to have primary responsibility for the Company's relationship with the
external Auditor, including reviewing the external Auditor's independence
and objectivity as well as the effectiveness of the external audit process;
* to agree the scope of the external Auditor's work and to approve their
remuneration; and
* to develop and implement policy on the engagement of the external Auditor
to supply non-audit services and to review and approve any non-audit work
to be carried out by the external Auditor.
Meetings and Business
The following matters were dealt with at the Committee's meetings:
March 2020
* Review of the Company's annual results;
* Approval of the Annual Report, including the Environmental Impact Statement
and the unquoted investment valuations;
* Review of risk management, internal controls and compliance;
* Review of the outcome and effectiveness of the audit and any matters
arising; and
* Review of the need for an internal audit function.
September 2020
* Review of the Company's terms of reference, non-audit services policy and
audit tender guidelines;
* Review of the Company's half yearly results;
* Approval of the Half Yearly Report and financial statements, and the
unquoted investment valuations;
* Review of risk management, internal controls and compliance; and
* Review of the Company's anti bribery and corruption policy and the policy
on the prevention of the facilitation of tax evasion, and the measures put
in place by the Company's service providers.
December 2020
* Review of the Auditor's plan and terms of engagement for the 2020 audit;
* Review of new or revised reporting requirements and audit standards;
* Review of the valuation methodology for the unquoted investments; and
* Review of risks, internal controls and compliance.
Performance Evaluation
The Committee reviewed the results of the annual evaluation of its performance
during the year. As part of the evaluation, the Committee reviewed the
following:
* the composition of the Committee;
* the performance of the Committee Chairman;
* how the Committee had monitored compliance with corporate governance
regulations;
* how the Committee had considered the quality and appropriateness of
financial accounting and reporting;
* the Committee's review of significant risks and internal controls; and
* the Committee's assessment of the independence, competence and
effectiveness of the Company's external Auditor.
It was concluded that the Committee was performing satisfactorily and there
were no formal recommendations made to the Board.
Internal Controls and Risk Management
The Board has overall responsibility for risk management and for the review of
the internal controls of the Company, undertaken in the context of its
investment objective.
The review covers the key business, operational, compliance and financial risks
facing the Company. In arriving at its judgement of what risks the Company
faces, the Board has considered the Company's operations in light of the
following factors:
* the nature of the Company, with all management functions outsourced to
third party service providers;
* the nature and extent of risks which it regards as acceptable for the
Company to bear within its overall investment objective;
* the likelihood of such risks becoming a reality; and
* the Company's ability to reduce the likelihood and impact of such risk.
A summary of the principal risks facing the Company is provided in the
Strategic Report.
Against this background, a risk matrix has been developed which covers all key
risks that the Company faces, the likelihood of their occurrence and their
potential impact, how these risks are monitored and the mitigating controls in
place.
The Board has delegated to the Audit Committee responsibility for the review
and maintenance of the risk matrix and it reviews, in detail, the risk matrix
each time it meets, bearing in mind any changes to the Company, its environment
or service providers since the last review. Any significant changes to the risk
matrix are discussed with the whole Board. There were no changes to the
Company's risk management processes during the year and no significant failings
or weaknesses were identified from the Committee's most recent risk review.
The Committee reviews internal controls reports from its principal service
providers on an annual basis. The Committee is satisfied that appropriate
systems have been in place for the year under review and up to the date of
approval of this report.
Significant Reporting Matters
The Committee considered the significant issues in respect of the Annual
Report, including the financial statements. The table below sets out the key
areas of audit risk identified and also explains how these were addressed.
Significant risk How the risk was addressed
Valuation, existence and The valuation of investments is undertaken in
ownership of accordance with the accounting policies in note 1 to
investments, in the financial statements. Controls are in place to
particular unquoted ensure that valuations are appropriate and existence
investments is verified through reconciliations with the
Depositary. The Committee discussed with Frostrow and
MCM the process by which the unquoted investments are
valued, and ownership documented, including the
reconciliation process with the Depositary. They also
reviewed the valuation of the unquoted investments as
at 31 December 2020, including the level of any
discounts to net asset value applied to the unquoted
valuations, to ensure that they were carried out in
accordance with the accounting policy set out in note
1(b). Having reviewed the valuations, the Committee
confirmed that they were satisfied that the
investments had been valued correctly.
Risk of revenue being The Committee took steps to gain an understanding of
misstated due to the the processes in place to record investment income
improper recognition of and transactions.
revenue.
Financial Statements
The Board has asked the Committee to confirm that in its opinion the Board can
make the required statement that the Annual Report taken as a whole is fair,
balanced and understandable and provides the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy. The Committee has given this confirmation on the basis of:
* the procedures followed in the production of the Annual Report, including
the processes in place to assure the accuracy of factual content;
* the extensive levels of review that were undertaken in the production
process, by Frostrow and also by the Committee; and
* the internal control environment operated by Frostrow Capital LLP (the
AIFM), Menhaden Capital Management LLP (the Portfolio Manager), JP Morgan
(the Depositary) and other service providers.
The Committee is satisfied that it is appropriate for the Board to prepare the
financial statements on the going concern basis. Further detail can be found in
the Directors' Report. The financial statements can be found below.
The Committee also considered the longer-term viability of the Company in
connection with the Board's statement in the Strategic Report. The Committee
reviewed the Company's financial position (including its cash flows and
liquidity position), the principal risks and uncertainties and the results of
stress tests and scenarios which considered the impact of severe stock market
volatility on shareholders' funds. This included modelling further substantial
market falls, and significantly reduced market liquidity, to that experienced
recently in connection with the coronavirus pandemic. The scenarios assumed
that there would be significant falls in asset prices, that the Company's
existing capital commitments would be drawn down rapidly and in large
instalments, that there would be no sales of or distributions from private
investments, and that listed portfolio companies which have cut or cancelled
their dividends since the coronavirus outbreak would not reinstate them.
The results demonstrated the impact on the Company's NAV, its expenses, its
cash flows and its ability to meet its liabilities including its capital
commitments. In even the most stressed scenario, the Company was shown to have
sufficient cash, or to be able to liquidate a sufficient portion of its listed
holdings, in order to be able to meet its liabilities as they fall due. Based
on the information available to the Directors at the time, the Committee
therefore concluded it was reasonable for the Board to expect that the Company
will be able to continue in operation and meet its liabilities as they fall due
over the next five financial years.
External Auditor
In addition to the reviews undertaken at Committee meetings, I met with Mazars
LLP ("Mazars") on 10 March 2021 to discuss the progress of the audit and the
draft Annual Report.
In order to fulfil the Committee's responsibility regarding the independence of
the Auditor, the Committee reviewed:
* the senior audit personnel in the audit plan, in order to ensure that there
were sufficient, suitably experienced staff with knowledge of the
investment trust sector working on the audit;
* the steps the Auditor takes to ensure its independence and objectivity;
* the statement by the Auditor that they remain independent within the
meaning of the relevant regulations and their professional standards; and
* the need for any non-audit services to be performed by the Auditor (there
were none during the year under review).
In order to consider the effectiveness of the audit process, we reviewed:
* the Auditor's execution and fulfilment of the agreed audit plan, including
their ability to communicate with management and to resolve any issues
promptly and satisfactorily, and the audit partner's leadership of the
audit team;
* the quality of the report arising from the audit itself; and
* feedback from the Auditor and also Frostrow as the AIFM on the conduct of
the audit and their working relationship.
The Committee is satisfied with the Auditor's independence and the
effectiveness of the audit process, together with the degree of diligence and
professional scepticism brought to bear.
Non-Audit Services
The Auditor did not carry out any non-audit work during the year. The Audit
Committee will monitor the need for non-audit work to be performed by the
Auditor, if any, in accordance with the Company's non-audit services policy
which was updated in September 2020 to take the FRC's revised Ethical and
Auditing Standards into consideration.
The Audit Committee will also seek assurances from the Auditor that they
maintain suitable policies and procedures ensuring independence, and monitor
compliance with the relevant regulatory requirements on an annual basis.
Auditor Reappointment
Stephen Eames was the audit partner for the financial year under review and he
has confirmed Mazars' willingness to continue to act as Auditor to the Company
for the forthcoming financial year. Mazars' appointment is subject to
shareholder approval at the next Annual General Meeting to be held on 3 June
2021, and details can be found in the Notice of AGM.
As a public company listed on the London Stock Exchange, the Company is subject
to mandatory auditor rotation requirements. Based on these requirements,
another tender process will be conducted no later than 2029. The Committee
will, however, continue to consider annually the need to go to tender for audit
quality, remuneration or independence reasons.
Howard Pearce
Chairman of the Audit Committee
8 April 2021
Directors' Remuneration Report
Statement from the Chairman
I am pleased to present the Directors' Remuneration Report to shareholders. An
ordinary resolution for the approval of this report will be put to shareholders
at the Company's forthcoming Annual General Meeting. The law requires the
Company's Auditor to audit certain disclosures provided in this report. Where
disclosures have been audited, they are indicated as such and the Auditor's
opinion is included in their report to shareholders.
The Board considers the framework for the remuneration of the Directors on an
annual basis. It reviews the ongoing appropriateness of the Company's
remuneration policy and the individual remuneration of the Directors by
reference to the activities and particular complexities of the Company and in
comparison with other companies of a similar structure and size. This is in
line with the AIC Code.
Directors' fees during the year were unchanged from the previous year: £50,000
per annum for the Chairman and £25,000 per annum for Directors, with Directors
who serve on the Audit Committee receiving an additional £15,000 per annum.
Directors' fees have remained unchanged since the Company's launch in 2015. The
Board as a whole reviewed the fee levels at a meeting held on 2 December 2020
and it was decided that they would remain unchanged for the year ending
31 December 2021. The projected fees for 2021 are set out in the Directors'
Remuneration Policy. No remuneration consultants were appointed during the year
(2019: none).
Levels of remuneration reflect both the time commitment and responsibility of
the role. The Directors are remunerated exclusively by fixed fees in cash and
do not receive bonus payments or pension contributions from the Company, hold
options to acquire shares in the Company, or other benefits. All Directors are
entitled to the reimbursement of reasonable out of pocket expenses incurred by
them in order to perform their duties as directors of the Company.
The simple fee structure reflects the non-executive nature of the Board, which
itself reflects the Company's business model as an externally managed
investment trust (please refer to the Business Review for more information).
Accordingly, statutory disclosure requirements relating to executive directors'
and employees' pay do not apply.
Single total figure of remuneration (audited)
Date of 2020 2019 Percentage
appointment Taxable Taxable change in
Director to the Fees expenses Total Fees expenses Total fees (%)
Board
Sir Ian 3 October 50,000 - 50,000 50,000 - 50,000 0
Cheshire 2014
Duncan Budge 3 October 40,000 - 40,000 40,000 - 40,000 0
2014
Emma Howard 3 October 40,000 - 40,000 40,000 - 40,000 0
Boyd 2014
Howard Pearce 3 October 40,000 580 40,580 40,000 2,683 42,683 0
2014
TOTAL 170,000 580 170,580 170,000 2,683 172,683
No payments have been made to any former directors. It is the Company's policy
not to pay compensation upon leaving office for whatever reason. None of the
fees referred to in the above table were paid to any third party in respect of
the services provided by any of the Directors.
Directors' Interests in the Company's Shares (audited)
Ordinary Ordinary
shares shares
of 1p each of 1p each
as at as at
31 Dec 2020 31 Dec 2019
Sir Ian Cheshire 115,000 115,000
Duncan Bridge 10,000 10,000
Emma Howard Boyd 23,000 23,000
Howard Pearce 40,000 35,000
Total 188,000 183,000
No changes have been notified to the date of this report.
The Company does not have share options or a share scheme, and does not operate
a pension scheme. None of the Directors are required to own shares in the
Company.
Performance
The graph below shows the total shareholder return of the Company since its
launch on 31 July 2015 against the RPI plus 3% over the same period.
[Graph is shown in annual report]
Relative Cost of Directors' Remuneration
The bar chart below shows the comparative cost of Directors' fees compared with
the level of dividend distribution and Company expenses for the years ended 31
December 2019 and 2020.
[Chart is shown in annual report]
Statement of Voting at the AGM
At the Annual General Meeting held on 9 June 2020 the results in respect of the
resolution to approve the Directors' Remuneration Report were as follows:
Votes cast Votes cast Votes
for against withheld
55,358,780 10,000 2,000,000*
99.8% 0.02%
*Votes withheld are not votes by law and are therefore not counted in the
calculation of votes for or against a resolution.
By order of the Board
Sir Ian Cheshire
Chairman
8 April 2021
Directors' Remuneration Policy
The Company's remuneration policy is that the remuneration of each Director
should be commensurate with the duties, responsibilities and time commitment of
each respective role and consistent with the requirement to attract and retain
directors of appropriate quality and experience. The remuneration should also
be comparable to that of investment trusts of similar size and structure.
Directors are remunerated in the form of fixed fees payable monthly in arrears.
There are no long or short-term incentive schemes, share option schemes or
pension arrangements and the fees are not specifically related to the
Directors' performance, either individually or collectively.
The Directors' remuneration is determined within the limits set out in the
Company's Articles of Association. The present limit is £500,000 in aggregate
per annum.
It is the Board's intention that the remuneration policy will be considered by
shareholders at the annual general meeting at least once every three years. If,
however, the remuneration policy is varied, shareholder approval will be sought
at the AGM following such variation. The Board will formally review the
remuneration policy at least once a year to ensure that it remains appropriate.
This policy was last approved by shareholders at the AGM held in 2019.
Accordingly, unless there are material changes, an ordinary resolution for the
approval of this policy will next be considered by shareholders at the Annual
General Meeting to be held in 2022. It is intended that this policy will remain
in place for the following financial year and subsequent financial periods.
No communications have been received from shareholders regarding Directors'
remuneration. The Board will consider any comments received from shareholders
on the remuneration policy.
This policy, together with the Directors' letters of appointment, may be
inspected at the Company's registered office.
The Directors' fees for 2020 and 2021 are shown in the table below. The Company
does not have any employees.
Directors' Fees Current and Projected
Fees (£) Fees (£)
2021 2020
Sir Ian Cheshire 50,000 50,000
Duncan Budge 40,000 40,000
Howard Pearce 40,000 40,000
Emma Howard Boyd 40,000 40,000
170,000 170,000
Any new director appointed to the Board will, under current remuneration
levels, receive a fee of £25,000 per annum. Directors who serve on the Audit
Committee receive an additional fee of £15,000 per annum. The Chairman receives
an additional fee of £25,000 per annum.
All Directors are non-executive, appointed under the terms of letters of
appointment and none has a service contract. The terms of their appointment
provide that Directors shall retire and be subject to election at the first
annual general meeting after their appointment and to re-election every three
years thereafter. However, the Directors submit themselves for annual
re-election by shareholders, in line with the AIC Code of Corporate Governance.
The terms also provide that a Director may be removed without notice and that
compensation will not be due on leaving office.
Independent Auditor's Report to the Members of Menhaden PLC
Opinion
We have audited the financial statements of Menhaden PLC (the 'Company') for
the year ended 31 December 2020 which comprise the Income Statement, the
Statement of Changes in Equity, the Statement of Financial Position, the
Statement of Cash Flows and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and United Kingdom
Accounting Standards, including FRS 102, "The Financial Reporting Standard
applicable in the UK and Republic of Ireland" (United Kingdom Generally
Accepted Accounting Practice).
In our opinion, the financial statements:
* give a true and fair view of the state of the Company's affairs as at 31
December 2020 and of its return for the year then ended;
* have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
* have been prepared in accordance with the requirements of the Companies Act
2006.
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 Company
in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC's Ethical Standard, as
applied to listed entities and public interest 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.
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 audit procedures to evaluate the directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting included but
were not limited to:
* Undertaking an initial assessment at the planning stage of the audit to
identify events or conditions that may cast significant doubt on the
Company's ability to continue as a going concern;
* Reviewing the directors' going concern assessment including COVID-19
implications based on a 'most likely' (base case) scenario and a 'worst
case scenario' as approved by the board of directors on 30 March 2021;
* Making enquiries of directors to understand the period of assessment
considered by the Directors, the completeness of the adjustments taken into
account and implication of those when assessing the 'most likely' scenario
and the 'worst case scenario'. This included examining the minimum cash
inflow and committed outgoings under the 'base case' cash flow forecasts
and evaluated whether the directors' conclusion that liquidity headroom
remained in all events was reasonable;
* Assessing and challenging the appropriateness of the directors' key
assumptions in their cashflow forecasts, by reviewing supporting and
contradictory evidence in relation to these key assumptions and assessing
the directors' consideration of severe but plausible scenarios;
* Testing the accuracy and functionality of the model used to prepare the
directors' forecasts; and
* Evaluating the appropriateness of the directors' disclosures in the
financial statements on 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 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 Company's reporting on how it 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 director's 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.
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) we identified, including those which had the
greatest effect on: the overall audit strategy, the allocation of resources in
the audit; and directing the efforts of the engagement team. These matters 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.
We summarise below the key audit matter in forming our audit opinion above,
together with an overview of the principal audit procedures performed to
address this matter and key observations arising from those procedures.
This matter, together with our findings, were communicated to those charged
with governance through our Audit Completion Report.
Key Audit Matter How our scope addressed this matter
Valuation, existence and ownership Unquoted investments
of the investment portfolio
The Company has a significant . understanding management's
portfolio of quoted and unquoted process to value unquoted investments
investments, these are measured in through discussions with management and
accordance with the requirements under examination of control reports on the
FRS102 and the Statement of third party service organisations;
Recommended Practice issued by the
Association of Investment Companies. . obtaining and agreeing
confirmation of investments held in order
Investments make up 97% of total net to obtain comfort over existence and
assets by value and are considered to ownership;
be the key driver for the Company. The
investments are made of unquoted . we engaged our valuation
investments and quoted investments. specialist in considering whether the
techniques applied for valuing unquoted
There are a significant level of investments were in accordance with
judgements made in ascertaining the published guidance, principally the
fair value of these unquoted International Private Equity and Venture
investments. There is a risk that Capital Valuation Guidelines. This
judgements made when valuing the included reviewing the investment
unquoted investments may lead to a valuation policies of the private equity
misstatement in the value recorded in funds, reviewing the fund's latest
the Statement of Financial Position. available audited financial statements,
reviewing the fund's latest valuation
The quoted investments are included statements, reviewing any recent
initially at fair value which is taken transactions and discussion with the
to be their cost and subsequently fund's management where applicable;
valued at fair value which are quoted
bid prices for investments traded in . reviewing whether there are any
active markets. Although the quoted going concern issues and uncertainties in
investments are valued at quoted bid relation to Covid-19 for the actual
prices, there is a risk that errors in portfolio companies as well as their
valuation can have a significant underlying investments;
impact on the numbers presented.
. agreeing valuation of unquoted
See in the Notes to the Financial investments to year end fair values as
Statements for further details on the reported in valuation statements received
accounting policy for investments and directly from the investee funds; and
also for key judgements made.
. reviewing the adequacy of the
There is also a risk that investments disclosure in the financial statements
recorded might not exist or might not including valuation methodology,
be owned by the Company. assumptions and fair value hierarchy
used. Ensuring that the methodology
We therefore identified valuation, applied is in accordance with FRS102 and
existence and ownership of investments the Statement of Recommended Practice
as a key audit matter as it had the issued by the Association of Investment
greatest effect on our overall audit Companies.
strategy and allocation of resources.
Quoted investments
. understanding management's
process to value quoted investments
through discussions with management and
examination of control reports on the
third party administrator;
. agreeing the valuation of
quoted investments to an independent
source of market prices;
. analysing the trading history
of securities to see whether they have
been traded frequently and valued at
which they have been traded to ensure
there are no unusual price movements
indicating the year end prices are stale;
. obtaining and agreeing
confirmation from the custodian of
investments held in order to obtain
comfort over existence and ownership; and
. reviewing the adequacy of the
disclosure in the financial statements
and ensure that the methodology applied
is in accordance with FRS102 and the
Statement of Recommended Practice issued
by the Association of Investment
Companies.
Our observations
Based on the work performed and evidence
obtained, we consider the methodology and
assumptions used to value the investments
as appropriate. We did not note any
issues with regard to the existence or
the ownership of the investments held as
at 31 December 2020.
Our application of materiality and an overview of the scope of our audit
The scope of our audit was influenced by our application of materiality. We set
certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and
the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Overall materiality £1,059,000
How we determined it This has been calculated with reference to the
Company's net assets, of which it represents
approximately 1%.
Rationale for benchmark Net assets have been identified as the principal
applied benchmark within the financial statements as it is
considered to be the focus of the shareholders.
Approximately 1% of net assets have been chosen to
reflect the level of understanding of the
stakeholders of the Company in relation to the
inherent uncertainties around accounting estimates
and judgements.
Performance materiality Performance materiality is set to reduce to an
appropriately low level the probability that the
aggregate of uncorrected and undetected
misstatements in the financial statements exceeds
materiality for the financial statements as a
whole.
On the basis of our risk assessments, together with
our assessment of the overall control environment,
our judgement was that performance materiality was
£794,000 which is approximately 75% of overall
materiality.
Reporting threshold At planning stage, we agreed with the directors
that we would report to them misstatements
identified during our audit above £29,000 as
well as misstatements below that amount that, in
our view, warranted reporting for qualitative
reasons. This threshold has increased to £32,000
following our revised materiality using net assets
as at 31 December 2020.
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. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the course of audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the directors' remuneration report to be audited
has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
* the information given in the Strategic Report and the Directors' Report for
the financial year for which the financial statements are prepared is
consistent with the financial statements and those reports have been
prepared in accordance with applicable legal requirements;
* the information about internal control and risk management systems in
relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the
Disclosure Guidance and Transparency Rules sourcebook made by the Financial
Conduct Authority (the FCA Rules), is consistent with the financial
statements and has been prepared in accordance with applicable legal
requirements; and
* information about the Company's corporate governance code and practices and
about its administrative, management and supervisory bodies and their
committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA rules.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Company and its environment
obtained in the course of the audit, we have not identified material
misstatements in;
* the Strategic Report or the Directors' Report; or
* the information about internal control and risk management systems in
relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA
Rules.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
* adequate accounting records have not been kept by the Company, or returns
adequate for our audit have not been received from branches not visited by
us; or
* the Company financial statements and the part of the directors'
remuneration report to be audited are not in agreement with the accounting
records and returns; or
* certain disclosures of directors' remuneration specified by law are not
made; or
* we have not received all the information and explanations we require for
our audit; or
* a corporate governance statement has not been prepared by the Company.
Corporate governance statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Statement specified for our review.
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 or our knowledge obtained during the
audit:
* Directors' statement with regards the appropriateness of adopting the going
concern basis of accounting and any material uncertainties identified set
out in the Directors' Report;
* Directors' explanation as to its assessment of the entity's prospects, the
period this assessment covers and why they period is appropriate set out in
the Longer Term Viability Statement in the Business Review;
* Directors' statement on fair, balanced and understandable set out in the
Statement of Directors' Responsibilities;
* Board's confirmation that it has carried out a robust assessment of the
e-merging and principal risks set out under Principal Risks and
Uncertainties;
* The section of the annual report that describes the review of effectiveness
of risk management and internal control systems set out Audit, Risk and
Internal Control in the Corporate Governance Statement and;
* The section describing the work of the audit committee set out in the Audit
Committee Report.
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 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 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.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including
fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Based on our understanding of the Company and its industry, we identified that
the principal risks of non-compliance with laws and regulations related to
breaches of regulatory requirements of the HMRC Investment Trust conditions and
we considered the extent to which non-compliance might have a material effect
on the financial statements.
In identifying and assessing risks of material misstatement in respect to
irregularities including non-compliance with laws and regulations, our
procedures included but were not limited to:
* At the planning stage of our audit, gaining an understanding of the legal
and regulatory framework applicable to the Company and the industry in
which it operates and considered the risk of acts by the Company which were
contrary to the applicable laws and regulations;
* Discussing with the directors and management the policies and procedures in
place regarding compliance with laws and regulations;
* Discussing amongst the engagement team the identified laws and regulations,
and remaining alert to any indications of non-compliance; and
* During the audit, focusing on areas of laws and regulations that could
reasonably be expected to have a material effect on the financial
statements from our general commercial and sector experience and through
discussions with the directors (as required by auditing standards), from
inspection of the Company's regulatory and legal correspondence and review
of minutes of directors' meetings in the year we identified that the
principal risks of non-compliance with laws and regulations related to
breaches of regulatory requirements of the HMRC Investment Trust
conditions. We also considered those other laws and regulations that have a
direct impact on the preparation of financial statements, such as the
Companies Act 2006 and UK tax legislation.
Our procedures in relation to fraud included but were not limited to:
* Making enquiries of the directors and management on whether they had
knowledge of any actual, suspected or alleged fraud;
* Gaining an understanding of the internal controls established to mitigate
risks related to fraud;
* Discussing amongst the engagement team the risks of fraud such as
opportunities for fraudulent manipulation of financial statements, and
determined that the principal risks were related to posting manual journal
entries to manipulate financial performance, management bias through
judgements and assumptions in significant accounting estimates, in
particular in relation to investment valuations, and significant one-off or
unusual transactions; and
* Addressing the risks of fraud through management override of controls by
performing journal entry testing.
The primary responsibility for the prevention and detection of irregularities
including fraud rests with both those charged with governance and management.
As with any audit, there remained a risk of non-detection of irregularities, as
these may involve collusion, forgery, intentional omissions, misrepresentations
or the override of internal controls.
As a result of our procedures, we did not identify any key audit matters
relating to irregularities. The risks of material misstatement that had the
greatest effect on our audit, including fraud, are discussed under "Key audit
matters" within this report.
A further description of our responsibilities is available on the Financial
Reporting Council's website at www.frc.org.uk/auditorsresponsibilities.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the
Audit Committee on 02 December 2020 to audit the financial statements for the
year ending 31 December 2020 and subsequent financial periods. The period of
total uninterrupted engagement is two years, covering the years ending 31
December 2019 to 31 December 2020.
The non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Company and we remain independent of the Company in conducting
our audit.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of the audit report
This report is made solely to the Company's members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. 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.
Stephen Eames
(Senior Statutory Auditor)
for and on behalf of Mazars LLP
Chartered Accountants and Statutory Auditor
The Pinnacle
160 Midsummer Boulevard
Milton Keynes
MK9 1FF
8 April 2021
Income Statement
For the year ended For the year ended
31 December 2020 31 December 2019
Revenue Capital Total Revenue Capital Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 8 - 13,803 13,803 - 22,720 22,720
held at fair value
through profit or loss
Income from investments 2 577 - 577 1,087 - 1,087
held at fair value
through profit or loss
Management and 3 (276) (1,183) (1,459) (248) (993) (1,241)
performance fees
Other expenses 4 (454) - (454) (437) - (437)
Net (loss)/return (153) 12,620 12,467 402 21,727 22,129
before taxation
Taxation on net return 5 (14) - (14) (78) - (78)
Net (loss)/return after (167) 12,620 12,453 324 21,727 22,051
taxation
(Loss)/return per 6 (0.2) 15.8 15.6 0.4 27.2 27.6
ordinary share - basic
and diluted (pence)
The "Total" column of this statement is the Income Statement of the Company.
The "Revenue" and "Capital" columns are supplementary to this and are prepared
under guidance published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no recognised gains and losses other than those shown above and
therefore no separate Statement of Total Comprehensive Income has been
presented.
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Equity
For the year ended 31 December 2020
Notes Ordinary Special Capital Revenue Total £
share reserve £ reserve £'000 '000
capital £ '000 £'000
'000
At 31 December 2019 800 77,371 15,280 548 93,999
Net return/(loss) from after - - 12,620 (167) 12,453
taxation
Dividends paid - revenue 7 - - - (320) (320)
At 31 December 2020 800 77,371 27,900 61 106,132
For the year ended 31 December 2019
Notes Ordinary Special Capital Revenue Total
share reserve reserve £'000 £'000
capital £'000 £'000
£'000
At 31 December 2018 800 77,371 (6,447) 784 72,508
Net return from after - - 21,727 324 22,051
taxation
Dividends paid - revenue 7 - - - (560) (560)
At 31 December 2019 800 77,371 15,280 548 93,999
The accompanying notes are an integral part of these financial statements.
Statement of Financial Position
As at As at
31 December 31 December
2020 2019
Notes £'000 £'000
Fixed assets
Investments held at fair value through profit or 8 103,035 76,847
loss
Current assets
Debtors 10 105 108
Derivative financial instruments 9 1,930 1,393
at fair value through profit or loss
Cash 1,413 15,879
3,448 17,380
Creditors: amounts falling due within one year
Other creditors 11 (351) (228)
Net current assets 3,097 17,152
Total net assets 106,132 93,999
Capital and reserves
Ordinary share capital 12 800 800
Special reserve 77,371 77,371
Capital reserve 17 27,900 15,280
Revenue reserve 61 548
Total shareholders' funds 106,132 93,999
Net asset value per share - basic and diluted 13 132.7 117.5
(pence)
The financial statements were approved by the Board of Directors and authorised
for issue on 8 April 2021 and were signed on its behalf by:
Sir Ian Cheshire
Chairman
The accompanying notes are an integral part of these financial statements.
Menhaden PLC - Company Registration Number 09242421 (Registered in England and
Wales)
Statement of Cash Flows
Notes For the For the
year ended year ended
31 December 31 December
2020 2019
£'000 £'000
Net cash outflow from operating activities 14 (1,225) (601)
Cash flows from investing activities
Purchases of investments (26,096) (28,275)
Sales of investments 13,071 37,823
Settlement of derivatives 104 (240)
Net cash (outflow)/inflow from investing (12,921) 9,308
activities
Cash flows from financing activities
Equity dividends paid (320) (560)
Net cash outflow from financing activities (320) (560)
(Decrease)/increase in cash and cash equivalents (14,466) 8,147
Cash and cash equivalents at start of the year 15,879 7,732
Cash and cash equivalents at the end of the year 1,413 15,879
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements
For the year ended 31 December 2020
1. ACCOUNTING POLICIES
The principal accounting policies, all of which have been applied consistently
throughout the year in the preparation of these financial statements, are set
out below:
(a) Basis of Preparation
The financial statements have been prepared in accordance with United Kingdom
company law, FRS 102 'The Financial Reporting Standard applicable in the UK and
Ireland', the Statement of Recommended Practice 'Financial Statements of
Investment Trust Companies and Venture Capital Trusts' issued in October 2019
(the 'SORP'), and the historical cost convention, as modified by the valuation
of investments at fair value through profit or loss. The Board has considered a
detailed assessment of the Company's ability to meet its liabilities as they
fall due, including stress and liquidity tests which modelled the effects of
substantial falls in markets and significant reductions in market liquidity
(including consideration of the effect of Covid 19 and Brexit) on the Company's
financial position and cash flows. Further information on the assumptions used
in the stress scenarios is provided in the Audit Committee report. The results
of the tests showed that the Company would have sufficient cash, or the ability
to liquidate a sufficient proportion of its listed holdings, to meet its
liabilities as they fall due. Based on the information available to the
Directors at the time of this report, including the results of the stress
tests, the Company's cash balances, and the liquidity of the Company's listed
investments, the Directors are satisfied that the Company has adequate
financial resources to continue in operation for at least the next 12 months
and that, accordingly, it is appropriate to adopt the going concern basis in
preparing these financial statements.
The Company's financial statements are presented in sterling, being the
functional and presentational currency of the Company. All values are rounded
to the nearest thousand pounds (£'000) except where otherwise indicated.
Fair value measurements are categorised into a fair value hierarchy based on
the degree to which the inputs to the fair value measurements are observable
and the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
. Level 1 - Quoted prices in active markets;
. Level 2 - Inputs other than quoted prices included within Level 1
that are observable (ie developed using market data), either directly or
indirectly;
. Level 3 - Inputs are unobservable (ie for which market data is
unavailable).
Presentation of the Income Statement
In order to reflect better the activities of an investment trust company and in
accordance with the SORP, supplementary information which analyses the Income
Statement between items of a revenue and capital nature has been presented
alongside the Income Statement. The net revenue return is the measure the
Directors believe appropriate in assessing the Company's compliance with
certain requirements set out in Sections 1158 and 1159 of the Corporation Tax
Act 2010.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used
in preparing the financial information are continually evaluated and are based
on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting estimates will, by
definition, seldom equal the related actual results.
The key estimates and assumptions that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities relate to
the valuation of the Company's unquoted (Level 3) investments. £13,380,000 or
13.0% (2019: £27,287,000 or 29.1%) of the Company's portfolio is comprised of
unquoted investments. These are all valued in line with accounting policy 1(b)
below. Under the accounting policy the reported net asset value or price of
recent transactions methodologies have been adopted in valuing those
investments, as set out under Note 16.
As the Company has judged that it is appropriate to use reported NAVs in
valuing unquoted investments as set out in Note 16 (vi), the Company does not
have any key assumptions concerning the future, or other key sources of
estimation uncertainty in the reporting period, which may have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
Whilst the Board considers the methodologies and assumptions adopted in the
valuation of unquoted investments are supportable, reasonable and robust,
because of the inherent uncertainty of valuation, the values used may differ
significantly from the values that would have been used had a ready market for
the investment existed. These values may need to be revised as circumstances
change and material adjustments may still arise as a result of a reappraisal of
the unquoted investments' fair value within the next year.
In using a figure of 25% in the disclosures, set out in Note 16, in relation to
unquoted investments the Directors had regard to the nature of the investments,
the wide range of possible outcomes, and public information on secondary market
transactions in private equity funds.
Segmental Analysis
The Board is of the opinion that the Company is engaged in a single segment of
business, namely investing in accordance with the Company's Investment
Objective, and consequently no segmental analysis is provided.
(b) Investments Held at Fair Value Through Profit or Loss
All investments are measured on initial recognition and at subsequent reporting
dates at fair value in accordance with FRS 102 Section 11: Basic Financial
Instruments and Section 12: Other Financial Instruments Issues.
Purchases and sales of quoted investments are recognised on the trade date
where a contract exists whose terms require delivery within a time frame
determined by the relevant market. Purchases and sales of unlisted investments
are recognised when the contract for acquisition or sale becomes unconditional.
Changes in the fair value of investments and gains and losses on disposal are
recognised in the Income Statement as 'gains or losses on investments'. Also
included within this caption are transaction costs in relation to the purchase
or sale of investments. The fair value of the different types of investment
held by the Company is determined as follows:
. Quoted Investments
Fair value is deemed to be bid or last trade price depending on the convention
of the exchange on which it is quoted.
. Unquoted Investments
Unquoted investments are fair valued using recognised valuation methodologies
in accordance with the International Private Equity and Venture Capital
Association valuation guidelines (IPEVCA Guidelines).
Where an investment has been made recently, or there has been a transaction in
an investment, the Company may use the transaction price as the best indicator
of fair value. In such a case changes or events subsequent to the relevant
transaction date would be assessed to ascertain if they imply a change in the
investment's fair value.
The Company's unquoted investments comprise of limited partnerships or other
entities set up by third parties to invest in a wider range of investments, or
to participate in a larger investment opportunity than would be feasible for an
individual investor, and to share the costs and benefits of such investment.
For these investments, in line with the IPEVCA Guidelines, and in the absence
of transactions in the investments, the fair value estimate is based on the
attributable proportion of the reported net asset value of the unquoted
investment derived from the fair value of underlying investments. Valuation
reports provided by the manager or general partner of the unquoted investments
are used to calculate fair value where there is evidence that the valuation is
derived using fair value principles that are consistent with the Company's
accounting policies and valuation methods. Such valuation reports may be
adjusted to take account of changes or events to the reporting date, or other
facts and circumstances which might impact the underlying value.
If a decision to sell an unquoted investment or portion thereof has been made
then the fair value would be the expected sales price where this is known or
can be reliably estimated.
Where a portion of an unquoted investment has been sold the level of any
discount, implicit in the sale price, will be reviewed at each measurement date
for that unquoted investment taking account of the performance of the unquoted
investment, as well as any other factors relevant to the value of the unquoted
investment.
(c) Derivatives
Derivatives comprise foreign currency forwards used to hedge the Company's
foreign currency exposure. The forwards comprise sterling receivable and a
foreign currency deliverable. The fair value of the forwards is the receivable
'leg' less the deliverable 'leg' translated at the exchange rate at the date of
the Statement of Financial Position.
(d) Investment Income
Dividends receivable are recognised on the ex-dividend date. Where no
ex-dividend date is quoted, dividends are recognised when the Company's right
to receive payment is established. UK dividends are shown net of tax credits
and foreign dividends are gross of the appropriate rate of withholding tax.
Fixed returns on non-equity shares and debt securities are recognised on a time
apportionment basis so as to reflect the effective yield when it is probable
that economic benefit will flow to the Company. Where income accruals
previously recognised, but not received, are no longer considered to be
reasonably expected to be received, due to doubt over their receipt, then these
amounts are reversed through expenses.
Income distributions from limited partnership funds are recognised when the
right to the distribution is established.
(e) Expenses
All expenses are accounted for on an accruals basis. Expenses are charged
through the revenue column of the Income Statement except as follows:
. expenses which are incidental to the acquisition or disposal of an
investment are charged to the capital column of the Income Statement; and
. expenses are charged to the capital column of the Income Statement
where a connection with the maintenance or enhancement of the value of the
investments can be demonstrated. In this respect the portfolio management and
AIFM fees have been charged to the Income Statement in line with the Board's
expected long-term split of returns, in the form of capital gains and income,
from the Company's portfolio. As a result 20% of the portfolio management and
AIFM fees are charged to the revenue column of the Income Statement and 80% are
charged to the capital column of the Income Statement.
Any performance fee accrued or paid is charged in full to the capital column of
the Income Statement.
(f) Taxation
The tax effect of different items of expenditure is allocated between capital
and revenue using the marginal basis. Deferred taxation is provided on all
timing differences that have originated but not been reversed by the Statement
of Financial Position date other than those differences regarded as permanent.
This is subject to deferred tax assets only being recognised if it is
considered more likely than not that there will be suitable profits from which
the reversal of timing differences can be deducted. Any liability to deferred
tax is provided for at the rate of tax enacted or substantively enacted.
(g) Foreign Currency
Transactions recorded in overseas currencies during the year are translated
into sterling at the exchange rate ruling on the date of the transaction.
Assets and liabilities denominated in overseas currencies are translated into
sterling at the exchange rates ruling at the date of the Statement of Financial
Position.
Any gains or losses on the translation of foreign currency balances, whether
realised or unrealised, are taken to the capital or the revenue column of the
Income Statement, depending on whether the gain or loss is of a capital or
revenue nature.
(h) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash and demand deposits readily
convertible to known amounts of cash and subject to insignificant risk of
changes in value.
(i) Capital Reserves
The following are transferred to this reserve: gains and losses on the
realisation of investments; changes in the fair values of investments; and
expenses, together with the related taxation effect, charged to capital in
accordance with the Expenses Policy.
Any gains in the fair value of investments that are not readily convertible to
cash are treated as unrealised gains in the capital reserve.
(j) Special Reserve
During 2016, in order to enable the Company to make share repurchases out of
distributable reserves and to increase the distributable reserves available to
facilitate the payment of future dividends, following the approval of the
Court, the share premium account was cancelled and the balance of the account
was transferred to the Special Reserve.
2. INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS
2020 2019
£'000 £'000
Income from investments
Unquoted distributions 90 114
Overseas dividends 487 966
Fixed interest income - 7
577 1,087
Total income comprises:
Dividends 577 1,080
Interest - 7
577 1,087
3. AIFM AND PORTFOLIO MANAGEMENT FEES
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 42 168 210 38 151 189
Portfolio management fee 234 936 1,170 210 842 1,052
Performance fee - 79 79 - - -
276 1,183 1,459 248 993 1,241
4. OTHER EXPENSES
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Directors' remuneration 171 - 171 170 - 170
Employers NIC on 18 - 18 19 - 19
directors's remuneration
Auditors' remuneration for 41 - 41 33 - 33
the audit of the Company's
financial statements
Registrar fee 17 - 17 17 - 17
Broker retainer 30 - 30 30 - 30
Legal and professional 8 - 8 9 - 9
costs
Custody fees 46 - 46 50 - 50
Other costs 123 - 123 109 - 109
Total expenses 454 - 454 437 - 437
Details of the amounts paid to Directors are included in the Directors'
Remuneration Report.
5. TAXATION ON NET RETURN
(a) Analysis of charge in period
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax
Overseas taxation 14 - 14 78 - 78
(b) Factors affecting current tax charge for the year
Approved investment trusts are exempt from tax on capital gains made within the
Company.
The tax charged for the period is lower than the standard rate of corporation
tax in the UK of 19.0% (2019: 19.0%). The difference is explained below.
2020 2019
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Net (loss)/return before (153) 12,620 12,467 402 21,727 22,129
taxation
Corporation tax at 19.0% (29) 2,398 2,369 76 4,128 4,204
(2019: 19.0%)
Non-taxable gains on - (2,623) (2,623) - (4,317) (4,317)
investments held at fair
value through profit or
loss
Overseas withholding 14 - 14 78 - 78
taxation
Non-taxable overseas (110) - (110) (205) - (205)
dividends
Excess management expenses* 139 225 364 129 189 318
Current tax charge for the 14 - 14 78 - 78
year
*Excess management expenses are expenses that are not relieved in full against
income generated by the Company.
(c) Provision for deferred tax
No provision for deferred taxation has been made in the current period. The
Company has not provided for deferred tax on capital profits and losses arising
on the revaluation or disposal of investments, as it is exempt from tax on
these items because of its status as an investment trust company.
The Company has not recognised a deferred tax asset of £1,527,000 (19% tax
rate) (2019: £1,084,000, 17%) as a result of excess management expenses. It is
not anticipated that these excess expenses will be utilised in the foreseeable
future. Following the Budget in March 2020 the UK corporation tax rate remained
at 19% from April 2020.
6. (LOSS)/RETURN PER SHARE
The capital, revenue and total return per ordinary share are based on the net
(loss)/return shown in the Income Statement and the weighted average number of
ordinary shares in issue 80,000,001 (2019: 80,000,001).
There are no dilutive instruments issued by the Company.
The calculation of the total, revenue and capital returns/(losses) per ordinary
share is carried out in accordance with IAS 33 Earnings per share.
7. DIVIDS PAID
Under UK GAAP, final dividends are not recognised until they are approved by
shareholders and interim dividends are not recognised until they are paid. They
are also debited directly from reserves. Amounts recognised as distributable in
these financial statements were as follows:
2020 2019
£'000 £'000
2019 interim dividend of 0.4p per share 320 -
2018 final dividend of 0.7p per share - 560
The Board's current policy is to only pay dividends out of revenue reserves
except where payment from a capital reserve is required to maintain investment
trust status. Therefore the amount available for distribution as at 31 December
2020 is £61,000 (2019: £548,000). The Company generated a revenue loss in the
year ended 31 December 2020 of £167,000 (2019: £324,000).
The dividends payable in respect of both the current and the previous financial
year, which meet the requirements of Section 1158 CTA 2010, are set out below:
2020 2019
£'000 £'000
Revenue (loss)/available for distribution by way of dividend (167) 324
for the year
2019 interim dividend of 0.4p per share - (320)
Transfer to revenue reserves (167) 4
8. INVESTMENTS
2020 2019
Quoted Unquoted Quoted Unquoted
Investments Investments Total Investments Investments Total
£'000 £'000 £'000 £'000 £'000 £'000
Opening balance
Cost at 1 January 38,258 22,922 61,180 38,711 22,439 61,150
Investment holdings 11,302 4,365 15,667 4,262 199 4,461
gains at 1 January
Valuation at 1 49,560 27,287 76,847 42,973 22,638 65,611
January
Movement in the year:
Purchases at cost 25,537 559 26,096 19,518 8,759 28,277
Sales - proceeds (3,903) (9,272) (13,175) (27,681) (10,142) (37,823)
received
Net movement in 12,441 826 13,267 14,750 6,032 20,782
investment holdings
gains
Valuation at 31 83,635 19,400 103,035 49,560 27,287 76,847
December
Closing balance
Cost at 31 December 60,672 18,758 79,430 38,258 22,922 61,180
Investment holding 22,963 642 23,605 11,302 4,365 15,667
gains at 31 December
Valuation at 31 83,635 19,400 103,035 49,560 27,287 76,847
December
The Company received £13,175,000 (2019: £37,823,000) from investments sold in
the year. The book cost of these investments was £7,846,000 (2019: £
28,247,000). These investments have been revalued over time and until they were
sold any unrealised gains/losses were included in the fair value of the
investments.
Gains on investments
2020 2019
£'000 £'000
Net movement in investment holding gains in the year 13,267 20,782
Net movement in derivative holding gains in the year 536 1,938
Gains on investments 13,803 22,720
Purchase transaction costs were £17,000 (2019: £3,000). These comprise mainly
commission and stamp duty.
Sales transaction costs were £2,000 (2019: £17,000). These comprise mainly
commission.
9. DERIVATIVES
2020 2019
£'000 £'000
Fair value of FX forwards 1,930 1,393
FX forwards are currently used to hedge the Company's exposure to the Euro and
US Dollar. See note 16(ii) for further details. The Company received £104,000
(2019: paid £240,000) on FX forwards closed during the year. The FX forwards
are revalued over time and any gains/losses (both realised and unrealised) are
included in Gains/(losses) on investments in the capital column of the Income
Statement.
10. DEBTORS
2020 2019
£'000 £'000
VAT recoverable 8 10
Withholding tax recoverable 70 78
Prepayments and accrued income 27 20
105 108
11. OTHER CREDITORS
2020 2019
£'000 £'000
Performance fees 79 -
Other creditors and accruals 272 228
351 228
The mechanism for performance fee is explained in the Business Review. The full
amount of £79,000 was expensed during the year ended 31 December 2020 and will
be fully payable upon approval of this annual report.
12. SHARE CAPITAL
2020 2019
£'000 £'000
Issued and fully paid:
80,000,001 ordinary shares of 1p per share 800 800
There is a single class of ordinary shares. The voting rights of the ordinary
shares on a poll are one vote for each share held. There are no:
. restrictions on transfer of, or in respect of the voting or dividend
rights of, the Company's ordinary shares;
. agreements, known to the Company, between holders of securities
regarding the transfer of ordinary shares;
or
. special rights with regard to control of the Company attaching to the
ordinary shares
13. NET ASSET VALUE PER SHARE
2020 2019
Net asset value per share 132.7p 117.5p
The net asset value per share is based on the assets attributable to equity
shareholders of £106,132,000 (2019: £93,999,000) and on the number of ordinary
shares in issue at the year end of 80,000,001.
There are no dilutive instruments issued by the Company.
14. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES
2020 2019
£'000 £'000
Gains before finance costs and taxation 12,467 22,129
Gains made on investments (13,803) (22,720)
(1,336) (591)
(Increase)/decrease in other debtors (5) 26
Increase in creditors and accruals 123 46
Effective interest rate amortisation - (2)
Net taxation suffered on investment income (7) (80)
Net cash outflow from operating activities (1,225) (601)
15. RELATED PARTIES
The following are considered to be related parties:
. Frostrow Capital LLP
. The Directors of the Company
Details of the relationship between the Company and the Company's AIFM are
disclosed in the Strategic Report. Details of fees paid to Frostrow by the
Company can be found in note 3. All material related party transactions have
been disclosed in note 3. Details of the remuneration of all Directors can be
found in note 4. Details of the Directors' interests in the capital of the
Company can be found in the Directors' Remuneration Report.
The balance outstanding to Frostrow at the year end was £20,000 (2019: £
18,000). No balances were due to the Directors (2019: nil).
Ben Goldsmith, a member of the Portfolio Manager, holds a minority membership
interest in Alpina Partners LLP (formerly WHEB Capital Partners LLP), the
investment manager of the WCP Growth Fund LP. He also has a small carried
interest participation in this fund.
16. FINANCIAL INSTRUMENTS
Risk management policies and procedures
The Company's financial instruments comprise securities and other investments,
cash balances and certain debtors and creditors that arise directly from its
operations.
As an investment trust, the Company invests in equities and other investments
for the long term so as to achieve its Investment Objective. In pursuing its
Investment Objective, the Company is exposed to a variety of risks that could
result in a reduction in the Company's net assets.
The main risks that the Company faces arising from its use of financial
instruments are:
(i) market risk (including foreign currency risk, interest rate risk and
other price risk)
(ii) liquidity risk
(iii) credit risk
These risks, with the exception of liquidity risk, and the Directors' approach
to the management of them, are set out in the Strategic Report. The AIFM, in
close co-operation with the Board and the Portfolio Manager, co-ordinates the
Company's risk management.
(i) Other price risk
In pursuance of the Investment Objective, the Company's portfolio is exposed to
the risk of fluctuations in market prices and foreign exchange rates.
The Board manages these risks through the use of investment limits and
guidelines, and monitors the risks through monthly compliance reports from
Frostrow, with reports from Frostrow and the Portfolio Manager also presented
at each Board meeting. In addition, Frostrow monitors the exposure of the
Company and compliance with the investment limits and guidelines on a daily
basis.
Other price risk sensitivity
Other price risk may affect the value of the quoted investments.
If market prices at the date of the Statement of Financial Position had been
25% higher or lower while all other variables had remained constant: the
revenue return would have decreased/increased by £62,000 (2019: £283,000); the
capital return would have increased/decreased by £18,571,000 (2019: £
19,212,000); and, the return on equity would have increased/decreased by £
18,509,000 (2019: £18,929,000). The calculations are based on the portfolio as
at the respective dates of the Statement of Financial Position and are not
representative of the year as a whole.
(ii) Foreign currency risk
A significant proportion of the Company's portfolio positions are denominated
in currencies other than sterling (the Company's functional currency, and the
currency in which it reports its results). As a result, movements in exchange
rates can significantly affect the sterling value of those items.
Foreign currency risk is monitored in conjunction with other price risk as
described above. The Portfolio Manager uses foreign currency forwards to hedge
the foreign currency risk. Currently, approximately two thirds of the Company's
euro and US dollar exposures are hedged.
Foreign currency exposure
The fair values of the Company's assets and liabilities that are denominated in
foreign currencies are shown below:
2020 2019
Current Current
Investments Derivatives* assets Net Investments Derivatives assets Net
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
U.S. dollar 77,148 (39,860) 2 37,290 52,583 (37,704) 17 14,896
Euro 16,584 (8,956) 70 7,698 11,528 (14,422) 9,950 7,056
Other - - 31 31 3,621 - 9 3,630
93,732 (48,816) 103 (45,019) 67,732 (52,126) 9,976 25,582
*Derivatives comprise foreign currency forwards used to partially hedge the
Company's exposure to overseas currencies.
Foreign currency sensitivity
The following table details the sensitivity of the Company's net return for the
year and shareholders' funds to a 10% increase and decrease in sterling against
the relevant currency.
These percentages have been determined based on market volatility in exchange
rates over the period since launch. The sensitivity analysis is based on the
Company's significant foreign currency exposures at each Statement of Financial
Position date.
2020 2019
USD EUR Other USD EUR Other
£'000 £'000 £'000 £'000 £'000 £'000
Sterling depreciates 4,143 855 3 1,655 784 403
Sterling appreciates (3,390) (700) (3) (1,354) (641) (330)
(iii) Interest rate risk
Interest rate changes may affect:
- the level of income receivable from floating and fixed rate
securities and cash at bank and on deposit; and
- the fair value of investments in fixed interest securities.
Interest rate exposure
The exposure of financial assets and liabilities to fixed and floating interest
rates, is shown below.
2020 2019
Fixed Floating Fixed Floating
rate rate rate rate
£'000 £'000 £'000 £'000
Cash - 1,413 - 15,879
- 1,413 - 15,879
Interest rate sensitivity
If interest rates had been 1% higher or lower and all other variables were held
constant, the Company's net return for the year ended 31 December 2020 and the
net assets would increase/decrease by £14,000 (2019: £159,000).
(iv) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting
obligations associated with financial liabilities.
The main liquidity requirements the Company may face are its commitments to the
investments in limited partnership funds, as set out in Note 18. These
commitments can be drawn down on 3 or 10 days notice. Having reviewed the
nature of the investment and the track record of the underlying mandate for the
most significant commitment, to TCI Real Estate Fund III Limited, the Board
consider that it will be drawn down gradually over the life of the investment
and as such poses a low risk to the liquidity of the Company. Frostrow and/or
the Portfolio Manager are in regular contact with the managers of the limited
partnership funds, as a part of which they would be made aware of, and plan
accordingly for any drawdowns under those commitments.
The Company's assets comprise quoted securities (equity shares, fixed income
and fund investments), cash, and unquoted limited partnership funds and
investments. Whilst the unquoted investments are illiquid, short-term
flexibility is achieved through the quoted securities, which are liquid, and
cash which is available on demand.
The liquidity of the quoted securities is monitored on at least a monthly basis
to ensure that there is sufficient liquidity to meet the company's liabilities
and any forthcoming drawdowns.
(v) Credit risk
Credit risk is the risk of failure of a counterparty to discharge its
obligations resulting in the Company suffering a financial loss. The quoted
debt investments are managed as part of an investment portfolio, and their
credit risk is considered in the context of their overall investment risk.
Credit risk exposure
2020 2019
£'000 £'000
Derivative financial instruments 1,930 1,393
Current assets:
Other receivables (amounts due from brokers, dividends and 105 94
interest receivable)
Cash 1,413 15,879
(vi) Hierarchy of investments
The Company's investments are valued within a fair value hierarchy that
reflects the significance of the inputs used in making the fair value
measurements as described in the accounting policies.
Level 1 Level 2 Level 3 Total
As of 31 December 2020 £'000 £'000 £'000 £'000
Investments 89,655 - 13,380 103,035
Derivatives - 1,930 - 1,930
Level 1 Level 2 Level 3 Total
As of 31 December 2019 £'000 £'000 £'000 £'000
Investments 49,560 - 27,287 76,847
Derivatives - 1,393 - 1,393
Level 3 investments as of 31 December 2020
Cost Value
'000 £'000 Ownership Valuation basis
Helios Co-Invest LP 1 US$8,221 11,120 4.73% NAV
WCP Growth Fund LP £7,447 26 10.30% Discount to
adjusted NAV
TCI Real Estate Partners Fund III US$2,713 2,235 1.18% NAV
Ltd
1 Described as X-ELIO in the portfolio statement
The Company has a 1.25% holding in KKR Evergreen Co-Invest LP, whose NAV is
99.8% represented by the valuation of Calisen PLC. Following the successful IPO
of Calisen PLC during the year, its share price is now publicly available on a
recognised stock exchange. As such, the Company now classifies KKR Evergreen
Co-Invest LP (fair value: £6,020,000) as a level 1 investment (2019: level 3
investment).
During the year, the Company realised a gain of £1,267,000 after receiving £
5,017,000 distribution from Helios Co-Invest LP, following the sale of its 30%
stake in X-ELIO. Helios Co-Invest LP remains the largest unquoted investment
for the Company as at 31 December 2020.
The Company also received a cash proceed of £3,540,000 from the disposal of its
investment in Perfin Apollo 12 FIP. This represents a loss of £81,000, due to
changes in FX, from its carrying value of £3,621,000 at the end of 2019.
The fair value WCP Growth Fund LP was written down by £416,000 during the year.
If a 25% discount to NAV was applied to the NAV of the level 3 investments as
at 31 December 2020, or the discount already applied was increased by 25%, the
impact would have been a decrease of £3,217,000 in net assets and the net
return for the year.
Level 3 investments as of 31 December 2019
Cost Value
'000 £'000 Ownership Valuation
basis3
KKR Evergreen Co-Invest LP 1 £3,518 4,701 1.25% Calibrated PORT
Perfin Apollo 12 FIP BRL3,937 3,621 5.80% PORT
Helios Co-Invest LP 2 US$13,116 16,419 4.73% PORT/NAV
WCP Growth Fund LP £7,904 899 10.30% Discount to
adjusted NAV
TCI Real Estate Partners Fund III US$1,978 1,648 1.18% NAV
Ltd
1 Described as Calisen PLC in the portfolio statement
2 Described as X-ELIO in the portfolio statement
3 PORT = price of recent transaction
Perfin Apollo 12 FIP's fair value was written up by £2,837,000 and Helios
Co-Invest LP's fair value increased by £825,000 in 2019.
In addition, one unquoted investment was bought and realised in 2019. A stake
in CGE Investments ("CGE") was acquired for ?9,870,000 in the first quarter of
2019. The underlying investment in CGE was subject to a takeover offer that was
accepted and completed in the final quarter of 2019. Following completion, CGE
made a return of capital of ?11,652,000.
If a 25% discount to NAV was applied to the NAV of the level 3 investments as
at 31 December 2019, or the discount already applied was increased by 25%, the
impact would have been a decrease of £637,000 in net assets and the net return
for the year.
(vii) Capital management policies and procedures
The Company's capital management objectives are to ensure that it will be able
to continue as a going concern and to maximise the income and capital return to
its equity shareholders through an appropriate level of gearing.
The Board's policy is to limit gearing to a maximum of 20% of the Company's net
assets. Currently the Company does not have any gearing and there are no
facilities in place.
The capital structure of the Company consists of the equity share capital,
retained earnings and other reserves as disclosed on the Statement of Financial
Position.
The Board, with the assistance of the AIFM and the Portfolio Manager, monitors
and reviews the broad structure of the Company's capital on an ongoing basis.
This includes a review of:
- the planned level of gearing, which takes into account the Portfolio
Manager's view of the market;
- the need to buy back equity shares, either for cancellation or to
hold in treasury, in light of any share price discount to net asset value per
share;
- the need for new issues of equity shares; and,
- the extent to which revenue in excess of that which is required to be
distributed should be retained.
17. CAPITAL RESERVE
2020 2019
Capital Reserves Capital Reserves
Investment
Investment Holding
Holding (Losses)/
Other Gains Total Other Gains Total
£'000 £'000 £'000 £'000 £'000 £'000
At 1 January (1,780) 17,060 15,280 (10,124) 3,677 (6,447)
Net gains on investments 5,329 8,474 13,803 9,337 13,383 22,720
Expenses charged to capital (1,183) - (1,183) (993) - (993)
At 31 December 2,366 25,534 27,900 (1,780) 17,060 15,280
Sums within the Total Capital Reserve less unrealised gains (those on
investments not readily convertible to cash) are available for distribution. In
addition, the Revenue Reserve is available for distribution.
18. FINANCIAL COMMITMENT
The Company has made commitments to provide additional funds to the following
investments:
Sterling Local currency Notice of
Commitment Commitment drawdown
KKR Evergreen Co-Invest LP £18,000 - 10 business days
WCP Growth Fund LP £52,000 - 10 business days
Helios Co-Invest LP £45,000 US$62,000 3 business days
TCI Real Estate Partners Fund III £9,000,000 US$12,303,000 10 business days
Limited
19. THE COMPANY
The Company is a public limited company (PLC) incorporated in England and
Wales. Its principal activity is that of an investment trust company within the
meaning of sections 1158/1159 of the Corporation Tax Act 2010 and its
registered office and principal place of business is 25 Southampton Buildings,
London, WC2A 1AL.
AIFMD Disclosures
The Company's AIFM, Frostrow Capital LLP, and the Company are required to make
certain disclosures available to investors in accordance with the UK's
Alternative Investment Fund Managers Regulation ("AIFMD UK Regulation").
Those disclosures that are required to be made pre-investment are included
within an Investor Disclosure Document which can be found on the Company's
website www.menhaden.com.
The periodic disclosures to investors are made below:
. Information on the investment strategy, sector investment focus and
principal stock exposures are included in the Strategic Report.
. None of the Company's assets are subject to special arrangements
arising from their illiquid nature.
. There are no new arrangements for managing the liquidity of the
Company or any material changes to the liquidity management systems and
procedures employed by Frostrow.
. The Strategic Report and note 16 to the Financial Statements set out
the risk profile and risk management systems in place. There have been no
changes to the risk management systems in place during the year under review
and no breaches of the risk limits set, with no breach expected.
. At the start of the year under review, the maximum leverage limits
were 200% both on a gross and on a commitment basis (see Glossary for further
details). As at 31 December 2020, gross leverage was 144.9% (2019: 137.6%) and
commitment leverage was 100.2% (2019: 100.2%).
. No right of re-use of collateral or any guarantee granted under the
leveraging arrangement has arisen during the period.
. Following completion of an assessment of the application of the
proportionality principle to the FCA's AIFM Remuneration Code, the AIFM has
disapplied the pay-out process rules with respect to it and any of its
delegates. This is because the AIFM considers that it carries out non-complex
activities and is operating on a small scale.
Note: These disclosures are not audited by the Company's statutory auditor.
Glossary
Alternative Investment Fund Managers Directive (AIFMD)
Agreed by the European Parliament and the Council of the European Union and
transposed into UK legislation, the AIFMD classifies certain investment
vehicles, including investment companies, as Alternative Investment Funds
(AIFs) and requires them to appoint an Alternative Investment Fund Manager
(AIFM) and depositary to manage and oversee the operations of the investment
vehicle. The Board of the Company retains responsibility for strategy,
operations and compliance and the Directors retain a fiduciary duty to
shareholders.
Compounding Hurdle
The payment of a performance fee is conditional on the Company's NAV being
above the high watermark and the return on the gross proceeds from the IPO of
the Company exceeding an annualised compound return of 5%.
Discount or Premium
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share, the shares are trading at a
discount.
Gearing
In simple terms gearing is borrowing. An investment trust can borrow money to
invest in additional investments for its portfolio. The effect of the borrowing
on shareholders' funds is called 'gearing'. If the Company's assets grow,
shareholders' funds grow proportionately more because the debt remains the
same. But if the value of the Company's assets falls, the situation is
reversed. Gearing can therefore enhance performance in rising markets but can
adversely impact performance in falling markets.
Gearing represents borrowings at par less cash and cash equivalents expressed
as a percentage of shareholders' funds. Potential gearing is the company's
borrowings expressed as a percentage of shareholders' funds.
High Watermark
The high watermark is the highest net asset value that the Company has reached
on which a performance fee has been paid. Its initial level was set at 100p on
the launch of the Company.
Leverage
For the purposes of the Alternative Investment Fund Managers (AIFM) Directive,
leverage is any method which increases the Company's exposure, including the
borrowing of cash and the use of derivatives. It is expressed as a ratio
between the Company's exposure and its net asset value and can be calculated on
a gross and a commitment method. Under the gross method, exposure represents
the sum of the Company's positions after the deduction of sterling cash
balances, without taking into account any hedging and netting arrangements.
Under the commitment method, exposure is calculated without the deduction of
sterling cash balances and after certain hedging and netting positions (as
detailed in the AIFMD) are offset against each other.
Net Asset Value (NAV)
The value of the Company's assets, principally investments made in other
companies and cash being held, minus any liabilities. The NAV per share is also
described as 'shareholders' funds' per share. The NAV is often expressed in
pence per share after being divided by the number of shares which are in issue.
The NAV per share is unlikely to be the same as the share price which is the
price at which the Company's shares can be bought or sold by an investor. The
share price is determined by the relationship between the demand and supply of
the shares.
NAV Total Return
The theoretical total return on shareholders' funds per share, reflecting the
change in NAV assuming that any dividends paid to shareholders were reinvested
at NAV at the time the shares were quoted ex-dividend. A way of measuring
investment management performance of investment trusts which is not affected by
movements in the share price.
31 December 31 December
2020 2019
Opening NAV 117.5p 90.6p
Increase in NAV 15.2p 26.9p
Closing NAV 132.7p 117.5p
% increase in NAV 12.9% 29.7%
Impact of dividend reinvested 0.3% 0.8%
NAV total return 13.2% 30.5%
Share Price Total Return
The return to the investor, on a last traded price to a last traded price
basis, assuming that all dividends paid were reinvested, without transaction
costs, into the shares of the Company at the time the shares were quoted
ex-dividend.
31 December 31 December
2020 2019
Opening share price 96.5p 67.0p
Increase in share price 2.5p 29.5p
Closing share price 99.0p 96.5p
% increase in share price 2.6% 44.0%
Impact of dividend reinvested 0.4% 1.3%
Share price total return 3.0% 45.3%
Ongoing Charges
Ongoing charges are calculated by taking the Company's annualised operating
expenses and expressing them as a percentage of the average daily net asset
value of the Company over the year. The costs of buying and selling investments
are excluded, as are interest costs, taxation, costs of buying back or issuing
shares and other non-recurring costs. These items are excluded because if
included, they could distort the understanding of the Company's performance for
the year and the comparability between periods.
31 December 31 December
2020 2019
£'000 £'000
Total Expenses 1,913 1,678
Average NAVs 93,724 83,249
Ongoing charge ratio 2.0% 2.0%
Notice of the Annual General Meeting
Notice is hereby given that the Annual General Meeting of Menhaden PLC will be
held at the offices of Frostrow Capital LLP, 25 Southampton Buildings, London
WC2A 1AL on Thursday, 3 June 2021 at 12 noon for the following purposes:
Ordinary Business
To consider and, if thought fit, pass the following as ordinary resolutions:
1. To receive and accept the Annual Report for the year ended 31 December
2020, including the financial statements and the directors' and auditor's
reports thereon.
2. To receive and approve the Directors' Remuneration Report for the year
ended 31 December 2020.
3. To re-elect Sir Ian Cheshire as a Director of the Company.
4. To re-elect Duncan Budge as a Director of the Company.
5. To re-elect Emma Howard Boyd as a Director of the Company.
6. To re-elect Howard Pearce as a Director of the Company.
7. To re-appoint Mazars LLP as the Company's Auditor to hold office from
the conclusion of the meeting to the conclusion of the next Annual General
Meeting at which accounts are laid, and to authorise the Audit Committee to
determine their remuneration.
Special Business
To consider and, if thought fit, pass the following resolutions of which
resolutions 9, 10 and 11 will be proposed as special resolutions:
Authority to Issue Shares
1. THAT, in substitution for all existing authorities, the Directors be
and are hereby generally and unconditionally authorised in accordance with
Section 551 of the Companies Act 2006 (the "Act") to exercise all powers of the
Company to allot relevant securities (within the meaning of section 551 of the
Act) up to a maximum aggregate nominal amount of £80,000 (being 10% of the
issued share capital of the Company at the date of the notice convening the
meeting at which this resolution is proposed) and representing 8,000,000 shares
of 1 penny each, provided that this authority shall expire at the conclusion of
the Annual General Meeting of the Company to be held in 2022 or 15 months from
the date of passing this resolution, whichever is the earlier, unless
previously revoked, varied or renewed by the Company in general meeting and
provided that the Company shall be entitled to make, prior to the expiry of
such authority, an offer or agreement which would or might require relevant
securities to be allotted after such expiry and the Directors may allot
relevant securities pursuant to such offer or agreement as if the authority
conferred hereby had not expired.
Disapplication of Pre-emption Rights
1. THAT, in substitution of all existing powers, the Directors be and are
hereby generally empowered pursuant to sections 570 and 573 of the Companies
Act 2006 (the "Act") to allot equity securities (within the meaning of section
560 of the Act) for cash pursuant to the authority conferred on them by
resolution 8 set out in the notice convening the Annual General Meeting at
which this resolution is proposed or otherwise as if section 561(1) of the Act
did not apply to any such allotment and to sell relevant shares (within the
meaning of section 560 of the Act) for cash as if section 561(1) of the Act did
not apply to any such sale, provided that this power shall be limited to the
allotment of equity securities pursuant to:
(a) an offer of equity securities open for acceptance for a period fixed by
the Directors where the equity securities respectively attributable to the
interests of holders of shares of 1 penny each in the Company ("Shares") are
proportionate (as nearly as may be) to the respective numbers of Shares held by
them but subject to such exclusions or other arrangements in connection with
the issue as the Directors may consider necessary, appropriate, or expedient to
deal with equity securities representing fractional entitlements or to deal
with legal or practical problems arising in any overseas territory, the
requirements of any regulatory body or stock exchange, or any other matter
whatsoever; and
(b) (otherwise than pursuant to sub-paragraph (a) above) an offer or offers
of equity securities of up to an aggregate nominal value of £80,000 and expires
at the conclusion of the next Annual General Meeting of the Company after the
passing of this resolution or 15 months from the date of passing this
resolution, whichever is the earlier, unless previously revoked, varied or
renewed by the Company in general meeting and provided that the Company shall
be entitled to make, prior to the expiry of such authority, an offer or
agreement which would or might require equity securities to be allotted after
such expiry and the Directors may allot equity securities pursuant to such
offer or agreement as if the power conferred hereby had not expired.
Authority to Repurchase ordinary shares
2. THAT the Company be and is hereby generally and unconditionally
authorised in accordance with section 701 of the Companies Act 2006 (the "Act")
to make one or more market purchases (within the meaning of section 693(4) of
the Act) of ordinary shares of 1 penny each in the capital of the Company
("Shares") (either for retention as Treasury Shares for future reissue, resale,
transfer or cancellation) provided that:
(a) the maximum aggregate number of Shares authorised to be purchased is
11,992,000 or, if changed, the number representing approximately 14.99% of the
issued share capital of the Company at the date of the meeting at which this
resolution is proposed;
(b) the minimum price (exclusive of expenses) which may be paid for a Share
is 1 penny;
(c) the maximum price (exclusive of expenses) which may be paid for a Share
is an amount equal to the greater of (i) 105% of the average of the middle
market quotations for a Share as derived from the Daily Official List of the
London Stock Exchange for the five business days immediately preceding the day
on which that Share is purchased and (ii) the higher of the price of the last
independent trade in shares and the highest then current independent bid for
shares on the London Stock Exchange;
(d) the authority hereby conferred shall expire at the conclusion of the
Annual General Meeting of the Company to be held in 2022 or, if earlier, on the
expiry of 15 months from the date of the passing of this resolution unless such
authority is renewed prior to such time; and
(e) the Company may make a contract to purchase Shares under this authority
before the expiry of such authority which will or may be executed wholly or
partly after the expiration of such authority, and may make a purchase of
Shares in pursuance of any such contract.
General Meetings
3. THAT the Directors be authorised to call general meetings (other than
the Annual General Meeting of the Company) on not less than 14 clear days'
notice, such authority to expire on the conclusion of the next Annual General
Meeting of the Company or if earlier, on the expiry 15 months from the date of
the passing of the resolution.
Shareholders should note that, should ongoing restrictions in view of the
Covid-19 pandemic make it impossible to hold a physical meeting, without
endangering the wellbeing of shareholders and other attendees, then the Board
will only conduct the statutory, formal business this year in order to meet the
minimum legal requirements. In that case arrangements will be made for
shareholders to attend via a webinar, view a presentation by the Portfolio
Manager and ask questions in advance. Shareholders are encouraged to view the
Company's website, www.menhaden.com for further information nearer the time.
Questions to the Board and the Portfolio Manager can be submitted to the
Company Secretary at info@frostrow.com. Should time pressures make it
impossible to answer all questions during the webinar, then an effort will be
made to answer them on the website afterwards.
All shareholders should look on the Company's website, www.menhaden.com for any
late changes to the AGM arrangements and whether attendance will be possible.
In any case, all shareholders are strongly advised to exercise their votes in
advance of the meeting by proxy, by following the voting instructions overleaf.
By order of the
Board
Registered Office:
25 Southampton Buildings
London WC2A 1AL
Frostrow Capital LLP
Company Secretary
8 April 2021
Notes
1. Members are entitled to appoint a proxy to exercise all or any of
their rights to attend and to speak and vote on their behalf at the meeting. A
shareholder may appoint more than one proxy in relation to the meeting provided
that each proxy is appointed to exercise the rights attached to a different
share or shares held by that shareholder. A proxy need not be a shareholder of
the Company.
2. A vote withheld is not a vote in law, which means that the vote will
not be counted in the calculation of votes for or against the resolutions. If
no voting indication is given, a proxy may vote or abstain from voting at his/
her discretion. A proxy may vote (or abstain from voting) as he or she thinks
fit in relation to any other matter which is put before the meeting.
3. Hard copy forms of proxy have not been included with this notice.
Members can vote by: logging onto www.signalshares.com and following
instructions, requesting a hard copy form of proxy directly from the
registrars, Link Group, by emailing enquiries@linkgroup.co.uk; or, in the case
of CREST members, utilising the CREST electronic proxy appointment service in
accordance with the procedures set out below. To be valid any appointment of a
proxy must be completed, signed and received at Link Group, PXS 1, Central
Square, 29 Wellington Street, Leeds LS1 4DL no later than 12 noon on 1 June
2021.
4. In the case of a member which is a company, the instrument appointing
a proxy must be executed under its seal or signed on its behalf by a duly
authorised officer or attorney or other person authorised to sign. Any power of
attorney or other authority under which the instrument is signed (or a
certified copy of it) must be included with the instrument.
5. The return of a completed proxy form, other such instrument or any
CREST Proxy Instruction (as described below) will not prevent a shareholder
attending the meeting and voting in person if he/she wishes to do so.
6. Any person to whom this notice is sent who is a person nominated under
section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated
Person") may, under an agreement between him/her and the shareholder by whom he
/she was nominated, have a right to be appointed (or have someone else
appointed) as a proxy for the meeting. If a Nominated Person has no such proxy
appointment right or does not wish to exercise it, he/she may, under any such
agreement, have a right to give instructions to the shareholder as to the
exercise of voting rights.
7. The statement of the rights of shareholders in relation to the
appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated
Persons. The rights described in these paragraphs can only be exercised by
shareholders of the Company.
8. Pursuant to regulation 41 of the Uncertificated Securities Regulations
2001, only shareholders registered on the register of members of the Company
(the "Register of Members") at close of business on 1 June 2021 (or, in the
event of any adjournment, on the date which is two business days before the
time of the adjourned meeting) will be entitled to attend and vote or be
represented at the meeting in respect of shares registered in their name at
that time. Changes to the Register of Members after that time will be
disregarded in determining the rights of any person to attend and vote at the
meeting.
9. As at 8 April 2021 (being the last business day prior to the
publication of this notice) the Company's issued share capital consists of
80,000,001 ordinary shares, carrying one vote each. Therefore, the total voting
rights in the Company as at 8 April 2021 are 80,000,001.
10. CREST members who wish to appoint a proxy or proxies through the CREST
electronic proxy appointment service may do so by using the procedures
described in the CREST Manual. CREST Personal Members or other CREST sponsored
members, and those CREST members who have appointed a service provider(s),
should refer to their CREST sponsor or voting service provider(s), who will be
able to take the appropriate action on their behalf.
11. In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a "CREST Proxy
Instruction") must be properly authenticated in accordance with the
specifications of Euroclear UK and Ireland Limited ("CRESTCo"), and must
contain the information required for such instruction, as described in the
CREST Manual. The message, regardless of whether it constitutes the appointment
of a proxy or is an amendment to the instruction given to a previously
appointed proxy must, in order to be valid, be transmitted so as to be received
by the issuer's agent (ID RA10) no later than 48 hours before the time
appointed for holding the meeting, excluding non-business days. For this
purpose, the time of receipt will be taken to be the time (as determined by the
timestamp applied to the message by the CREST Application Host) from which the
issuer's agent is able to retrieve the message by enquiry to CREST in the
manner prescribed by CREST. After this time any change of instructions to
proxies appointed through CREST should be communicated to the appointee through
other means.
12. CREST members and, where applicable, their CREST sponsors, or voting
service providers should note that CRESTCo does not make available special
procedures in CREST for any particular message. Normal system timings and
limitations will, therefore, apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member concerned to take
(or, if the CREST member is a CREST personal member, or sponsored member, or
has appointed a voting service provider, to procure that his CREST sponsor or
voting service provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any particular
time. In this connection, CREST members and, where applicable, their CREST
sponsors or voting system providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of the CREST
system and timings.
13. The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities
Regulations 2001.
14. In the case of joint holders, where more than one of the joint holders
purports to appoint a proxy, only the appointment submitted by the most senior
holder will be accepted. Seniority is determined by the order in which the
names of the joint holders appear in the Register of Members in respect of the
joint holding (the first named being the most senior).
15. Members who wish to change their proxy instructions should submit a new
proxy appointment using the methods set out above. Note that the cut-off time
for receipt of proxy appointments (see above) also applies in relation to
amended instructions; any amended proxy appointment received after the relevant
cut-off time will be disregarded.
16. Members who have appointed a proxy using a hard-copy proxy form and who
wish to change the instructions using another hard-copy form, should contact
Link Group on 0371 664 0300. Calls are charged at the standard geographic rate
and will vary by provider. Calls outside the United Kingdom will be charged at
the applicable international rate. Lines are open between 9.00 a.m. to 5.30
p.m., Monday to Friday excluding public holidays in England and Wales.
17. If a member submits more than one valid proxy appointment, the
appointment received last before the latest time for the receipt of proxies
will take precedence.
18. In order to revoke a proxy instruction, members will need to inform the
Company. Members should send a signed hard copy notice clearly stating their
intention to revoke a proxy appointment to Link Group, PXS 1, Central Square,
29 Wellington Street, Leeds LS1 4DL.
In the case of a member which is a company, the revocation notice must be
executed under its common seal or signed on its behalf by an officer of the
company or an attorney for the company. Any power of attorney or any other
authority under which the revocation notice is signed (or a duly certified copy
of such power of attorney) must be included with the revocation notice. If a
member attempts to revoke their proxy appointment but the revocation is
received after the time for receipt of proxy appointments then, subject to
paragraph 4, the proxy appointment will remain valid.
19. Given the risks posed by the spread of Covid-19 and in accordance with
the Articles and Government guidance, the Company may impose restrictions on
shareholders wishing to attend the AGM. Such restrictions may include limiting
the number of shareholders permitted to attend the AGM in person. Other
restrictions may be imposed as the chairman of the meeting may specify in order
to ensure the safety of those attending the AGM.
Explanatory Notes to the Resolutions
Resolution 1 - To receive the Annual Report
The Annual Report for the year ended 31 December 2020 will be presented to the
Annual General Meeting (AGM). The financial statements accompany this Notice of
Meeting.
Resolutions 2 - Directors' Remuneration Report
It is mandatory for all listed companies to put their report on Directors'
remuneration to a shareholder vote every year. The Directors' Remuneration
Report is set out in full in the Annual Report above.
Resolutions 3 to 6 - Re-election of Directors
Resolutions 3 to 6 deal with the re-election of each Director. Biographies of
each of the Directors can be found in the Annual Report.
The specific reasons why (in the Board's opinion) each Directors' contribution
is, and continues to be, important to the Company's long-term sustainable
success are as follows:
Sir Ian Cheshire
Sir Ian's leadership of the Board draws on 30 years' experience in the retail,
charity, and banking sectors. His focus is on long-term strategic issues,
including the sustainability and environmental impact of the portfolio.
Duncan Budge
Duncan has over 35 years' experience from his career in the city and the
investment trust sector, and his first-hand knowledge enables the Board to
engage authoritatively with the Portfolio Manager on their investment strategy.
Emma Howard Boyd
Emma has over 25 years' experience in various Board level roles in the asset
management, charity, and public sectors and brings deep expertise in corporate
governance, asset stewardship, and climate change matters.
Howard Pearce
Howard has over 30 years' experience advising at Board level on green
investment and significant expertise of audit committee chairmanship which aids
the Company's financial and environmental impact reporting.
Resolution 7 - Re-appointment of Auditor and the determination of their
remuneration
Resolution 7 relates to the re-appointment of Mazars LLP as the Company's
independent Auditor to hold office until the next AGM of the Company and also
authorises the Audit Committee to set their remuneration. Following the
implementation of the Competition and Markets Authority order on Statutory
Audit Services, only the Audit Committee may negotiate and agree the terms of
the Auditor's service agreement.
Resolutions 8 and 9 - Issue of Shares
Ordinary Resolution 8 in the Notice of Annual General Meeting will renew the
authority to allot unissued share capital up to an aggregate nominal amount of
£80,000 (equivalent to 8,000,000 shares, or 10% of the Company's existing
issued share capital on 8 April 2021, being the nearest practicable date prior
to the signing of this Annual Report). Such authority will expire on the date
of the next Annual General Meeting or after a period of 15 months from the date
of the passing of the resolution, whichever is earlier. This means that the
authority will have to be renewed at the next Annual General Meeting unless
previously renewed.
When shares are to be allotted for cash, Section 551 of the Companies Act 2006
(the "Act") provides that existing shareholders have pre-emption rights and
that the new shares must be offered first to such shareholders in proportion to
their existing holding of shares. However, shareholders can, by special
resolution, authorise the Directors to allot shares otherwise than by a pro
rata issue to existing shareholders. Special Resolution 9 will, if passed, give
the Directors power to allot for cash equity securities up to 10% of the
Company's existing share capital on 8 April 2021, as if Section 551 of the Act
does not apply. This is the same nominal amount of share capital which the
Directors are seeking the authority to allot pursuant to Resolution 8. This
authority will also expire on the date of the next Annual General Meeting or
after a period of 15 months, whichever is earlier. This authority will not be
used in connection with a rights issue by the Company.
The Directors intend to use the authority given by Resolutions 8 and 9 to allot
shares and disapply pre-emption rights only in circumstances where this will be
clearly beneficial to shareholders as a whole. The issue proceeds would be
available for investment in line with the Company's investment policy. No issue
of shares will be made which would effectively alter the control of the Company
without the prior approval of shareholders in general meeting.
Resolution 10 - Share Repurchases
The principal aim of a share buy-back facility is to enhance shareholder value
by acquiring shares at a discount to net asset value, as and when the Directors
consider this to be appropriate. The purchase of shares, when they are trading
at a discount to net asset value per share, should result in an increase in the
net asset value per share for the remaining shareholders. This authority, if
conferred, will only be exercised if to do so would result in an increase in
the net asset value per share for the remaining shareholders and if it is in
the best interests of shareholders generally. Any purchase of shares will be
made within guidelines established from time to time by the Board.
Under the current Listing Rules, the maximum price that may be paid on the
exercise of this authority must not exceed the higher of (i) 105% of the
average of the middle market quotations for the shares over the five business
days immediately preceding the date of purchase and (ii) the higher of the last
independent trade and the highest current independent bid on the trading venue
where the purchase is carried out. The minimum price which may be paid is 1
penny per share.
Special Resolution 10 in the Notice of Annual General Meeting will renew the
authority to purchase in the market a maximum of 14.99% of shares in issue on 8
April 2021, being the nearest practicable date prior to the signing of this
Annual Report, (amounting to 11,952,000 shares). Such authority will expire on
the date of the next Annual General Meeting or after a period of 15 months from
the date of passing of the resolution, whichever is earlier. This means in
effect that the authority will have to be renewed at the next Annual General
Meeting or earlier if the authority has been exhausted.
Resolution 11 - General Meetings
Special Resolution 11 seeks shareholder approval for the Company to hold
General Meetings (other than the AGM) on 14 clear days' notice.
The Company will only use this shorter notice period where it is merited by the
purpose of the meeting and will endeavour to give at least 14 working days'
notice if possible.
Recommendation
The Board considers that the resolutions relating to the above items are in the
best interests of shareholders as a whole. Accordingly, the Board unanimously
recommends to the shareholders that they vote in favour of the above
resolutions to be proposed at the forthcoming AGM as the Directors intend to do
in respect of their own beneficial holdings totalling 188,000 shares.
END
END
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