TIDMTI1
RNS Number : 5173Z
Trian Investors 1 Limited
15 September 2022
15 September 2022
TRIAN INVESTORS 1 LIMITED
(the "Company")
Interim Results
Interim Report and Unaudited Condensed Financial Statements for
the period from 1 January 2022 to 30 June 2022
The Company announces its results for the six month period ended
30 June 2022
For further information, please contact:
Ocorian Administration (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Patrick Ogier
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. Once the
Redemption has been completed the Board will commence a process to
wind-up the Company with any residual net assets to be returned to
shareholders through that process.
Chairman's Statement
For the period from 1 January 2022 to 30 June 2022
Dear Shareholder,
On behalf of the Board of Directors (the "Board") of Trian
Investors 1 Limited (the "Company"), I am pleased to present the
Company's Interim Report covering the period from 1 January 2022 to
30 June 2022 (the "Period").
Since the start of the Period, the Board has continued work to
address the conflicting short- and long-term aspirations of
different shareholder groups. On 2 September 2022 the Board
announced the proposals detailed in the Investment Manager's Report
to wind up the Company, commencing with a redemption of at least
95% of the Company's shares by 30 June 2023 [1] . The announcement
followed consultation with shareholders representing over 86% of
the Company's issued share capital and I am delighted that all of
those shareholders indicated their support for the proposals.
On 14 April 2022 the Board welcomed Anita Rival to the Board as
an independent non-executive Director. On 5 August 2022 Chris
Sherwell was replaced on the Board by Robert Legget, who was
appointed as Audit Committee Chair and Senior Independent Director
on 15 August 2022. Also on 15 August 2022, I was appointed Chairman
of the Board.
On behalf of the Board, I would like to extend my thanks to
Chris Sherwell for his leadership as Chairman of the Company since
its initial public offering in 2018 and we wish him well for the
future.
The first part of 2022 has been a difficult period for global
equity markets, and although the Company's investments have
demonstrated solid operational performance, the shares of its
investee companies have been impacted by broader market conditions.
In the six months to 30 June 2022, the net asset value ("NAV") per
share of the Company declined by 21.4%, whereas the FTSE 100 total
shareholder return ("TSR") was -1.0% during the same period.
However, the increase in NAV per share of the Company from
inception to 30 June 2022 was 56.4%, significantly outperforming
the FTSE 100 TSR of 9 .0% over this longer period. In addition,
following the Company's recent announcement of the winding up
proposals, the Company's share price has risen and as at 13
September 2022 has increased 8.7% since 31 December 2021
(reflecting a cumulative increase of 55.5% since the Company's
inception).
The Company continues to hold its investment in Ferguson, which
has generated attractive returns since the Company first acquired
shares of the company in 2019. As explained in more detail in the
Investment Manager's report, the share price of Ferguson declined
in the Period due to challenging macroeconomic conditions and
technical headwinds. However, the Board is encouraged by the
Investment Manager's view on the prospects for the Ferguson
investment over the coming months.
On 31 May 2022, the Board announced that the Company made a new
investment of approximately $50 million (GBP37.7 million) in
Unilever. This investment had risen in value by 4.7% through 30
June 2022 and by 10.4% through 31 August 2022. This investment was
financed by drawings on the $100m credit facility which was
announced on 29 March 2022.
In light of the winding up proposals the Board confirms the
Company will make no investments in new target companies.
The Board is grateful for your continued support and will
announce further details of the winding up process in due
course.
Yours sincerely,
Mark Thompson
Chairman
14 September 2022
Investment Manager's Report
For the period from 1 January 2022 to 30 June 2022
Dear Shareholder,
We first invested in Ferguson plc ("Ferguson") in May 2019 and
Unilever plc ("Unilever") in March 2022 on behalf of Trian
Investors 1 Limited (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 net asset value
("NAV") since its initial public offering through 30 June 2022 by
56.4%, a return significantly greater than the total shareholder
return generated by the FTSE 100 (+9%) over the same time
period.
Although we are pleased with the results of the Ferguson and
Unilever investments to date, we believe that there is still
significant value potentially to be achieved through the Company's
holdings in these companies. However, we acknowledge that a
significant portion of the current shareholder base would like the
opportunity to exit their shareholding at or around NAV. As a
result, following the Extraordinary General Meeting held on 5
August 2022, in conjunction with the Company's Board of Directors
(the "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 will, 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 Trian Investors 1, L.P. (the "Investment
Partnership") (including an in specie distribution of shares) at a
value equivalent to the Board's estimate of the then prevailing net
asset value (the "Redemption").
We believe that the Redemption will provide the Company's
shareholders with a number of benefits, including :
-- The Redemption represents a significant return of capital to
shareholders. For illustrative purposes only, if the Redemption had
occurred on 31 July 2022, based on the NAV per share as at close of
business on 31 July 2022, and specifically the closing prices of
Ferguson and Unilever shares on such date, it is estimated that the
Redemption would have returned approximately GBP420 million of
value to shareholders;
-- The current discount of holding Ferguson and Unilever shares
through the Company will be eliminated in respect of those assets
that are distributed in-specie to shareholders;
-- The Redemption will allow each shareholder to determine the
most opportune time to realise their exposure to Unilever and/or
Ferguson (and, in the case of Ferguson, taking into consideration
its potential eligibility for inclusion in various U.S. stock
indices, including the S&P 500 Index); and
-- The traded market in Ferguson and Unilever shares is
significantly more liquid when compared to trading in the Company's
shares.
We intend to continue to closely monitor the Company's positions
in Ferguson and Unilever over the next few months and, acting in
conjunction with the Board, intend to seek to effect the Redemption
in a manner that will enhance value return for Company
shareholders.
Ferguson
Recent Developments
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 achieve a primary listing move 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.
On 14 June 2022, Ferguson reported strong results for its fiscal
third quarter (the three-month period ending 30 April 2022).
Ferguson reported strong year-over-year sales growth of 23.1%
(exceeding year-over-year inflation of approximately 20%, which
implies low-single digit volume growth) on top of a tough prior
year comparable. In addition, Ferguson's operating margin of 9.8%
expanded by 100 basis points year-over-year, driven by disciplined
cost control. Ferguson generated adjusted earnings per share of
$2.50 during the quarter, representing approximately 40%
year-over-year growth. Finally, during the quarter, Ferguson
completed four bolt-on acquisitions (representing annualised
revenue of approximately $450 million) and share repurchases of
$501 million, with $918 million of its $2.0 billion buy-back
program completed during the first nine months of the year.
Overall, Ferguson's operational performance during the quarter
was impressive and the company significantly beat Wall Street
consensus revenue and earnings estimates leading into the
announcement. Kevin Murphy, Ferguson's Chief Executive Officer,
noted that near term market demand remains supportive, as Ferguson
continued to see strength across both residential and
non-residential end markets. Residential revenue grew by 20% and
non-residential revenue grew by 29% in the quarter. The company
increased its full year expectations for adjusted operating profits
to $2.85-$2.95 billion.
Trian's Perspective on Ferguson's Investment Prospects
Ferguson, despite its strong financial and operating performance
throughout 2022 thus far, has seen its stock trade down
approximately 38.2% for the six months ending 30 June 2022. We
believe concerns and uncertainty over macroeconomic conditions and
the potential impact of these conditions on the US housing market
are partly responsible. However, we suspect equally as (or
potentially more) impactful on the Ferguson's share price has been
the transition of the company's primary listing to the NYSE.
As noted above, until 12 May, Ferguson primarily traded on the
London Stock Exchange, despite the fact that 100% of Ferguson's
business is based in North America. Many of Ferguson's legacy
institutional shareholders were required to sell Ferguson shares as
they are restricted from owning U.S. listed securities. In
addition, Ferguson was removed from major UK-based indexes (e.g.,
FTSE 100), resulting in significant sell pressure from UK index
funds. While these trends have resulted in a technical headwind
year-to-date, we believe that technical conditions will provide a
substantial tailwind over the next 6 -12 months. In particular, we
believe that Ferguson could be added to key North American stock
indices during the next 6-12 months, which could result in a number
of North American index funds (and other funds which follow these
indices as benchmarks) purchasing a significant number of Ferguson
shares during that time period.
While Ferguson's stock price is down this year, we continue to
believe that its shares are materially undervalued (particularly in
light of the fact that its shares continue to trade at a
significant discount to U.S.-based specialty distribution peers and
home improvement retailers). Ferguson remains a scale leader-it is
the #1 player in a highly fragmented market, and we believe its
scale advantages manifest in vendor rebates, private label, route
density, distribution center product availability and its role as
an industry consolidator. It has also shown durability through
economic cycles (partly as a result of its heavy exposure to
repair, maintenance and remodelling activity, which is less
cyclical) and has consistently outgrown its underlying end markets
by 300 to 400 basis points over the last few years. Finally,
Ferguson maintains a strong liquidity position and balance
sheet-the company's net debt to adjusted EBITDA (earnings before
interest, taxes, depreciation, and amortisation) stood at 0.8x as
of April 30, 2022.
We believe that near term market demand remains
supportive-Ferguson increased their full year expectations for
adjusted operating profit to $2.85 - $2.95 billion. While Ferguson
faces certain macroeconomic headwinds, we believe that its balanced
business mix, agile business model and strong balance sheet
position them well for the future.
Unilever
Recent Developments
Despite the challenges of high inflation and slower global
growth, Unilever delivered a first half performance which builds on
its momentum of 2021. Underlying sales growth of 8.1% was driven by
strong pricing to mitigate input cost inflation, which, as
expected, had some impact on volume. Underlying operating margin
was on track at 17% for the first half and management increased its
sales guidance for the year.
Unilever made further progress towards its strategic priorities.
Unilever continues to maintain strong investment in its brands,
supporting 9.4% underlying sales growth in its billion+ Euro
brands. eCommerce sales now represent 14% of turnover, up from 6%
in 2019. Of Unilever's three priority markets, the USA and India
again grew strongly, while sales in China were affected by
lockdowns occurring in the second quarter. Unilever continues to
reshape its portfolio, completing the sale of its global tea
business, ekaterra, and the acquisition of Nutrafol, a leading
provider of hair wellness products. Prestige Beauty and Health
& Wellbeing, now 4% of company turnover, again grew by
double-digits.
Unilever's simpler, more category-focused organisation structure
came into effect as planned on 1 July 2022. This major change to
Unilever's operating model is an important further step that the
company believes will underpin the delivery of consistent growth,
which remains its first priority.
Trian's Perspective on Unilever's Investment Prospects
Trian believes that Unilever is one of the best-positioned
consumer companies in the world, with a portfolio of iconic brands
that enjoy leading market positions in attractive consumer
categories. The company is advantaged by an unrivalled global
distribution network, with sites in approximately 190 countries,
reaching approximately 2.5 billion consumers every day. Through
this distribution network, the company can sell its brands
throughout much of the world. Moreover, we believe that with 60% of
its sales in emerging markets, the company has a coveted geographic
footprint and exposure to many of the world's fastest growing
economies, permitting opportunities for future growth and
expansion.
Despite all of these advantages, we see numerous opportunities
to drive improved performance at Unilever and, having helped drive
operational and strategic initiatives at other large consumer
products companies (P&G, Mondelēz, H.J. Heinz, and others), we
think we are well positioned to help drive value creation at
Unilever.
Nelson Peltz officially joined the board of directors of
Unilever on 20 July 2022 and we look forward to providing further
updates as our engagement with Unilever progresses.
Concluding Thoughts
We are proud of the attractive returns which the Company has
generated for its shareholders to date. Over the next few months,
we will closely monitor the performance of Unilever and Ferguson
and, acting in conjunction with the Board, will seek to effect the
Redemption in a manner that will enhance value return for Company
shareholders. We appreciate your ongoing support and will continue
to work diligently towards the Company's objectives.
Yours sincerely,
Trian Investors Management, LLC
14 September 2022
Directors' Responsibility Statement
Responsibility Statement
The Directors are responsible for preparing the Interim Report
and Unaudited Condensed Interim Financial Statements in accordance
with applicable law and regulations. The Board confirms that to the
best of their knowledge:
-- The condensed set of financial statements has been prepared
in accordance with IAS 34 'Interim Financial Reporting';
-- The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and their impact on the condensed
financial statements and description of principal risks and
uncertainties for the remaining six months of the year);
-- The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties
transactions and changes therein); and
-- The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer as required by
DTR 4.2.4R.
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 the maintenance
and integrity of the corporate and financial information included
on the Company's website ( www.trianinvestors1.com ). Legislation
in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Going Concern
The condensed interim financial statements have been prepared on
a basis other than going concern as the Board of Directors, after
consulting with Company shareholders, announced that the Company
will redeem no less than 95% of each shareholder's holding in the
Company by no later than 30 June 2023, with such redemption to be
satisfied by a distribution of the Investment Partnership's
underlying assets (including an in specie distribution of shares)
at a value equivalent to the Board's estimate of the then
prevailing net asset value. Once the redemption has been completed
the Board will commence a process to wind-up the Company with any
residual net assets to be returned to shareholders through that
process.
The Company has sufficient funds to meet its liabilities as they
fall due for the next 12 months from the date of approval of these
financial statements. The Directors believe there are no material
differences than had the financial statements been prepared on a
going concern basis as the fair value of assets and liabilities
held equate to their net realisable value.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the condensed
interim financial statements of the Company on a basis other than
going concern.
Principal Risks and Uncertainties
The principal risks and uncertainties of the Company are
described in the Report of the Directors within the Annual Report
and Audited Financial Statements of the Company for the year ended
31 December 2021. There have been no changes in the principal risks
and uncertainties of the Company for the period to 30 June 2022.
The Directors will continue to assess the principal risks and
uncertainties relating to the Company for the remaining six months
of the current fiscal year in light of the Company's compulsory
share redemption, performance of its investments, the COVID-19
pandemic and the Ukraine conflict, but currently expects them to
remain substantially the same.
On behalf of the Board
Mark Thompson
Chairman
14 September 2022
INDEPENT REVIEW REPORT TO TRIAN INVESTORS 1 LIMITED
Conclusion
We have been engaged by the Company to review the condensed
interim financial statements in the half-yearly financial report
for the six months ended 30 June 2022 which comprises the Unaudited
Condensed Statement of Financial Position, Unaudited Condensed
Statement of Comprehensive Income, Unaudited Condensed Statement of
Changes in Equity, Unaudited Condensed Statement of Cash Flows and
related notes 1 to 17.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed interim financial
statements in the half-yearly financial report for the six months
ended 30 June 2022 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom (ISRE (UK) 2410). A review of interim financial
information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not
enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
As disclosed in Note 2, the annual financial statements of the
company are prepared in accordance with International Financial
Reporting Standards ("IFRS") as issued by the International
Accounting Standards Board (IASB). The condensed interim financial
statements included in this half-yearly financial report has been
prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting".
Emphasis of the matter-financial statements prepared on a basis
other than going concern.
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, we draw attention to note 2 of
the condensed interim financial statements which indicates that the
condensed interim financial statements have been prepared on a
basis other than that of a going concern. Our report is not
modified in respect of this matter.
This Conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410.
Responsibilities of the directors
The Directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the Directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Company a conclusion on the
condensed set of financial statement in the half-yearly financial
report. Our Conclusion, including our Conclusion Relating to Going
Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the Company in accordance with
ISRE (UK) 2410. Our work has been undertaken so that we might state
to the Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
St Peter Port, Guernsey
14 September 2022
Unaudited Condensed Statement of Financial Position
As at 30 June 2022
30 June 2022 30 June 2021 31 December
2021
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Investment in Midco 5, 6 - 430,799 544,060
-------------- -------------- --------------
Total non-current
assets - 430,799 544,060
Current assets
Investment in Midco 5, 6 391,864 - -
Cash and cash equivalents 1,117 1,163 3,509
Receivables and
prepayments 7 50 51 137
-------------- -------------- --------------
Total current assets 393,031 1,214 3,646
Current liabilities
Trade and other
payables 8 334 129 687
-------------- -------------- --------------
Total liabilities 334 129 687
-------------- -------------- --------------
Net assets 392,697 431,884 547,019
============== ============== ==============
Equity
Share capital 9 241,513 244,745 243,252
Retained earnings 151,184 187,139 303,767
-------------- --------------
Total equity 392,697 431,884 547,019
============== ==============
Number of ordinary
shares in issue 9 251,019,064 253,419,064 252,319,064
NAV per share (pence) 10 156.44 170.42 216.80
The notes form an integral part of these financial
statements.
The Unaudited Condensed Interim Financial Statements were
approved by the Board and authorised for issue on 14 September
2022.
Mark Thompson Robert Legget
Director Director
Unaudited Condensed Statement of Comprehensive Income
For the period from 1 January 2022 to 30 June 2022
1 January
1 January 1 January 2021 to
2022 to 30 2021 to 30 31 December
Notes June 2022 June 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Unrealised (loss)/gain
on investment in Midco 5 (152,196) 48,451 165,412
(152,196) 48,451 165,412
Expenses
Administration fees 15 78 76 143
Directors' fees 14 78 70 185
Audit and non-audit fees 16 33 30 52
Trademark licence fees 15 23 23 47
Other operating expenses 179 223 328
-------------- -------------- --------------
Total expenses 391 422 755
Operating (loss)/profit (152,587) 48,029 164,657
-------------- -------------- --------------
Finance income and expense
Interest income 4 - -
-------------- -------------- --------------
Net (loss)/profit (152,583) 48,029 164,657
-------------- -------------- --------------
Total comprehensive (loss)/income (152,583) 48,029 164,657
============== ============== ==============
Basic and diluted (loss)/earnings
per share (pence) 11 (60.70) 18.31 63.87
The year ended 30 June 2022 has been presented on a basis other
than going concern. No operations were acquired or discontinued
during the year.
The notes form an integral part of these financial
statements.
Unaudited Condensed Statement of Changes in Equity
For the period from 1 January 2022 to 30 June 2022
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2022 243,252 303,767 547,019
Loss for the period - (152,583) (152,583)
Total comprehensive
loss - (152,583) (152,583)
Share repurchases 9 (1,739) - (1,739)
-------------- ---------- ----------
(1,739) - (1,739)
-------------- ---------- ----------
As at 30 June 2022 241,513 151,184 392,697
============== ========== ==========
For the period from 1 January 2021 to 30 June 2021
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2021 259,095 139,110 398,205
Profit for the period - 48,029 48,029
Total comprehensive
income - 48,029 48,029
Share repurchases 9 (14,350) - (14,350)
(14,350) - (14,350)
-------------- ---------- ---------
As at 30 June 2021 244,745 187,139 431,884
============== ========== =========
For the year from 1 January 2021 to 31 December 2021
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'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 form an integral part of these financial
statements.
Unaudited Condensed Statement of Cash Flows
For the period from 1 January 2022 to 30 June 2022
1 January
2021 to 31
December 2021
1 January 1 January (audited)
2022 to 2021 to 30
30 June June 2021
2022
(unaudited) (unaudited)
Notes GBP'000 GBP'000 GBP'000
Operating activities
Net (loss)/profit before
tax (152,583) 48,029 164,657
Adjustments to reconcile
(loss)/profit before
tax to net cash flows:
Unrealised loss/(gain)
on investment
Interest income 152,196 (48,451) (165,412)
Movement in receivables
and prepayments (4) - -
87 (1) (87)
Movement in trade and
other payables (353) 70 628
--------------- --------------- ---------------
Net cash flows used
in operating activities (657) (353) (214)
Investing activities
Share redemption from
Midco 5 - 14,175 17,875
Finance income 4 - -
--------------- --------------- ---------------
Net cash flows from
investing activities 4 14,175 17,875
Financing activities
Shares repurchase 9 (1,739) (14,350) (15,843)
Net cash flows used
in financing activities (1,739) (14,350) (15,843)
Net movement in cash
and cash equivalents (2,392) (528) 1,818
Opening cash and cash
equivalents 3,509 1,691 1,691
Closing cash and cash
equivalents 1,117 1,163 3,509
=============== =============== ===============
The notes form an integral part of these financial
statements.
Notes to the Unaudited Condensed Interim Financial
Statements
For the period from 1 January 2022 to 30 June 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 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 Unaudited Condensed Interim Financial Statements are set out
below and are consistent with those used in the Company's annual
financial statements as of 31 December 2021 other than being
prepared on a basis other than going concern.
Basis of preparation
The annual financial statements will be 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 will be
prepared on a historical cost basis as amended from time to time by
the fair valuing of certain financial assets and liabilities. These
condensed interim financial statements cover the period ended 30
June 2022.
These condensed interim financial statements included in this
half-yearly report have been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting". The same accounting policies and methods of computation
are followed in the interim financial statements as compared with
the annual financial statements. These condensed interim financial
statements do not include all information and disclosures required
in the annual financial statements and should be read in
conjunction with the Company's annual financial statements as of 31
December 2021.
These condensed interim financial statements have been prepared
on a basis other than going concern. All assets have been measured
at their net realisable value and all liabilities have been
measured at their expected settlement value. These values equate to
the fair value for all assets and liabilities and therefore does
not produce a material variance. All assets and liabilities have
been classified as current.
Going concern
The condensed interim financial statements have been prepared on
a basis other than going concern as the Board of Directors, after
consulting with Company shareholders, announced that the Company
will redeem no less than 95% of each shareholder's holding in the
Company by no later than 30 June 2023, with such redemption to be
satisfied by a distribution of the Investment Partnership's
underlying assets (including an in specie distribution of shares)
at a value equivalent to the Board's estimate of the then
prevailing net asset value. Once the redemption has been completed
the Board will commence a process to wind-up the Company with any
residual net assets to be returned to shareholders through that
process.
The Company has sufficient funds to meet its liabilities as they
fall due for the next 12 months from the date of approval of these
financial statements. The Directors believe there are no material
differences than had the financial statements been prepared on a
going concern basis as the fair value of assets and liabilities
held equate to their net realisable value.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the condensed
interim financial statements of the Company on a basis other than
going concern.
New and amended standards and interpretations applied
The following accounting standards and updates were applicable
in the reporting period but did not have a material impact on the
Company:
- Amendments to IFRS 1 and IFRS 9 Annual Improvements to IFRS 2018-2020
- Amendments to IFRS 3: Business Combinations
- Amendments to IAS 16: Property, Plant and Equipment
- Amendments to IAS 37: Provisions, Contingent Liabilities and Contingent Assets
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)
The Company has considered the IFRS's in issue but not yet
effective and do not consider any to have a material impact on the
Company.
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")
.
3. Critical accounting judgements and key sources of estimation uncertainty
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 period. 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 investments.
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 have a primary listing on the New
York Stock Exchange, and the ordinary shares of Unilever have a
primary listing on the Main Market of the London Stock Exchange. In
each case, 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.
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 GBP1,200.
5. Investment at fair value through profit or loss
The Company owns 100 per cent 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:
1 Jan to 30 Jun 2022 1 Jan to 30 Jun 2021 1 Jan to 31 Dec 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cost
Brought forward 239,125 257,000 257,000
Share redemption - (14,175) (17,875)
--------------------- ---------------------
Carried forward 239,125 242,825 239,125
--------------------- --------------------- ---------------------
Fair value adjustment through profit or loss
Brought forward 304,935 139,523 139,523
Fair value movement (152,196) 48,451 165,412
Carried forward 152,739 187,974 304,935
--------------------- --------------------- ---------------------
Fair value 391,864 430,799 544,060
===================== ===================== =====================
As explained in 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
IFRS 10. 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
30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
Net asset value GBP'000 GBP'000 GBP'000
Investments 470,687 475,435 619,957
Cash and cash equivalents 4,862 4,529 3,727
Foreign exchange option at fair value - 778 66
Loan payable (Note 15) (41,173) - -
Other current assets and liabilities (185) (12) 359
------------------- ----------------------- -------------------
Net assets 434,191 480,730 624,109
------------------- ----------------------- -------------------
Attributable to:
General Partner and Special Limited Partner
(including incentive allocation) 42,327 49,931 80,049
The Company 391,864 430,799 544,060
------------------- ----------------------- -------------------
Net assets 434,191 480,730 624,109
------------------- ----------------------- -------------------
1 Jan - 30 Jun 2019 1 Jan - 30 Jun Jun 2019 1 Jan - 31 Dec 2019
2022 2021 2021
(unaudited) (unaudited) (audited)
Income GBP'000 GBP'000 GBP'000
2019 2019 2019 2019
(Loss)/gain on investments (186,932) 55,160 199,682
Dividend income 3,430 8,615 14,470
Loss on foreign exchange options (227) (389) (1,101)
Interest income 7 - -
------------------- ----------------------- -------------------
Total income (183,722) 63,386 213,051
Expenses
Management fees 2,607 2,107 4,606
Cost of loan finance 393 - -
Other expenses 160 78 125
Foreign exchange loss 3,036 - 34
------------------- ----------------------- -------------------
Total expenses 6,196 2,185 4,765
(Loss)/profit for the period/year (189,918) 61,201 208,286
(Loss)/profit attributable to General Partner and
Special Limited Partner (324) 110 369
(Decrease)/increase in incentive allocation for the
period/year (37,398) 12,640 42,505
Net (loss)/gain attributable to the Company (152,196) 48,451 165,412
=================== ======================= ===================
Statement of Investments 30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Ferguson 431,271 475,435 619,957
Unilever 39,416 - -
----------- ----------- -----------
Total 470,687 475,435 619,957
----------- ----------- -----------
The financial statements for the Investment Partnership are
prepared under IFRS.
Foreign exchange options
For the period between March 2020 and February 2022 the
Investment Partnership entered into a 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
and the expectation at the time that the Company would have a
longer duration than originally anticipated, 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 investments in Ferguson and
Unilever were treated as a "Stake Building Investment" as at 30
June 2022.
If the investment in Ferguson continues to be a "Stake Building
Investment" until realisation, the incentive allocation ("Incentive
Allocation") will be 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 Ferguson, unless
otherwise agreed with the Company, will cease to be considered a
"Stake Building Investment", and will instead be considered an
"Engaged Investment", if and when Trian Investors Management, LLC
(the "Investment Manager") obtains representation on Ferguson's
board of directors, through one or more partners of Trian Fund
Management, L.P. ("Trian Management"). If the investment becomes an
"Engaged Investment", the Incentive Allocation will be equal to 10
per cent 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 Investment Partnership's Amended and
Restated Limited Partnership Agreement (the "LPA").
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 it began to be treated as an
"Engaged Investment".
As at 30 June 2022, there was an incentive allocation accrual of
GBP41,552,000 (30 June 2021: GBP49,085,000 ; 31 December 2021:
GBP78,950,000) which, under the terms of the LPA, Trian Investors 1
SLP, L.P., the special limited partner of the Investment
Partnership ("Trian SLP") will be entitled to receive. 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. For the period ended 30 June 2022 management
fees of GBP2,607,000 were paid to the Investment Manager by the
Investment Partnership (period ended 30 June 2021: GBP2,107,000;
year ended 31 December 2021: GBP4,606,000).
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 six month periods to 30 June 2022 and 30 June 2021 or
the year to 31 December 2021.
In the accounts of the Investment Partnership the financial
instruments carried at fair value are:
30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Listed investments (level 1) 470,687 475,435 619,957
Foreign exchange option (level 2) - 778 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
Net Asset Value ("NAV") of the Investment Partnership, its assets
are 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
30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Other prepaid expenses 50 51 137
50 51 137
The carrying value of receivables and prepayments approximates
their fair value.
8. Trade and other payables
30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Administration fees 31 31 10
Audit fees 16 13 26
Non-audit fees 17 17 -
Director fees 8 8 -
Owed to Broker - - 286
Owed to Investment Partnership 231 - 358
Other professional fees 31 60 7
-------------- -------------- -------------
334 129 687
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 a compulsory redemption to take place by 30
June 2023 and then to proceed with a winding-up. 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 Brokers. As shown in the tables below, the Company has
repurchased a total of 19,566,913 Shares at a discount to NAV in
the period from February 2020. Share repurchases are subject to the
Company's discretion based on market and economic conditions, the
price and trading volume of the Shares and other factors.
No dividend was declared or paid in the period to 30 June
2022.
The Company has the ability to hold its own Shares in treasury.
All Shares repurchased by the Company are currently being held in
treasury, and the Company may use this ability again from time to
time in the future. The Company's Articles of Incorporation, the
Companies Law and the Protection of Investors Law do not limit the
number of Shares held in treasury provided that at least one share
of any class is held by a person other than the Company. The
Company is not subject to any externally imposed capital
restrictions.
Ordinary shares of no par value
Net shares outstanding 30 Jun 2022 30 Jun 2021 31 Dec 2021
Shares issued 270 ,585,977 270 ,585,977 270 ,585,977
Shares held in Treasury (19,566,913) (17,166,913) (18,266,913)
----- ----------------- --------------- -----------------
Net number of shares outstanding 251,019,064 253,419,064 252,319,064
----- ----------------- --------------- -----------------
The Company's authorised share capital as at 30 June 2022, 30 June 2021 and 31 December 2021
is 300,000,000 Shares.
GBP'000
Issued and fully paid:
As at 1 January 2022 243,252
Repurchased during the period (1,739)
As at 30 June 2022 241,513
-----------------
Issued and fully paid:
As at 1 January 2021 259,095
Repurchased during the period (14,350)
As at 30 June 2021 244,745
-----------------
Issued and fully paid:
As at 1 January 2021 259,095
Repurchased during the year (15,843)
As at 31 December 2021 243,252
-----------------
As detailed further in Note 15, the LPA provides that Trian SLP
will receive part of its incentive allocations in the form of
Shares in the Company. The amount of the incentive allocation which
will be settled in Shares under this agreement is subject to limits
on the number of Shares which can be issued to Trian SLP without
triggering a mandatory offer for the Company under the U.K.
Takeover Code. Had the incentive allocation crystallised at 30 June
2022 it is estimated that a maximum of GBP7,876,440 could have been
settled by the issue of 5,049,000 Shares (31 December 2021: maximum
of GBP11,197,720 could have been settled by the issue of 5,165,000
Shares; 30 June 2021: not applicable). As discussed in Note 17
below , as part of the Redemption and related proposals, and
conditional on their successful implementation, it has been agreed
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 Shares.
10. Net Asset Value per Share
30 Jun 2022 30 Jun 2021 31 Dec 2021
(unaudited) (unaudited) (audited)
IFRS Net Assets
(GBP'000) 392,697 431,884 547,019
------------ ------------ ------------
Number of Shares
in issue 251,019,064 253,419,064 252,319,064
IFRS NAV per Share
(pence) 156.44 170.42 216.80
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. (Loss)/earnings per share
1 Jan 2022 to 1 Jan 2021 to 1 Jan 2021
30 Jun 2022 30 Jun 2021 to 31 Dec 2021
(unaudited) (unaudited) (audited)
(Loss)/profit
for the period/year
(GBP'000) (152,583) 48,029 164,657
Weighted average
number of Shares
in issue 251,385,086 262,361,275 257,815,475
(Loss)/earnings
per share (pence) (60.70) 18.31 63.87
There were no dilutive potential Shares in issue as at 30 June
2022, 30 June 2021 or 31 December 2021.
12. 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.
Financial risk factors
The Company's investment objective is to realise capital growth
from its investment in one or more target companies with the aim of
generating significant capital return for shareholders. At 30 June
2022 the Company's only significant financial assets are those held
through the Investment Partnership, via Midco, consisting of listed
equity investments and cash and cash equivalents held at both
levels.
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.
An event of default is a pre-specified condition or threshold
that, if met, allows the lender or creditor to demand immediate and
full repayment of a debt or obligation. 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 credit exposures:
Location Rating 30 Jun 30 Jun 31 Dec
2022 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Counterparty 1 UK AA+ 1,117 1,163 3,509
------------ ------------ ----------
1,117 1,163 3,509
The table below shows the Investment Partnership's credit
exposures:
Location Rating 30 Jun 30 Jun 31 Dec 2021
2022 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Counterparty 1 UK AA+ 4,159 4,529 3,727
Counterparty 2 USA AA- - 778 66
Counterparty 3 USA AA 703 - -
------------ ------------ ------------
4,862 5,307 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 exposed to market price risk,
currency risk and interest rate risk.
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 per cent as at
30 June 2022, the effect on the NAV of the Company would be an
increase or decrease of GBP56,384,000 (30 June 2021: GBP113,906,000
based on 30 per cent movement; 31 December 2021: GBP74,266,000
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 30 June 2022. Please see Note 17 for
post year-end information.
Currency Risk
As at 30 June 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. The Investment
Partnership has drawn down US$50 million of the US$100 million
revolving credit facility detailed in note 15, which exposes the
Company to fluctuations in the exchange rate between U.S. Dollars
and Pounds Sterling. As at 30 June 2022, the Investment Partnership
holds assets of GBP431,271,000 (US$523,736,000) and liabilities of
GBP41,577,000 (US$50,491,000) 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 per cent with all other
variables held constant, the increase/decrease in the net assets of
the Investment Partnership would amount to approximately
GBP19,485,000 (US$23,662,000). 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. As at 31 December
2021 and 30 June 2021 the Company through the Investment
Partnership held an option, which expired for nil proceeds in
February 2022, to purchase GBP125,000,000 for US$181,250,000. In
light of the approval of the Company's revised Investment Policy in
July 2021 and the expectation at the time that the Company would
have a longer duration than originally anticipated, the Investment
Manager determined that it was no longer necessary to continue
hedging currency exposure when the last option expired.
Interest rate risk
The Company, through the Investment Partnership, has entered
into a credit facility with Bank of America, N.A., London Branch
("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 is therefore subject to interest
rate movements set by the U.S. Federal Reserve interest rate
policies. As at 30 June 2022 the federal fund rate was 1.58% while
at 31 December 2021 the rate was 0.08%. Such a movement of 1.5%
would equate to an increase/decrease in the interest payable of
GBP618,000 (US$750,000) over the course of a year at Investment
Partnership level. Both the Company and the Investment Partnership
earn immaterial amounts of interest income on cash and cash
equivalents held.
13. Financial Instruments
30 June 2022 31 December
2021
(unaudited) 30 June 2021 (audited)
(unaudited)
GBP'000 GBP'000 GBP'000
Financial assets at fair
value through profit or
loss
Investment in Midco 391,864 430,799 544,060
------------- --------------- ------------
391,864 430,799 544,060
------------- --------------- ------------
Financial assets measured
at amortised cost
Cash and cash equivalents 1,117 1,163 3,509
1,117 1,163 3,509
------------- --------------- ------------
Financial liabilities measured
at amortised cost
Trade and other payables 334 129 687
------------- --------------- ------------
334 129 687
------------- --------------- ------------
14. Related parties
Key management personnel
The Directors are considered to be the Key Management Personnel
of the Company. They are all non-executive and receive an annual
fee denominated in Pounds Sterling.
The Chairman receives an annual fee of GBP55,000, the Chairman
of the Audit Committee receives GBP45,000, and the other two
non-executive Directors receive GBP40,000.
Directors' fees and expenses for the period to 30 June 2022
amounted to GBP78,000 (six month period to 30 June 2021: GBP70,000;
year to 31 December 2021: GBP185,000), of which GBP8,000 was
outstanding at the period end (six month period to 30 June 2021:
GBP8,000; year to 31 December 2021: GBPnil).
The Directors did not receive dividends on their Shares during
the period to 30 June 2022, period to 30 June 2021 or year to 31
December 2021.
Trian Subscriber
Trian Subscriber, a company owned by the Investment Manager's
partners and certain of their affiliates, held voting power over
28.95% of the Company's outstanding Shares as at 30 June 2022 (30
June 2021: 17.19%; 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 notes 5 and 15.
Incentive Allocation
Under the terms of the LPA, Trian SLP, 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 15.
Intergroup balances
As at 30 June 2022 the Company owed GBP231,000 to the Investment
Partnership (30 June 2021: GBPnil; 31 December 2021: GBP358,000)
which has been repaid subsequent to 30 June 2022.
15. 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 Interim Financial Statements pursuant to such licence.
Trian Management receives a fee of GBP70,000 per annum split
between the Company, Midco and the Investment Partnership for the
use of the licensed name, logo and graphic identity. For the six
month period ended 30 June 2022, fees of GBP23,000 were paid by the
Company in relation to the licence (six month period ending 30 June
2021: GBP23,000; year ending 31 December 2021: GBP47,000).
Administration Agreement
On 19 September 2018, the Company and Ocorian Administration
(Guernsey) Limited ("Ocorian") entered into an administration
agreement. Under the terms of the agreement the Company (alongside
the Investment Partnership) is charged a fixed administration fee
of GBP97,000 per annum from 27 September 2018 payable monthly in
arrears, administration fees for Midco of GBP5,000 per annum, NAV
preparation fees of GBP10,000 per annum, compliance officer
services of GBP6,000 per annum, MLRO services of GBP3,000 per annum
and data protection officer services of GBP2,000 per annum. Fees
are adjusted annually to rise in line with the Guernsey Retail
Price Index. For the six month period ended 30 June 2022, aggregate
fees of GBP78,000 were paid to Ocorian (six month period ended 30
June 2021: GBP76,000; year to 31 December 2021: GBP143,000).
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, in order to reflect the revised
investment policy and revised policies and guidelines on recycling
sale proceeds and return of capital which are each described in
Note 1 above. 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 NAV 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. For the six month period ended 30 June
2022, management fees of GBP2,607,000 were paid to the Investment
Manager (six month period ended 30 June 2021: GBP2,107,000; year
ended 31 December 2021: GBP4,606,000). See Note 17 for details of
changes agreed to the Management Fee subsequent to the period
end.
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. The LPA was amended and restated on 19 July
2021 to provide that Trian SLP will receive future incentive
allocations (net of amounts required to cover certain tax
liabilities) in the form of Shares, to be valued at NAV at the time
of issuance and, on the issue of the Shares, the Company's
investment in the Investment Partnership (through Midco) will
increase by the value of the Shares issued. The amount of the
incentive allocation which will be settled in Shares under this
agreement is subject to limits on the number of Shares which can be
issued to Trian SLP without triggering a mandatory offer for the
Company under the Takeover Code. As discussed in Note 17 below, as
part of the Redemption and related proposals, and conditional on
their successful implementation, it has been agreed 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 Shares.
The Incentive Allocation may be between 0 to 25 per cent of the
net returns of the Investment Partnership. The calculation of the
incentive allocation is described in more detail in Note 5 above.
As at 30 June 2022, there was an incentive allocation accrual of
GBP41,552,000 (as at 30 June 2021: GBP49,085,000; as at 31 December
2021: GBP 78,950,000 ). See Note 17 for details of changes agreed
to the Incentive Allocation subsequent to the period end.
Credit Facilities
In March 2021, the Investment Partnership entered into a
revolving credit facility (the "UBS Credit Facility") with UBS Bank
USA ("UBS"), which permitted the Investment Partnership to borrow
an aggregate amount of up to US$70 million at an interest rate
equal to one month LIBOR plus 1.75%. There were no commitment or
closing fees associated with the facility. No borrowings under the
UBS Credit Facility were made.
On 29 March 2022 the UBS Credit Facility was terminated and
replaced with a US$100 million revolving credit facility with Bank
of America (the "BoA Credit Facility") having a three year term,
which permits the Investment Partnership to borrow an aggregate
amount of up to US$100 million at an interest rate equal to a fixed
rate plus 1.35% per annum. The portion of the US$100 million BoA
Credit Facility commitment which is not drawn will be subject to a
commitment fee of 0.40% per annum. In connection with establishing
the facility, the Investment Partnership pledged listed investments
(valued at GBP431,271,000 at 30 June 2022) as collateral under the
new facility. As at 30 June 2022 total outstanding borrowing under
this credit facility amounted to GBP41,173,000 (US$ 50,000,000) (30
June 2021: GBPnil; 31 December 2021: GBPnil).
16. Auditor remuneration
The auditor's remuneration relating to services to the Company
for the period was:
1 Jan 2022 1 Jan 2021 1 Jan 2021
to 30 Jun to 30 Jun to 31 Dec
2022 2021 2021
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Audit fees 16 13 30
Non-audit fees 17 17 22
--------------
33 30 52
In addition, the fee for the audit of the Investment Partnership
of GBP8,000 (period to 30 June 2021: GBP7,000; year to 31 December
2021: GBP15,000) is payable by the Investment Partnership.
17. Subsequent events
The Company's NAV as at 31 August 2022 is GBP424,301,000, or
169.03 pence per Share, which is a 8.0% increase compared to 30
June 2022.
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 it was treated as an "Engaged
Investment" as detailed in Note 5. Had Unilever been treated as an
"Engaged Investment" as at 30 June 2022, the impact on the
incentive allocation accrual would be immaterial.
On 5 August 2022, Chris Sherwell was replaced on the Board by
Robert Legget who was appointed as Audit Committee Chair and Senior
Independent Director on 15 August 2022.
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, such
redemption to be satisfied by a distribution of the Investment
Partnership's underlying assets (including an in specie
distribution of shares) at a value equivalent to the Board's
estimate of the then prevailing net asset value (the "Redemption").
Once the Redemption has been completed the Board will commence a
process to wind-up the Company with any residual net assets to be
returned to shareholders through that process.
It has further been agreed, conditional on the successful
implementation of these proposals: (a) with the Investment Manager
that on Redemption it will receive its final Management Fee payment
in lieu of notice calculated, through to 31 December 2023; (b) 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 at or about the time of
Redemption (i.e., on or before 30 June 2023); and (c) 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 Shares.
In August 2022, the Investment Partnership sold 352,819 ordinary
shares of Ferguson and received approximately $44 million of sale
proceeds. The Investment Partnership intends to use these sale
proceeds to repay outstanding borrowings of approximately $43
million as well as accrued interest and other fees due under the
BoA Credit Facility. At the time that this borrowing is repaid, the
Investment Partnership also intends to terminate the undrawn
commitment under the BoA Credit Facility.
Investment Manager's Report Disclosure Statement and
Disclosures
General Considerations
The Investment Manager's Report is for general informational
purposes only and does not constitute any advice or recommendation
to invest in Trian Investors 1 Limited (the "Company"), 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 and Unilever's shares may vary over time depending on
various factors, with or without regard to Trian's views of
Ferguson's and Unilever's business, prospects or valuation
(including the market price of Ferguson's and 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 and Unilever as it may deem appropriate, including, but
not limited to, communicating with the management of Ferguson and
Unilever, the board of directors of Ferguson and Unilever, other
investors and shareholders, members, stakeholders, industry
participants, and/or interested or relevant parties about Ferguson
and Unilever or seeking representation on the board of directors of
Ferguson and Unilever, and to change its intentions with respect to
any investments made in Ferguson and Unilever at any time.
General Information
Directors Registered Office
Mark Thompson (Chairman) PO Box 286, Floor 2, Trafalgar
Robert Legget (Senior Independent Court
Director and Chairman of the Les Banques
Audit Committee) (appointed St Peter Port
5 August 2022) Guernsey, GY1 4LY
Simon Holden
Anita Rival (appointed 14 April Investment Partnership
2022) Trian Investors 1, L.P. (Incorporated)
PO Box 286, Floor 2, Trafalgar
Website: www.trianinvestors1.com Court
Les Banques
St Peter Port
Guernsey, GY1 4LY
Managing General Partner Investment Manager
Trian Investors 1 General Partner, Trian Investors Management,
LLC LLC
280 Park Avenue, 41st Floor 280 Park Avenue, 41st Floor
New York, NY 10017 New York, NY 10017
United States United States
Corporate Brokers Solicitors to the Company
Numis Securities Limited As to English law and US Securities
The London Stock Exchange Building law
10 Paternoster Square Norton Rose Fulbright LLP
London EC4M 7LT 3 More London Riverside
United Kingdom London SE1 2AQ
United Kingdom
Administrator and
Company Secretary Independent Auditor
Ocorian Administration (Guernsey) Deloitte LLP
Limited Regency Court
PO Box 286, Floor 2 Glategny Esplanade
Trafalgar Court St Peter Port
Les Banques Guernsey, GY1 3HW
St Peter Port
Guernsey, GY1 4LY Custodian to the Investment
Partnership
Advocates to the Company The Bank of New York Mellon
As to Guernsey law - London Branch
Ogier (Guernsey) LLP One Canada Square
Redwood House London E14 5AL
St Julian's Avenue United Kingdom
St Peter Port
Guernsey Identifiers
GY1 1WA ISIN: GG00BF52MW15
SEDOL: BF52MW1
Registrar Ticker: TI1
Link Market Services (Guernsey) LEI: 213800UQPHIQI5SPNG39
Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey, GY2 4LH
[1] Subject to compliance with any restrictions on dealings in
the Unilever or Ferguson shares under any applicable laws and
regulations.
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END
IR BZLLFLKLLBBD
(END) Dow Jones Newswires
September 15, 2022 02:00 ET (06:00 GMT)
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