17 March 2023
TRIAN INVESTORS 1 LIMITED
(the "Company")
Full Year Results
Annual Report and Financial Statements for the year ended 31 December 2022
The Company announces its Annual Report and Financial Statements for the year ended 31 December 2022.
A copy of the Annual Report and Financial Statements has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism. The Annual Report and Financial Statements will also shortly be available on the Company's website at www.trianinvestors1.com where further information on the Company can also be found.
For further information, please contact:
Ocorian Administration (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Chezi Hanford
Overview of the Company
Trian Investors 1 Limited (the "Company") is a Guernsey domiciled limited company incorporated on 24 August 2018. The ordinary shares of the Company (the "Shares") were admitted to trading on the Specialist Fund Segment of the London Stock Exchange ("SFS") on 27 September 2018 ("Admission"). The Company registered with the Guernsey Financial Services Commission as a registered collective investment scheme on 16 June 2021.
The investment objective of the Company, through its investment in Trian Investors 1, L.P. (Incorporated) (the "Investment Partnership"), is to generate significant capital appreciation through the investment activity of Trian Investors Management, LLC (the "Investment Manager") and its parent, Trian Fund Management, L.P. (collectively, "Trian").
On 2 September 2022 the Board announced that the Company will, by no later than 30 June 2023, compulsorily redeem no less than 95 per cent. of each shareholder's holding in the Company and then proceed to wind the Company up. On 30 January and 13 March the Company redeemed a total of 249,633,016 Ordinary Shares (over 99% of the Ordinary Shares in issue at 2 September 2022) and made in-specie distributions of the Company's investments. The Board will now commence a process to wind-up the Company with any residual net assets to be returned to shareholders in cash through that process.
Chairman's Statement
For the year ended 31 December 2022
Dear Shareholder,
On behalf of the Board of Directors (the "Board"), I am pleased to present the Company's Annual Report covering the year ended 31 December 2022.
The Board started 2022 seeking to implement the new investment policy, approved at the 2021 Annual General Meeting. To this end it approved a new investment position, Unilever plc ("Unilever"), and investigated actions to address the share price discount arising from the lack of liquidity in the Company's shares. Although the Company's investments have continued to perform well, it became apparent during the year, and particularly after the Extraordinary General Meeting in August 2022, that it would be difficult to reconcile the conflicting short- and long-term aspirations of different investor groups. The Board, in consultation the Investment Manager, concluded that it would further the best interests of shareholders as a whole to wind the Company up during the course of 2023 by way of an in-specie distribution of the shares in the Company's two investment positions. This plan was announced through proposals published on 2 September 2022. Since that date the Board has been working with its advisers to prepare for, and then execute, a smooth and orderly redemption process, and one that provides all investors with the option to retain their exposure to the Company's underlying investments if they choose to do so.
The steps thus taken so far in January and March 2023 have resulted in the Company now having redeemed over 99% of its shares via in-specie distributions of shares in Ferguson and Unilever respectively. The remaining net assets of the Company will be distributed to shareholders through a liquidation process, the details of which will be announced shortly.
Investment performance
The Investment Manager's Report provides further detail on the performance of the Company's investments in Ferguson plc ("Ferguson") and Unilever during 2022. As described in the Report, despite Ferguson's strong operational performance, that company generated a negative 18.0% total shareholder return ("TSR")¹ during 2022 coinciding with challenging equity market conditions and technical headwinds relating to Ferguson transitioning its primary listing from London to New York. However, those technical headwinds have reversed in recent months, and the company's share price has appreciated materially. The investment in Unilever has performed well throughout the year, and Unilever generated a 21.9% TSR from 30 March 2022 (the date on which the Unilever shares were first acquired) through 31 December 2022.
¹Ferguson's total shareholder return calculated based on the company's shares traded on the London Stock Exchange.
Overall, the net asset value ("NAV") per share of the Company declined by 16.7% during 2022. However, over the period from the Company's launch in September 2018 through 31 December 2022, the Company's NAV per share has increased by 80.7%, compared with the FTSE 100's TSR of 15.6 % during the same period.
The announcement of plans to distribute assets to shareholders and wind up the Company in 2023 has had a material impact on the share price which rose by 21.0% in 2022. The discount to NAV reduced from 34.0% at the start of the year to 4.3% at 31 December 2022.
It is worth reflecting on the Investment Manager's investment objective of pursuing opportunities for outsize returns from its activity as a highly engaged shareholder. This strategy necessarily involves strong due diligence to form it's convictions, a higher degree of execution risk and an uncertain journey as regards the precise timing of those investment objectives being fully realised. To that end, the Company must be seen as having achieved a very successful and significant return for its investors within a time period consistent with the investment proposition articulated in the Company's original prospectus. Based on the prices of the shares at the date they were distributed, shareholders have already received shares worth approximately £18,753 for each £10,000 originally invested in September 2018. The Investment Manager should be commended for having identified and productively engaged with both our two successful investments.
Board and Advisers
In the Interim Report for the period from 1 January 2022 to 30 June 2022, I noted the appointment of Anita Rival to the board in April and that Robert Legget replaced Chris Sherwell in August. Simon Holden has been a director since the launch of the Company.
As this is the last Annual Report before shareholders are asked to vote on the liquidation of the Company, I would like to thank all of my fellow directors as well as the former Chairman for their hard work and support on the Board. I am proud to have been a director and believe we have achieved a very positive outcome for all our investors, regardless of the conflicting objectives expressed to us in strong terms over the years.
I should also like to acknowledge the support of the Company's advisers. Many of the individuals working for the organisations listed at the back of this Annual Report have been with us since the launch of the Company and their guidance has been invaluable.
Yours sincerely,
Mark Thompson
Chairman
16 March 2023
Investment Manager's Report
For the year ended 31 December 2022
Dear Shareholder,
We first invested in Ferguson in May 2019 and Unilever in March 2022 on behalf of the Company, and each investment has significantly outperformed the FTSE 100 during the Company's holding period. As a result of the attractive returns generated by these investments, the Company has grown its NAV from its initial public offering ("IPO") through 31 December 2022 by +80.7%, a return significantly greater than the total shareholder return generated by the FTSE 100 (+15.6%) over the same time period.
We are pleased with the results of the Company's Ferguson and Unilever investments; however, we acknowledge that a significant portion of the shareholder base has expressed a desire to exit their shareholdings at or around NAV. As a result, following the Extraordinary General Meeting held on 5 August 2022, in conjunction with the Company's Board, we worked with the Company's advisers to formulate proposals to achieve the objectives of shareholders as a whole. Following consultation with major shareholders, the Company announced that it would, by no later than 30 June 2023, compulsorily redeem no less than 95% of each shareholder's holding in the Company, such redemption to be satisfied by a distribution of the underlying assets of the Investment Partnership (including an in specie distribution of shares) at a value equivalent to the Board's estimate of the then prevailing NAV (the "Redemption"). We believe that the Redemption provides the Company's shareholders with a number of benefits. In particular, the former discount of holding Ferguson and Unilever shares through the Company will be eliminated, and the Redemption will allow each shareholder to be able to determine the most opportune time to realise its exposure, or to remain invested, in Ferguson and Unilever shares after they are distributed from the Company.
Ferguson
On 10 March 2022, Ferguson announced that the special resolution to enable a U.S. primary listing on the New York Stock Exchange ("NYSE") was passed with 95.49% support from the votes cast, which enabled Ferguson to move its primary listing to the NYSE on 12 May 2022. Prior to 12 May 2022, Ferguson was primarily traded on the London Stock Exchange, despite the fact that 100% of Ferguson's business is based in North America.
In our most recent Investment Manager's Report (contained in the Interim Report for the period from 1 January 2022 to 30 June 2022), we noted that many of Ferguson's legacy institutional shareholders who are restricted from owning U.S. listed securities were required to sell Ferguson shares following the delisting. In addition, Ferguson's removal from major UK-based indexes (e.g., the FTSE 100), resulted in significant sell pressure from UK index funds. However, we predicted that technical conditions would reverse and provide a substantial tailwind in the latter part of 2022 and 2023. This thesis has begun to play out. In December 2022, each of Vanguard CRSP and the S&P Total Market Index announced that Ferguson would be included as a constituent, adding significant direct purchasing demand from index funds. Ferguson is also now eligible for S&P 500 Index inclusion and we believe that the company will be added to the index in the future. Finally, Ferguson's trading volume has significantly increased in recent months, and the majority of Ferguson's shares are now traded in the U.S.
Ferguson's operational performance has also continued to be strong. On December 6, 2022, Ferguson reported its FY 2022 first quarter results-highlighted by year-over-year sales growth of 16.6% (with 12.7% organic growth), solid gross margin delivery of 30.5% during the quarter and an adjusted operating margin of 10.9% during the quarter, all above Wall Street analyst consensus expectations coming into the earnings announcement. The company continues to maintain a strong balance sheet, with net debt to adjusted EBITDA of 1.0x as of quarter-end, and it completed shares repurchases of $366 million during this quarter.
Although the Investment Manager continues to believe that Ferguson offers attractive growth prospects, in light of the upcoming 30 June 2023 redemption deadline and recent improvements in Ferguson's trading volume, on 6 January 2023, the Investment Partnership distributed all of its Ferguson shares to its partners, including the Company, and on 9 January 2023, the Board announced that the Company's Ferguson shares would be distributed to Company shareholders through a compulsory partial redemption of ordinary shares. As of the close of business on 30 January 2023, the date on which the distribution was completed, these Ferguson shares traded at £113.45, nearly double the average cost at which these shares were purchased in 2019.
Unilever
As we noted in our most recent Investment Manager's Report, Trian believes that Unilever is one of the best-positioned consumer companies in the world and benefits from an unrivalled global distribution network. Nelson Peltz, Chief Executive Officer and a Founding Partner of the Investment Manager, joined the board of directors of Unilever on 20 July 2022 and has worked constructively with the company's other directors since that time.
On 30 January 2023, Unilever announced the appointment of Hein Schumacher as its new Chief Executive Officer, effective 1 July 2023, following an extensive global search process. Hein is currently CEO of the global dairy and nutrition business Royal FrieslandCampina N.V., and prior to Royal FrieslandCampina he worked at the H.J. Heinz Company for over a decade. Nelson first met Hein when he served as a director at Heinz from 2006 to 2013 and was impressed by his leadership skills and business acumen. Nelson strongly supports his appointment as Unilever's next CEO and looks forward to working closely with him to drive significant sustainable stakeholder value.
On 9 February 2023, Unilever announced its 2022 full-year results, highlighted by strong year-over-year underlying sales growth of 9.0%. For the full year underlying operating profit was £9.7 billion and underlying operating margin was 16.1% in line with guidance. Full year earnings per share of €2.57 was slightly ahead of Wall Street analyst consensus expectations
Shortly following Unilever's earnings announcement, on 16 February 2023, the Investment Partnership distributed all of its Unilever shares to its partners, in light of the upcoming 30 June 2023 redemption deadline. The Board distributed the Unilever shares to Company shareholders via an in specie distribution. As of 13 March 2023, these Unilever shares were distributed, they were valued at £40.56, which significantly exceeds the average cost at which they were acquired by the Company (£35.55) only twelve months prior.
Conclusion
The Investment Manager has been very pleased with the performance of its investments in Unilever and Ferguson and is proud of the strong returns that the Company has generated for its shareholders. For every £10,000 invested in the Company's initial public offering in September 2018, shareholders received 151 shares of Ferguson (worth approximately £17,131 on 30 January 2023, the date that Ferguson shares were distributed by the Company) and received 40 shares of Unilever (worth approximately £1,622 on 13 March 2023, the date that Unilever shares were distributed by the Company), as well as an expected additional cash distribution in connection with the winding-up of the Company. In total, shareholders who participated in the Company's IPO and continued to hold their investment have recognised a return of 87.5% (based on the value of the liquid securities which they have received), far exceeding the performance of the FTSE 100 (+18.1%) from the date of the Company's IPO through 13 March 2023.
The Investment Manager thanks shareholders for investing profitably in the Company's strategy and for their engagement and support throughout the Company's lifespan.
Yours sincerely,
Trian Investors Management, LLC
Report of the Directors
The Directors present their annual report on the affairs of the Company, together with the audited Financial Statements, covering the year ended 31 December 2022 (the "Year").
Incorporation
The Company was incorporated in Guernsey under the Companies (Guernsey) Law, 2008 as amended (the "Companies Law") on 24 August 2018.
Principal activities and investment policy
The Company is a Guernsey domiciled limited company. The ordinary shares of the Company were admitted to trading on the SFS on 27 September 2018.
The investment objective of the Company, through its investment in the Investment Partnership, is to generate significant capital appreciation through the investment activity of Trian.
The Company registered with the Guernsey Financial Services Commission on 16 June 2021 as a registered collective investment scheme.
The Company holds an approximate 99.83 per cent interest in the Investment Partnership through which it made investments.
In June 2019, the Company announced that it had made a substantial minority investment through the Investment Partnership, at an initial cost of approximately £250 million, in Ferguson. The Company's investment, through the Investment Partnership, was made alongside other investment funds and vehicles managed by Trian (the "Trian Funds"), and collectively the Investment Partnership and the Trian Funds held a 5.35 per cent aggregate interest in the shares of Ferguson as at 31 December 2022.
In March 2022, the Company, through the Investment Partnership, purchased 1.06 million shares in Unilever which it acquired for US$50 million (£37.7 million) by utilising a US$100 million revolving credit facility with Bank of America. Collectively the Investment Partnership and Trian Funds held 1.54 per cent aggregate interest in the shares of Unilever as at 31 December 2022.
Following the requisitioned Extraordinary General Meeting and further discussions with shareholders on 2 September 2022 the Board announced that the Company will, by no later than 30 June 2023, compulsorily redeem no less than 95 per cent. of each shareholder's holding in the Company and then proceed to wind the company up. On 27 January and 13 March the Company redeemed a total of 249,633,016 Ordinary Shares (over 99% of the Ordinary Shares in issue at 2 September 2022) and made in-specie distributions of the Company's investments. The Board will now commence a process to wind-up the Company with any residual net assets to be returned to shareholders in cash through that process.
Dividend policy and share capital
No dividend was declared or paid in the year to 31 December 2022 (31 December 2021: no dividend was declared or paid). No future dividends will be paid as all future redemptions made will be of a capital nature.
During the year to 31 December 2022 the Company repurchased a total of 1,300,000 Share for a total consideration of £1,736,500. All Shares held in treasury were cancelled subsequent to the year end.
As at 31 December 2022, the Company had 251,019,064 (31 December 2021: 252,319,064) Shares in issue, net of Shares held in treasury. Following the redemptions on 30 January 2023 and on 13 March 2023, the Company had a total of 1,386,048 Shares in issue. All Shares carry equal voting rights. Details of the Company's share capital are provided in Note 9 to the Financial Statements.
Shareholdings of Directors and key persons
Directors who held office during the Year and held interests in the Company were as follows:
| | 31 December 2022 | 31 December 2021 | ||
| |
Ordinary Shares |
Percentage holding |
Ordinary Shares |
Percentage holding |
| Directors | | | | |
| Mark Thompson | 20,000 | 0.01 | 20,000 | 0.01 |
| Simon Holden | 55,000 | 0.02 | 55,000 | 0.02 |
| Anita Rival | - | - | N/A | N/A |
| Robert Legget | - | - | N/A | N/A |
| Chris Sherwell | N/A | N/A | 77,775 | 0.03 |
| | 75,000 | 0.03 | 152,775 | 0.06 |
Significant shareholdings
As at 9 January 2023, the Company had received notification of the following material shareholdings greater than 5 per cent of the Shares in issue:
9 January 2023
| | |
Ordinary Shares |
Percentage holding |
| | | | |
| Trian Investors 1 Subscriber | | 69,879,957 | 27.84 |
| Invesco | | 41,000,000 | 16.33 |
| Jefferies International (PB) | | 34,676,145 | 13.81 |
| Janus Henderson Investors | | 32,090,569 | 12.78 |
| Aegon Asset Management UK | | 17,019,716 | 6.78 |
| | | 194,666,387 | 77.54 |
| | | | |
All of the above information is based on notifications received by the Company made by shareholders pursuant to the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority ("DTRs"), except for information relating to Trian Subscriber, which is based on information provided by the Investment Manager. Since the time each notification was received by the Company, the number of Shares held by the relevant shareholder may have increased or decreased without triggering any obligation to provide further notification to the Company.
Principal risks and uncertainties
The Directors are responsible for ultimate oversight and exercising supervisory control over the Company, with day-to-day functions, including company secretarial and administration services, being carried out by Ocorian Administration (Guernsey) Limited (referred to herein as the "Company Secretary" or "Administrator").
Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an on-going basis and arranges for these risks to be reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.
The principal risks facing the Company include those risks relating to the Company's dependence on the Investment Manager, risks connected to the Company's operations, risks relating to the valuation of the Company's Shares and gearing risk through the use of borrowings by the Investment Partnership.
An explanation of each of these principal risks and how they are managed is set out below.
· Dependence on the Investment Manager. Neither the Company nor the Investment Partnership has any employees or owns any facilities. As a result, the ability of the Company to achieve its investment objective depends heavily on the expertise and experience of Trian and its ability to pursue its investment strategies. Trian also manages funds and investment vehicles in addition to the Investment Partnership, and its affiliate, Trian Subscriber, is the largest shareholder of the Company, each of which could give rise to certain potential conflicts of interest or the appearance of potential conflicts of interest. The Board actively monitors the performance of the Investment Manager, with assistance from the Company's other service providers, and retains the ability to appoint a replacement in certain limited circumstances. The Board also regularly engages with the Investment Manager during and between Board meetings, and when appropriate, seeks further clarification of matters from the Investment Manager in order to make informed decisions. In addition, the Board routinely discusses matters relating to the Investment Manager without any representatives of the Investment Manager present in those discussions. The Board and Trian each regularly monitor potential conflicts of interest and the appearance of potential conflicts of interest, and Trian maintains trade allocation procedures that are designed to allocate investment opportunities on a fair and equitable basis, as disclosed in the Prospectus. Since 31 December 2022 all underlying material assets have been distributed to shareholders so the risk of dependence on the Investment Manager is low.
· Operations of the Company. The Company is subject to various forms of operational risk, including the risk of fraud, valuation errors, accounting discrepancies, inadequate cash management and regulatory issues. These issues are actively reviewed by the Board at quarterly Board meetings and between meetings, including by monitoring the Company's recent investment performance and operational activities to ensure that the Investment Manager and the Company's other service providers are adhering to established practices and procedures. In addition, the Board receives reports from the Company Secretary and Administrator at meetings of the Board in respect of compliance matters and the duties performed by them on behalf of the Company, as well as reports on market activity from Numis Securities Limited, the Company's Corporate Broker, ('Corporate Broker'). The Investment Manager and the Company Secretary and Administrator have established business continuity plans and other policies and procedures that are designed to allow each party to continue to provide services to the Company while taking appropriate safety precautions. Following the distribution of the underlying investments, the focus is on the forthcoming liquidation of the Company.
· Valuation of the Shares. The Company's Share price may trade at a discount (or premium) to the underlying market value of the Company's investments. This discount level (or premium) is expected to fluctuate from time to time. The Board reviews net asset value ("NAV") and Share price performance on a monthly basis in the context of market conditions. Any discount (or premium) is also monitored by the Investment Manager and the Corporate Broker, who maintain an ongoing dialogue with the Board about potential strategies to address any significant discount that may emerge, including Share repurchases. As of the date of signing the Annual Report, over 99% of the Shares originally in issue have been redeemed and the liquidation of the Company is imminent so the valuation risk is low.
· Gearing risk. The use of borrowings exposes the Company and the Investment Partnership to a variety of risks associated with borrowing, including adverse economic consequences resulting from rising interest rates or deteriorations in the condition of the Company's investments. To the extent that the Investment Partnership incurs a substantial level of indebtedness, this could also reduce the financial flexibility and cash available to the Company and the Investment Partnership and subject the Investment Partnership to the risk of margin calls. Prior to agreeing to the terms of any borrowing facility and/or borrowing under such a facility, the Investment Manager comprehensively considers the potential debt servicing costs associated with the borrowing or potential borrowings and all relevant financial and operating covenants and other restrictions. The Investment Manager also regularly monitored compliance with the covenants contained in any credit facility where borrowings were outstanding and provided regular updates to the Board. As at 31 December 2022 there was no borrowing and there is no expectation that the Company will enter into further borrowing arrangements.
· Execution risk. The 95% minimum redemption of the underlying assets of the Investment Partnership and subsequent move into administration of the Company exposed the Company to execution risk. The responsibility for overall management of the process is with the Board but the Corporate Broker is responsible for the planning and execution along with other third party professionals, the Investment Manager and the Company Secretarial team of the Administrator. As of the date of signing the Annual Report, all underlying material assets have been distributed to shareholders so the execution risk is low.
The principal risks of the Company are mitigated and managed by the Board through continual review, policy setting and quarterly review of the Company's risk matrix to ensure that procedures are in place with the intention of minimising the impact of the foregoing risks. In addition, the Board believes that the Investment Manager, along with the Company's other service providers, have the right skills and experience to help the Company manage these risks. The Board can confirm that the principal risks of the Company, including those which could threaten its business model, future performance, solvency or liquidity, have been robustly assessed through the Year.
The Company's principal risk factors are more fully discussed in the Prospectus, available on the Company's website (www.trianinvestors1.com) and should be reviewed by shareholders. In addition, the Company's financial risks and management of those risks are discussed in Note 13 to the Financial Statements.
Viability statement
The annual financial statements have been prepared on a basis other than going concern as the Company has redeemed over 99% of its Ordinary Shares in 2023 and the Directors plan to commence a process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash flow projections, the Directors remain satisfied that the Company can meet its liabilities as they fall due until the Company enters a solvent voluntary liquidation.
AIFM directive
The Directors have considered the impact of the EU Alternative Investment Fund Managers Directive (2011/61/EU) ("EU AIFMD") and of the UK version of the EU AIFMD which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended ("UK AIFMD") on the Company and its operations. The Company is a non-EU / non-UK domiciled Alternative Investment Fund and the Investment Manager has been appointed as the Company's non-EU / non-UK Alternative Investment Fund Manager ("non-EU AIFM"). As the Company is managed by a non-EU / non-UK AIFM, only a limited number of provisions of the EU AIFMD and the UK AIFMD apply. The Investment Manager has notified the UK Financial Conduct Authority in accordance with regulation 59 of the UK Alternative Investment Fund Managers Regulations 2013 in order to permit the marketing of the Company and the Shares in the UK, but the Company does not currently intend to market the Shares in any member state of the European Economic Area ("EEA").
Subsequent events
See Note 22 to the Financial Statements for details of subsequent events.
External auditor
See Report of the Audit Committee for details of the external auditor.
Extraordinary General Meeting
The total costs associated with the requisitioned Extraordinary General Meeting held on 5 August 2022 and subsequent discussions with shareholders amounted to £570,000, see Note 18.
Annual General Meeting
It is currently proposed that the Annual General Meeting ("AGM") of the Company will be held on 26 April 2023 in Guernsey. Details of the resolutions to be proposed at the AGM, together with explanations, will appear in the Notice of Meeting to be distributed to shareholders in due course.
By order of the Board
Mark Thompson
Chairman
16 March 2023
Corporate Governance Statement
The Company has chosen to comply with the UK Corporate Governance Code issued in July 2018 (the "Code") and is required to comply with the GFSC Finance Sector Code of Corporate Governance (the "GFSC Code"). The Directors place great importance on ensuring that high standards of corporate governance are maintained. Accordingly, the Directors have taken appropriate measures to ensure that the Company operates with due consideration to any codes of corporate governance that the Board deems appropriate. The Board perceives that good corporate governance practice is necessary for delivering sustainable value, enhancing business integrity and maintaining shareholder confidence in the Company. To further these aims, the Board has decided to voluntarily comply with the Code, which sets out guidance in the form of principles and provisions for companies to follow to ensure good corporate governance practice. A Company that is compliant with the Code is also deemed to be in compliance with the GFSC Code. Further information on the Code can be obtained from www.frc.org.uk.
Certain provisions of the Code, namely P,Q,R 32-41, which include provisions relating to the responsibilities of the chief executive, executive directors' remuneration and the responsibilities of the Board to employees and its workforce, are not relevant to the Company as it has no executive directors or employees. The Company's day-to-day management and administrative functions are outsourced to the Investment Manager and other third parties. The Company does not report further in respect of these provisions.
Except as disclosed within these Financial Statements, the Board is of the view that the Company complies with the principles and provisions of the Code. Key issues affecting the Company's corporate governance responsibilities, how they are addressed by the Board and the application of the Code are presented below.
SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE
Board responsibilities
The Directors are responsible for ensuring compliance with the Company's investment objective and investment policy and have overall responsibility for the Company's activities, including review of overall investment performance. The Board has approved a formal schedule of matters reserved for the Board (the "Schedule of Reserved Matters") which includes, amongst others:
· review of the Company's overall strategy and business plans;
· approval of any proposed amendments to the Company's investment objective or policies;
· approval of the Company's half-yearly and annual financial statements;
· review and approval of any alteration to the Company's accounting policies or practices or any proposal to change the Company's accounting reference date;
· declaration of any dividends or other distributions by the Company;
· approval of any material announcements or communications;
· approval of changes in Board composition;
· appointment or termination of any of the Company's service providers;
· the issue of any share capital of the Company and the exercise by the Company of its borrowing powers; and
· any proposed repurchase or redemption of the Company's Shares by the Company.
In addition, the Board will undertake annual reviews (and performed such a review in 2022) of the Company's service providers to ensure that the Company's contracts of engagement with the Investment Manager, Administrator and Company Secretary, Corporate Broker and other service providers are operating satisfactorily and that they are competitive and reasonable for the Company's shareholders, as well as to ensure the accurate management and administration of the Company's affairs and businesses. In particular, the Board is responsible for reviewing and overseeing the performance of the Investment Manager and to monitor any potential conflicts of interests that may arise. In addition, and if applicable, a non-executive Director may provide a written statement outlining any concerns regarding the operation of the Board or the management of the Company to the Chairman upon resignation. Furthermore, any concerns of such a nature that cannot be resolved would be recorded in the relevant Board meeting minutes.
Management of the Investment Partnership is the responsibility of Trian Investors 1 General Partner, LLC, the general partner of the Investment Partnership (the "Managing General Partner"), which has delegated investment decisions and day-to-day management of the Investment Partnership to the Investment Manager under the terms of an investment management agreement. Given that the Company currently has the majority interest in the Investment Partnership, the Company and therefore the Board have the ability to approve any proposed Target Company, approve distributions and to remove the Managing General Partner and Investment Manager in certain limited circumstances.
Relations with shareholders
The Directors place a great deal of importance on communication with the Company's shareholders. Representatives of the Investment Manager, as well as the Board, spoke with many of the Company's shareholders in 2022 to discuss the Company's activities. The Board also receives regular updates from the Corporate Broker at each meeting, as well as periodic updates between meetings, relating to shareholder feedback and activity and other matters. All Directors were available throughout the year, and will continue to be available, for discussions with shareholders as and when required.
With regard to the Directors' duty to promote the success of the Company, the Board's key focus was overseeing the Investment Manager's selection and holding of one or more suitable Target Companies that the Investment Manager anticipates will deliver the Company's investment objective for its shareholders and wider stakeholders. The performance of the Investment Manager is subject to regular review by the Board. Due to the nature of the Company and its activities, the Board does not consider its operations to negatively impact either the community or the environment. As previously noted, the Company has no employees.
As noted above, as a result of the requisitioned Extraordinary General Meeting ("EGM") held on 5 August 2022 and subsequent discussions with shareholders, the Company has redeemed more than 99 per cent of each shareholder's holding in the Company and the Board will now commence a process to wind-up the Company.
SECTION 2: DIVISION OF RESPONSIBILITIES
Board composition
The Board consists of four non-executive members as detailed below.
Mark Thompson
Mark Thompson is a Guernsey resident with over 25 years of experience in the offshore finance industry. He worked for KPMG for 31 years in London, Hong Kong and Guernsey where his roles included Audit Partner, Head of Audit and Senior Partner of KPMG in the Channel Islands and he has audited and advised the boards of a variety of listed investment companies. Mark Thompson is a non-executive director of Rocq Capital Holdings Limited, Queen Street Mutual Company PCC Limited and Utmost Worldwide Limited, a Chartered Accountant (ICAEW), Chartered Director (IoD) and a former chairman of the Guernsey Branch of the Institute of Directors. He has been appointed to the States of Guernsey Committee for Employment and Social Security as a non-voting member. He holds an MA in mathematics from the University of Oxford.
Simon Holden
Simon Holden, is a Chartered Director (CDir) accredited by the Institute of Directors and adds extensive private equity investment and corporate operations experience to the Company's board, having worked with Candover Investments and Terra Firma Capital Partners until 2015.
Simon Holden currently serves as a Board director to FTSE-250 listed investment companies HICL Infrastructure Plc. (Chair of the Risk Committee), Hipgnosis Songs Fund Limited (Chair of Remuneration Committee) and Chrysalis Investments Ltd. (Chair of Risk Committee) as well as JPMorgan Global Core Real Assets Limited (Senior Independent Director, Chair of Market & Risk).
Simon Holden serves on the General Partner boards of Permira, Blue Water Energy and LCatterton private equity funds as well as pro-bono Business Advisor roles to two States of Guernsey Trading Assets including its hydrocarbon supply ships and Guernsey Ports' airport and harbour infrastructure across the Bailiwick.
Simon Holden graduated from the University of Cambridge with an MEng and MA (Cantab) in Manufacturing Engineering, is a Guernsey resident and an active member of various financial services interest groups.
Anita Rival (appointed on 14 April 2022)
Anita Rival has over 25 years of experience in the asset management industry, acting as a board member, adviser and portfolio manager at a range of different asset managers and publicly traded funds. She has been a member of the board of directors of Golub Capital BDC, Inc. since 2011 and the board of directors of Golub Capital BDC 3, Inc. since 2017, and she was formerly a member of the board of directors of Golub Capital Investment Corporation from 2014 to 2019. Ms. Rival became a trustee of Baron Investment Funds Trust in May 2013, an independent director for Impala Asset Management in January 2014 and an outside advisor to Value Act Capital in 2014. From April 2011 through May 2012, she served as an independent advisor to Magnetar Capital, a multi-strategy hedge fund.
From 1999 until her retirement in February 2009, Ms. Rival was a Partner and Portfolio Manager at Harris Alternatives, LLC, and its predecessor, Harris Associates, L.P. As a Portfolio Manager at Harris Alternatives, LLC, Ms. Rival managed all aspects of a $14 billion fund of hedge funds, including asset selection, risk assessment and allocation across investment strategies. Prior to Harris Alternatives, LLC, Ms. Rival held senior level positions at several large asset management/investment banking institutions, including Banker's Trust, Global Asset Management and Merrill Lynch Capital Markets. Ms. Rival received her B.A. in 1985 from Harvard University.
Robert Legget (appointed on 5 August 2022)
Robert Legget is a Scottish chartered accountant and holds an MBA.
Robert co-founded Progressive Value Management Limited ("PVML") in April 2000 after leaving Quayle Munro Holdings PLC, an independent Edinburgh-based investment bank, where he had been a main board director.
From 1986 until 1991 Robert was responsible for Quayle Munro's management of East of Scotland Industrial Investments PLC, an investment company which specialised in making direct unquoted investments. From 1991 he was a corporate finance director of Quayle Munro's merchant banking subsidiary, responsible for certain merger and acquisition and private equity transactions. His responsibilities included the controlled realisation of the investments of a number of venture capital funds for the benefit of the investors in such funds, predominantly institutions.
PVML specialises in creating value and liquidity for institutional investors from their illiquid underperforming holdings. Since its foundation, PVML has launched, managed and successfully wound up seven workout funds. In addition to the workout fund model, PVML has obtained segregated mandates from institutions to deal with individual holdings or portfolios of quoted investments, and also with LP positions in Private Equity Partnerships.
Robert is the Senior Independent Director of Sureserve Group Plc and was previously a non-executive director of F&C Private Equity Trust plc (now CT Private Equity Trust plc). He has been involved in the management of Advance Value Realisation Company Limited, Second Advance Value Realisation Company Limited, Third Advance Value Realisation Company Limited, Advance AIM Value Realisation Company Limited and Brookwell Limited (A Shares, B Shares and D Shares) as well as the management of Lupus Capital plc during a reorganisation of that company. Robert is also Senior Independent Director of Downing Strategic Micro-Cap Investment Trust Plc and R & Q Insurance Holdings Limited.
Independence
For the purposes of assessing compliance with the Code, the Board considers all of the current Directors to be independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of their independent judgment. In particular, none of the Directors has any current or historical employment with the Investment Manager, nor do they have any current directorships in any other entities for which the Investment Manager or its key personnel provide services.
Commitment of each Director
Prior to the appointment of each of the non-executive Directors, discussions were undertaken with each individual to ensure that each was sufficiently aware of the time needed for his/her role. Each Director has confirmed, or will confirm, in his or her appointment letter that he or she is able to devote sufficient time to his/her duties. Upon appointment, each Director notified the Board of significant outside commitments and interests, including those which may create a conflict situation, and agreed to notify the Board of any subsequent acceptance of, or entry into, a significant commitment or interest which amounts to a conflict situation.
Division of responsibilities
The Directors' responsibilities are described above in Section 1 of this Corporate Governance Statement and are set out in greater detail within the Schedule of Reserved Matters. All day-to-day functions, including investment management, administrative, brokerage and registrar services, are outsourced to external service providers. The Board also has access to engage external legal advice.
The Chairman
Chris Sherwell was appointed as Chairman of the Board on 24 August 2018. At the requisition EGM, Chris Sherwell was removed as a Director and on 15 August 2022 Mark Thompson was appointed as Chairman. As Chairman, Mark Thompson leads the Board and is responsible for its overall performance in directing the Company, including by organising the Board's business and ensuring the effectiveness of the Board and individual Directors. He endeavours to produce an open culture of debate within the Board.
Role of non-executive Directors
The Board meets as required without the presence of the Investment Manager and service providers to scrutinise the achievement of agreed goals and objectives, and monitor performance. Through the Audit Committee the Directors ensure the integrity of financial information and confirm that all financial controls and risk management systems are robust. Robert Legget replaced Mark Thompson as Chairman of the Audit Committee on 15 August 2022.
Robert Legget has been appointed as the senior independent director.
Company Secretary
In conjunction with the Chairman, the Company Secretary facilitates the flow of information between the Board, the Committees, the Investment Manager and other service providers through the development of comprehensive meeting packs, agendas and other reports. Prior to each Board meeting, the Company Secretary distributes a Board and Committee meeting pack, which contains relevant, concise and clear information. When required, the Board has sought further clarification of matters directly with the Investment Manager and other service providers, both in terms of further reports and via in-depth discussions.
Full access to the advice and services of the Company Secretary is available to the Board; in turn, the Company Secretary is responsible for advising the Board on governance matters. The appointment and resignation of the Company Secretary is a matter for the whole Board pursuant to the Schedule of Reserved Matters. A review of the performance of the Company Secretary is undertaken by the Board on a regular basis and forms a part of the annual service provider review process.
Board meetings
The Board meets on at least a quarterly basis in person or by videoconference or teleconference. The dates for each scheduled meeting are planned and agreed up to a year in advance. Meetings are convened as and when required to consider any urgent matters arising. In addition to formal Board and/or committee meetings and, to the extent practicable and appropriate, the Directors maintain close contact with each other, the Administrator and the Investment Manager, by email and conference calls, for the purpose of keeping themselves informed about the Company's activities.
The Board met 12 times during the Year and the Audit Committee met three times during the Year. Subsequent to the Year-end and prior to the date of this Annual Report, the Board met five further times.
| Name | Scheduled board meeting |
Other board meeting
| Audit Committee meeting |
| | | | |
| | | | |
| Mark Thompson | 4/4 | 8/8 | 3/3 |
| Simon Holden | 3/4 | 8/8 | 2/3 |
| Anita Rival | 3/3 | 5/6 | 2/2 |
| Robert Legget | 2/2 | 4/4 | 2/2 |
| Chris Sherwell | 2/2 | 4/4 | 1/1 |
| | | | |
SECTION 3: COMPOSITION, SUCCESSION AND EVALUATION
Board composition
The Board is responsible for reviewing its structure, size and composition, for considering succession planning and for identifying and approving candidates to fill Board vacancies. The Board believes that, as a whole, its current members represent an appropriate balance of skills, experience and knowledge.
As part of the Board's commitment to strong corporate governance, the Directors regularly review Board composition to ensure that it remains effective and appropriate. At the requisitioned Extraordinary General Meeting of the Company on 5 August 2022, Chris Sherwell was removed as Director and Robert Legget was appointed as Director.
The Board believes that diversity of background, experience and approach amongst Board members is of great importance and recognises the value of diversity and inclusion. It is the Company's policy to give careful consideration to issues of Board balance and diversity when making any new appointments. The Company currently has concentrated investment exposure and, as such, the Board exercises decisions on a narrower range of matters than a setting in which diversity and inclusion would better reflect the wider scope of business affairs attended to.
Due to the size of the Board, and the fact that it is comprised wholly of non-executive Directors, the Board does not believe it necessary to establish a separate nomination committee and this function is fulfilled by the Board as a whole.
Director re-election
Each Director shall stand for re-election by the Company's shareholders at the upcoming annual general meeting. The Board intends to set out in the papers accompanying the resolution to elect each director why their contribution is, and continues to be, important to the Company's sustainable success, notwithstanding the imminent liquidation of the Company.
Board succession
The aim of the Company's succession plan was:
· to preserve continuity by phasing the retirement of the original Directors so that they do not all retire simultaneously; and
· to ensure the Board's skills and experience are regularly refreshed and the benefits of a diverse Board are further enhanced, in terms of age, gender and diversity of background.
In furtherance of the Company's succession planning Anita Rival was appointed as an additional Director with effect from 14 April 2022. At the requisitioned Extraordinary General Meeting of the Company on 5 August 2022, Chris Sherwell was removed as Director and Robert Legget was appointed as Director. The Company's near term liquidation means that succession plans are only likely to impact the first half of 2023.
Director and Board evaluation
Using a pre-determined template based on the Code's provisions as a basis for review, the Board undertakes an annual evaluation of its performance and that of the Audit Committee. Additionally, an evaluation focusing on the individual commitment, performance and contribution of each Director has been conducted on an annual basis. The Chairman met with each Director to fully understand their views of the Company's strengths and to identify potential weaknesses. Due to the size and structure of the Board, the evaluation of the Chairman of the Board and Audit Committee is dealt with as part of the annual Board evaluations.
Given the Company's size and the structure of the Board, no external facilitator or independent third party is expected to be used in the performance evaluation.
SECTION 4: AUDIT, RISK AND INTERNAL CONTROL
Internal control and financial reporting
The Board acknowledges that it is responsible for establishing and maintaining the Company's systems of internal control and for maintaining their effectiveness. Internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and only provide reasonable rather than absolute assurance against material misstatements or losses.
The Board has delegated the day-to-day operations of the Company to the Administrator and Investment Manager; however, the Board retains accountability for all delegated functions. The Board clearly defines the duties and responsibilities of all service providers and advisers, and appointments are only made after due and careful consideration.
The Administrator maintains a system of internal control over its activities. The Board receives reports from the Company Secretary and Administrator in respect of compliance matters and other duties performed on behalf of the Company.
The Board considers that the Company's existing internal controls, coupled with the analysis of risks inherent in the business models of the Company and its subsidiaries, continue to provide appropriate tools for the Company to monitor, evaluate and mitigate its risks.
Going concern status
The annual audited financial statements have been prepared on a basis other than going concern as the Company has redeemed over 99% of its Ordinary Shares in 2023 and the Directors plan to commence a process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash flow projections, the Directors remain satisfied that the Company can meet its liabilities as they fall due until the Company enters a solvent liquidation.
Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare the financial statements of the Company on a basis other than a going concern.
The directors believe there are no significant differences than had the financial statements been prepared on a going concern basis.
Preparation of Annual Report
An explanation of the Directors' roles and responsibilities in preparing the Annual Report and Financial Statements for the Year is provided in the Directors' Responsibility Statement. Further information enabling shareholders to assess the Company's performance, business model and strategy can be located in the Chairman's Statement, the Investment Manager's Report, and the Report of Directors.
Audit Committee
The Board has established an Audit Committee with formally delegated duties and responsibilities documented within its terms of reference. The Audit Committee is responsible for assisting the Board in discharging its responsibilities for the integrity of the Company's financial statements, as well as aiding the assessment of the Company's internal control effectiveness and the objectivity of the Company's external auditors. The Audit Committee is composed of all of the members of the Board, all of whom are independent non-executive Directors. Due to the size and structure of the Board and the Company, the Chairman of the Board has been included as a member of the Audit Committee to give him a fuller understanding of the issues facing the Company and to maximise the effectiveness of the Committee. However, Mark Thompson is not appointed as the Committee's Chair, and the Committee is instead chaired by Robert Legget as from 15 August 2022. Further information on the Audit Committee is provided in the Report of the Audit Committee.
The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Investment Manager, including their own internal controls and procedures, provide a sound system of risk management and internal control which safeguards shareholders' investment and the Company's assets, and as such no internal audit function is deemed necessary.
SECTION 5: REMUNERATION OF DIRECTORS
The Board endeavours to ensure the Company's Remuneration Policy reflects and supports the Company's strategic aims and objectives. It has been agreed that, due to the size of the Board and the fact that it is comprised wholly of non-executive Directors, a separate Remuneration Committee would be inefficient. Therefore, the Board as a whole is responsible for discussions regarding remuneration. No external remuneration consultants were appointed during the Year.
In accordance with the Company's Articles of Incorporation (the "Articles"), the aggregate amount of fees paid to Directors may not exceed the annual equivalent of £400,000 per annum. Subject to this limit, it is the Company's policy to determine the level of Directors' fees, having regard for the level of fees payable to non-executive Directors in the industry generally, the role that individual Directors fulfil in respect of responsibilities related to the Board and Audit Committee and the time dedicated by each Director to the Company's affairs.
The composition of Director remuneration for the year ended 31 December 2022 is detailed below:
| |
Director fees |
Fees in relation to EGM |
Fees in relation to additional meetings and time spent on redemption announcement |
Total |
| | £ | £ | £ | £ |
| Director | | | | |
| Mark Thompson | 55,350 | 20,000 | 20,000 | 95,350 |
| Simon Holden | 46,543 | 20,000 | 5,000 | 71,543 |
| Anita Rival | 35,099 | 20,000 | 5,000 | 60,099 |
| Robert Legget | 18,192 | - | - | 18,192 |
| Chris Sherwell | 32,837 | 20,000 | - | 52,837 |
| | 188,021 | 80,000 | 30,000 | 298,021 |
The total Director remuneration for the year to 31 December 2021 was £185,000 of which £140,000 related to Director fees and £45,000 in relation to the additional work involved in the Company's change in investment policy.
Up until 2 September 2022 each of the Directors was entitled to a fee payable by the Company at the rate of £40,000 per annum. The Chairman received an additional fee of £15,000 per annum and the Chairman of the Audit Committee received an additional fee of £5,000 per annum. With effect from 2 September 2022 these fees increased by £20,000 pa for each director to reflect the additional time commitment and the impact of inflation since 2018 when the fees were originally agreed and held flat since. These one-off payments were approved by a majority of the Board with Robert Legget dissenting on governance grounds. Accordingly he requested that his remuneration remain at £45,000 per annum.
Further to this, each of the Directors in office up to 5 August 2022 received an additional fee of £20,000 in relation to the extensive programme of engagement with all shareholders and review of Company strategy required of the Board to consider and respond to the resolutions put forward at the Extraordinary General Meeting. In addition, Mark Thompson was awarded a further additional fee of £20,000 and each other director a fee of £5,000 in respect of the additional meetings and time spent leading up to the announcement on 2 September 2022 of the proposals to wind up the Company. These one-off payments were approved by a majority of the board with Robert Legget dissenting on governance grounds. He declined to accept the second one-off payment of £5,000.
As outlined in the Prospectus, all of the Directors are also entitled to be reimbursed for all reasonable expenses properly incurred by them in attending general meetings, Board or committee meetings or otherwise in connection with the performance of their duties.
None of the Directors has a service contract with the Company. Each of the Directors has entered into a letter of appointment with the Company that states that his appointment and any subsequent termination or retirement shall be subject to the Articles. Each Director's appointment letter provides that upon the termination of a Director's appointment, that Director must resign in writing and all records remain the property of the Company. Each Director's appointment can be terminated in accordance with the Articles and without compensation. There is no notice period specified in the Articles for the removal of Directors.
Directors' and officers' liability insurance coverage is maintained by the Company but it is not considered a benefit in kind nor does it constitute part of the Directors' remuneration. In addition, the Company's Articles indemnify each Director, former or present, out of the assets and profits of the Company in relation to actions, expenses and liabilities incurred during the course of their duties, in so far as the law allows and provided that such indemnity is not available in circumstances of negligence, default, breach of duty or breach of trust in relation to the Company.
By order of the Board
Mark Thompson
Chairman
16 March 2023
Directors' Responsibility Statement
Each of the Directors, whose names are set out in the Corporate Governance Statement of the Annual Report, confirms that, to the best of his knowledge and belief:
· the Financial Statements, prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
· the Annual Report, including the Chairman's Statement, Investment Manager's Report, Report of the Directors, Corporate Governance Statement and Report of the Audit Committee, includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face; and
· the Annual Report, taken as a whole, is fair, balanced, and understandable and provides information necessary for shareholders to assess the Company's performance, business model and strategy.
The Directors are responsible for preparing the Annual Report in accordance with applicable laws and regulations. The Companies Law requires the Directors to prepare financial statements for each financial year in accordance with IFRS. The Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the financial performance and cash flows of the Company for that period. In preparing these Financial Statements, the Directors are required to:
· select suitable accounting policies and apply them consistently;
· make judgements that are reasonable and prudent;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and performance;
· state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the Company's financial statements;
· make an assessment of the Company's ability to continue as a going concern; and
· prepare the Company's financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm they have complied with the above requirements in preparing the Company's Financial Statements.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy, at any time, the financial position of the Company and which enable them to ensure that the financial statements comply with the Companies (Guernsey) Law 2008 and the Protection of Investors (Bailiwick of Guernsey) Law 2020. 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 confirm that, so far as they are aware, there is no material information relevant to the audit of which the Company's auditor is unaware. The Directors also confirm that they have taken all steps they ought to have taken as Directors to make themselves aware of any material information relevant to the audit and to establish that the Company's auditors are aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.trianinvestors1.com). The work carried out by the external auditor does not involve considerations of these matters and, accordingly, the external auditor accepts no responsibility for any changes that may have occurred to the financial statements after they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
For Trian Investors 1 Limited
Mark Thompson
Chairman
16 March 2023
Report of the Audit Committee
Composition
The Audit Committee (the "Committee") comprises the four members of the board with Robert Legget as the Chairman. The Board is satisfied that the Committee has recent and relevant skills and financial experience to fulfil its responsibilities and that its members have significant business experience relevant to the asset management industry. Further details on the experience and qualifications of members of the Committee can be found in the Corporate Governance Statement.
Meetings
The Committee meets no less than twice a year. It met four times during the Year and once since the Year end through to the date of this report. The external auditor has attended all four meetings to discuss the audit and interim review approach and audit and interim review findings. In addition, the Directors met with the external auditor outside of an Audit Committee meeting to discuss any issues arising from the audit and the application of accounting policies.
Principal duties
The principal duties of the Committee as set out in its terms of reference are:
· to monitor the integrity of the financial reporting of the Company including its annual and half yearly reports and any other information relating to its financial performance;
· to monitor and review the adequacy and effectiveness of Company's internal controls and risk management systems;
· to keep under review the scope, results, quality and effectiveness of the audit and the independence and objectivity of the auditor;
· to make recommendations to the Board regarding the appointment, reappointment, replacement, remuneration and terms of reference of the external auditor; and
· to review the whistleblowing arrangements in place to enable directors and staff of service providers to, in confidence, raise concerns about possible wrongdoing in financial reporting or other matters insofar as they may affect the Company.
The Committee meets the external auditor at least once a year, without the Investment Manager or Administrator being present, to discuss their remit and any issues arising from the audit.
The Committee's terms of reference include all matters indicated by DTR 7.1 and the Code and are available on the Company's website.
The Committee is satisfied that the whistleblowing policies in place for the Investment Manager and Administrator enable staff to raise concerns in confidence about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company.
Financial reporting
The primary role of the Committee in relation to financial reporting is to review with the Administrator and the Investment Manager the appropriateness of annual reports and interim reports, concentrating on, amongst other matters:
· the appropriateness of accounting policies and practices;
· the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;
· material areas in which significant judgements and estimates have been applied or there has been discussion with any external consultant or the external auditor;
· whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
· any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Committee considers reports from the Investment Manager and also reports from the external auditor on the outcomes of their audit. The Committee supports Deloitte LLP in displaying the necessary professional scepticism their role requires.
Significant matters in relation to the financial statements
The Committee determined that the key risk of misstatement in connection with the financial statements was the fair value of the underlying investment in the Investment Partnership held through the Company's subsidiary Midco. The basis for this judgement is explained in Note 3.
The Committee believes a financial reporting risk could arise from the valuation of the Investment Partnership's investments in Ferguson and Unilever which the Company held through Midco. The Committee receives valuations from the Investment Manager on a regular basis which are reviewed to ensure they are in line with reporting standards. The ordinary shares of Ferguson are listed on the New York Stock Exchange, its primary listing, and the ordinary shares of Unilever have a primary listing on the Main Market of the London Stock Exchange and the Directors must determine whether the market is sufficiently liquid for the last sales price published by the exchange to be a fair value in accordance with IFRS principles. The Directors have assessed that there is a sufficiently liquid market in the exchanges for the investments held through the Investment Partnerships and accordingly they consider the quoted share price to be the appropriate basis for the valuation of the investments.
The valuation of these investments also directly impacts the calculation of the Management fee and incentive allocation borne at Investment Partnership level. The incentive allocation fees are calculated separately for each investment and the methodology is different due to Trian having a seat on the Unilever board but not the Ferguson board.
It was agreed with the Investment Manager that upon compulsory redemption it would receive its final management fee payment in lieu of notice calculated, through to 31 December 2023. The 6 months of management fees relating to the expected post-redemption period through to 31 December 2023 is being accrued for evenly over the period from 2 September 2022 to 30 June 2023. This treatment has been revised in 2023 as a result of the distribution of assets by the Investment Partnership at which time full provision was made for future management fees.
The Committee believe a further financial reporting risk could arise from the distributions that have been made to investors subsequent to the year end. The distributions are based upon valuations of the underlying investments as noted above and then calculated by the Investment Manager with further verification from the Administrator and then approval from the Board.
A further potential financial reporting risk relates to the wind down costs reported by the Company ahead of the liquidation to take place in 2023. The wind down costs are based upon estimates provided by the Broker with further input from the Investment Manager and review from the Board to ensure that all potential expenses are captured.
Risk management
The Company's risk assessment process and the way in which significant business risks are identified and managed is a key area of focus for the Committee. The work of the Committee was driven primarily by the Company's assessment of its principal risks and uncertainties as set out in the Report of the Directors. The Committee receives reports from the Investment Manager and Administrator on the Company's risk evaluation process and reviews changes to significant risks identified.
Internal audit
The Committee does not consider there to be a need for an internal audit function, given that there are no employees in the Company and all outsourced functions are with parties who have their own internal controls and procedures. The Committee will reconsider the need for an internal audit function at least once a year.
External auditor
Deloitte LLP has been appointed as the Company's external auditor. The lead audit partner is David Becker and under normal audit partner rotation arrangements he would normally be replaced after no more than five years, with the final year being the year ended 31 December 2022. The Companies Law requires the reappointment of the external auditor to be subject to shareholders' approval at the Annual General Meeting, notwithstanding that the Company is expected to be put into liquidation shortly thereafter. There are no contractual obligations restricting the choice of external auditor.
The objectivity of the external auditor is reviewed by the Committee which also reviews the terms under which the external auditor may be appointed to perform non-audit services. In order to safeguard external auditor independence and objectivity, the Committee ensures that any non-audit services provided by the external auditor do not conflict with its statutory audit responsibilities. Non-audit services provided by the auditor will generally only cover reviews of interim financial statements and/or capital raising work. Any non-audit services conducted by the auditor will require the consent of the Committee before being initiated.
The only non-audit services undertaken by Deloitte LLP during the Year was the independent review of the interim financial statements and the passive foreign investment company ("PFIC") tax review. A summary of the external auditor's remuneration for audit and non-audit services is shown in Note 11. The audit fee for the Year is estimated at £45,400, the final fee for the review of the interim financial statements for the six month period to 30 June 2022 was £19,500.
To fulfil its responsibility regarding the independence of the external auditor, the Committee considered:
· the audit personnel in the audit plan for the Year;
· a report from the external auditor describing its arrangements to identify, report and manage any conflicts of interest; and
· the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the Committee reviewed:
· the external auditor's fulfilment of the agreed audit plan and variations from it;
· reports highlighting the major issues that arose during the course of the audit; and
· feedback from the Investment Manager and Administrator evaluating the performance of the audit team.
Conclusions and recommendation
The Committee is satisfied with Deloitte LLP's effectiveness and independence as external auditor having considered the degree of diligence and professional scepticism demonstrated by them.
The Committee has advised the Board that it considers that the Annual Report and Financial Statements to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. In reaching this conclusion the Committee has considered the following:
· its own assessment of the significant risks, judgements and estimates pertaining to the financial statements;
· the controls of the Investment Manager and the Administrator to ensure complete and accurate financial records and security of the Company's assets; and
· a confirmation from the external auditor that they identified no material misstatements in the course of their work.
A member of the Committee will attend each Annual General Meeting to respond to any questions in respect of the Audit Committee.
On behalf of the Audit Committee,
Robert Legget
Audit Committee Chairman
16 March 2023
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF TRIAN INVESTORS 1 LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Trian Investors 1 Limited (the 'Company'):
· give a true and fair view of the state of the Company's affairs as at 31 December 2022 and of its loss for the year then ended;
· have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as issued International Accounting Standards Board (IASB); and
· have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008 and the Protection of Investors (Bailiwick of Guernsey) Law, 2020.
We have audited the financial statements which comprise:
· the statement of financial position;
· the statement of comprehensive income;
· the statement of changes in equity;
· the statement of cash flows; and
· the related notes 1 to 22.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as issued by IASB.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council's (the 'FRC's') Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3. Emphasis of matter - Financial statements prepared other than on a going concern basis
We draw attention to note 2 in the financial statements, which indicates that the financial statements have been prepared on a basis other than that of a going concern. Our opinion is not modified in respect of this matter.
4. Summary of our audit approach
| Key audit matters | The key audit matter that we identified in the current year was: · Valuation of Investments Within this report, key audit matters are identified as follows:
| ||||||||
| Materiality | The materiality that we used for the financial statements was £4,535,000 which was determined on the basis of 1% of Net Asset Value ("NAV"). | ||||||||
| Scoping | The audit work to respond to the risk of material misstatement identified was performed directly by the audit engagement team. | ||||||||
| Significant changes in our approach | The financial statements have been prepared on a basis other than going concern as the Company has redeemed over 99% of its ordinary shares in 2023. The directors plan to commence a process to wind up the Company imminently. We have therefore included an emphasis of the matter paragraph in 3 above. |
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
5.1. Valuation of investments
| Key audit matter description | The Company holds investments valued at £454m (2021: £544m) through Trian Investors 1 LP incorporated, its investment partnership. As of 31 December 2022, the Investment Partnership held investments in listed entities Unilever Plc and Ferguson Plc valued at £44m and £462m respectively. Details of the investments are disclosed in note 5 to the financial statements and the accounting policies are disclosed in note 2 to the financial statements. The key audit matter is associated with the valuation of the Investment in the Investment Partnership. The listed investments make up the majority (99%) of the Investment Partnership's assets and any misstatement could significantly impact the valuation of the investments and net asset value ("NAV") of the Investment Partnership which in turn impacts the value of the Company's investment. We also deem the fair value of the investments to be a key performance indicator and as such management may be incentivised to adjust the share price to achieve the desired outcome. The Company's administrator is Ocorian (Guernsey) Limited who carries out the day-to-day functions including the financial reporting process. The risk of material misstatement exists that the Company's investments are not accurately valued based on relevant information that is representative of its value and that it may not be representative of its value in accordance with IFRS 13 -Fair Value Measurement ('IFRS 13'). As disclosed in note 5, the Company's investment in the Investment Partnership includes a deduction for the incentive allocation (performance fee) which is due to the Special Limited Partner (SLP). In the current year, the investment in Unilever became an engaged investment which changes the way the incentive for this investment is calculated. There is a risk that the incentive allocation has not been properly calculated in accordance with the Limited Partnership Agreement ("LPA") or the side agreement dated 1 September 2022. The investment partnership pays a management fee to the investment manager which is included in the fair value movement (expense) of its NAV (at the hands of the Midco). As part of the Redemption proposals, it was agreed with the Investment Manager that it will receive its final management fee payment in lieu of notice calculated, through to 31 December 2023. The 6 months of management fee relating to the expected post-redemption period through to 31 December 2023 is being accrued for evenly over the period from 2 September 2022 to 30 June 2023. There is a risk that the accounting for changes in the management agreement are not in line with IFRS requirements. |
| How the scope of our audit responded to the key audit matter | We have performed the following procedures to test the valuation of investments: · We have tested the controls around the valuation of investments. This included assessing of relevant controls of the administrator, Ocorian (Guernsey) Limited;
· We recalculated the fair value of the investments in Ferguson and Unilever, based on the period end holding and the pricing information obtained from their primary listings i.e. New York Stock Exchange and London Stock Exchange respectively;
· We obtained confirmation of ownership of the Ferguson and Unilever shares by independently obtaining the holding report from the custodian, The Bank of New York Mellon London Branch;
· We agreed movements in the cost of investments to bank statements and other supporting documentation as appropriate on a sample basis, and recalculated any gain/loss on the sale of shares;
· In order to determine whether use of an unadjusted Level 1 price is appropriate in the books of the LP, we considered whether the market for shares in Ferguson and Unilever meet the definition of an active market under IFRS 13. This includes the evaluation of the volume of trading and liquidity of the shares;
· The incentive allocation payable was recomputed based on the terms of the Limited Partnership Agreement and side agreement.
· We recomputed the management fee in line with investment management agreement and side agreement; and
· We challenged the judgement and recognition criteria adopted in accounting for the changes in the management fee contract.
|
| Key observations | Based on the work performed, we concluded that the Valuation of Investments is appropriate. |
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Materiality | £4,535,000 (2021: £5,470,000) |
| Basis for determining materiality | 1% of NAV (2021: 1% of NAV) |
| Rationale for the benchmark applied | The Company is an investment entity and as such the holders of equity will use NAV as the Key Performance Indicator ("KPI"). Therefore, we have used NAV as the benchmark. |
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.
| Performance materiality | 70% (2021: 70%) of materiality |
| Basis and rationale for determining performance materiality | In determining the performance materiality, we considered factors including: · Our risk assessment, including our assessment of the Company' overall control environment and that we did not consider it appropriate to reply on controls; and
· Our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in prior periods.
|
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £226,000 (2021: £273,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping
Our audit was scoped by obtaining an understanding of the Company and its environment, including internal control and assessing the risks of material misstatement. Our audit scope included obtaining an understanding of the relevant controls in the business processes at the administrator as they maintain the books and records of the entity.
Audit work to respond to the risk of material misstatement was performed directly by the engagement team.
7.2. Our consideration of the control environment
Our approach was principally designed to inform our risk assessment. As such, in assessing the control environment, we also considered the control environment of the administrator, to whom the board has delegated certain functions of the Company. We obtained an understanding of the relevant controls in the business processes at the administrator, we have however not adopted a control reliance approach.
7.3. Our consideration of climate-related risks
As part of our audit, we made enquiries of the management to understand the process they have adopted to assess the potential impact of climate change on the financial statements. As disclosed in note 3, management considers that the impact of climate change does not give rise to a material impact on financial statements as all investments were distributed post year-end. We used our knowledge of the Company to evaluate management's assessment and relevant disclosures in the financial statements. We have also read the Annual Report to consider whether the disclosures in relation to climate change made in the other information within the Annual Report are materiality consistent with the financial statements and our knowledge obtained in our audit.
8. Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the 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.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we considered the following:
· the nature of the industry and sector, control environment and business performance including the design of the Company's remuneration policies, key drivers for directors' remuneration, bonus levels and performance targets;
· results of our enquiries of the directors and the audit committee about their own identification and assessment of the risks of irregularities, including those that are specific to the Company's sector;
· any matters we identified having obtained and reviewed the Company's documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
· the matters discussed among the audit engagement team and relevant internal specialists, including financial instruments specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the Valuation of Investments. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the Companies (Guernsey) Law, 2008, Listing Rules, the Protection of Investor (Bailiwick of Guernsey) Law 2020 and relevant tax regulations.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the Company's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified Valuation of Investments as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
· reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;
· enquiring of management and the audit committee concerning actual and potential litigation and claims;
· performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
· reading minutes of meetings of those charged with governance, reviewing correspondence with the Guernsey Financial Services Commission;
· in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal specialists, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
· the directors' statement with regards to the appropriateness of adopting a basis other than going concern basis of accounting;
· the directors' explanation as to its assessment of the company's prospects, the period this assessment covers and why the period is appropriate;
· the directors' statement on fair, balanced and understandable;
· the board's confirmation that it has carried out a robust assessment of the emerging and principal risks;
· the section of the annual report that describes the review of effectiveness of risk management and internal control systems; and
· the section describing the work of the audit committee.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
· we have not received all the information and explanations we require for our audit; or
· proper accounting records have not been kept; or
· the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the Company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
David Becker
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
16 March 2023
Statement of Financial Position
As at 31 December 2022
| | | 31 Dec 2022 | | 31 Dec 2021 |
| | Notes | £'000 |
| £'000 |
| | | | | |
| | | | | |
| | | | | |
| Non-current assets Investment in Midco |
5 |
- | |
544,060 |
| Total non-current assets | | - | | 544,060 |
|
Current assets | | | | |
| Investment in Midco | 5 | 453,856 | | - |
| Cash and cash equivalents | 2 | 409 | | 3,509 |
| Receivables and prepayments | 7 | 90 | | 137 |
| Total current assets | | 454,355 | | 3,646 |
| | | | | |
| Current liabilities | | | | |
| Trade and other payables | 8 | 836 | | 687 |
| Total liabilities | | 836 | | 687 |
| | | | | |
| Net assets | | 453,519 | | 547,019 |
| | | | | |
| Equity | | | | |
| Share capital | 9 | 241,513 | | 243,252 |
| Retained earnings | | 212,006 | | 303,767 |
| Total equity | | 453,519 | | 547,019 |
|
Number of ordinary shares in issue
|
9 |
251,019,064 | |
252,319,064 |
| NAV per share (pence) | 10 | 180.67 | | 216.80 |
The notes below form an integral part of the financial statements.
The financial statements were approved by the Board and authorised for issue on 16 March 2023.
Mark Thompson Robert Legget
Director Director
Statement of Comprehensive Income
For the year ended 31 December 2022
| | |
31 Dec 2022 |
|
31 Dec 2021 |
| | Notes | £'000 | | £'000 |
| | | | | |
| | | | | |
| Income | | | | |
| Unrealised (loss)/gain on investment in Midco |
5 |
(89,705) | |
165,412 |
| | | (89,705) | | 165,412 |
| | | | | |
| | | | | |
| Expenses | | | | |
| Administration fees | 17 | 184 | | 143 |
| Directors' fees | 16 | 298 | | 185 |
| Audit and non-audit fees | 11 | 67 | | 52 |
| Trademark licence fees | 17 | 47 | | 47 |
| Winddown costs | 14 | 695 | | - |
| Other operating expenses | | 774 | | 328 |
| Total Expenses | | 2,065 | | 755 |
| | | | | |
| Operating (loss)/profit | | (91,770) | | 164,657 |
| | | | | |
| Finance income and expense | | | | |
| Interest income | 2 | 9 | | - |
| Net (loss)/profit | | (91,761) | | 164,657 |
| | | | | |
|
Total comprehensive (loss)/income | | | | |
| | | | | |
| | (91,761) | | 164,657 | |
| | | | | |
| Basic and diluted (loss)/earnings per share (pence) | 12 |
(36.53) | |
63.87 |
All activities derive from discontinued operations.
The notes below form an integral part of the financial statements.
Statement of Changes in Equity
For the year ended 31 December 2022
| | Notes | Share capital | Retained earnings | Total | |
| | | £'000 | £'000 | £'000 | |
| | | | | | |
| As at 1 January 2022 | | 243,252 | 303,767 | 547,019 | |
| | | | | | |
| Loss for the year | | - | (91,761) | (91,761) | |
| Total comprehensive loss | | - | (91,761) | (91,761) | |
| | | | | | |
| Share repurchases | 9 | (1,739) | - | (1,739) | |
| | | (1,739) | - | (1,739) | |
| | | | | | |
| As at 31 December 2022 | | 241,513 | 212,006 | 453,519 | |
| | | | | |
|
| | | | | |
|
| | Notes | Share capital | Retained earnings | Total |
|
| | | £'000 | £'000 | £'000 |
|
| | | | | |
|
| As at 1 January 2021 | | 259,095 | 139,110 | 398,205 |
|
| | | | | |
|
| Profit for the year | | - | 164,657 | 164,657 |
|
| Total comprehensive income | | - | 164,657 | 164,657 |
|
| | | | | |
|
| Share repurchases | 9 | (15,843) | - | (15,843) |
|
| | | (15,843) | - | (15,843) |
|
| | | | | |
|
| As at 31 December 2021 | | 243,252 | 303,767 | 547,019 |
|
The notes below form an integral part of the financial statements.
Statement of Cash Flows
For the year ended 31 December 2022
| | | | | |
|
| |
Notes |
31 Dec 2022 |
|
31 Dec 2021 | |
| | | £'000 | | £'000 | |
| | | | | | |
| Operating activities | | | | | |
| Profit before tax | | (91,761) | | 164,657 | |
| Adjustments to reconcile profit before tax to net cash flows: | | | | | |
| Unrealised loss/(gain) on investment | 5 | 89,705 | | (165,412) | |
| Interest income | | (9) | | - | |
| Movement in receivables and prepayments |
7 |
47 | |
(87) | |
| Movement in trade and other payables |
8 |
149 | |
628 | |
| Net cash flows used in operating activities | | (1,869) | | (214) | |
| | | | | ||
| | | | | | |
| Investing activities | | | | | |
| Share redemption by Midco | 5 | 499 | | 17,875 | |
| Finance income | | 9 | | - | |
| Net cash flows from investing activities | | 508 | | 17,875 | |
| | | | | | |
| | | | | | |
| Financing activities | | | | | |
| Share repurchase | 9 | (1,739) | | (15,843) | |
| Net cash flows used in financing activities | | (1,739) | | (15,843) |
|
| | | | | ||
| | | | | | |
| Net movement in cash and cash equivalents | | | |
1,818 | |
| | (3,100) | | | ||
| Opening cash and cash equivalents | | 3,509 | | 1,691 | |
|
Closing cash and cash equivalents | | | | | |
| | 409 | | 3,509 | |
The notes below form an integral part of the financial statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. Corporate information
Trian Investors 1 Limited (the "Company") is incorporated in and controlled from Guernsey as a company limited by shares with registered number 65419. The ordinary shares of no par value in the capital of the Company (the "Shares") are admitted to the Specialist Fund Segment of the London Stock Exchange (the "SFS").
The Company is registered with the Guernsey Financial Services Commission as a registered collective investment scheme and is regulated under the Protection of Investors (Bailiwick of Guernsey) Law 2020.
2. Accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below.
Basis of preparation
The annual financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board (IASB), the Companies (Guernsey) Law, 2008 and the Protection of Investors (Bailiwick of Guernsey) Law, 2020. The financial statements have been prepared on a historical cost basis as amended from time to time by the fair valuing of certain financial assets and liabilities. The financial statements cover the year ended 31 December 2022.
Going concern
The annual audited financial statements have been prepared on a basis other than going concern as the Company has redeemed over 99% of its Ordinary Shares in 2023 and the Directors plan to commence a process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash flow projections, the Directors remain satisfied that the Company can meet its liabilities as they fall due until the Company enters a solvent liquidation.
Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare the financial statements of the Company on a basis other than going concern.
The Directors believe there are no material differences than had the financial statements been prepared on a going concern basis.
Refer to Note 22 for an update on the Redemption process subsequent to 31 December 2022.
Estimates and judgements
The preparation of financial statements in accordance with IFRS requires the Directors to make critical accounting estimates and judgements. The areas involving a higher degree of judgement or complexity are disclosed in Note 3.
New and amended standards and interpretations applied
The following accounting standards and updates were applicable in the current period but did not have a material impact on the Company:
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in issue are applicable to the Company but are not yet effective and therefore, have not been adopted by the Company:
- IFRS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 1 January 2023)
- Amendments to IAS 12: Income Taxes (effective 1 January 2023)
- Amendments to IAS 1: Presentation of Financial Statements (effective 1 January 2023)
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity's financial position, financial performance and cash flows.
The Company has considered the IFRS standard that has been issued, but is not yet effective. This standard will not have a material effect on the Company as the Company does not have any material insurance contracts or write any insurance contracts.
Accounting for subsidiaries
As explained in Note 3, the Company is an investment entity and accordingly accounts for its investments in subsidiaries as investments at fair value through profit and loss.
Segment reporting
The Directors are of the opinion that the Company is currently engaged in a single segment of business, being the investment through Trian Investors 1 Midco Limited ("Midco") into Trian Investors 1, L.P. (Incorporated) (the "Investment Partnership").
Revenue recognition
All income is accounted for on an accruals basis and recognised in the Statement of Comprehensive Income.
Expenses
Expenses are accounted for on an accruals basis. Expenses borne by subsidiaries are reflected in the Statement of Comprehensive Income through the revaluation of the investments.
All costs associated with the issue of Shares are netted off against share capital in the Statement of Changes in Equity. Costs associated with the repurchase of shares are recognised in the Statement of Comprehensive Income.
Dividends to shareholders
Dividends are accounted for in the period in which they are paid by the Company and are recognised when approved by the Board.
Financial instruments
The classification of financial assets at initial recognition depends on the purpose for which each financial asset was acquired and its characteristics.
The Company's only significant financial assets comprise cash and cash equivalents and investments in subsidiaries held at fair value through profit and loss. The investments in subsidiaries are initially recognised at fair value of consideration.
Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity are carried at amortised cost. Cash and cash equivalents consist of cash in hand, short-term deposits in banks and investments in money market funds with an original maturity of three months or less.
Investments at fair value through profit and loss
i. Classification
As explained in more detail in Note 3 the Company is an investment entity and accordingly accounts for its investment in subsidiaries as investments at fair value through profit and loss.
ii. Recognition
Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.
iii. Measurement
Investments treated as "investments at fair value through profit or loss" are initially recognised at the fair value of consideration given. They will subsequently be measured at fair value. All transaction costs are expensed in the Statement of Comprehensive Income.
Realised and unrealised gains or losses are recognised in the Statement of Comprehensive Income.
iv. Fair value estimation
The level in the fair value hierarchy within which the financial assets or financial liabilities are categorised is determined on the basis of the lowest level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their entirety into only one of three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3 - inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
Payables
Trade and other payables are recognised at amortised cost.
Functional currency
Items included in the financial statements are measured using Pounds Sterling which is the currency of the primary economic environment in which the Company operates.
At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Transactions denominated in foreign currencies are translated into Pounds Sterling at the rate of exchange presiding at the date of the transaction. Exchange differences are recognised in the Statement of Comprehensive Income in the period in which they arise.
Treasury shares
The Company has the ability to repurchase Shares and hold them in treasury. Shares that are repurchased and held in treasury are removed from the share capital reserve.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires the Directors to make estimates and assumptions that affect the amounts reported for assets and liabilities as at the statement of financial position date and the amounts reported for revenue and expenses during the year. The nature of the estimation means that actual outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The Directors also need to make judgements (other than those involving estimates) that have a significant impact on the application of accounting standards. The following critical judgements apply to the Company's investment.
i) Investment entity exemption:
The Directors have considered whether the Company meets the definition of an investment entity as stipulated in the provisions of IFRS 10. Entities that meet the definition of an investment entity within IFRS 10 are required to measure their subsidiaries, other than those that provide investment services to the Company and do not themselves meet the definition of an investment entity, at fair value through profit or loss rather than consolidate them.
The Company's purpose is to make investments through the Investment Partnership for capital appreciation and it will measure performance of its investments on a fair value basis. The Company holds 99.83 per cent of the commitment in the Investment Partnership through its wholly owned subsidiary, Midco. Midco was incorporated in Guernsey and its principal place of business is Guernsey. The Board has assessed whether the Company has all the elements of control as prescribed by IFRS 10 in relation to the Company's investment in the Investment Partnership and has concluded that the Company does have control of the Investment Partnership. Midco and the Investment Partnership are therefore both classified as subsidiaries of the Company. The Board has also assessed that the Company meets the criteria of an investment entity and therefore the subsidiaries are recorded at fair value through profit and loss rather than being consolidated. The Board's determination that the Company is classified as an investment entity involves a degree of judgement due to the complexity of the wider structure encompassing the Company, Midco and the Investment Partnership.
ii) Use of last sales price published by the exchange:
The Directors believe that a key judgement relates to the valuation of the investments in Ferguson plc ("Ferguson") and Unilever plc ("Unilever") held through the Investment Partnership. The ordinary shares of Ferguson are listed on the New York Stock Exchange, its primary listing, and the ordinary shares of Unilever have a primary listing on the Main Market of the London Stock Exchange and the Directors must determine whether the market is sufficiently liquid for the last sales price published by the exchange to be a fair value in accordance with IFRS principles. The Directors have assessed that there is a sufficiently liquid market in the exchanges for the investments held through the Investment Partnerships and accordingly they consider the quoted share price to be the appropriate basis for the valuation of the investments.
iii) Management fee accounting:
The Directors believe that a key judgement relates to the accounting treatment of the management fee by the Investment Partnership following the announcement that a compulsory redemption would be completed before 30 June 2023 with the management fee calculated through to 31 December 2023 (see Note 5). It was agreed that the management fee up until the expected redemption date would continue to be accrued monthly. The 6 months of management fee relating to the expected post-redemption period through to 31 December 2023 would be accrued for evenly over the period from 2 September 2022 to 30 June 2023. This treatment has been revised in 2023 as a result of the distribution of assets by the Investment Partnership at which time full provision was made for future management fees.
iv) Climate risk:
The Board considers that the impact of climate change does not give rise to a material impact on the financial statements as all investments were distributed post year end.
There are no key sources of estimation uncertainty.
4. Income tax
The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual exemption fee of £1,200.
5. Investment in Midco (at fair value through profit or loss)
The Company owns 100% of the share capital of its subsidiary Midco. Midco holds 99.83 per cent of the commitment in the Investment Partnership and has no other assets or liabilities. This investment is valued based on its share of the net assets of the Investment Partnership.
Movements in the cost and carrying value of this investment in Midco during the year were:
| | 31 Dec 2022 |
| 31 Dec 2021 |
| | £'000 |
| £'000 |
| Cost |
| | |
| Brought forward | 239,125 | | 257,000
|
| Share redemption | (499) | | (17,875) |
| Carried forward | 238,626 | | 239,125 |
| | | | |
| Fair value adjustment through profit or loss | | | |
| Brought forward | 304,935 | | 139,523 |
| Fair value movement during year | (89,705) | | 165,412 |
| Carried forward | 215,230 | | 304,935 |
| Fair value as at 31 December | 453,856 |
| 544,060 |
As explained in Note 2 and Note 3 the investment in Midco and its interest in the Investment Partnership is shown in the Company's balance sheet as a single investment carried at fair value because the Company is defined as an investment company under the provisions of IFRS10. The following tables provide an analysis of the assets and liabilities and the income statement of the Investment Partnership.
Summary financial information of the Investment Partnership
| | 31 December 2022 | 31 December 2021 |
| Non-current assets | £'000 | £'000 |
| Investments in Ferguson | 462,099 | 619,957 |
| Investments in Unilever | 44,300 | - |
| Cash and cash equivalents | 3,965 | 3,727 |
| Foreign exchange option at fair value | - | 66 |
| Other current assets and liabilities | 1,799 | 359 |
| Net assets | 512,163 | 624,109 |
|
| | |
| Attributable to: | | |
| General Partner and Special Limited Partner (including incentive allocation) | 58,307 | 80,049 |
| The Company | 453,856 | 544,060 |
| Net assets | 512,163 | 624,109 |
|
|
Year ended 31 December 2022 |
Year ended 31 December 2021 |
| Income | £'000 | £'000 |
| Unrealised (loss)/gain on investments | (132,575) | 199,682 |
| Realised gain on investments | 18,844 | - |
| Dividend income | 14,201 | 14,470 |
| Loss on foreign exchange options | (227) | (1,101) |
| Interest income | 23 | - |
| Total income | (99,734) | 213,051 |
|
|
|
|
| Expenses |
|
|
| Management fees | 5,819 | 4,606 |
| Finance costs | 925 | - |
| Other expenses | 315 | 125 |
| Foreign exchange loss | 4,653 | 34 |
| Total expenses | 11,712 | 4,765 |
| | | |
| (Loss)/profit for the year | (111,446) | 208,286 |
| | | |
| (Loss)/profit attributable to General Partner and Special Limited Partner | (183) | 369 |
| (Decrease)/increase in incentive allocation for the year | (21,558) | 42,505 |
|
|
|
|
| Net (loss)/gain attributable to the Company | (89,705) | 165,412 |
|
|
|
|
The financial statements for the Investment Partnership are prepared under IFRS.
Foreign exchange option
For the period between March 2020 and February 2022 the Investment Partnership entered into currency call options to offset a portion of the Investment Partnership's U.S. Dollar exposure arising from its investment in Ferguson, which receives the vast majority of its revenues in U.S. Dollars. In light of the approval of the Company's revised Investment Policy in July 2021, the Investment Manager determined that it was no longer necessary to continue hedging currency exposure when the last option expired in February 2022.
Incentive allocation
The Investment Partnership's investment in Ferguson is treated as a "Stake Building Investment". As such, the incentive allocation is equal to 20 per cent of net returns on the investment, payable after the Investment Partnership has distributed to its partners an amount equal to the aggregate capital contributions made in respect of the investment (excluding any capital contributions attributable to management fees).
The Investment Partnership's investment in Unilever was treated as a "Stake Building Investment" until the appointment of Nelson Peltz, a partner of Trian Management, to the Unilever board of directors on 20 July 2022, upon which time it was treated as an "Engaged Investment". The incentive allocation may be up to 25 per cent of the Investment Partnership's net returns on the investment (excluding any capital contributions attributable to management fees) following disposal of a Target Company, as set forth in greater detail in the LPA.
As part of the Redemption proposals, it was agreed with Trian SLP that it would continue to be entitled to receive the incentive allocation which will be determined based on the performance of the Investment Partnership to the date of distribution of its underlying investments; and with Trian SLP that its incentive allocation may (at Trian SLP's election) be settled through an in-specie distribution of the Investment Partnership's underlying assets rather than in cash or through a further issue of the Company's shares. See Note 22 for details of the redemptions subsequent to year end.
As at 31 December 2022, there was an incentive allocation accrual of £57,392,000 (31 December 2021: £78,950,000). The incentive allocation will be solely borne by the Company through Midco and is treated as fair value movement through profit and loss in the Statement of Comprehensive Income.
Management fee
The Investment Manager is entitled to management fees in consideration of its work equal to one twelfth of 1 per cent of the adjusted net asset value of the Investment Partnership, calculated as of the last business day of the preceding month. The management fee is solely borne by the Company through Midco and is treated as fair value movement through profit and loss in the Statement of Comprehensive Income.
As part of the Redemption proposals, it was also agreed with the Investment Manager that it would receive its final management fee payment in lieu of notice calculated, through to 31 December 2023. The 6 months of management fees relating to the expected post-redemption period through to 31 December 2023 is being accrued for evenly over the period from 2 September 2022 to 30 June 2023. As at 31 December 2022 a management fee provision of £940,000 (31 December 2021: £nil) had been accrued. Subsequent to the year end, following the distribution of the Investment Partnership's investments in Ferguson and Unilever, full provision for the management fee due to 31 December 2023 has been accrued (see Note 22).
For the year ended 31 December 2022 management fees of £5,819,000 were incurred by the Investment Partnership (year ended 31 December 2021: £4,606,000).
Credit Facility and Unilever investment
On 29 March 2022 the facility previously held with UBS Bank USA was terminated and replaced with a US$100 million revolving credit facility with Bank of America, N.A., London Branch ("Bank of America") (the "BoA Credit Facility") having a three year term, which permitted the Investment Partnership to borrow an aggregate amount of up to $100 million at an interest rate equal to a fixed rate plus 1.35% per annum. The portion of the $100 million BoA Credit Facility commitment which is not drawn was subject to a commitment fee of 0.40% per annum. In connection with establishing the facility, the Investment Partnership pledged the entirety of the listed investments held in Ferguson and Unilever as collateral under the new facility. During April 2022, $50 million (£37,661,679) of the credit facility was utilised to purchase 1,059,295 ordinary shares in Unilever. During August 2022, 352,819 ordinary shares in Ferguson were sold for total proceeds of £37,488,850 which were used to pay down the facility and the interest and commitment fees incurred on it.
On 9 December 2022 the BoA Credit Facility outstanding balance was fully paid and the facility was terminated. As at 31 December 2022 total outstanding borrowing under this credit facility amounted to £nil (31 December 2021: £nil).
6. Fair value
IFRS 13 "Fair value measurement" requires the Group to establish a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
The only financial instruments carried at fair value is the investment in Midco which is fair valued at each reporting date.
The Company's investment in Midco has been classified as level 2 as its valuation has been derived from the value of the assets and liabilities in the Investment Partnership. A reconciliation of the movement in Level 2 investments is set out in the table in Note 5. Due to the nature of the investments, they are always expected to be classified under Level 2. There were no transfers between levels during the years to 31 December 2022 and 31 December 2021.
In the accounts of the Investment Partnership the financial instruments carried at fair value are:
| | 31 December 2022 | 31 December 2021 |
| | £'000 | £'000 |
| Listed investments (level 1) | 506,399 | 619,957 |
| Foreign exchange option (level 2) | - | 66 |
Valuation techniques
The value of the Company's investment in Midco is based on the value of Midco's limited partner capital account within the Investment Partnership. This is based on the assets and liabilities of the Investment Partnership, principally the value of the underlying investments, the loan, the currency options and cash. Any fluctuation in the value of the underlying investments will directly impact on the value of Midco's investment in the Investment Partnership while taking into account the impact of the incentive allocation.
Valuations are determined in accordance with a pricing policy agreed between the Directors and the Investment Manager from time to time. Calculations will be made in accordance with IFRS principles or as otherwise determined by the Board.
In accordance with the LPA, for the purposes of calculating the NAV of the Investment Partnership, its assets will be valued on the following basis:
· Listed investments are valued at the last sales price published by the principal exchange on which they are listed.
· The valuation of the currency options was performed by utilising an external data source which used proprietary software and a valuation model to perform the fair value calculation. The valuation model used is the Black-Scholes model.
The Board approves the valuations performed by the Investment Manager and monitors the range of reasonably possible changes in significant observable inputs at each reporting date.
7. Receivables and prepayments
| | | 31 Dec 2022 | 31 Dec 2021 |
| | | £'000 | £'000 |
| | | | |
| Other prepaid expenses | | 90 | 137 |
| | | 90 | 137 |
|
The carrying value of receivables and prepayments approximates their fair value.
| |||
8. Trade and other payables
| |
| 31 Dec 2022 £'000 | 31 Dec 2021 £'000 |
| | | | |
| Administration fees | | 65 | 10 |
| Audit fees | | 8 | 26 |
| Owed to Broker | | - | 286 |
| Owed to Investment Partnership | | - | 358 |
| Winddown costs | | 695 | - |
| Other professional fees | | 68 | 7 |
| | | 836 | 687 |
| | | | |
The carrying value of trade payables and other payables approximates their fair value.
9. Share capital and capital management
Capital risk management
The Company's objective for capital risk management is to realise returns through the compulsory redemption by 30 June 2023 and the subsequent liquidation. The Company considers its capital to consist of the shares issued and retained earnings.
The Board reviews the Company's NAV monthly, as calculated in accordance with IFRS, and the Company's Share price (as well as its discount or premium to NAV per Share) in the context of market conditions, with input from the Investment Manager and its Corporate Broker. As shown in the tables below, the Company repurchased a total of 19,566,913 shares at a discount to NAV since February 2020. Share repurchases are subject to the Company's discretion based on market and economic conditions, the price and trading volume of the Company's Shares and other factors. Subsequent to the year end all Shares held in treasury were cancelled.
No dividend was declared or paid in the year to 31 December 2022 and in the year to 31 December 2021.
Ordinary shares of no par value
| Net Shares outstanding | | 31 Dec 2022 | 31 Dec 2021 | |
| | |
|
| |
| | | | | |
| Shares issued | | 270,585,977 | 270,585,977 | |
| Shares held in Treasury | | (19,566,913) | (18,266,913) | |
| Net number of Shares outstanding | | 251,019,064 | 252,319,064 | |
| | | | | |
| The Company's authorised share capital as at 31 December 2022 and 31 December 2021 is 300,000,000 Shares. | ||||
| | | | | |
| | | | £'000 | |
| Issued and fully paid: | | | | |
| As at 1 January 2022 | | | 243,252 | |
| Repurchased during the year | | | (1,739) | |
| As at 31 December 2022 | | | 241,513 | |
| | | | | |
| As at 1 January 2021 | | | 259,095 | |
| Repurchased during the year | | | (15,843) | |
| As at 31 December 2021 | | | 243,252 | |
| | | | | |
10. Net Asset Value per Share
| | 31 Dec 2022 |
| 31 Dec 2021 |
| | | | |
| IFRS Net Assets (£'000) | 453,519 | | 547,019 |
| | | | |
| Number of Shares in issue | 251,019,064 | | 252,319,064 |
| | | | |
| IFRS NAV per Share (pence) | 180.67 | | 216.80 |
| | | | |
The IFRS NAV per Share is arrived at by dividing the IFRS Net Assets by the number of Shares in issue net of treasury shares.
11. Auditor's remuneration
The auditor's remuneration relating to services to the Company for the year was:
| | |
Year to | |
Year to |
| | | 31 Dec 2022 | | 31 Dec 2021 |
| | | £'000 |
| £'000 |
| | | | | |
| Audit fees | | 39 | | 30 |
| Non-audit fees | | 28 | | 22 |
| | | 67 | | 52 |
| | | | | |
In addition the fee for the audit of the Investment Partnership of £20,000 (2021: £15,000) is payable by the Investment Partnership.
12. Earnings per share
| | | | ||
| | | |
Year to |
Year to |
| | | | 31 Dec 2022 | 31 Dec 2021 |
| | | | | |
| (Loss)/profit for the year (£'000) | | |
(91,761) |
164,657 |
| | | | | |
| Weighted average number of Shares in issue | | |
251,195,365 |
257,815,475 |
| | | | | |
| Basic and Diluted (loss)/earnings per Share (pence) | | |
(36.53) |
63.87 |
There were no dilutive potential Shares in issue as at 31 December 2022 or 31 December 2021.
13. Financial risk management
Financial risk management objectives
The Company's activities expose it to various types of financial risk, principally market risk and credit risk. The Company has minimal exposure to liquidity risk. The Board has overall responsibility for the Company's risk management and sets policies to manage those risks at an acceptable level.
In light of the distribution in-specie of the Company's underlying investments and the proposed winding up of the Company, the only material financial risk factors relate to the balances held with banks.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Company manages its credit risk by scrutinising the financial standing of counterparties with which it enters into transactions, using external credit ratings where available. Credit risk is reviewed periodically to identify balances that may have become impaired or uncollectable.
The Company is exposed to credit risk through its balances with banks. The credit risk on receivables is considered to be minimal. The table below shows the Company's and Investment Partnership's credit exposures:
| | | | Company | Investment Partnership | |||
| | Location | Rating | 31 December 2022 | 31 December 2021 | 31 December 2022 | 31 December 2021 |
|
| | | | £'000 | £'000 | £'000 | £'000 |
|
| | | | | | | |
|
| Counterparty 1 |
UK |
AA+ |
409 |
3,509 |
3,965 |
3,727 |
|
| Counterparty 2 |
USA |
AA- |
- |
- |
- |
66 |
|
| | | | 409 | 3,509 | 3,965 | 3,793 |
|
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of market price changes. The Company is no longer exposed to market price risk, currency risk and interest rate risk following the distribution of the underlying investments from the Investment Partnership and distribution to the shareholders subsequent to the year end.
Market price risk
Market price risk arises as a result of the Company's exposure to the future values of its listed investments. By way of example, if the price of its listed investments moved by 15% as at 31 December 2022, the effect on the NAV of the Company would be an increase or decrease of £61,225,000 (31 December 2021: £74,266,000 based on 15 per cent movement). A change of 15 per cent reflected a reasonable change in the share price of the listed investments based upon the period ended 31 December 2022. Subsequent to the year end, the investments in Ferguson and Unilever were distributed to shareholders, so therefore there is no ongoing market price risk.
Currency Risk
As at 31 December 2022, the Company had exposure to currency risk as a result of its investment in Ferguson through the Investment Partnership, which has its primary listing in New York and its price quoted in U.S. Dollars. The Company also had exposure to currency risk as a result of its investment in Unilever through the Investment Partnership, which is a global company operating in numerous markets and in several currencies. As at 31 December 2022, the Investment Partnership held assets of £468,060,000 (US$563,029,000) denominated in U.S. Dollars. The Board consider that a 5% movement in market currency rates is reasonably possible, based on historic market analysis and current market conditions. Had the exchange rate between Pound Sterling and U.S. Dollar strengthened/weakened by 5% with all other variables held constant, the increase/decrease in the net assets of the Investment Partnership would amount to approximately £23,403,000 (US$ 28,151,000). Any foreign exchange gain/loss on the investment in Ferguson is disclosed as investment gain/loss whereas any foreign exchange gain/loss on the credit facility is disclosed as foreign exchange gain/loss in the summary financial information of the Limited Partnership in Note 5. Subsequent to the year end the investment in Ferguson was distributed to shareholders. Following the distribution, no investment or cash is held in U.S. Dollars at either the Company or Investment Partnership, therefore there is no ongoing currency risk.
Interest rate risk
During the year ended 31 December 2022, the Company, through the Investment Partnership, held a BoA Credit Facility with Bank of America allowing an aggregate amount of up to $100 million to be borrowed at an interest rate equal to 1.35% per annum plus the federal funds rate and was therefore subject to interest rate movements set by the U.S. Federal Reserve interest rate policies. The facility was fully repaid prior to 31 December 2022 and both the Company and the Investment Partnership earn immaterial amounts of interest income on cash and cash equivalents held, therefore the Company has no ongoing interest rate risk.
14. Commitments and contingencies
As at 31 December 2022 a wind down cost provision of £695,000 has been accrued for (31 December 2021: £nil) as detailed below:
| | | | |
Year to |
| | | | | 31 Dec 2022 |
| | |
|
| £'000 |
| | | | | |
| Broker fees | | | | 150 |
| Legal fees | | | | 100 |
| Registrar fees | | | | 16 |
| Administration fees | | | | 5 |
| Insurance fees | | | | 147 |
| Printer fees | | | | 3 |
| Contingency provision | | | | 224 |
| Liquidator fees | | | | 50 |
| | | | | 695 |
| | | | | |
In addition, the Company has a commitment to pay management fees through to 31 December 2023 (see Note 22).
15. Financial Instruments
| | | 31 December 2022 | 31 December 2021 |
| | | £'000 | £'000 |
| | | | |
| | | | |
| Financial assets at fair value through profit or loss | | | |
| | | | |
| Investment in Midco | | 453,856 | 544,060 |
|
| | 453,856 | 544,060 |
|
Financial assets measured at amortised cost | | | |
| | | | |
| Cash and cash equivalents | | 409 | 3,509 |
| | | 409 | 3,509 |
| | | | |
| Financial liabilities measured at amortised cost | | | |
| | | | |
| Trade and other payables | | 836 | 687 |
| | | 836 | 687 |
16. Related parties
Key management personnel
The Directors are considered to be the Key Management Personnel of the Company. They are all non-executive. Directors' fees for the year ended 31 December 2022 amounted to £298,000 and are detailed in the Corporate Governance Statement (year to 31 December 2021: £185,000).
Directors' shareholdings are disclosed in the Report of the Directors. No dividends were paid on their shares during the year ended 31 December 2022 (year to 31 December 2021: £nil).
Trian Subscriber
Trian Subscriber, a company owned by the Investment Manager's partners and certain of their affiliates, held voting power over 27.84% of the Company's outstanding Shares as at 31 December 2022 (31 December 2021: 28.55%).
Management fee
Under the management agreement between the Investment Partnership and the Investment Manager, the Investment Manager is entitled to management fees in consideration of its work equal to one twelfth of 1 per cent of the adjusted net asset value of the Investment Partnership. This is detailed in Note 17.
Incentive allocation
Under the terms of the LPA, Trian Investors 1 SLP, L.P., the special limited partner of the Investment Partnership, is entitled to receive an incentive allocation based on the investment performance of the Investment Partnership. This is detailed in notes 5 and 17.
Intergroup balances
As at 31 December 2022 the Company owed £nil to the Investment Partnership (31 December 2021: £358,000).
17. Significant agreements
Trademark fees
Trian Management has granted to the Company, Midco and the Investment Partnership a non-exclusive licence to use the name, logo and graphic identity "Trian" in the UK and the Channel Islands in the corporate name of these entities and in connection with the conduct of their business affairs, and the Company is using the name, logo and graphic identity "Trian" within the Annual Report and these Financial Statements pursuant to such licence. Trian Management receives a fee of £70,000 per annum split between the Company, Midco and the Investment Partnership for the use of the licensed name, logo and graphic identity. During the year ended 31 December 2022 fees of £47,000 (year ended 31 December 2021: £47,000) were paid by the Company in relation to the licence. The Company is not expected to be charged any further trademark fees.
Administration Agreement
On 21 September 2018, the Company and Ocorian Administration (Guernsey) Limited entered into an administration agreement. Under the terms of the agreement the Company (alongside the Investment Partnership) is charged a fixed administration fee of £97,000 per annum from 27 September 2018 payable monthly in arrears, administration fees for Midco of £5,000 per annum, net asset value preparation fees of £10,000 per annum, compliance officer services of £6,000 per annum, money laundering reporting officer services of £3,000 per annum and data protection officer services of £2,000 per annum. Fees are adjusted annually to rise in line with the Guernsey Retail Price Index. For the year ended 31 December 2022 aggregate fees of £184,000 were paid to Ocorian (year ended 31 December 2021: £143,000).
Management Agreement
The management agreement between the Investment Partnership and the Investment Manager was amended and restated on 19 July 2021 and made effective as of 14 June 2021. No revisions were made to the manner in which management fees are calculated.
The Investment Manager is entitled to management fees in consideration of its work equal to one twelfth of 1 per cent of the adjusted net asset value of the Investment Partnership, calculated as of the last business day of the preceding month. The management fee is payable in advance to the Investment Manager on the first business day of each calendar month. The management fee is solely borne by the Company through Midco.
As part of the redemption proposals it was agreed with the Investment Manager that upon compulsory redemption it will receive its final management fee payment in lieu of notice calculated, through to 31 December 2023. Management fees incurred and accrued are detailed in Note 5 and Note 22.
LPA and Calculation of incentive allocation
Under the terms of the LPA, Trian SLP is entitled to receive an incentive allocation based on the investment performance of the Investment Partnership.
As part of the Redemption proposals, it has been agreed with Trian SLP that it will continue to be entitled to receive the incentive allocation which will be determined based on the performance of the Investment Partnership up to the date of distribution of its underlying investments; and with Trian SLP that its incentive allocation may (at Trian SLP's election) be settled through an in-specie distribution of the Investment Partnership's underlying assets rather than in cash or through a further issue of the Company's shares. The incentive allocation incurred and accrued is detailed in Note 5 and Note 22.
18. Extraordinary General Meeting costs
| |
| | |
Year to |
| | | | | 31 Dec 2022 |
| | |
|
| £'000 |
| | | | | |
| Broker fees | | | | 70 |
| Director fees | | | | 80 |
| Legal fees | | | | 329 |
| Communications advisor fees | | | | 42 |
| Administration fees | | | | 43 |
| Printer fees | | | | 6 |
| | | | | 570 |
| | | | | |
| The costs associated with the requisitioned Extraordinary General Meeting are included within Directors' fees, Administration fees and other operating costs in the Statement of Comprehensive Income. | ||||
| | | | | |
The total costs associated with the requisitioned Extraordinary General Meeting held on 5 August 2022 with shareholders amounted to £570,000 as split out in the table below:
19. Subsidiaries
Midco was incorporated on 10 September 2018 in Guernsey and the Investment Partnership was registered on 13 September 2018 in Guernsey. The Company holds 241,626,523 ordinary shares in Midco, representing 100 per cent of the share capital, which in turn holds 99.83 per cent of the commitment in the Investment Partnership. Subsequent to the year end Midco assigned its entire partnership interest in the Investment Partnership to the Company (see Note 22).
20. Ultimate beneficial owner
There was no ultimate beneficial owner of the Company as at the date of signing.
21. Dividends
No dividends have been declared or paid in the year to 31 December 2022 (year to 31 December 2021: £nil).
22. Subsequent events
On 6 January 2023 the Investment Manager effected an in-specie distribution of Ferguson ordinary shares from the Limited Partnership. This distribution resulted in the Special Limited Partner receiving an incentive allocation with respect to the Ferguson investment, which it elected to receive in the form of Ferguson shares. This resulted in 4,377,875 Ferguson ordinary shares being distributed from the Investment Partnership as follows: 3,795,799 shares to the Company, through Midco, 580,822 to Trian SLP (including 574,479 shares of incentive allocation) and 1,254 to the Managing General Partner. The total value of the Ferguson shares transferred based on the closing trading price of Ferguson shares on 6 January 2023 was £442,205,144 to the Company, £67,664,935 to Trian SLP (including £66,925,985 of incentive allocation) and £36,895 to the Managing General Partner. The Company redeemed 219,572,492 shares in Midco in consideration for the Ferguson distribution.
On 18 January 2023, the 19,566,913 Ordinary Shares held in treasury were cancelled.
On 30 January 2023 the Company distributed the Ferguson shares in-specie (the "Share Distribution") to investors as consideration for a partial redemption of the Ordinary Shares. The Share Distribution was applied pro rata to an investor's holding of Ordinary Shares on 27 January 2023 (the "Record Date") at a ratio of 0.0151215566 Ferguson ordinary shares for each Ordinary Share in issue as at the Record Date.
Ferguson ordinary shares being distributed represented approximately 90.7 per cent. of the Company's net asset value as of 6 January 2023 and therefore 90.7 per cent. of each investor's holding of Ordinary Shares was compulsorily redeemed as at this date. In total 227,556,727 Ordinary Shares were redeemed. All Ordinary Shares redeemed have been cancelled with effect from the Record Date.
On 16 February 2023, the Company redeemed all but two of the issued ordinary shares of Midco, with the consideration for such redemption being the assignment of Midco's entire partnership interest in the Investment Partnership to the Company.
Further, on 16 February 2023, subsequent to the assignment of partnership interests in the Investment Partnership, the Investment Manager effected an in-specie distribution of Unilever ordinary shares from the Investment Partnership. This resulted in 1,012,346 Unilever ordinary shares being distributed from the Investment Partnership as follows: 1,010,640 shares to the Company, 1,285 to Trian SLP and 421 to the Managing General Partner. The total value of the Unilever shares transferred based on the closing trading price of Unilever shares as of 16 February 2023 was £42,760,178 to the Company, £54,368 to Trian SLP and £17,813 to the Managing General Partner. No incentive allocation was payable on this distribution.
Following the distribution of Ferguson and Unilever shares by the Investment Partnership the management fee payable in respect of the period to 31 December 2023 has been fully accrued. The total management fee payable in respect of 2023 is £5,480,828.
On 13 March 2023 the Company distributed the Unilever shares in-specie (the "Second Share Distribution") to investors as consideration for a partial redemption of the Ordinary Shares. The Second Share Distribution was applied pro rata to an investor's holding of Ordinary Shares on 10 March 2023 (the "Second Record Date") at a ratio of 0.0430749929 Unilever shares for each Ordinary Share in issue as at the Second Record Date. As at 16 February 2023 the Unilever ordinary shares being distributed represented approximately 94.1 per cent. of the Company's net asset value and therefore 94.1 per cent. of each investor's holding of Ordinary Shares was compulsorily redeemed. In total 22,076,289 Ordinary Shares were redeemed. All Ordinary Shares redeemed have been cancelled with effect from the Second Record Date.
In total 249,633,016 Ordinary Shares have been redeemed in 2023 comprising over 99% of the shares in issue and over 99% of the net asset value at 2 September 2022. 1,386,048 Ordinary Shares remain in issue.
The Company's NAV as at 13 March 2023 (after accruing for all management fees and winding up costs) was £2.99 million, or 215.65 pence per Ordinary Share.
Investment Manager's Report Disclosure Statements and Disclaimers
General Considerations
Please note that the Investment Manager's Report is for general informational purposes only, is not complete, and does not constitute any advice or recommendation to invest in Trian Investors 1 Limited (the "Company") or Ferguson plc ("Ferguson") or Unilever plc ('Unilever') or enter into or conclude any other transaction. The Investment Manager's Report should not be construed as legal, tax, investment, financial or other advice. It does not have regard to the specific investment objective, financial situation, suitability, or the particular need of any specific person who may receive the Investment Manager's Report and should not be taken as advice on the merits of any investment decision. The views expressed in the Investment Manager's Report represent the opinions of Trian Investors Management, LLC (the "Investment Manager") and its parent, Trian Fund Management, L.P. (collectively, "Trian") and are based on publicly available information with respect to Ferguson, Unilever and the other companies referred to therein. Trian recognises that there may be confidential information in the possession of Ferguson, Unilever and the other companies discussed in the Investment Manager's Report that could lead such companies to disagree with Trian's conclusions. Trian does not endorse third-party estimates or research which are used in the Investment Manager's Report solely for illustrative purposes.
Select figures presented in the Investment Manager's Report, including investment values, have not been calculated using generally accepted accounting principles ("GAAP") or International Financing Reporting Standards ("IFRS") and have not been audited by independent accountants. Such figures may vary from GAAP or IFRS accounting in material respects and there can be no assurance that the unrealised values reflected in the Investment Manager's Report will be realised. Nothing in the Investment Manager's Report is intended to be a prediction of the future trading price or market value of securities of Ferguson, Unilever or the Company. There is no assurance or guarantee with respect to the prices at which any securities of Ferguson, Unilever or the Company will trade, and such securities may not trade at prices that may be implied in the Investment Manager's Report. The estimates, projections, pro forma information and potential impact of Trian's analyses set forth in the Investment Manager's Report are based on assumptions that Trian believes to be reasonable as of the date of the Investment Manager's Report, but there can be no assurance or guarantee that actual results or performance of Ferguson, Unilever or the Company will not differ, and such differences may be material. The Investment Manager's Report does not recommend the purchase or sale of any security.
The Investment Manager's Report is based upon information reasonably available to Trian as of the date of the Report. Furthermore, the information, which includes information and data used and derived or obtained from filings made with regulatory authorities and from other public filings and third party reports, has been obtained from sources that Trian believes to be reliable; however, these sources cannot be guaranteed as to their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information contained in the Investment Manager's Report, by Trian or any of its affiliates or its or their respective partners, members, or employees, and no liability is accepted by such persons for the accuracy or completeness of any such information. Trian reserves the right to change any of its opinions expressed in the Investment Manager's Report at any time as it deems appropriate. Trian disclaims any obligation to update the data, information or opinions contained in the Investment Manager's Report.
Forward Looking Statements
The Investment Manager's Report contains forward-looking statements. All statements contained in the Investment Manager's Report that are not clearly historical in nature or that necessarily depend on future events are forward-looking, and the words "anticipate", "believe," "expect", "estimate", "plan" and similar expressions are generally intended to identify forward-looking statements. The statements contained in the Investment Manager's Report that are not historical facts are based on current expectations, speak only as of the date of the Investment Manager's Report and involve risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such statements. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Trian. Although Trian believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in the Investment Manager's Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included in the Investment Manager's Report, the inclusion of such information should not be regarded as a representation as to future results or that the objectives and plans expressed or implied by such forward-looking statements will be achieved. Trian will not undertake and specifically declines any obligation to disclose the results of any revisions that may be made to any forward-looking statements in the Investment Manager's Report to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Not an Offer to Sell or a Solicitation of an Offer to Buy
Under no circumstances is the Investment Manager's Report intended to be, nor should it be construed as, an offer to sell or a solicitation of an offer to buy any security. The funds managed by Trian are in the business of trading -- buying and selling -- securities. It is possible that there will be developments in the future that cause one or more of such funds from time to time to either purchase or sell shares of Ferguson or Unilever in open market transactions or otherwise or trade in options, puts, calls, contracts for difference or other derivative instruments relating to such shares. Consequently, Trian's beneficial ownership of Ferguson's or Unilever's shares may vary over time depending on various factors, with or without regard to Trian's views of Ferguson's or Unilever's business, prospects or valuation (including the market price of Ferguson's or Unilever's ordinary shares), including without limitation, other investment opportunities available to Trian, concentration of positions in the portfolios managed by Trian, conditions in the securities markets and general economic and industry conditions. Trian also reserves the right to take any actions with respect to any investments in Ferguson or Unilever as it may deem appropriate, including, but not limited to, communicating with the management of Ferguson or Unilever, the board of directors of Ferguson or Unilever, other investors and shareholders, members, stakeholders, industry participants, and/or interested or relevant parties about Ferguson or Unilever or seeking representation on the board of directors of Ferguson or Unilever, and to change its intentions with respect to any investments made in Ferguson or Unilever at any time.
General Information
| Directors Mark Thompson (Chairman) Robert Legget (Senior Independent Director and Chairman of the Audit Committee) (appointed 5 August 2022) Simon Holden Anita Rival (appointed 14 April 2022)
Website: www.trianinvestors1.com
Managing General Partner Trian Investors 1 General Partner, LLC 280 Park Avenue, 41st Floor New York, NY 10017 United States
Corporate Broker Numis Securities Limited The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT United Kingdom
Administrator and Company Secretary Ocorian Administration (Guernsey) Limited PO Box 286, Floor 2, Trafalgar Court Les Banques St Peter Port Guernsey, GY1 4LY
Advocates to the Company As to Guernsey law Ogier (Guernsey) LLP Redwood House St Julian's Avenue St Peter Port Guernsey GY1 1WA
Registrar Link Market Services (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey, GY2 4LH | Registered Office PO Box 286, Floor 2, Trafalgar Court Les Banques St Peter Port Guernsey, GY1 4LY
Investment Partnership Trian Investors 1, L.P. (Incorporated) PO Box 286, Floor 2, Trafalgar Court Les Banques St Peter Port Guernsey, GY1 4LY
Investment Manager Trian Investors Management, LLC 280 Park Avenue, 41st Floor New York, NY 10017 United States
Solicitors to the Company As to English law and US Securities law Norton Rose Fulbright LLP 3 More London Riverside London SE1 2AQ United Kingdom
Independent auditor Deloitte LLP Regency Court Glategny Esplanade St Peter Port Guernsey, GY1 3HW
Custodian to the Investment Partnership The Bank of New York Mellon - London Branch One Canada Square London E14 5AL United Kingdom
Identifiers ISIN: GG00BQKR7233 SEDOL: BKQN9F0 Ticker: TI1 LEI: 213800UQPHIQI5SPNG39
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